E-commerce sales dropped 7.0% from a year ago during China’s second-biggest annual shopping event, the 618 festival, third-party data provider Syntun said in a report on Wednesday. The dip in the mid-year festival’s numbers came despite major player Alibaba achieving a historical record on 88VIP loyalty membership sign-ups and JD announcing that it had set a new record for both transaction volume and orders.

A total of RMB 742.8 billion ($102.3 billion) in merchandise volume was generated by the country’s online retailers as part of the event, according to Syntun, the first drop recorded since figures began in 2008, as Chinese consumers tighten their wallets amid economic uncertainty.

Why it matters: E-commerce platforms invariably choose to release consumption data that is favorable to them in an attempt to portray untouchable positions in a crowded industry.

Details: Led by emerging platforms Douyin (China’s TikTok sibling) and Kuaishou, livestreaming-based sales enjoyed continuous growth and popularity during the month-long 618 festival period, with accumulated sales rising 12.1% to RMB 206.8 billion compared to the same period last year.

• Alibaba’s Taobao said it saw 81 livestreaming channels operated by merchants and influencers sell goods valued at more than RMB 100 million each, and JD, which only began focusing on the shopping format in late 2023, noted growth of over 200% in orders placed via livestreams. Meanwhile, Xiaohongshu reported livestream orders more than five times those of last year as of June 18.
• Pinduoduo, a fast-rising platform fueled by its highly-affordable offerings, has tried hard to maintain its ultra-low price advantage during the 618 period, with the Temu sister app introducing a price-adjustment tool that allows it to automatically cut prices within a range set by merchants to ensure better exposure for their items.
• According to a screenshot of  a notice within Pinduoduo, “the feature can not be turned off until the end of the promotion on June 21, 2024 once it is turned on.” This language suggests  that low prices potentially come at a cost to merchants and supply chains.
• As the creator of the 618 festival, JD this year faced a major backlash from more than 50 local book publishers as it pushed its “low-price strategy” despite the publishers protesting that the company was discounting books to below-cost prices. Some publishers announced that they would refuse to supply JD in the future. Conflict between merchants and platforms have intensified as the former chase ever lower prices to attract customers.

Context: The 618 festival began more than a decade ago to celebrate the founding of JD, before being adopted by other platforms. Its sales peaked at nearly RMB 800 billion in 2023.

Major Chinese online retailers including Taobao and JD and emerging platforms like Xiaohongshu have said they saw positive metrics during China’s month-long 618 shopping festival, where low prices have taken center stage as merchants navigate the challenge of reduced consumer spending.

In an email, Alibaba sent to TechNode, the Taobao owner said it has seen “encouraging user engagement and growth” from merchants of all sizes.

Why it matters: The 618 shopping festival is the second largest online shopping event in China, with consumption levels during the event seen as a barometer of the country’s overall spending trends.

Details: Pinduoduo’s standout performance has turned it into a model for competitors, although the discount shopping app has become more aggressive recently as it looks to maintain its appeal. Before its main promotions began in late May, Pinduoduo quietly launched a system designed to automatically adjust prices within the range set by merchants, so that a product’s price drops if a competitor platform offers a lower price.

• At the same time, Taobao revamped its homepage to closely resemble that of Pinduoduo, its biggest rival. Changes include reducing the number of fixed channels, and highlighting algorithmically recommended items that it thinks users are likely to buy.
• In another key figure revealed by Alibaba, newly-added members of 88VIP, Taobao’s loyalty membership package, more than doubled in May compared to the previous month. The growth was fueled by additional value-added services such as access to unlimited free parcel returns. Taobao said more than 35 million users were recorded as part of the program in the first three months of 2024.
• JD, the platform that began the 618 shopping festival in celebration of its founding, this year partnered with Hunan TV for its evening gala three years after such last event was held. As part of the project, JD said it would hand out “heavyweight prizes” including resort stays and sports tickets to users who shopped on the app during the gala, which started at 8 p.m. on Monday. 
• Elsewhere, content-sharing platform Xiaohongshu reported triple orders on purchases made via its site compared with the same period last year.

Context: The main e-commerce players kicked off their 618 promotions in mid-May, but none have posted overall sales totals for the period.

China’s online retailer JD said it will hold a one-day 2 yuan ($0.28) campaign for millions of goods with free shipping during this year’s 618 event, set to begin on Friday, as cheap remains a main theme across the country’s e-commerce marketplaces and consumers care priorities.

Why it matters: The market pressure that JD faces has now intensified as Pinduoduo, which operates on the principle of low prices and user-friendly after-sales service, continued to nibble away at what was once China’s second-largest e-commerce retailer by market capitalization.

• Rarely seen in public, founder Richard Liu has recently returned to media headlines for his wolfish statements within the company. As JD rushes for its most important 618 event, Liu’s remarks on the company’s tendency to fire underperformers who don’t work hard have raised concerns about its ability to maintain growth.

Details: The company had a press conference about the 618 mid-year shopping festival on Tuesday, where JD promoted it will provide “saving to the extreme and cheaper shopping experiences” to customers.

• When JD and Taobao try to provide more cash subsidies to shoppers, Pinduoduo more straightforwardly implements its low-price advantage by urging merchants to cut prices, with those who do so getting higher search rankings during the shopping festival. The price war that has permeated the industry in the past two years seems like a bottomless pit for e-commerce participants.
• At the press event, JD invited several of its sales and procurement staff, a group responsible for finding products that cater to users’ interests, to bargain at minimal cost with suppliers, and finally promotes to shoppers, to share their work publicly. The sales and procurement employees have been frequently thrust into the public eye by JD after livestreaming conducted by some of them last Singles Day found initial success for the company that had seldom participated in live-commerce before.
• JD said in the latest official WeChat post that rich commodities, affordable prices, and careful services of its 618 festival are the result of the “tireless efforts” of this group of employees, just one day after the company announced a gradual annual fixed salary for procurement staff to 20-month pay.

Context: Sandy Xu, the current CEO of JD, revealed that its “10 billion yuan subsidy” channel has amassed over 100 million users since launched last March, while more than one million third-party sellers have operated online stores on the platform, which is in contrast to itself in previous years when JD’s self-operated stores the main within its ecosystem.

An avatar of JD founder Richard Liu participated in its third livestreaming show on Monday as part of a promotional event for this year’s World Book Day. Although the virtual Liu’s nearly 40-minute-long slot made for only a short section of the 11-hour-long e-commerce event, its appearance still suggests that the company sees use of the avatar as a headline- and hype-generating strategy as it looks to boost consumption on its platforms. 

Why it matters: As JD gears up for June’s 618 event, China’s second-largest shopping festival, the attempt to introduce highly life-like digital personalities as sales anchors aims to reduce merchants’ operational costs and compete against rival platforms’ more-established human-hosted livestreams.

• The e-commerce giant will reportedly offer free services to merchants to try avatar-based livestreams during 618.

Details: “I am ‘procurement and sales manager Brother Dong,’” the digital Liu stated as part of Monday’s livestream. The avatar’s latest appearance featured a multi-camera set-up and added an interactive session after previous shows were criticized for its mechanical pronouncements and a lack of interaction with audiences.

• Liu’s avatar introduced five sets of books during the show, including China’s four classical masterpieces, detailing his personal reasons for recommending the novels and highlighting their “price competitiveness” on JD. Each book set was priced at less than 50% of the regular price if viewers bought through links showcased on the left of the screen.
• JD has received “lots of” cooperation inquiries from merchants and brands after Liu debuted his livestreaming avatar last week, according to the chief algorithm officer of JD Cloud’s own large language model ChatRhino, which powers the virtual Liu. Some CEOs also plan to collaborate in bringing their avatars to live shows, the executive added in an interview with China media outlet Yicai.

Context: Earlier this month, JD announced a RMB 1 billion investment, awarded in cash, to incentivize content creators in short videos and livestreaming, aiming to drive the development of content creation on its platform.

“Three, two, one! Show [shopping] link!” Richard Liu, founder of Chinese e-commerce company JD, debuted his livestreaming show on Tuesday – using an avatar in his likeness. The billionaire’s virtual doppelganger drove total sales volumes to exceed RMB 50 million ($6.9 million) in less than one hour, the company said.

Why it matters: JD is finally trying to capitalize on China’s online retail trend for combining content forms and shopping, with the firm making huge investment bets in new areas. Liu’s rare public appearance, albeit through an extremely life-like avatar, demonstrates the urgency of change for the company as it plays catch-up to rivals that have cultivated high-popularity influencers over many years.

Details: Liu’s avatar is powered by the company’s ChatRhino large language model, according to a WeChat post that JD published on Wednesday. The post added that its AI-driven virtual hosts now serve more than 4,000 brands.

• Liu appeared simultaneously in two live shows that lasted less than an hour each, showcasing a total of 13 products, including steak and milk. Although his virtual persona successfully replicated his habit of waving his hands while speaking, the segments where he introduced the products sounded mechanical, lacking interaction with the audience.
• Beijing-based JD experienced a sudden traffic explosion last November as its procurement and sales team joined livestreams as hosts to sell hot items including the iPhone 15 series at lower-than-market prices. Different from other e-commerce platforms, JD said its model has no additional costs such as advertising fees or commissions for invited hosts.

Context: JD’s revenue grew by 3.7% in 2023 to RMB 1,084.7 billion, significantly slower compared to its 27.6% growth in 2021 and a 9.9% increase in 2022, as the e-commerce space has been slow to recover post-pandemic due to belt-tightening by price-sensitive consumers.

Chinese kitchen appliances brand Hauswirt said on Monday that it had sent a legal letter to JD after the retailer lowered the price of one of Hauswirt’s ovens “without authorization” amid intense online battles over price in the run-up to Singles’ Day. Hauswirt claims the reduction led to a dent in the company’s profits.

Why it matters: Competition over low prices in a bid to attract consumers has intensified as China’s biggest shopping extravaganza kicks off, with this case suggesting an increasingly dysfunctional and imbalanced e-commerce ecosystem.

• While JD’s staff have claimed that the platform subsidized the oven in question to sell it below its normal price, Hangzhou-based Hauswirt has stated that they are the ones who actually incurred the loss. 

Details: Hauswirt’s home beginner oven normally retails for RMB 699 ($95.50), but this week consumers can get it on JD for RMB 319.50, a discount of more than 50%.

• Top livestreaming influencer Li Jiaqi was also caught up in the fiasco after a WeChat screenshot, believed to have been posted by a member of JD’s sales staff, showed he had received a legal letter from Hauswirt. 
• The poster said the appliance brand had filed a complaint against him due to the sale price of the oven on JD being lower than the price the controversial livestream star advertised during his broadcasts, thus breaching Hauswirt’s lowest-price agreement with Li.
• The oven was set to be marketed on Li’s Taobao Live livestream on Oct. 26, according to a teaser on his official WeChat account earlier today. The post did not reveal the item’s exact price.
• Local media outlet Jiemian cited Li Jiaqi’s agency MeiOne as saying they didn’t sign a so-called minimum price agreement with Hauswirt and that “pricing of livestreamed goods rests with the brand.” However, it is not known whether MeiOne will still require other brands they cooperate with to promise the lowest price for their products in return for exposure on Li’s livestreams, a practice they have reportedly pursued in the past.
• As the high-profile spat continued, Hauswirt commented with three demands on JD’s official Weibo social media account on Tuesday, asking the e-commerce giant to withdraw the sale of the oven at half price, requesting that it exclude the brand’s entire product line from JD’s regular coupon offers, and urging JD to conduct an “internal review” to “rectify any unreasonable behavior.”
• At time of writing, the oven is currently being sold at RMB 699 on JD. JD did not respond to TechNode’s requests for comment.

Context: The conflict over pricing control between e-commerce channels is growing more prominent in China’s latest online price war. On the one hand, online retailers are pursuing low prices amid a less-than-stellar consumer recovery, but on the other, this is adding pressure to merchants that have set up online stores on multiple platforms.

• During 2021’s Singles’ Day festival, some users found that the same L’Oréal face mask product they bought via the country’s hottest livestreamers, Li Jiaqi and Viya, was more expensive than the cosmetics brand’s own livestream days later, which led the duo to publicly accuse L’Oréal of failing to deliver on its promise to offer them the lowest prices.

