China’s consumption is increasing due to a rising real income level
In the last part of this series, we discussed Alibaba’s impending IPO in the coming week and how its and Google’s (GOOG)(GOOGL) entries into the U.S. e-commerce market have made things difficult for established players like eBay (EBAY) and Amazon (AMZN).
Alibaba is the largest e-Commerce player not only in China but also in the world in terms of gross merchandise volume (or GMV). Here, we’ll discuss how China’s growth story is benefiting the local e-commerce market with Alibaba and JD.com (JD) as the key local players.
According to a report from Euromonitor International, China’s GDP is projected to grow at a compound annual growth rate (or CAGR) of 7.0%, while China’s real consumption is projected to grow at a CAGR of 8.3% between 2013 and 2016.
Consumption growth is increasing fast due to the rising real income level of Chinese consumers. According to a report from the National Bureau of Statistics of China, the real annual per-capita incomes of rural and urban households in China increased at a CAGR of 10.2% and 8.5%, respectively, between 2008 and 2013.
Increasing discretionary spending in China bodes well for the e-commerce market
According to Euromonitor International, the household savings rate in China declined from 40.4% in 2009 to 39.5% in 2013. The declining trend in savings rates suggests that consumers are increasing their discretionary spending.
According to another report from Euromonitor International and as the chart above shows, China’s consumption as a percentage of GDP is the lowest among developed countries like the U.S., UK, Japan, and Germany. However, with the factors discussed above, this ratio should increase. These factors bode well for the e-commerce market in China, which depends heavily on consumption growth.