China: an e-commerce & payments primer
If you are planning to enter the e-commerce market in China, payment methods should be one of your most important areas of optimisation. The Chinese market is dominated by what, in the West, are considered alternative payment methods. A merchant that doesn’t support the preferred and trusted local payment methods is unlikely to gain acceptance among Chinese consumers.
Wallets are the most popular type of online payment method in China, with 65% of market share for wallets [1]. Credit and debit cards come second, with a 18% market share, followed by bank transfers (10%). Cash (4%) and various other minor payment methods (3%) make up the remainder [1]. Major international credit card providers have no purchase on the Chinese market. 100% of credit cards are issued by the local scheme UnionPay [1].
The people’s republic is the world’s largest e-commerce market, worth US$2.1 trillion [1]. Despite the headwinds of the recent pandemic and the still troubled global economic situation, the country is still the fastest growing of the world’s major markets. Its economy expanded by 8.1% in 2021 and is expected to grow by 4.4% in 2022 before rebounding to 5.1% in 2023 [2].
Chinese annual per capita income is just over US$11,000 and rising [1]. In some parts of the country, it’s already much higher. In Shanghai, for instance, the average worker earns over US$18,000 a year [3]. That’s significantly higher than the average salaries in some EU countries [4], a sign of just how prosperous many parts of China have become.To succeed in China’s fast-paced e-commerce market, you must know the preferred payment methods of China’s consumers and accept them at your checkout.
China’s e-commerce market
E-commerce in China is forecast to grow at an average rate of almost 11% a year until 2026 [1]. The average Chinese e-commerce shopper spends US$1,455 a year with online merchants [1]. In China, e-commerce accounts for a massive 33% of all retail sales [1]. The most popular online shopping category purchases are toys, hobby & DIY items (26%), fashion (25%) and food & personal care (21%) [1].
Although not yet able to rival America’s leadership in technology, China is the home to e-commerce giants, including the now globe-spanning JD.com, Tencent and Alibaba. Together, these platforms have over three billion users [5], [6], [7]. Their success has promoted e-commerce in China, helping to ensure that online buying is a widely accepted and trusted way to shop.
According to a recent study by EMarketer, more than half of all Chinese retail sales will be online by no later than 2024 [8]. The researchers point out that this level of e-commerce penetration is unique. In the UK, for instance, another high-penetration market, e-commerce sales are just 32% of all retail sales, in the US this figure is just 16% [1]. As an e-commerce opportunity, China is in a league of its own.
Things e-commerce providers need to know about China
The Sino-US trade dispute rumbles on. In June 2021, the Chinese parliament passed a law forbidding Chinese individuals and companies from complying with US sanctions [9]. Whatever impact this may be having in specialist sectors, such as semiconductors, it hasn’t done much to impede general trade.
With the exception of Washington’s two USMCA partners, Canada and Mexico, China is America’s number one trade partner by volume [10]. More importantly, for our purposes, cross-border e-commerce, much of it with the United States, grew by an estimated 20% in 2021 [11].
China also has strict rules that foreign companies setting up a business in the country must follow. In practice, most companies wishing to do business on the mainland will need to set up a joint venture with a Chinese partner.
82% of Chinese adults have a bank account and 22% have a credit card [1]. As noted above, however, all payment cards are issued by UnionPay. Western companies should not assume that they can use in China a payment infrastructure that relies on well-known global credit card brands.
Sixty-nine percent of Chinese consumers have an Internet connection and almost three quarters have an Internet-enabled smartphone [1]. That puts the Chinese online population at over twice the total US population. This average, however, conceals some stark demographic differences. In urban areas, Internet penetration is 77% but in rural areas just 46% [12]. And this number is still growing. In 2020 alone, the country added 43 million first-time Internet users to its online population [13].
Footnotes:
- Original PPRO research
- https://www.imf.org/en/Countries/CHN
- https://acadiaadvisory.com/shanghai-announced-average-monthly-salary
- https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=HR-BG-RO
- https://www.alibabagroup.com/en/about/overview
- https://corporate.jd.com/ourBusiness
- https://www.chinainternetwatch.com/31054/tencent-quarterly
- https://www.emarketer.com/content/global-historic-first-ecommerce-china-will-account-more-than-50-of-retail-sales
- https://www.ft.com/content/78883da1-ea26-45d6-9012-3c09d53aef42
- https://www.census.gov/foreign-trade/statistics/highlights/toppartners.html
- https://en.ndrc.gov.cn/netcoo/achievements/202201/t20220126_1313463.html
- https://www.chinainternetwatch.com/statistics/china-internet-users
- http://english.www.gov.cn/archive/statistics/202202/25/content_WS6218c1f2c6d09c94e48a57c5.html
