2019 J.P. Morgan Global Payment Trends

2019 Global Payments Trends Report - China Country Insights

CHINA INSIGHTS REPORT


China is a trillion-dollar e-commerce market, and one that offers ongoing growth potential via the large section of its population that is yet to embrace e-commerce. That said, those who already use e-commerce are highly sophisticated shoppers. Merchants who can provide the online retail experience these Chinese consumers now expect, which includes excellent, world-leading apps and seamless digital wallet payment options, could find opportunities to make their mark. To help our clients locate, attract and keep their customers, we have tracked and assessed e-commerce developments in 34 mature and emerging markets around the globe.

Introduction

 

China’s annual gross domestic product growth slowed slightly to 6.6 percent in 2018, down from 6.8 percent in 2017.1 Slowing infrastructure investment damaged domestic demand last year, while export sector activity slowed notably towards year-end due to the impact of trade tensions and the waning of global demand.2 Gross domestic product growth is expected to slow to 6.2 percent in 2019 year-on-year.3 Fiscal policy will likely be used to stabilize growth, with a focus on tax cuts for corporates and households, along with moderate support for infrastructure investment.4 Amid macro headwinds from both external and domestic fronts, policymakers have emphasized counter-cyclical macro policies to manage the pace of slowdown.5 Tax cuts may boost consumer sentiment, but the country’s e-commerce growth is set to moderate in line with slowing gross domestic product growth.

This document is based on projected figures and is subject to change at any time.

A vast market filled with e-commerce opportunity

 

China’s significance to the rest of the Asia Pacific region is hard to ignore. The country is responsible for more than half (52 percent) of all e-commerce in the region,16 and this figure is expected to rise to more than 60 percent by 2021.17

It follows that this is a country to watch for emerging e-commerce trends and appetites: China is an online shopping behemoth. A large population with booming access to digital technology means that sales have risen at a prodigious rate in recent years. The business to consumer e-commerce market grew by almost a third in 2017 alone.18 As a result, the country’s online shopping market is now worth $1.2 trillion.19 Online sales are expected to continue to rise, but at a far slower pace in the immediate future, at a compound annual growth rate of 9.2 percent to 2021.20

Sales may be in the trillions of dollars, but e-commerce is not yet the dominant shopping method in China. At present, it accounts for 23.1 percent of overall retail spend.21 China’s internet penetration stands at 54.6 percent,22 a figure that suggests there are still plenty of as-yet-untapped potential customers for the e-commerce industry to court.

The average online annual spend is $1,100.36.23 This figure is lower than other countries surveyed*, such as Singapore and the bigger European e-commerce markets, but ranks higher than emerging e-commerce markets such as Mexico and Brazil. This data also suggests it is the volume of shoppers rather than the amount they are spending that is driving China’s huge e-commerce market, presenting an opportunity to drive up basket spend. China’s biggest brands are Alibaba, JD.com and selling platform Pinduoduo.24

 

Hunt for high quality driving online shoppers to overseas sites

 

Shoppers, buoyed by a rise in disposable income, are increasingly choosing high-quality products and there is increasing appetite from middle to upper-income shoppers for items that are hard to find within China, such as international niche brands.25 This is translating into high levels of cross-border spending. An estimated 42 percent of Chinese online shoppers have bought items from abroad, and cross-border sales take a 58 percent share of the overall Chinese e-commerce market.26 The most popular international e-commerce destinations are Hong Kong (first), Japan (second) and the U.S. (third).27

At the luxury end of the e-commerce market, Chinese customers are seeking out foreign labels and one-off and limited-edition products.28 Local cyber shopping events, which retailers must cater to, include ‘Singles Day’, a decade-old annual shopping event every November created by domestic e-commerce giant Alibaba. The day was originally designed to encourage single shoppers to spend, but it has since grown to encompass all shoppers and generated $25 billion in sales in 2018.29 It is also known as Double 11 after the month in which it is held. Other e-commerce merchants have since created copycat discounting or sales events, which also generate huge sales: ‘618’, the brainchild of clothing giant JD.com, is a one-day event held on June 6 as a mid-year rival to Single’s Day.30

Major e-commerce merchants are investing in logistics capabilities in a bid to increase delivery speeds and gain a competitive edge.31 For example, JD.com is testing drone delivery for rural areas, a key area of underexploited e-commerce opportunity in the country.32

For mobile commerce, China is the country to beat

 

China is a world leader in mobile commerce, and this method of shopping dominates e-commerce in the country. Almost three out of every four e-commerce transactions are carried out on a mobile device, generating $873.3 billion in sales.33 Mobile commerce is projected to continue to grow at a rapid pace, at a compound annual growth rate of 28.8 percent to 2021,34 by which point it will become a $2.4 trillion industry.35

This ambitious prediction is supported by China’s relatively low smartphone penetration, which stands at 56 percent.36 This leaves hundreds of millions of citizens who are yet to embrace mobile commerce, representing huge potential for growth in this market.