Chinese e-commerce platforms are racing to give consumers attractive deals during this year’s Singles’ Day festival, though the country’s biggest online shopping bonanza has slowly lost its luster as the pushing of low prices has become a standard marketing strategy throughout the year for platforms facing challenges in reviving consumer sentiment.

Why it matters: Emerging retailers such as Douyin and Kuaishou, along with established rivals Alibaba and JD, are turning to direct discounts for shoppers as the 11.11 pre-sale period kicks off because they continue to count on the mega event to encourage consumers to open up their wallets and submit their data, especially in the face of China’s uneven economic recovery.

Details: The Singles’ Day festival is now in its 15th year after it was first co-opted by Alibaba in 2009, who turned an organic, low-key celebration of singledom into a major consumerist event.

• While “low prices” remains a common advertising term for retail platforms, JD has taken a different approach during this year’s Singles’ Day by skipping the pre-sales period. In the past, this has been the standard way for major Chinese online retailers to record enormous sales sums on November 11th itself and allows consumers to pay an advance deposit for products to secure discounts.
• Alibaba is betting big on its premium program 88VIP, providing members with sizable coupons worth a total of RMB 20 billion ($2.74 billion), as the group fills with loyal consumers with high spending ability. 
• “We have a desire to return to our original intention of making Singles’ Day a joyful event for consumers,” said Trudy Dai, chief executive of Taobao and Tmall Group. The well-established Chinese e-commerce platform is introducing various entertainment shows and activities, including live music and cross-talk performances during the weeks-long event, to “create a more immersive shopping experience.”
• JD is once again offering a discount of RMB 50 for every RMB 299 spent, whereas Tmall is providing a similar deal for every RMB 300 spent. Alibaba also said its Tmall and Taobao site will grant a 15% price reduction in addition to the standard discount coupons. E-commerce upstart Douyin, TikTok’s sibling platform, has also adopted a similar strategy, emphasizing its commitment to giving “real price discounts.”
• Kuaishou was the first mainstream site to begin sales for this year’s Singles’ Day festival, commencing pre-sales on Oct. 18. The short video platform had previously announced that it would invest RMB 2 billion in cash subsidies. Apple’s iPhone 15 Pro, for example, can be purchased for a final price of RMB 8,009 if shoppers pay an RMB 100 deposit.

Context: In the third quarter, China’s economic growth outpaced expectations, indicating that a series of recent policy measures are aiding the initial recovery of the world’s second-largest economy. Retail sales increased by 5.5% last month, beating expectations and also surpassing the 4.6% growth recorded in August.

Chinese e-commerce giant JD on Wednesday lowered its free shipping threshold by almost half in an announcement labeled an “important notice” on its official WeChat account, as the retailer makes a further push in its low-price strategy.

Why it matters: Providing faster and cheaper delivery has become a new battleground among China’s domestic e-commerce platforms, as they bid to lure users from their rivals.

• “From day one of our existence, our core competitiveness, the essence of our business, has been low prices,” said JD CEO Sandy Xu on the firm’s latest earnings call. She said JD adheres to this principle, and that cost efficiency and customer experience are at the heart of the company’s business philosophy.
• “We welcome users to compare prices across platforms before they place their orders, as JD is confident in its supply chain capabilities and the low-price and high-quality services we can provide,” Xu stated.

Details: JD cut its minimum order requirement for free shipping by nearly half from RMB 99 ($13.8) to RMB 59, its first lowering of the free shipping threshold in seven years.

• As part of the shipping policy adjustment, JD’s paid members, known as the JD Plus cohort, will now have unlimited free deliveries no matter how much they spend, compared to the previous limit of five free shipment coupons per month.
• While JD Logistics has enjoyed a reputation for efficiency for years, Alibaba-owned rival Cainiao is ramping up efforts to expand its nationwide logistics network. In July, Cainiao launched a half-day delivery service in Hangzhou, Shanghai, and six other major Chinese cities, initially in partnership with Tmall Supermarket.
• The upgraded model rolled out by Cainiao, entitled 1212, ensures delivery by 9 p.m. on the same day and by midnight the next day based on orders made by midnight and midday, respectively. The format is several hours faster than JD’s traditional 211 program, which guarantees same-day delivery for orders submitted before 11 a.m. and next-day delivery (before 3 p.m.) for orders placed before 11 p.m.

Context: JD saw its total revenue grow 7.6% to RMB 287.9 billion in the quarter that ended in June, mainly thanks to China’s second-largest shopping festival 618, which boosted multiple e-commerce platforms’ sales through month-long discounts. The company’s retail segment only gained 4.8% growth in the second quarter following negative year-on-year growth in the previous quarter, casting a cloud over China’s fragile retail recovery. Revenue for its logistics unit however has experienced continuous quarter growth of over 30% since this year.

China’s e-commerce giant JD on Thursday introduced its own large AI model ChatRhino during the JD Discovery tech summit. Positioned as a vertical AI model that offers industry-specific use cases, JD’s AI offering arrives a few months later than rivals Alibaba and Baidu.

Why it matters: JD is the latest Chinese tech major attempting to upgrade its offerings with AI and large models. The company said ChatRhino combines 70% generalized data and 30% native intelligent supply chain data, targeting a number of sectors including retail, finance, education, and government. 

• “Large models shouldn’t just be limited to toys for chatting, writing poetry, or painting,” Cao Peng, chair of JD’s technology committee and president of JD Cloud, said at the launch event.

Details: CEO Sandy Xu, who took office in May, emphasized at the summit that ChatRhino has shown “clear practical results” within JD. The company has already utilized the AI model to enhance customer service, facilitate code writing, and improve product recommendations, she added.

• JD plans to expand its large AI model (also known as large language model, LLM) capacities for commercial applications to corporate clients in early 2024.
• JD’s healthcare unit also unveiled a specialized model called Jingyi Qianxun based on ChatRhino on the same day, the name of which means asking doctors thousands of times in Chinese. The model, designed for the medical industry, is capable of “quickly adapting and learning from various healthcare scenarios,” which will serve as a technological foundation for remote medical services, according to the company’s description.
• The e-commerce giant also showcased its ambition to develop humanoid robots, which will be a key exploration direction for the JD Explore Academy. In a pre-recorded video presented at the launch event, a robotic arm seamlessly poured a glass of water for He Xiaodong, director of the Academy, in response to his prompt.
• He Xiaodong also stated that while JD has been making technological preparations in AI for several years, the introduction of their own large model was delayed as the company prefers to focus more on industry-focused, specialized models rather than a general-purpose model. 

Context: Beijing currently is home to approximately half of the more than 80 large models available in China, according to Jiang Guangzhi, the director of the Beijing Municipal Bureau of Economy and Information Technology, who delivered a speech at the Global Digital Economy Conference held in Beijing earlier this month.

• With the rising trend of large model development kicked off by OpenAI last November, Chinese authorities are actively encouraging innovation in generative artificial intelligence while also formulating detailed regulations to ensure that ChatGPT-style services operate under oversight.

Chinese online retailer JD on Monday announced changes to its senior executive line-up, involving its logistic arm and healthcare unit, days after releasing ambitious growth targets at its 20th-anniversary celebration last week.

Hu Wei, former chief executive of JD Property, will succeed Yu Rui, who resigned for personal health reasons as CEO of JD Logistics, on June 26. Additionally, the chief financial officer of JD Health, the drug store operator, will assume the position of CEO for JD Property.

Why it matters: The top-level changes come at a time when JD experienced its lowest-ever pace of revenue growth. Just a month prior, the Beijing-based company made a surprise management reshuffle, with chief financial officer Sandy Xu replacing Xu Lei, who had served as CEO for only a year. 

• Executives now face challenges on multiple fronts in their pursuit of JD’s ambitious growth goal, which it has called “35711 Vision” and was announced on June 18.
• As part of the plan, JD plans to establish three enterprises with more than RMB 1 trillion ($140 billion) in revenue and RMB 70 billion in net profit over the next two decades.

Details: In 2022, JD achieved a milestone by surpassing the trillion-dollar revenue mark, with revenues totaling RMB 104.62 billion. The company also recorded a net income of RMB 10.4 billion thanks to strict cost-cutting measures, compared to a loss of RMB 1.04 billion a year prior.

• JD currently has two Hong Kong-listed affiliates, JD Health, which went public at the end of 2020, as well as JD Logistics, which was listed a year later. The drug store operator’s total revenue amounted to RMB 46.7 billion in 2022 while achieving a net profit of RMB 380 million. However, the logistics unit has not yet recorded a profit despite having nearly three times the revenue of JD Health.
• JD also has majority control of Dada group, the Nasdaq-listed delivery and retail company, which is also yet to turn a profit.
• JD’s property and industrial units are gearing up for Hong Kong listings, according to the e-commerce firm’s March filing. A previous Reuters report cited sources as saying the two firms are valued at $1 billion each. Under the company’s “35711 Vision,” JD intends to bring seven publicly listed companies with at least RMB 100 billion in market cap over the next 20 years.
• Meanwhile, Yan Xiaobing, former head of JD’s international business, is reportedly back at the company after leaving a year ago. Yan will lead a newly-created team that merges grocery chain 7Fresh and group-buy businesses into a unit called “innovative retail.”

Context: Alibaba, a major rival to JD, has conducted several rounds of structural and management changes this year. Earlier this month, Alibaba appointed Joseph Tsai as chairman and Eddie Wu as CEO, succeeding Daniel Zhang. Alibaba also announced in late March that it will split its operations into six standalone units, each managed by a different chief executive and able to pursue separate IPOs or external funding.

• Both JD and Alibaba, as China’s leading e-commerce firms, have seen increased top-level reshuffles and ongoing restructuring efforts in recent months as they aim to stay competitive amid a larger economic slowdown and increased competition.

As internet companies in China transition to less heady development in light of stricter regulations, new approaches that are green, low-carbon, and equitable are in the driving seat. Agriculture, a key industry less sprinkled with tech stardust than others, is now accumulating resources from real estate, internet, and venture capital investors.

Online shopping company Pinduoduo is already heavily invested in agritech. In August 2021, it established a “10 Billion Agriculture Initiative” to support groundbreaking research in the industry. Alibaba and JD.com also have ambitious plans in agricultural technology and are increasingly involved in the agricultural industry chain. Douyin, TikTok’s Chinese sibling, encourages farmers across the country to livestream the sale of agricultural products.

Compared with other advanced economies, agriculture in China is mainly still a small farm business. There is plenty of room to improve agriculture’s grasp of marketization, technology, and economies of scale. But what is really behind the enthusiasm of China’s internet giants to enter the industry?

Policy orientated: rural revitalization

While many industries are approaching competitive saturation in China, farming is still a “blue ocean” open to innovation. Long returns on investment and low levels of centralization in the industry may put investors off, but agriculture is a promising industry that chimes with the country’s theme of “common prosperity,” as well as on national targets on carbon peaking and neutrality. With diverse players ranging from global companies to privately owned small businesses and self-employed workers, agriculture is suitable for broad participation.

In 2022, the Ministry of Agriculture and Rural Affairs proposed, in light of a campaign to promote rural revitalization, a focus on building a number of key industry chains and model counties that would showcase advanced production of staple foods and specialty goods. These are all part of the long-term plan for China to modernize its vast rural areas.

Professor Li Ganghua, a doctoral supervisor at Nanjing Agricultural University, has presided over and participated in many national-level projects. In his opinion, the country has two priorities in agriculture: food security and a clean ecology. Agriculture may well give long-term and slow returns, but each crop has its own characteristics. Rice, which is controlled by the state, is a universal crop with stable prices and yields. High-tech vegetable growing is a labor-intensive industry in which yields have increased several times over the past decade while prices have fluctuated widely, impacted by numerous factors.

Apart from aligning themselves with the Chinese government’s development goal, Chinese tech giants are also looking into agriculture for potential untapped growth. Gao Kangping, editor-in-chief of the agricultural service and news platform VCearth.com, believes that in addition to fulfilling social responsibilities, internet companies entering farming are motivated by technology spillover and market development. “Technology in major companies is relatively mature and digital technology is ready to help farm products and rural scenarios, both in hardware and services,” Gao says. “First- and second-tier markets are saturated, but rural market penetration remains low, and there is a lot of space for development. Getting into the industry early will likely bring benefits.”

