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While China holds the title of the world’s largest e-commerce market, boasting over 800 million online shoppers, the government of the country foresees a deceleration in its domestic sector growth by 2025.
Hence, Alibaba, Tencent, ByteDance, and PDD already have their global expansion plan in place, informs Oddo BHF Asset Management. The most preferred destinations for expanding are the Western markets and Southeast Asia, adds the Franco-German asset manager.
Besides, Yanxiu Gu, a product specialist focusing on Chinese equities at Oddo BHF AM, highlights how rising inflation worldwide has led to a cutdown in the average consumers’ spending capacity. According to her, this has allowed companies like Chinese retailer Shein and Pinduoduo-backed Temu to flourish, as both of them offer a diverse range of products at affordable prices.
Gu also points out that both Shein and Temu leverage social media to enhance their appeal, particularly among Gen Z consumers. The success of these “low-cost” platforms reflects changing consumer preferences, favouring affordability over premium brands, adds the product specialist.
Additionally, Oddo BHF AM depicts how PDD, even before expanding to Western markets, had been focussing on price-sensitive buyers for the past seven years. “PDD strategically focuses on lower-tier cities in China, capturing a highly price-sensitive market. This approach has enabled PDD to successfully compete against giants like Alibaba and JD.com,” articulates the asset manager.
Further analysis by Oddo BHF AM reveals that the trend to provide goods to customers at cheap prices also gained prominence in China’s upper-tier cities, where buyers were affected by lockdowns and a sluggish economic recovery. Consequently, PDD saw extraordinary growth in its revenue and profit for Q3 2022. “These results led to PDD surpassing Alibaba in market valuation, marking a generational shift in a sector long dominated by Alibaba,” asserts Oddo BHF AM.
Meanwhile, the asset manager acknowledges the concerns of several investors on whether the low-price strategy followed by Shein and Temu is viable in the long run. It contends that while PDD faced scepticism initially, the Chinese giant posted profits consistently despite being a discount seller. “To the benefit of Shein and Temu, Western consumers may be more tolerant of price fluctuations than their Chinese counterparts,” reasons Oddo BHF AM.
The asset manager also emphasises that the political environment plays a great role in determining the future of the Chinese e-commerce players. “The journey of Chinese e-commerce giants into international markets marks an exciting new era, but their sustained success will depend on their ability to effectively maneuver through complex political environments,” suggests Oddo BHF AM.