Merchants should consider providing an advanced, market-leading mobile shopping experience to meet the demands and capture the attention of China’s highly sophisticated mobile shoppers. They are already well familiar with in-app shopping, which accounts for the majority (67 percent) of completed mobile commerce transactions.37

 

‘Super-apps’ are a part of daily life for Chinese citizens

 

For the shoppers who are already using mobile commerce, the rise of ‘super-apps’ has fundamentally changed the way they research, organize, spend and shop in their daily lives. Chinese social network WeChat, for example, has over 980 million users and has expanded beyond messaging to offer a full suite of shopping, lifestyle, entertainment, and payment services.38 Offering shopping services that integrate with WeChat could pay dividends for international merchants: as of mid-2018, transaction volume on the app was increasing by 134 percent per quarter.39

The market could receive a further boost at the end of 2019, when 5G services are expected to start rolling out across the country. The state-backed move will mean consumers will have unprecedented access to ultra-high-speed internet: national coverage is expected by 2023.40

China leads the world in mobile payments

 

As a nation of smartphone lovers, it follows that China has quickly adopted digital wallets, which are now used to pay for the majority of e-commerce transactions. They take a 54 percent market share, or $620.5 billion in sales.41 Use of this method is expected to expand at a compound annual growth rate of 34 percent to 2021,42 by which point it will take a 65.2 percent share of the e-commerce payments market.43

Major digital wallet brands include market leader Alipay, an Alibaba payment vehicle, and also Tencent’s WeChat Pay.44 When shopping via social channels, consumers already expect to be able to purchase an item in a one-tap transaction, so providing a fast, convenient payment journey is essential to avoid abandoned shopping baskets.45 However, mobile payment providers face significant changes in the market in 2019. The People’s Bank of China, the country’s central bank, has announced all prepaid funds received from their users must be deposited with the bank, rather than with the private institutions themselves. Payment providers will no longer be able to collect interest on their users’ fund deposits and balances.46 Furthermore, third-party payment providers will soon be expected to connect with Wanglian, a state-backed clearing and settlement institution designed to replicate the role of China UnionPay, which performs the same function for card providers.47

Cards are the second-most popular payment option, used in 21 percent of all online sales.48 Card transactions are also expected to grow in use in the years to 2021, albeit at a slightly slower pace than digital wallets, at a compound annual growth rate of 20 percent.49 International card providers and payment processors face significant challenges in that they must apply for a license to operate within China, a right that only opened up to international players in 2018.50 At present, state-backed China UnionPay has control of the large majority (90 percent) of the market. While Visa® and Mastercard® can issue co-branded cards with China UnionPay,51 American Express was the first international card provider to be granted the right to establish a payment network and clear card payments in domestic currency in November 2018.52

Bank transfers take third place, occupying a 11 percent share of the online payments market.53 Cash payments also occupy a relatively minor section of the market, used for 10 percent of sales.54 China is yet to reach full bank account penetration,55 which may account for this use of cash.

High levels of shopper-led security and authentication

 

Activity that could arouse suspicions of fraud or identity theft in other countries are part of local culture in China. For example, the tradition of hongbao, where monetary gifts are given in red envelopes, has transferred into the digital realm, with digital wallet providers allowing users to transfer multiple hongbao payments to recipients at once.56 With mobile phones such an integral part of many Chinese citizens’ lives, e-shoppers are comfortable using their devices to make very high-value transactions for physical assets.57

In the card payment arena, shoppers rather than merchants bear the cost of fraudulent transactions, bucking the reverse trend seen in the U.S. and Europe. Therefore, two-step authentication is common and readily accepted by card users to help ensure security.58

Key takeaways

 

China has the world’s largest online shopping market, making it impossible to ignore, particularly for international merchants who can see the willingness of Chinese consumers to shop overseas. Cross-border sales make up over half of the overall Chinese e-commerce market. The most popular international e-commerce destinations are Hong Kong, Japan and the U.S. International brands can therefore use cross-border e-commerce to sell their goods, or establish a presence in China via a subsidiary company, a joint venture, a wholly owned entity, or a local distributor or agent. In terms of method of payment, digital wallets are already the most popular method to pay for online goods, and their popularity is expected to grow in the coming years.

 

Data may vary from historical figures, due to certain categories being re-stated as new information sources have become available.

* J.P. Morgan 2019 Payments Trends – Global Insights Report includes the following countries: Australia, Brazil, Canada, China, Hong Kong, India, Indonesia, Japan, Malaysia, Mexico, New Zealand, Singapore, Thailand, Turkey, U.S., Vietnam.

 

Global Payments Trends Reports

International e-commerce success can hinge upon understanding the needs, nuances and growth patterns of individual nations. J.P. Morgan’s Global Payments Trends Reports aims to offer merchants the knowledge they need for global success through in-depth, country-by-country analysis.