Leveraging e-commerce to assist farmers

E-commerce promotional events are the mode most used by internet giants to support agricultural sales, and they’ve brought billions of consumers to participating farmers, driving prosperity.

E-commerce shopping festivals in June (6.18 festival) and November (Singles Day festival) support farmers and small enterprises in achieving multi-dimensional benefits. Last year’s Singles Day shopping festival saw JD.com launch a drive to promote 300,000 high-quality agricultural specialties from 2,000 localities and industrial zones across the country. Alibaba’s Tmall issued a “buying one more agricultural product” initiative, urging sellers to put an agricultural product on the shelf of every livestream. Pinduoduo directed online traffic to high-tech agricultural products, subsidizing some of them as part of its 10 Billion Agriculture Initiative.

Besides national shopping festivals, the platforms have also launched farming-specific events. September’s China Farmers Harvest Festival was the first such event established at the national level specifically for farmers. E-commerce companies now all have their own versions of promotional events to support farmers, such as JD.com’s Shopping Festival of Agricultural Specialties, Douyin’s Rich Field Harvest Season, Alibaba’s Hot Land Harvest Season, and Pinduoduo’s Golden Autumn Consumer Season (all our translations). This has enabled each to play to its core strengths, and help sell more farm products and grow the industry.

VCearth’s editor-in-chief Gao Kangping is optimistic that the strategy will work. “Creating festivals is how internet companies gather online traffic and marketing resources and use them efficiently. This is good for brands, platforms, and farmers.”

Medium-term strategies

As listed companies, China’s internet giants need to make money for their shareholders. Participating in agriculture is not only a question of social responsibilities but also one of returns. The capital markets will have serious doubts if long-term financial prospects are bleak.

In a recent conference call, a Credit Suisse analyst asked about the impact of the company’s agricultural development strategy on Pinduoduo’s financial statements and the latest developments of the 10 Billion Agricultural Initiative. Chairman and CEO Chen Lei told the bank that agriculture was part of the company’s long-term strategy, and although it was still in its infancy, “we already see a lot of areas to create value.” The company plans to improve product circulation efficiency through technology and help bring more agricultural research products to the market.

Internet giants have a medium-term strategy for the industry, editor Gao says. He explains that their logic and market plans are relatively certain for the next five to ten years, although the measures firms plan to take differ according to the product, service, and capabilities of each company. “In general, they follow their core industry and engage in a moderate extension of the industrial chain.”

Gao thinks internet companies have “three main advantages,” based on his interactions with Alibaba, Tencent, JD, Pinduoduo and other firms making agriculture moves. First, organizational management. As a talent-intensive industry, organization, goal achievement, and execution are much better than in traditional agricultural companies. Second, most internet companies have user numbers in the billions when combining their various products, as well as the technology to solve complex problems. With more understanding of traditional agriculture, these large companies will make for powerful players in the sector. Third, they have the resources — brands, traffic, channels, and capital — that can be leveraged to agriculture’s advantage when needed.

Pinduoduo is one of the most heavily invested and committed internet companies in the agricultural field. This is demonstrated by chairman and CEO Chen Lei’s focus when answering questions at finance meetings. He constantly reminds observers that agriculture is a major part of the platform’s long-term strategy. Some foreign investors already see Pinduoduo as an agriculture-tech enterprise. As for Alibaba and JD.com, their investment in agriculture is in the balance, along with social responsibility issues such as supporting the real economy and carbon neutrality.

Technology companies that get involved in agriculture tend to set up similar initiatives. They help with e-commerce, empower supply chains, engage in technological research and development, and carry out personnel training. As they delve deeper into the agricultural industry chain, they work more extensively with local governments, agricultural universities, and international food and agriculture organizations.

In addition, companies have distinctive projects based on their own business advantages, such as Pinduoduo’s new brand plan, Alibaba’s Red Soil Plan, Douyin’s Rich Domain Plan, and JD.com’s March to Rich Plan.

JD.com launched its March to Rich Plan in October 2020, with the aim of establishing a modernized circulation system with a smart supply chain, to encourage high-quality agricultural products and upgrade consumption habits. The plan vowed to drive RMB 1 trillion output value in rural areas in China in three years. As of August 2022, more than RMB 620 billion worth of goods were sold. Millions of farmers benefited as their income shot up. The plan even developed brands in cooperation with local authorities. For example, JD worked with the local government in Suqian in eastern China’s Jiangsu province to incubate the Suqian king crab brand, which was featured on the annual Spring Festival Gala TV show, becoming an overnight hit.

Known for its low prices, Pinduoduo is now also getting a name in agriculture. It reaches deep into the source of the agricultural supply chain, helping sell more agricultural products, while meeting consumer needs. Moreover, it has gotten investors interested. Pinduoduo launched its new brand plan in 2018 to help small companies meet demand via the platform at low cost. Pinduoduo also helped cultivate new brands in step with producers. The company has said it will carry on with this model, expanding to more regions, and incubating up to 500 brands across the agricultural supply chain.

In May 2021, Alibaba upgraded its poverty relief fund to the Red Soil Plan for revitalizing rural areas in terms of technology, industry, and talent. In its 2021 ESG Report, Chairman and CEO Daniel Zhang explained how Alibaba’s investment and exploration would help rural development. Talent development and capacity building were to be a core focus. Alibaba planned to station senior digital managers across the countryside, relieving “pain points” that restricted local development by linking local needs with company resources in a way that “reflects our in-depth thinking and full preparation for the complexity and long-term nature of rural revitalization.”

One expert from Wageningen University, who declined to use their name on the record, explained how they saw the role of agricultural talent in rural revitalization and how China differed from foreign agricultural economies. “When studying in the Netherlands, the most impressive thing to me was the number and quality of farmers. They came to study techniques to solve industrial problems related to their family’s greenhouse, for example.”

Digitizing farming

China’s internet giants are exploring ways to use the platform mindset to change traditional models and enter the upstream of the agricultural industry chain, participating in agricultural production and operations, quality control, and the supply chain. Professor Li Ganghua believes that companies entering the agricultural domain each have their own advantages. “The more assets a company has, the more willing it is to participate from production onwards, so that product quality can be better controlled.”

Organized by China Agricultural University and Pinduoduo, the Duoduo Smart Agriculture Competition has benefited from the guidance of the United Nations Food and Agriculture Organization (FAO). The competition gives young researchers a platform to showcase their talents and improve standardization and digitization in the agricultural process. Similarly, Tencent and Wageningen University launched an Autonomous Greenhouses International Challenge, in which teams use AI and Internet of Things (IoT) technology to plant cherry tomatoes remotely.

The unnamed Wageningen University expert focuses on crop growth models and greenhouse automation. They said “the interest of internet companies lies in digital agriculture or unmanned cultivation. Essentially, it is to use machines to farm, make and implement decisions. External companies can empower agricultural practitioners in training machine learning and big data analysis.”

Alibaba’s digital agriculture initiatives have focused on plant cultivation. In 2019, Alibaba integrated the agricultural units of Taobao, Tmall, Hema, Cainiao, and Alibaba Cloud to establish a Digital Agriculture Division. In 2020, it released a Digital Rural Operating System. According to the Alibaba 2022 ESG Report, together with the Chinese Academy of Agricultural Sciences Institute of Crop Sciences (ICS), Alibaba launched a 3T Smart Cultivation platform, digitizing the cultivation process.

Gao Kangping points to digital farming as the most advanced field for agricultural innovation, with smart cultivation and management having reached all parts of the process, giving rise to many applications and best practices. Data collection and processing were two pain points. The application of agricultural sensors and IoT applications remains low, so it is hard to collect systematic, high-quality data. The second area needing improvement is data application and business modeling. Digital agriculture has the most value when applied to reducing costs and increasing efficiency, but this is difficult to quantify, resulting in a lack of stable models and sustainable profitability.

Richard Liu, founder of Chinese online retailer JD, is set to become more involved in the daily management of the company in 2023, according to local media outlet Huxiu, whose report cited an unnamed source.  

In a recorded company meeting, the firm’s former CEO told staff that the company should refocus on the low-price strategy that helped it rise to prominence, while expressing frustration over executives’ tendencies to exaggerate their own performances. Many staff were surprised by Liu’s direct tone, the report noted, adding that he used phrases such as “feeling cheated by some mid-level leaders.”

Why it matters: JD is facing intense competition from cut-price e-commerce platform Pinduoduo and the growth of social e-commerce at companies such as short video giants Douyin and Kuaishou. JD’s yearly revenue growth rate has slowed from 20% in the first quarter of 2022 to 3% and 5% in the second and third quarters of the year, a significant drop from last year’s 36% annual growth rate. 

• Although Liu stepped down as JD’s CEO in April this year, he has seemingly retained plenty of control, launching a series of drastic actions in recent months, including giving more benefits to grassroots staff, cutting senior executives’ salaries, and making major personnel adjustments. 

Details: In his nearly 90-minute speech, Liu criticized what he claimed was the company’s currently out-of-focus strategy and overall organizational inefficiency, according to Huxiu’s report.

• Liu pointed out that competitive pricing is the key strategy of JD and that the company should focus more on how its products are being priced.
• Some of JD’s business teams have already removed the “per customer transaction” target from employees’ key performance indicator, a move in line with Liu’s emphasis on the value of “low price”. Previously, pursuing higher unit prices was a key goal for these teams.
• Liu also expressed frustration with how some top management figures had allegedly dressed up results with PowerPoint slides and new terminology. “Then you find out they’re liars,” Liu said, highlighting that the company’s results had fallen far short of its goals.
• The billionaire founder reportedly asked management executives to “return all strategies to cost, efficiency and experience.”

Context: Liu’s emphasis on a low-price strategy quickly gave JD a foothold in China’s booming e-commerce market in the company’s early days, but it was also the main reason behind the company’s persistent loss-making. The Beijing-based e-commerce giant didn’t achieve an overall full-year profit until 2019.

• Richard Liu began to distance himself from his JD management role in late 2019 after facing sexual misconduct charges in the US. The case was settled in October, after he reached an undisclosed agreement with his accuser. 

As much of the world grapples with slow growth and high inflation in 2022, Hurun Research Institute’s annual Global 500 list shows the damage that has been inflicted upon the world’s top companies in the past year. 

The top 500 companies lost $11 trillion — a 19% drop in valuation from 2021 and equivalent to all of the value they created last year. Energy companies enjoyed strong growth, while retail and e-commerce were the hardest hit. Companies from four countries accounted for 80% of the loss: US firms lost $5 trillion, Chinese firms $2.9 trillion, and German and Japanese businesses lost $600 billion each. 

Overall, 35 Chinese companies made the list in 2022, 12 fewer than the previous year. Sixteen companies dropped out of the list, including some notable leaders in their sectors such as short video platform Kuaishou, pharmaceutical company WuXi Biologics, electric vehicle maker Nio, ride-hailing giant Didi, and video content platform Bilibili. 

Four Chinese companies made onto the list for the first time. They are: Shein, Webank, JD Technology, and Tongwei.

Here’s what you need to know about the four new entrants: 

1. Shein

Ranking: #355

Fast fashion retailer Shein broke into the Hurun Global 500 list for the first time with a valuation of $40 billion, ranking at number 355.

Formed by Chinese entrepreneur Chris Xu in 2008 as an online wedding dresses platform, the business expanded to women’s fashion and took on the brand name Shein four years later. Today, it has become one of the biggest names in fast fashion.

The e-commerce site was valued at approximately $15 billion in 2020, according to figures from PitchBook Data Inc. cited in the Wall Street Journal; the US newspaper also stated that Shein’s valuation has risen nearly sevenfold in two years, hitting $100 billion this April. Shein’s total sales are expected to grow by 50% to $30 billion in 2022, the Wall Street Journal cited a source close to the company as saying in early November.

Various factors contributed to Shein’s rapid rise: low prices, a constant flow of new products per day, and popularity among TikTok users.

Shein is able to maintain lower prices than rivals Zara and H&M as it sells most of its products directly to consumers. The firm produces 700 to 1,000 new products in small batches per day, with mass production carried out only when an item sees high sales volume.

The fast fashion platform has received 7.5 billion views on TikTok with the hashtag #Sheinhaul, well ahead of the 4.2 billion views for #Zarahaul.

2. WeBank

Ranking: #433

As the first private internet bank in China, WeBank has been valued at $33 billion according to the Hurun Global 500 list.

Co-founded by Tencent in 2014, WeBank has attracted a significant number of users in a short period of time, relying on the tech giant’s messaging super apps WeChat and QQ. The digital bank posted more than 320 million active users by the end of 2021.

Weilidai and Weiyedai are the two main services the Shenzhen-based firm profits from; the former targets micro loans to individuals and the latter provides loans to small businesses. WeBank also offers auto loans.

According to Webank’s 2021 annual report, it achieved a revenue of RMB 26.99 billion that year, with net interest income accounting for 66.6% of total revenue. The internet bank recorded a net profit of RMB 6.88 billion in 2021, up 38.9% year-on-year; for comparison, Alibaba-backed MYBank posted RMB 2.09 billion net profit in 2021.

3. JD Technology

Ranking: #483

As the fintech arm of e-commerce retailer JD, JD Technology was reorganized in January 2021 on the basis of the former JD Digits, JD Cloud, and artificial intelligence units. The company mainly provides digital solutions to financial institutions and enterprises as well as local governments.

JD Digits filed for IPO on Shanghai’s Star Market in September 2020, with a valuation of up to RMB 200 billion. However, the firm later withdrew its IPO application in the middle of the process after Ant Group’s abruptly terminated IPO brought regulatory uncertainty to the country’s fintech sector.

The main source of revenue for JD Digits is its financial businesses. According to the prospectus filed by the firm at the time, it recorded a total revenue of RMB 10.33 billion in the first half of 2020, of which the revenue of two credit products – JD Jintiao and JD Baitiao – was RMB 2.64 billion and RMB 1.79 billion respectively, accounting for a combined 43% of the total revenue.

Reuters reported last month that the JD fintech unit is seeking Chinese regulatory approval for a new attempt at a Hong Kong listing as soon as the end of this year, adding that the size of the IPO is likely to be smaller than the previously suggested $2 billion.

4. Tongwei Co. Ltd

Ranking: #483

Based in the southwestern Chinese province of Sichuan, Tongwei is mainly engaged in the production and sale of agricultural feed. The company is also the world’s largest polysilicon supplier.

In the first three quarters of 2022, Tongwei achieved a net profit of RMB 21.73 billion, 1.65 times that of the last full year. The figures saw Tongwei better LONGi Green Energy Technology, the leader in the solar photovoltaic industry. LONGi posted RMB 10.98 billion in net profit in the January to September period, compared with a net profit of RMB 9.09 billion for the full year of 2021.

Tongwei attributed its rapid growth in the past two years to the continued strong market demand for high-purity crystalline silicon products, which has driven up market prices significantly.

The price of silicon materials has increased by 315% in the past three years, from RMB 73/kg in early 2020 to RMB 303/kg in the third quarter of 2022, according to Chinese financial and stock information provider Eastmoney.

Meanwhile, the company’s solar cell unit – which makes the core component for photovoltaic power generation – saw significant year-on-year growth in production and sales, enabling it to maintain strong market competitiveness.

E-commerce giants Alibaba and JD kept silent on their Singles Day sales totals this year, the first time they chose not to publicize the data from their gross merchandise volume (GMV) performance. Alibaba said the results were “in line with last year’s GMV performance,” while rival JD claimed its growth rate exceeded the industry average.

Why it matters: The decision of Alibaba and JD, the two main participators in the year-end shopping festival, to not disclose their sales totals is in stark contrast to previous years when both have been quick to trumpet the amount of money brought in. The move comes against the recent backdrop of the Chinese authorities’ reining in of tech companies and could also indicate an underwhelming performance after years of rocketing growth. 

Details: Although the two major players failed to publicly confirm their sales totals, Chinese media outlet Yicai cited statistics from Xingyun Data on Nov. 13 showing that overall sales across all platforms during this year’s Singles Day hit RMB 1.1 trillion ($157.1 billion), up 13.7% year-on-year. 

• Sales from China’s top e-commerce platforms, including Alibaba’s Tmall, JD, and Pinduoduo, increased just 2.9% to RMB 934 billion, Xingyun Data reported.
• The total value generated by the live e-commerce arms of short video platforms Douyin and Kuaishou was RMB 181.4 billion, an increase of 146.1% over the same period last year, according to Xingyun.
• Douyin’s e-commerce arm has declined to release specific GMV figures since it began participating in Singles Day in 2019, instead offering alternative statistics. According to the data provided by Douyin on Nov. 12, the cumulative hours of live e-commerce on the platform during this year’s event increased by 50% to 38.21 million hours compared to last year, with 7,667 live rooms seeing sales surpass the RMB 1 million mark this year.
• Alibaba said in its press release that they saw strong growth this year in categories including sports and outdoors, pet products, collectible toys, and jewelry. 
• Sales of consumer electronics and home appliances also grew across the major e-commerce platforms this year. Mobile phones and home appliances were generally the categories to break RMB 100 million first on multiple platforms, though this is due to the high unit price.
• “A combination of economic and regulatory factors are leading the platform companies to emphasize customer loyalty and sustainability instead of GMV,” Jacob Cooke, CEO of e-commerce marketing firm WPIC, told TechNode. He added that the platforms are also hesitant to celebrate their GMV numbers amid the government’s common prosperity and anti-monopoly drives. Cooke’s company frequently helps foreign brands to sell on Chinese platforms.

Context: Over the past two years, China’s tech companies have been dealing with weak consumption, especially after many local governments imposed strict Covid control measures earlier this year. Data from China’s National Bureau of Statistics showed that the total retail sales of consumer goods were only up 0.7% year-on-year from January to September.

• Logistics is limited in many areas amid rising Covid cases, which has also affected consumers’ shopping enthusiasm to some extent.
• In 2021, Alibaba recorded its slowest-ever growth since the company appropriated Singles Day and turned it into a consumerist festival, with sales increasing 8.5% from 2020 to RMB 540.3 million. Earlier this year, JD also saw the slowest expansion in its GMV total for its 618 shopping festival since it first disclosed figures for the event in 2017.

A hundred and forty-five Chinese companies made it to the 2022 Fortune Global 500 list released on Wednesday. The listed Chinese companies span a diverse set of industries, including energy, metals, technology, banking, and insurance. State Grid, China’s national energy provider, is the highest-ranked Chinese company on the list at number three, just behind Walmart and Amazon. 

The revenue of these Chinese companies accounts for 31% of the 500 companies’ total revenue, surpassing the total revenue from US companies on the list (which is 30% of the total) for the first time. 

However, Chinese companies’ profitability is still lacking compared to their counterparts. The average profit made by the Chinese companies on the list is $4.1 billion, much lower than the $6.2 billion average profit made by Fortune 500 companies. 

Below, TechNode summarizes what you need to know about the five top-ranking Chinese tech firms from the list: Hon Hai Precision, JD.com, Alibaba, Huawei, and Tencent.

1. Hon Hai Precision

Ranking: #20 

Founded in 1974, Hon Hai Precision is one of the world’s largest electronic assembling manufacturers and is best known for its Foxconn factories. Foxconn plays a vital part in Apple’s supply chains, assembling the brand’s Mac, iPhone, and iPad products. The company’s pivotal role was on show earlier this year, when China’s Covid lockdowns affected Foxconn factories and led to weeks of delays to some of Apple’s product shipments. 

The firm started investing in mainland China in 1988 and has more than 40 plants in the region. The company’s imports and exports account for 3.5% and 4.1% of China’s total import and export volume respectively, according to its official website.

Hon Hai’s position on the Fortune list rose two places from 2021. It brought in $214.61 billion in revenue last year and saw 18% year-on-year growth.

2. JD.com

Ranking: #46 

JD.com was founded in 1998 and has grown into an e-commerce giant focusing on consumer electronics in China. JD’s revenue hit $147.53 billion last year, but the firm’s losses continue to expand. In 2021, JD.com lost $551.8 million, up 107.7% from the previous year.

In recent years, the company has accelerated its expansion in logistics infrastructure and made an overseas push. JD Logistics bought delivery rival Deppon for $1.4 billion in early 2022 and logistics infrastructure provider China Logistics Property Holdings last month. In January, JD also teamed up with Shopify to help international merchants sell in China on its platform. 

The company is up by 13 places on this year’s Fortune list to the 46th.

3. Alibaba

Ranking: #55

A major Chinese e-commerce company, Alibaba has faced significant regulatory headwinds in China since late 2020. The group has also seen slower growth, partly thanks to more conservative consumer sentiment amid an economic downturn and China’s strict Covid control measures. 

The company’s revenue in 2021’s fiscal year grew 25.6% to $132.94 billion, but its net profit saw a 56.4% decrease to $9.7 billion in the same period. Analysts also expect the firm to record its first-ever decline in quarterly revenue in the coming month.  

Alibaba ranked 55th on Fortune’s list, eight places higher than last year. 

4. Huawei

Ranking: #96

Chinese telecom giant Huawei has fallen more than 50 places on Fortune’s international 500 list, dropping from 44th to 96th. The firm’s revenue also fell in 2021, with the figure down 23.6% on the previous year to $98.72 billion, but its profits grew 88.2% to $17.62 billion during the same period. 

The US’s ban on Huawei’s access to 5G chips has stopped the firm’s rapid growth in smartphone sales and pushed it into pursuing a variety of a new projects including cloud services, IoT, and smartphone operation systems. It has also found a growth point in enterprise business, offering cloud and hardware solutions to companies. This sector accounted for 16.1% of its total revenue last year.

5. Tencent

Ranking: #121

Tencent, owner of the ubiquitous messaging app WeChat and a global gaming giant, is also entering a slower growth period, thanks to China’s tighter regulations on gaming and monopolistic behavior.  

Nevertheless, in 2021 Tencent earned $86.84 billion in revenue, up 24.3% year-on-year. Its profits increased 50.5% from last year to $34.85 billion. 

Affected by China’s pause of gaming licenses and the country’s pandemic controls, Tencent has also been cutting down its workforce to control overheads. The firm turned to setting up studios like TiMi F1 for AAA-level title development and sought new profit growth in overseas markets in 2021. The firm’s overseas gaming business saw an impressive 31% yearly growth in 2021, according to its financial results.

China’s e-commerce platforms brought in RMB 695.9 billion ($104 billion) in sales during this year’s 618 shopping festival, an increase of 20.3% over last year’s number, the slowest growth rate since 2020, according to data compiled from the Chinese market analytics firm Syntun. 

Why it matters: China’s consumer confidence is at a new low as major cities emerge from harsh lockdowns implemented to prevent the spread of Covid-19, with some Chinese cities still facing the unpredictability of on-and-off partial lockdowns. Against this backdrop, the country’s e-commerce platforms used the shopping festival to help retailers recover some of their lost sales over the past few months. 

Details: JD reported RMB 379.3 billion in sales, which is a yearly increase of 10.3%, but significantly lower than the yearly growth rate of 27.7% in 2021. However, the e-commerce major’s on-demand retail platform JD Daojia hit some critical milestones, recording a 77% growth in sales revenue and with the number of users growing four-fold. Overall, this year’s 618 deals are simpler and heftier than previous years, in the hopes of luring more customers during the nationwide economic downturn. 

• JD’s on-demand retail platform JD Daojia and JD Shop Now saw significant growth. On June 18, the last day of the shopping event, total sales on the platforms grew by 77% from last year, bringing in RMB 600 million in single-day transaction volume. Sales of home appliances saw a ten-fold growth on the platforms, while sales of cosmetic goods and sports goods grew three-fold. 
• The growth of JD’s on-demand services is due to its partnership with offline retailers. JD’s Shop Now service worked with more than 150,000 offline stores across China. Those platforms also accepted shopping coupons released by local governments in Changsha, Yantai, Yibin, Zhongshan, Taiyuan, and Zhengzhou. Such pairings helped people get better deals, and helped governments stimulate an economy hurt by the pandemic resurgence. 
• ByteDance’s short video platform Douyin, a robust e-commerce platform, said in its 618 report that consumers in Shanghai showed the strongest buying power during the period, while people in Chongqing, Beijing, Chengdu, and Guangzhou trailed. Gen-Z has become the primary buying group, with their purchases increasing by 164% from last year. 
• Chinese smartphone maker Xiaomi reported that it brought in RMB 18.7 billion in sales during the shopping festival. The brand was also the top-selling Android system smartphones across most major Chinese online retailers during 618. 