For more information, please contact:

Your J.P. Morgan Relationship Manager or visit: https://www.jpmorgan.com/country/US/en/merchant-services/payment-insights

 

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© 2019 JPMorgan Chase & Co

1 Economic Research, J.P. Morgan Chase Bank, February 2019.

2 Economic Research, J.P. Morgan Chase Bank, February 2019.

3 Economic Research, J.P. Morgan Chase Bank, February 2019.

4 Economic Research, J.P. Morgan Chase Bank, February 2019.

5 Economic Research, J.P. Morgan Chase Bank, February 2019.

6 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank.

7 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via CIA World Factbook.

8 World Bank Open Data. ‘China.’ Accessed February 2019.

9 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Ecommerce Foundation China B2C Ecommerce Report and Digital Commerce 360.

10 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

11 TMOGroup.asia, 2019. ‘Asia China Mobile Commerce.’ Accessed February 2019.

12 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Internet Live Stats (2015 & 2016) and Internet World Stats (2017).

13 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista.

14 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank.

15 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

16 RakutenMarketing.com, August 2018. ‘The State of E-Commerce: Asia Pacific.’ Accessed February 2019. 

17 RakutenMarketing.com, August 2018. ‘The State of E-Commerce: Asia Pacific.’ Accessed February 2019.

18 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Ecommerce Foundation China B2C Ecommerce Report and Digital Commerce 360.

19 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Ecommerce Foundation China B2C Ecommerce Report and Digital Commerce 360.

20 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

21 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista, 2018.

22 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Internet Live Stats (2015 & 2016) and Internet World Stats (2017).

23 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

24 eMarketer.com, June 2018. ‘Top 10 Retailers in China, Ranked by Retail Ecommerce Sales Share, 2018.’ Accessed February 2019.

25 WeForum.org, January 2018. ‘This is what you need to know about China's e-commerce explosion.’ Accessed February 2019.

26 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Ecommerce Foundation Report 2017.

27 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Ecommerce Foundation Report 2017.

28 TheDrum.com, February 2019. ‘What marketing trends will shape China in 2019?’ Accessed February 2019.

29 QZ.com, November 2018. ‘Ten years of Singles’ Day, China’s ridiculously huge shopping festival.’ Accessed February 2019.

31 QZ.com, November 2018. ‘Ten years of Singles’ Day, China’s ridiculously huge shopping festival.’ Accessed February 2019.

31 FT.com, August 2018. ‘China ecommerce boom fires up logistics sector.’ Accessed February 2019.

32 NewYorker.com, July 2018. ‘How ecommerce is transforming rural China.’ Accessed February 2019.

33 TMOGroup.asia, 2019. ‘Asia China Mobile Commerce.’ Accessed February 2019.

34 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Channeladvisor.co.uk, June 2018. ‘Mobile Commerce in China: What can We Learn?’ Accessed November 2018.

35 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

36 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via Statista, 2018.

37 TMOGroup.asia, 2019. ‘Asia China Mobile Commerce.’ Accessed February 2019.

38 Telegraph.co.uk, December 2018. ‘Rise of the ‘super apps’ and the companies using them to take over the world.’ Accessed February 2019.

39 JingDaily.com, October 2018. ‘WeChat Has More Users Than China’s Entire Internet—But What’s Next?’ Accessed February 2019.

40 TechnologyReview.com, December 2018. ‘China is racing ahead in 5G. Here’s what that means.’ Accessed February 2019.

41 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

42 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

43 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

44 FT.com, August 2017. ‘Beijing transit opens smartphone payments to all except Apple.’ Accessed February 2019.

45 JingDaily.com, February 2018. ‘What’s a Computer? How M-Commerce Triumphed in China.’ Accessed February 2019.

46 Asia.Nikkei.com, July 2018. ‘Alibaba and Tencent hit by China's new mobile payment rules.’ Accessed February 2019.

47 Cgap.org, April 2018. ‘Public Clearinghouse Could Shake Up China’s Mobile Payment Market.’ Accessed February 2019.

48 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

49 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

50 WashingtonPost.com, January 2019. ‘Beijing’s blockade of U.S. credit card companies may finally end — now that Chinese companies dominate.’ Accessed February 2019.

51 CNN.com, August 2018. ‘Why American credit card companies can't break into China.’ Accessed February 2019.

52 WashingtonPost.com, January 2019. ‘Beijing’s blockade of U.S. credit card companies may finally end — now that Chinese companies dominate.’ Accessed February 2019.

53 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

54 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company, 2018.

55 J.P. Morgan 2019 Payments Trends – Global Insights Report: Data has been provided to J.P. Morgan Merchant Services by Edgar, Dunn and Company via World Bank, 2018.

56 ThePayPers.com, April 2018. ‘Fraud detection in China requires deeper knowledge of mobile payment patterns.’ Accessed February 2019.

57 ThePayPers.com, April 2018. ‘Fraud detection in China requires deeper knowledge of mobile payment patterns.’ Accessed February 2019.

58 ThePayPers.com, April 2018. ‘Fraud detection in China requires deeper knowledge of mobile payment patterns.’ Accessed February 2019.