Context: Launched in 2010, 618 is China’s second-most important shopping event after Alibaba’s Single’s Day shopping event on November 11. In the past decade, the event has evolved from a rival event created by JD to a key mid-year shopping promotion for all e-commerce majors. 

READ MORE: Will China’s 618 shopping event lose its appeal?

First launched in 2010 by China’s e-commerce giant JD, the 618 shopping event has evolved into a major mid-year shopping event that has driven online consumer spending over the decade. However, consumers are becoming more cautious during a pandemic-hit economic downturn and growing tired of more frequent shopping events stimulation over the past decade.

The event was originally created as a competition for the Alibaba-backed Singles’ Day shopping event (on November 11). Both events chose dates carefully. 618 is a nod to JD’s founding date of June 18, while Singles’ Day is an unofficial day that the Chinese internet uses to take jabs at people who are not in a relationship. 

Similar to Singles’ Day, the 618 shopping festival has grown out of its founding platform and become a promotional event across all major Chinese e-commerce platforms. The event is also considered a barometer for consumer spending capacity and new shopping trends in China.

2022 might be the toughest 618 

For those who are taking a close look at the country’s second-largest shopping extravaganza, this year’s edition of 618 might seem like 2020 all over again, yet if anything the situation is even more austere. Lots of local media outlets have dubbed this year’s edition of 618 as the “toughest” in history. 

When the pandemic first spread across China two years ago in early 2020, the 618 festival that year largely delivered, thanks to government stimulus and the country ending large-scale lockdown two months ahead of the event. It achieved much-needed big sales numbers and signaled a gradual return to economic normalcy at the time. However, the circumstances for this year put the success of the shopping bonanza in some doubt.

In both years, China was just coming out of lockdowns which had taken a toll on the country’s faltering economy and led to subdued consumer sentiment. But the timing is different. In 2020, Covid-19 broke out in January and most pandemic-related lockdowns were removed in early April. By the time 618 arrived in June, the state had already stepped in to boost consumption by launching a series of digital subsidy programs over April and May. On top of that, the two-month gap allowed more time for manufacturing and logistics companies to recover from the lockdowns ahead of the shopping festival. 

This year, however, there’s less time for the market – either consumer sentiment, merchants, or logistics companies – to react since the months-long lockdowns to control new Covid-19 outbreaks in cities like Beijing and Shanghai were only lifted on June 1, just as many retailers were gearing up for the 618 shopping festival with pre-promotion and early deals. Moreover, recent trends make it obvious that Chinese consumers will be even more cautious in 2022 than they were near the start of the pandemic.

For example, as a working mom with two primary school kids in Beijing, Liu Chunying didn’t pay much attention to this year’s 618 promotion until later as she was busy living under a partial lockdown. She used to rely on the festival’s deals to stock up on as much as 70% of her purchases. This year, she only started making a shopping list after Beijing lifted most of the lockdowns in June. Liu added that she will only buy necessities and refrain from impulse buys this year. 

In terms of size, the 618 festival achieved a gross merchandise value (GMV) of RMB 578.5 billion ($89.6 billion) across all platforms in the eighteen days from June 1 to June 18 in 2021, according to data from Syntun. The figure is second only to the GMV of Singles’ Day in terms of shopping festivals in China. The 2021 GMV for 618 represented a yearly growth of 26.5%, but also a slowing from the 43.8% surge recorded in 2020 and driven by pent-up post-lockdown consumption.

Although post-Covid consumption proved to be an effective driver for 618 sales in 2020, market watchers aren’t optimistic about a repeat this year. Data and analytics company GlobalData projects that China’s retail channel will lose steam in 2022 after a stellar run in 2020 and 2021. The downward trend will have a spillover effect into 2023 with the home retail category bearing the brunt of consumer fiscal austerity, the firm said.

Covid-19 prevention measures are major headwinds, according to Bobby Verghese, a consumer analyst at GlobalData. “The stringent Omicron lockdowns in Beijing and Shanghai had a debilitating impact on consumer livelihoods and the economy. Bereft of workers, factories and businesses came to a standstill. With people confined to their homes, the customer footfall in physical retail stores waned, while online retailers were unable to make deliveries due to supply chain disruptions,” he said in a press release sent to TechNode.

Promotion deals in the pandemic era

China’s top online sellers such as JD, Alibaba, Pinduoduo, Douyin, and Kuaishou, have launched a series of efforts to revive consumption for 618 since mid-May. The enhanced promotion efforts come as e-commerce giants such as Alibaba, JD, and Pinduoduo have recorded historically-low revenue growth in the first quarter of this year, as the companies have been hit by both Covid lockdowns and tighter reins from regulators since last year.

JD, Alibaba, and Pinduoduo are offering an immediate RMB 50 ($7.50) discount for every purchase of around RMB 300 across their platforms. This is the largest discount in recent years compared with the more standard RMB 20 to RMB 30 discount on RMB 200 orders.

They have also rolled out merchant support plans, from offering immediate payment transfers for merchants joining 618 promotions to ensuring liquidity to cut service fees to lower costs. The moves are also in line with the state’s call for platform companies to assist struggling small- and medium-sized businesses.

Alibaba’s Taobao marketplace has launched a “metaverse mall” for this year’s 618 to create a virtual shopping venue for customers, tapping into the rising metaverse boom.

Are shopping holidays losing their shine?

618 and Singles’ Day are far from the only shopping carnivals in China. To draw customers and drive sales, e-commerce platforms have established a list of festivals that span all year round. Chinese consumers are increasingly overwhelmed by a dazzling array of shopping festivals celebrating nearly every major holiday, from Spring Festival to Children’s Day.

Even Singles’ Day experienced a lackluster year in 2021. Although still recording new highs in GMV, the shopping bonanza posted the slowest growth in its history: just 9%, compared with up to three-digit growth in its heyday. 

After more than a decade of development focused on big promotional activities and skyrocketing sales numbers, the market is adapting to a new definition of “success” for such festivals, focusing on achieving brand awareness and turning those drawn in by short-term promotional campaigns into long-term loyal customers. Against this backdrop, this year’s 618 may see considerably slower growth than usual for reasons other than just disruptive Covid lockdowns.

Chinese online retailer JD posted mixed results for the first quarter of this year on Tuesday. The company beat market expectations on revenue but recorded its slowest revenue growth as a public company as net losses widened for the quarter.

Why it matters: JD, along with rivals including Alibaba, faces several headwinds, from Covid-19 lockdowns in many Chinese cities to sluggish retail consumption to a weak macroeconomic outlook.

• The revenue growth rates of major Chinese e-commerce tech giants have been hitting new lows since late last year. JD rivals Alibaba and Pinduoduo, which have yet to release their first-quarter results, recorded their slowest revenue growth for the fourth quarter of last year.
• These companies are adjusting their operational structures and product lines to adapt to a challenging economic environment.

Details: JD’s total revenue increased 18% year-on-year to RMB 239.7 billion ($37.8 billion) for the first quarter of this year, beating the $35.6 billion high-end estimation compiled by Yahoo Finance. However, this is its slowest growth since JD went public on the US market in 2014.

• In the first quarter, total revenue for the company’s core retail business increased 17% year-on-year to RMB 217.5 billion, while the company’s second-largest business segment, JD Logistics, climbed by 22% to RMB 27.4 billion compared with the same period last year.
• The company’s net loss for the reporting period was RMB 3 billion compared to a net income of RMB 3.6 billion one year ago. These increased costs and expenses related to investment in infrastructure, research and development, as well as order fulfillment and employee benefits, which were hiked up by recent lockdowns in Chinese cities.
• “Since the start of 2022, we have seen many challenges arise in our external environment, including the Covid resurgence, supply chain disruptions, and weak consumer sentiment, among others,” JD’s chief executive officer Xu Lei said in the company’s earnings call, held on Tuesday.
• Recent omicron outbreaks in China have a much more significant impact on the supply chain than in 2021 because of higher contagion rates, Xu pointed out. While the Covid-19 outbreak in 2020 brought “some positive effect” to the internet and e-commerce sectors by accelerating the online migration of users, the ongoing outbreak has “hit both online and offline enterprises heavily.”  

Context: On Tuesday, China’s top political advisory body held a consultation session to promote the digital economy. Vice Premier Liu He emphasized support for the platform economy and the list of digital companies overseas.

• China’s online retail sales increased 6.6% in the first quarter of this year, the slowest growth rate since June 2020, according to data from China’s National Bureau of Statistics. On the bright side, more consumers have chosen to buy goods online over the past two years. The online retail sales for physical goods accounted for 23.8% of total retail consumer goods sales in the four months ending April, up from 18.6% for the same period in 2019.

Chinese online retailer JD is expanding its layoffs, cutting people in nearly every business unit, including its core retail businesses, local media outlet Jiemian reported on March 27.

Why it matters: JD’s layoffs will be worse than the market initially expected. China’s months-long tech layoff, which started late last year, shows no sign of ending. Big-name behemoths like Alibaba and Tencent began broader layoffs earlier this month.

READ MORE: INSIGHTS | Chinese tech giants are still slashing headcounts

Details: In addition to laying off people in its community group-buy unit Jingxi, JD is expanding the recently-launched layoffs to its core businesses, including JD Retail, JD Technology, JD Logistics, and JD’s international business department, Jiemian reported, citing several employees at the company.

• JD plans to cut between 10% to 30% of the jobs, with cut rates varying by the departments, according to a widely-circulated internal spreadsheet revealed by local media. 
• For example, JD Retail will face a 10% to 30% layoff in technology, business development, and platform operation positions, while the firm’s international business unit will be cut by 10% to 15%. 
• The company’s community group buy service Jingxi remains the worst-hit unit. Some of the unit’s regional teams will let go of the entire team, such as the teams in Guangdong, Jiangxi, and Sichuan provinces.
• The Jiemian report said that there are few opportunities for internal transfers since the layoff affects the whole company.
• The company declined to comment on the layoff news when contacted this Monday.

Context: On March 11, JD posted a RMB 5.2 billion ($0.8 billion) net loss for the fourth quarter of last year and reported its weakest revenue growth in six quarters.

• Slowed economic growth, fierce competition, and trade tensions are weighing down the revenue growth of China’s e-commerce giants. Alibaba and Pinduoduo recorded their slowest quarterly revenue growth in the fourth quarter of 2021 since their respective IPOs in 2014 and 2018.
• In December, Tencent weakened its ties to JD by distributing around $16.4 billion worth of shares in the online retailer to its shareholders as interim dividends. Both companies said their partnerships won’t be affected, although Tencent’s shareholding in JD will be reduced from 17% to 2.3%.

JD becomes the latest Chinese tech majors to begin wide-scale layoffs. Jingxi, the e-commerce giant’s bargain commerce and community group buy business unit, is seeing a cut of 10% to 15%, Chinese media outlet 36Kr reported Tuesday, citing unnamed sources familiar with the matter.

Why it matters: JD’s layoff reflects the ongoing economic downturn in China and a waning interest in the country’s community group buy sector. 

• Jingxi was JD’s effort to get into the bargain commerce market that has traditionally been dominated by Pinduoduo. After the success of Pinduoduo, major e-commerce players  Alibaba, Meituan and JD have launched their own competing products. 
• Launched on Jan. 1, 2021, JD’s Jingxi Pinpin failed to compete with other rivals. In 4, the platform had just 8 million daily orders, only one-fifth of Pinduoduo’s Duoduo Maicai. 

Details: JD’s layoff will affect at least 400 to 600 staff in the Jingxin unit, according to sources quoted by 36Kr. Jingxi employs about 4,000 staff.

• Jingxi consists four main teams: Jingxi focuses on bargain deals, Jingxi Pinpin on community group buy, Jingxida on logistics, and Xintonglu on enterprise businesses.  The reported layoff is mainly focused on Jingxi Pinpin. JD’s other core business units, like customer electronics and retail e-commerce, are largely safe from the cuts.
• JD’s 2021 financial reports noted that losses from new businesses, including Jingxi, expanded by 160% quarterly to RMB 3.2 million ($505,921) in Q4 of 2021.

Context: JD joins a growing list of Chinese tech giants cutting staff to stay competitive in an economic slowdown. Since late last year, Alibaba, Baidu, ByteDance, Kuaishou, and Tencent have all begun to lay off people. 

• Alibaba has started to make major cuts in its local food and grocery delivery business this year. 
• Last week, Tencent was reported to be cutting 20% of its workforce. 
• Baidu has also begun a series of layoffs, with the first round beginning in last December, affecting employees in the company’s gaming, streaming, education, and mobile environment sectors. In January, Baidu further downsized 10-15%, Chinese media reported.

On Thursday, the US-traded shares of major Chinese tech companies saw steep drops as the US Securities and Exchange Commission (SEC) named several Chinese companies that face delisting.

The Nasdaq Golden Dragon China Index, which tracks stocks of Chinese companies listed in the US, plummeted by as much as 10% on Thursday to 6,535 points, the biggest slide since October 2008, Bloomberg reported.

Shares in more than 10 US-listed Chinese tech companies fell more than 10%. For example, iQiyi dropped 21.71%; Pinduoduo fell 17.49%; Bilibili 14.10%; NIO 11.90%; Parkson China 10.94%. Alibaba and Xiaopeng dropped by 7.94% and 9.01%, respectively.

Why it matters: The market sell-off is a sign that investors are taking notice of a tougher stance from the US stock market regulator towards US-listed Chinese companies. 

The SEC said Thursday that five Chinese companies, fast-food chain Yum China Holdings, biotech groups BeiGene, HutchMed Limited, Zai Lab Limited, and technology firm ACM Research, may face delisting for failing to disclose information, according to the Holding Foreign Companies Accountability Act (HFCAA). 

The US passed the act in 2020, but this is the first time that the SEC has threatened companies of an actual delisting. The five named companies can submit evidence disputing the commission’s charges until March 29.

According to the act, Chinese companies and their auditors would have to open their books to US inspections, which companies like Alibaba and Baidu had previously refused to do. 

READ MORE: US-listed Chinese firms are on thin ice

Politics or financials: Responding to the SEC’s delisting warnings, the Chinese government said it welcomes measures to improve companies’ financials but is “against politicizing securities regulations,” according to a Friday response from the China Securities and Regulatory Commission.  

Some analysts think SEC’s move is more about politics than the companies’ financials. “Most things are about politics now, both in China’s own domestic securities regulation, or US-China securities regulation disagreement,” Ren Liqian, director at exchange-traded fund sponsor and index developer WisdomTree Investments, said in a Friday Twitter post. 

She expects the SEC list to grow as more companies report 2021 annual earnings in which the auditor information is used.

Tech companies that released their fourth-quarter earnings from last year took the brunt of the market blow. On Thursday, JD shares sank 16% even though its Q4 earnings beat market expectations. Shares of Ke Holdings slumped 24% after posting a Q4 report, which investment bank Jefferies considered a “turnaround story.”

“Today’s company earnings numbers are also not bad”, Ren noted. “It’s less about this year’s fundamentals, but how much the US wants to tie Chinese companies to Russian sanctions and future impact on fundamentals,” she posted.

Meanwhile, the incident may further boost the Hong Kong stock exchange, a popular alternative to the US market for Chinese tech companies. Since Alibaba launched a dual listing in Hong Kong in 2019, many Chinese tech firms started to look to list closer to home amid the backdrop of escalating tensions between China and the US. This homecoming trend grew stronger after Luckin’s fraud scandal.

Chinese tech giant Alibaba is launching a new online platform running a direct sales model, similar to rival JD’s, Chinese local media LatePost reported on Wednesday. The new platform, called Maoxiang (our translation), will first focus on consumer electronics. 

Why it matters: Alibaba is trying out different models to boost business growth amid weakening consumer spending, intensifying competition, and tightening regulations. 

Details: Alibaba plans to rebrand its business-to-consumer (B2C) marketplace Tmall app to Maoxiang, LatePost reported, citing unnamed sources. Alibaba’s B2C retail group led the project and launched it at the end of last year.

• Maoxiang will adopt a direct retail model. The online platform can sell branded merchandise directly to consumers, having more control over sourcing, quality, storage, delivery, and after-sales.
• For starters, the platform will focus on selling consumer electronics products, big-ticket items that JD also focused on during its early days.
• Alibaba is in discussions with several consumer electronics brands, including smartphone maker Realme, to join the platform. 
• SF Express and Danniao Logistics are possible couriers for the service to ensure next-day doorstep delivery, the report added.
• Alibaba didn’t respond to TechNode’s inquiry when contacted on Thursday.

Context: Alibaba and JD, two of the largest e-commerce platforms in China, rose to prominence by adopting different business models. Alibaba operates under a “platform” model, where it derives revenues from online marketing services and commissions from third-party merchants selling on its marketplaces. Meanwhile, JD runs more like an online supermarket and earns mark-up by selling products it holds. 

• JD expanded to adopt Alibaba’s “platform” model as early as 2017 by introducing retailers, small merchants, and individuals to its business.
• In January, Alibaba’s domestic e-commerce business launched a major organizational reshuffle to connect the back-end operations of the company’s two core e-commerce marketplaces Taobao and Tmall.

JD Technology, the financial technology arm of Chinese online retailer JD.com, is preparing an IPO that could raise between $1 billion and $2 billion in Hong Kong this year, IFR reported Monday.

Why it matters: JD Technology’s expected listing is one of a number of long-awaited IPOs from Chinese vertical giants, including bike rental app Hello Inc. and podcast platform Ximalaya. The latter two suspended IPO procedures last year after the Didi cybersecurity review put a halt to the overseas listings of Chinese tech giants.

• JD Technology’s possible IPO comes after the company withdrew from a planned Shanghai STAR Market IPO in April 2021 amid antitrust regulations in China’s fintech sector, which led to the halting of Ant Group’s proposed dual Hong Kong and Shanghai IPO.
• JD Technology’s Hong Kong IPO plans could set an example for other IPO candidates as authorities set up clearer regulations for Chinese companies seeking to go public outside the mainland market.

Details: The JD affiliate is discussing the listing with investment banks including Bank of America, CITIC Securities, and Haitong International, according to financial information provider Hithink Royal Flush Information.

• The company declined to comment on the news when contacted Tuesday morning.
• JD Technology’s revenue grew from RMB 9.1 billion ($1.4 billion) to RMB 18.2 billion between 2017 and 2019, according to the company’s prospectus filed with the Shanghai STAR market in 2020.

Context: In 2013, JD spun off its financial technology services to form an independent fintech unit JD Finance, which operates a series of loan businesses and provides AI and blockchain-based financial services. JD Finance was renamed JD Digits in 2018 and then changed its name again in 2021 to JD Technology, as it diversified its business line to include cloud, artificial intelligence, and IoT offerings. 

• Last year, JD sold JD Cloud and its artificial intelligence business to JD Digits for a combined valuation of $2.4 billion, before the financial unit changed its name.
• In January, the Cyberspace Administration of China required companies that control data of more than 1 million users to undergo a cybersecurity review before they seek overseas listings. It’s currently unclear whether this new requirement applies to Hong Kong listings that are not deemed to be related to issues of national security.

Chinese online retailer JD and Canadian e-commerce platform Shopify have entered a strategic partnership to help global brands sell in the Chinese market and Chinese merchants looking to sell overseas.

Why it matters: Expanding beyond home markets, especially in the competitive e-commerce sector, is a daunting task even for tech majors like JD and Shopify. With lessons learned from Amazon’s withdrawal from China and JD’s own setbacks in overseas expansion, Shopify is teaming up with a local partner, saving costly tasks such as initial user acquisition, infrastructure construction, and providing insights to the local market.

• JD, which already has a solid presence in the Southeast Asian market, is advancing its global expansion. The tie-up with Shopify comes shortly after JD opened its first brick-and-mortar store in Europe last week.
• The deal will compete with other major players in China’s cross-border e-commerce sector, such as Alibaba’s Kaola.

Details: Under the partnership, JD will allow Shopify merchants to list their products on the company’s cross-border e-commerce platform JD Worldwide, giving them access to more than 550 million active buyers in China, according to a Tuesday statement from the company.

• JD will support expedited onboarding and help Shopify merchants sell their products within three to four weeks, a much shorter process than the previous 12-month time frame. The company will achieve this through technical means, including intelligent translation and smart price conversion.
• JD also opened up its end-to-end fulfillment capabilities to Shopify merchants by leveraging the company’s logistic power, including China-US cargo flights, US warehouses, more than 1,300 warehouses, and more than 200,000 couriers in China.
• Additionally, JD will support selected Chinese brands to set up their direct-to-consumer channels through Shopify, helping Chinese brands and merchants reach consumers in Western markets.
• Aaron Brown, Vice President of Shopify, refers to the partnership as “a major step” in solving cross-border commerce for merchants. “The future of commerce is commerce everywhere—and that starts by removing barriers to entry to one of the most important e-commerce markets in the world,” Brown said in the JD announcement.

Context: To spur foreign trade growth, Beijing has been promoting the construction of cross-border e-commerce pilot zones since last year. China’s cross-border e-commerce imports and exports reached RMB 1.98 trillion ($311.7 billion) in 2021, up 15% year on year, according to data from China’s General Administration of Customs.

JD.com and Baidu have jointly invested $400 million in elevator advertising firm Xinchao Media Group.

Why it matters: The two Chinese tech giants are returning investors in the Chengdu-based media company. The deal is a major external investment for JD following a management reshuffle. In May, Hu Zhengwei, the former executive board of investment firm Warburg Pincus, became JD’s investment unit head, replacing JD’s vice president Hu Ningfeng. 

Details: The deal makes JD the largest shareholder of Xinchao, according to a report by China STAR Market. Xu Lei, president of JD, is now a board member of Xinchao.

• JD confirmed the investment with TechNode but declined to disclose the specific amount it invested.
• Xinchao’s corporate website says the company is valued at more than $2 billion. 

Context: Xinchao operates more than 650,000 digital advertising panels in elevators across 105 Chinese cities, reaching 200 million middle-class consumers and serving more than 23,000 clients, according to the company website.

• JD led a RMB 1 billion investment in Xinchao in 2019, while Baidu led a RMB 2.1 billion fund in the elevator-ad company in November 2018. Other investors include home furnishing chain store Red Star Macalline, classified ad site 58.com, and edtech platform TAL Education.
• The company plans to invest RMB 10 billion in the next five years, aiming to operate 2 million digital ad panels and reach 300 million to 500 million middle-class Chinese residents.
• JD.com’s e-commerce rival Alibaba has made similar investment moves, holding a 6.6% stake in Focus Media, another elevator ad company, after investing $15 billion in July 2018.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

It’s another earnings episode, so the guys welcome Michael Norris back to the show. They discuss the quarterly earnings of Baidu, Tencent, and JD, while also answering questions from listeners. Key topics include what a new era in tech regulation means for stocks.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:

• Michael Norris – @briefnorris

Editor:

• Peter Isachenko

Podcast information:

• iTunes
• Spotify
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

In China’s fiercely competitive e-commerce market, JD.com has aimed to differentiate itself through high-speed delivery. The company says that about 90% of its orders were delivered on the same or next day in 2020. That’s because of JD Logistics, the company’s logistics subsidiary. 

Across Greater China, JD Logistics owns a sprawling network of over 800 warehouses that are strategically located near end consumers, and the organization directly employs 190,000 delivery workers. It has also invested in 5G, machine learning, and automated technologies to boost efficiencies across the supply chain.

On Friday, May 28, JD Logistics became its own publicly traded company, raising over $3 billion through an initial public offering (IPO) in Hong Kong.

The company has said it will use the capital injection to invest in further technological innovation and improvement of its delivery networks, especially in lower-tier cities..

The full effects of that will only come to fruition, however, if JD Logistics makes a significant pivot in which platforms it chooses to work with now that it has more operational independence from its parent company.

A more independent JD Logistics should consider working with JD.com competitors like Alibaba’s Tmall, Pinduoduo, and Douyin. It’s a move that would benefit the entire e-commerce market, including consumers, brands, and the company itself. 

Logistics silos

JD Logistics has operated at a loss for 14 years, and will face pressure from new investors to turn a profit at some point in the future. Although the company was spun off as a standalone unit in 2017, and began to serve external retail customers, it still has one primary customer: its parent. Over half of its annual revenue currently comes from JD-affiliated companies.

That’s because in a phenomenon similar to the “walled gardens” of Chinese mobile applications, JD.com and Alibaba have built silos around their delivery arms. Purchases made on JD.com are processed by JD Logistics, while purchases made on Tmall are processed by Alibaba-backed Cainiao. 

JD Logistics cannot support purchases made on Tmall, and Cainiao cannot support purchases made on JD.com—and both JD Logistics and Cainiao are currently limited from selling their services to e-commerce upstarts. 

For the parent company, the business logic of this arrangement seems straightforward: a company’s back-end logistics capabilities can distinguish that company’s ecosystem from that of its competitors. JD.com invested in faster delivery times to make shopping on the JD platform more appealing to consumers. If JD.com permitted JD Logistics to provide services to Tmall or Pinduoduo, then returns on JD’s logistics investments might accrue elsewhere. 

While cutthroat competition between JD.com and Alibaba has benefited consumers, providing faster delivery times and lower shipping prices, the silos have also come with a major downside. Consumers don’t get to select a shipping option independent of the platform on which they purchase goods. In fact, when customers are looking to buy a specific product, they often choose a marketplace based on the shipping options available to them at checkout. Likewise, merchants face restrictions on how they can ship their goods based on the platform. 

And JD Logistics has a restricted set of potential buyers, which hurts its bottom line. 

Time to leave the nest

Now that JD Logistics is its own publicly traded company, it would benefit by removing the silos between Tmall and JD.com, offering its last mile delivery, warehousing, or integrated services to purchases made on the Tmall platform. There is even potential synergy between JD Logistics and Cainiao, because Cainiao is an asset-light logistics data platform that mostly outsources last-mile delivery to third-party companies. 

Were this to happen, the market would determine how a product is most efficiently shipped, providing consumers with more choice and even lower shipping costs. For JD Logistics, diversifying its revenue streams would offer a clearer path to profitability.

For now, the company does not appear to be considering such a move. According to its IPO prospectus, JD.com and Richard Liu remain controlling shareholders. The prospectus warned that “we may be limited in our ability to do business with its competitors.”

However, there are reasons to think this could change. We believe that the emerging push against anticompetitive practices from regulators in China, combined with greater incentive to turn a profit, provide a compelling case for JD Logistics to work with Tmall and other up-start e-commerce platforms. 

Check out TechNode’s Techlash Tracker for an overview of the anti-monopoly push.

The disintegration of these silos could lead to massive changes in China’s e-commerce environment and stimulate innovation. Upstart platforms would be able to better integrate e-commerce capabilities without having to make massive investments in a scaled back-end logistics network that can deliver goods to Chinese consumers at the fast speeds they demand. 

For example, short video apps like Douyin and Kuaishou represent promising sales channels because of their intimate knowledge of users’ preferences and the dynamic nature of these platforms. Although Douyin and Kuaishou are making forays into e-commerce, it will be difficult, and perhaps prohibitively costly, for them to develop large-scale logistics networks that perform at the level of JD Logistics and Cainiao. 

JD Logistics should take advantage of its independence to strike more comprehensive deals with those and other e-commerce platforms, which would allow multiple front-end stores to use the same back-end logistics network.

Ultimately, brands and consumers will benefit when innovative front-end sales channels are able to bid for leading logistics services on the open market. Brands will gain a deeper understanding of their customers and have the opportunity to engage them through new platforms or content forms. Customers will enjoy greater choice and a more convenient shopping experience. And not least of all, JD Logistics will improve its profitability.

Aihuishou, a Chinese electronics resale platform backed by e-commerce giant JD.com, applied to an initial public offering (IPO) on the New York stock exchange on Friday. 

Why it matters: The Shanghai-based company is one of China’s largest second-hand goods platforms. Unlike its larger peers, Alibaba’s Xianyu and 58.com’s Zhuanzhuan, it focuses on electronics. JD.com is Aihuishou’s biggest investor, owning 34% of its ordinary shares before the offering. 

• Expect to see a new wave of Chinese technology companies from lesser-known sectors file for IPOs as more Chinese unicorns are maturing. 

Details: Aihuishou is operating at a loss, but it is narrowing the gap.  

• The company listed a placeholder amount of $100 million in its Friday IPO filing to the US Securities and Exchange Commission (SEC) with no price range for the shares.
• In the first quarter of this year, the company’s net revenue increased by 118.8% yearly to RMB 1.5 billion. From 2019 to 2020, revenue increased 24% from RMB 3.9 billion to RMB 4.9 billion in 2020. 
• From 2019 to 2020, the company narrowed its operational loss by 37% from RMB 731.8 million to RMB 458.8 million. It booked an operational loss of RMB 111.4 million in the first quarter of this year.
• Kerry Chen, the company’s CEO, said in a Friday investor letter that the company was long “misunderstood” as “a company that simply dismantles smartphones and re-purposes metals,” but it has since “set new industry standards” by standardizing a previously chaotic market. 
• The proceeds raised from the offering will be used to develop technology, diversify service offerings, and the company’s online marketplace’s sales channels.  

Context: The company was founded in 2011 as an online platform buying and reselling second-hand phones and other consumer electronics.

• In June 2019, Aihuishou acquired Paipai from JD.com. Paipai is an online retail platform that allows businesses to sell pre-owned products directly to consumers. 
• The company entered into a partnership in May with the popular short-video app Kuaishou to reach the video-streaming platform’s massive user base.
• China’s second-hand electronics market is lucrative. In 2020, Chinese people bought and sold 189 million used devices, generating RMB 252 billion in gross merchandise volume, according to a report cited in the company’s IPO filing document.

JD Logistics, the newly-listed logistics and supply chain spin-off of JD.com, is counting on customers outside the JD ecosystem to power growth, its CEO told an online press conference today after the company’s Hong Kong stock debut.

“We have maintained great trajectory in external user growth since opening in-house delivery capacity to external users in 2017. Integrated supply chain solutions will continue to be our business priority in serving external users,” CEO Yu Rui said.

The company’s core business is broader than delivery—it offers warehouse management and inventory forecasting services as a one-stop shop for logistics.

The company’s prospectus reported RMB 73.4 billion ($11.5 billion) in revenue in 2020. Of the total, revenue from external clients represents RMB 34 billion or 46.2% of the revenue. JD Group and other affiliated parties accounted for the remaining 53.8%.

READ MORE: INSIGHTS | The only rundown you’ll need on JD Logistics’ IPO

Shares surge on IPO: Shares soared on 18% in early trading this Friday as the company debuted on the Hong Kong Stock Exchange. The shares are still trading 4% up as of Friday afternoon.

• The company raised $3.2 billion in the IPO after pricing its shares at HK$40.3, at the lower end of the expected range.
• The proceeds raised will be invested in technology development and expanding the company’s logistics network to global and lower-tier markets, according to Yu.

Going global: The company also expects growth in international e-commerce, an area that saw an extraordinary surge during the pandemic as China brands made more overseas sales and Chinese consumers made more direct purchases from overseas. It’s something “JD Logistics could not afford to miss,” said Yu.

• The company plans to build more logistics infrastructure overseas, focusing on North America and Europe.
• JD Logistics will also looks at Southeast Asia and South America, following trends among Chinese brands.

Price war: Meanwhile, China’s logistics market is witnesses a brutal price war among major couriers in the market, driven partly by the rise of new entrants like J&T Express. But Yu said impacts on JD Logistics will be “limited.”

• Addressing the competition from rivals, Yu says JD Logistics’ core strength is “integrated supply chain” services
• Yu said the delivery services’ role is to acquire clients for the supply chain business as well as generating revenue.

Context: In March this year, JD.com invested $800 million in Dada Nexus, JD’s US-listed on-demand delivery joint venture, which a complementary business to JD Logistics’ overnight shipments.

The local government of Beijing on Tuesday granted the country’s first-ever permits for commercial deployment of delivery robots to JD.com, Meituan, and Neolix, allowing the companies to charge clients for driverless delivery services.

Why it matters: Robot vehicles are going into commercial use on Chinese city streets for the first time. It’s not the first time such vehicles will operate on city streets: China has previously granted permits to test passenger and commercial vehicles on city roads, and self-driving vehicles have gone into use in limited circumstances.

• Robot delivery services have previously been allowed to operate in geo-fenced areas such as university and industrial campuses.
• During lockdowns last February, local authorities in Beijing and Wuhan temporarily authorized Meituan and JD.com to use delivery robots delivering life and medical supplies to residents and hospitals on a limited set of public streets.

Details: Beijing-based tech giants JD.com and Meituan, as well as robotics startup Neolix, have been authorized to operate robot delivery services commercially within designated parts of the city’s Daxing district, state-owned media Beijing Daily reported Wednesday (in Chinese).

• The companies’ vehicles can operate on public streets in a designated area of 225 square kilometers, as well as the city’s mammoth new Daxing International Airport, and a 143-km stretch of highways, the report said. Robots face a speed limit of 15 kilometers per hour.
• Around 100 driverless cars deployed by JD.com and Meituan have begun delivering groceries to customers in the areas. Meanwhile, Neolix, backed by Chinese EV maker Li Auto, says that it expects to provide food delivery using a fleet of more than 150 vehicles by the end of June.

Context: The government is pushing automated passenger and freight transport services. Vehicle intelligence is one of the major goals of China’s current five-year plan, running to 2025.

• The Beijing municipal government earlier this year gave Baidu a green light to charge for rides on a fleet of 10 self-driving cars in an industrial park in the west of the city.
• Shenzhen in March started consultation on allowing companies to charge fees for their self-driving transport services in the city, expecting applications, such as last-mile delivery and robotaxis, to grow significantly over the next three to five years, Caixin reported (in Chinese).
• JD.com has been testing a fleet of 100 vehicles for grocery delivery in over 20 domestic cities, while Alibaba in March said its delivery robots have gone into operation into 15 university campuses in 11 cities.

With contributions from Emma Lee.

JD.com has a reputation for the fastest package delivery service in China. You order something in the evening, and it’s often at your door in the morning. That’s because of JD Logistics—and soon, JD Logistics is going to be a public company.

JD Logistics is set for an IPO on May 28. It’s the third subsidiary of e-commerce marketplace JD.com to go public in two years. 

The logistics spinoff occupies a higher-end niche in the delivery business, making use of vertically integrated infrastructure and an army of delivery men to hand off 90% of orders within the same day. But excellent service comes at a cost: JD Logistics is often singled out in Chinese media because it hasn’t turned a yearly profit since its inception. Will these losses continue after the IPO? What is the company’s strategy going forward? And how independent will the JD spin off be from the e-commerce mothership?

Bottom Line: JD Logistics is a loss-making company that offers great service, but at a premium price and lower profit margins. Chinese observers are debating whether this can translate into a leading stand-alone business in the logistics industry, and whether the company has room to grow beyond its home court.

Numbers and dates

Key IPO facts: 

• JD seeks to raise $3.2 billion, selling 609.2 million shares at HK$40.36 ($5.20) per share.
• Cornerstone investors include Softbank’s Vision Fund ($600 million), Temasek Holdings ($220 million), Tiger Global ($200 million), China Chengtong Holdings Group Ltd. ($150 million), Blackstone Group Inc. ($150 million), Matthews Asia ($100 million), and Oaktree Capital ($100 million).
• BofA Securities Inc., Goldman Sachs Group Inc., and Haitong International Securities Group Ltd. are joint sponsors, while UBS is the IPO advisor.
• JD.com currently holds 79% of equity in JD Logistics, and it plans to keep a majority position post-IPO.
• Analyst Esme Pau from Tonghai Securities, which also invested in the share offering, told TechNode that the company is optimistic. “We expect the post-IPO share price performance of JD Logistics to be decent. We are looking for +5-20% upside in the first few trading days,” Pau wrote. 
• According to Pau, one of the reasons for the “positive view” is the company’s relationship to parent company JD.com. “[JD Logistics] enjoys support from JD.com which accounts for over half of FY20 revenue and experienced limited impact from the government’s tightening anti-monopoly regulations,” Pau wrote. 
• However, Pau said a caveat to the share price prediction is that the “equity market sentiment is rather weak” and that hedge funds may dump the shares following the IPO. 

Financial position:

• JD Logistics is losing money. According to its prospectus, net losses were RMB 2.8 billion, RMB 2.2 billion, and RMB 4 billion in 2018, 2019, and 2020 respectively.
• The company expects its losses in 2021 to increase “significantly” from previous years, citing rising expenses and a decline in profit margins after the government reduced COVID-19-related support.
• Revenue increased by 31.6% from RMB 37.9 billion in 2018 to RMB 49.8 billion in 2019, and 43.2% from RMB 34.6 billion to RMB 49.5 billion by the fourth quarter of 2020. 
• According to its IPO prospectus, JD Logistics operates over 800 warehouses, 28 of which are partially automated, and one fully unmanned warehouse in Shanghai.

A brief timeline: 

• 2007: What we now know as JD Logistics is born as JD begins building out an in-house logistics network.
• April 2017: The JD Logistics brand is formed to oversee JD’s delivery infrastructure.
• February 2018: The logistics business raises $2.5 billion from a range of backers including Hillhouse Capital, China Development Bank Capital, and Tencent.
• December 2019: JD Logistics initially targets an IPO at a valuation of $8-10 billion.
• Nov. 24, 2020: The unit lowers its sights, aiming for a $40 billion dollar valuation and looking to raise $5 billion.
• Feb. 16: JD Logistics files prospectus for an initial share offering on the Hong Kong market. 
• May 28 (anticipated): Shares of JD Logistics will be available for trading.

Antitrust and other regulations have been a key factor in China tech businesses during the last year. But so far, JD has not been hit hard.

• Market regulators have been more kind to JD than its competitors Alibaba and Meituan, but the company was reprimanded with an RMB 500,000 (about $76,095) fine for violating the Anti-Monopoly Law, along with 11 other Chinese tech giants.
• In response, JD pledged to comply with antitrust regulations.

Check out TechNode’s Techlash Tracker for an overview of the crackdown.

IPO spree

JD.com is China’s second-largest e-commerce conglomerate after Alibaba. Internet giant Tencent is a significant stakeholder in the company, and its apps are heavily integrated with WeChat.

JD has a history of taking affiliates public while keeping their operations integrated with the main company. It’s a familiar approach in China tech—fintech giant Ant Group began as a part of Alibaba, and remains closely integrated with its mother company seven years after spinning off.

JD Health:

• JD’s healthcare unit went public in December.
• Its core offerings are its retail pharmacy and healthcare consulting services.
• JD.com retained 81% ownership. 

JD Technology (previously JD Digits):

• The company’s fintech unit oversees lending services, and AI and blockchain applications for government clients.
• Continuing the IPO trend, it was slated to go public on Shanghai’s STAR market last July but those plans fizzled out in April after the blocked public offering of Ant Group.

JD Daojia:

• JD’s entry in the grocery delivery market filed for a Nasdaq IPO last May.
• The company is a joint effort with delivery service Dada Nexus, with JD holding a 51% stake.
• Daojia’s market share increased by 4% to 25% in 2020, an example of a successful spinoff that improves the company’s position.

What’s next for JD Logistics?

What’s next for JD Logistics? Chinese analysts have mixed views on the company’s future, arguing about how close the company is to profitability and how much room it has to grow. The key question: how far can JD Logistics go beyond delivering orders for other JD companies?

The bull case: forget the losses, focus on the tech

“Little Zhou Botong,” writing for a WeChat public account owned by the logistics industry trade publication Log Club, is bullish on JD Logistics’ long term trajectory but expects net losses to continue as the company prioritizes growth. The author’s pen name refers to a character from Jin Yong’s “Condor Heroes” series.

JD Logistics’ long term plan

“Little Zhou Batong,” Logistics Salon, May 14

Zhou writes that the company’s gross profit margin has increased while those for competitors SF Express and Tongda have decreased in the same time frame. The author says that JD Logistics’ network is already comprehensive, with the company establishing a presence in mainstream society as well as the “sinking market,” China’s lower-tier cities and small towns. 

Currently, the establishment of JD Logistics’ network on a large scale has basically been completed. With the entrance into town- and county-level markets to drive user growth and the popularization of logistics services in society which has caused order density to increase, JD Logistics will win over a greater share of the market.

This widespread nature of the logistics network—along with years of operating experience, a good brand image, and a high quality of service—positions JD Logistics to be a leader in the industry, Zhou writes. 

The future of operations in the logistics industry will heavily rely on technological infrastructure and platforms. JD Logistics is a leader in the automation, digitization, and use of smart technology on its platform, which undoubtedly will be of even more help to its logistics network.  

The bear case: it’s as big as it’s going to get

Xie Kangyu, writing at WeChat public account Future Consumption, predicts a quick turn to profitability but argues that the industry does not offer much room to grow. 

According to Xie, JD Logistics has already reached a large enough scale to balance out costs. Profitability is not far off, Xie writes, the proof being JD Logistics’ ability to lower fulfillment expenses per order and the fact that as early as 2019, it was done pouring money into major cities to capture those markets. 

JD Logistics’ ceiling

Xie Kangyu, Future Consumption, February 19

Net losses have decreased from RMB 2.8 billion in 2018 to RMB 2.2 billion in 2019, then to RMB 11.7 million in the third quarter of 2020. Following this trend, profitability is just around the corner. 

The reason for the gradual narrowing of net loss is that the period of large scale investments has already occurred, and so the effects of scale have diluted the company’s costs. As early as the second quarter of 2019 when a financial report was released, Liu Qiangdong had already revealed that investment by JD Logistics in first-tier cities had ended and that fulfillment expenses per unit had gradually decreased. 

But Xie cautions that there is a ceiling to JD Logistics’ growth, arguing that the company’s cost structure in 2020, with the necessary costs of transportation capacity taking up 68.9%, does not allow for much further reduction. 

This is the point of “diseconomies of scale” that JD Logistics has been questioned on before. Even after reaching the break even point, the decline in costs may come to a standstill. 

On top of this, Xie argues, profitability in the logistics industry is already low, with more established competitor SF Express not even achieving a net profit rate of 4% despite its larger scale. And given that in the first three quarters of 2020, competitors SF Express and ZTO Express had gross profit margins of 18.12% and 23.46%, respectively, Xie writes, JD Logistics’ 10.95% lags behind. 

These headaches will extend to soon-to-be former parent company JD.com as well, argues Xie. The author argues that service revenue is gaining importance as a driver in JD.com’s overall revenue and that logistics contributed significantly to JD.com’s net service income in the first quarter of 2021, with a revenue of RMB 13.8 billion and a year-on-year increase of 109%. After JD Logistics’ IPO, other parts of the e-commerce platform such as property management subsidiary JD Chanfa and Pinduoduo rival JD Pingou will take on greater responsibility for JD.com’s performance. 

As we all know, JD Logistics is about to go public, and its subsequent operating performance will be moved from the group’s financial report. It can be predicted that this will have a significant impact on the group’s performance, and the responsibility of driving JD’s subsequent performance will be turned over to JD’s new businesses, such as JD Pingou and JD Chanfa. Currently, these parts of the business contribute a relatively small proportion of revenue, RMB 5.2 billion, which only accounts for less than 3% of total income. 

JD Logistics defines its relationship with JD.com

Li Tong, of tech publication Huxiu, is more optimistic about the company’s future prospects. Huxiu says that while JD Logistics will maintain a tight relationship with JD.com, there is also lots of room to expand into external clients that do not have investment relationships with JD.com. As a spin-off, Li writes, it will remain responsible for bringing customers into the JD ecosystem.

JD Logistics makes three dishes out of one fish

“Eastland” (Li Tong), Huxiu, May 14

In 2020, the external users of [JD Logistics’] “integrated service” totaled 53,000 with an average expenditure of RMB 313,000. JD.com did not disclose the number of third-party merchants, but 53,000, proportionally speaking, is certainly a very small number. The penetration of “integrated services” has a lot of opportunity for growth. 

But overall, Li writes, JD Logistics will not be leaving the family. The tech publication argues that clients from the logistics business can easily become clients of JD.com’s other services. 

[A function of JD Logistics] is to provide customers for JD.com’s other businesses. For example, JD Logistics’ service partners have a large probability of becoming clients of JD’s fintech services. 

JD.com and JD Logistics will continue to impact one another in the long term, Li says. The growth of the logistics company will depend on the success of the e-commerce giant, and in turn, JD Logistics’ achievements will also support the development of JD.com. 

JD.com is the pot, and JD Logistics is the plant. Only if the pot is big will the plant grow big. On the other hand, the plant also adds color to the pot. 

Related reading: Meanwhile, at the low end of the logistics market, a price war in livestreaming e-commerce hub Yiwu has wreaked havoc, forcing regulators to step in. (South China Morning Post)

With contributions from Emma Lee

Trip.com in Hong Kong

• Chinese travel agency Trip.com improved its issue price by more than 4% on Monday, the day of its secondary public listing in Hong Kong. The company considered delisting from Nasdaq last year after booking a net loss of RMB 3.35 billion ($513 million) for the full year due to effects from the pandemic. However, Trip.com is expecting record numbers of domestic travelers for the upcoming Chinese Labor Day holiday in May, with growth figures potentially canceling out the effect of international travel restrictions. (CNBC)

E-commerce bigwigs

• In the wake of its record-breaking fine for anticompetitive practices, Alibaba continues its efforts to make amends. For the first time since 2009, Alibaba’s e-commerce platform Tmall will lower barriers to entry for merchants starting April 19. Changes include reductions in required certifications and waived fees; vendors will be evaluated on performance. (TechNode)
• Food delivery giant Meituan looks to raise $10 billion from sales of shares and convertible bonds. About 3.2% of its equity was sold off at a discount to its Monday closing price of HK$289.20. The funds will be used to help solidify its foothold in the community group-buying segment, as well as for research and development of artificial intelligence applications in grocery delivery. Company leadership stressed that Meituan will continue to invest in community group-buying despite initial losses. (South China Morning Post)
• A leaked company memo indicated that ByteDance is aiming to triple its e-commerce gross merchandise value (GMV) of RMB 600 billion earned from its Toutiao news aggregator and Douyin video apps compared with last year’s figure of RMB 170 billion. Ad revenue and user count were also slated to improve 40% and 10%, respectively. The news bodes well for investors ahead of ByteDance’s reportedly imminent public debut. (Bloomberg)
• E-commerce titan JD.com has hammered out a deal with luxury brand Louis Vuitton which will allow Chinese consumers to buy its products through JD’s app. The move will help JD shed its reputation primarily as a seller of electronics. It will also pave the way for more luxury partnerships; nabbing as many as possible will be crucial for JD’s fledgling fashion and lifestyle section as it competes for market share with Alibaba’s Tmall. (Vogue Business)

New retail

• On April 15, Luckin Coffee announced that it received a $250 million injection of cash from shareholders Dazheng Capital and Joy Capital, with the potential for $150 million more if conditions are met. (Future Consumption, in Chinese)
• Alibaba launched a WeChat mini program for Hema Market, its community group-buying initiative. The Hema Market mini app is a rare example of a direct Alibaba-Tencent ecosystem link. Chinese tech giants are usually walled gardens, and WeChat also blocks links to Alibaba’s Taobao online marketplace. (TechNode)

Supply chain

• Courier service STO Express released its 2020 performance report on Thursday. Operating income was down 6.6% year on year, and profit declined to RMB 37 million, a 97.4% drop from a year earlier. The company attributed the negative news to lower market prices due to intense competition. To compensate, STO Express has increased financing and bank borrowing. A silver lining: the company forecasts a turnaround for the first quarter of 2021. (Ebrun, in Chinese)
• Rival courier service ZJS Express closed its Series B with nearly RMB 1 billion in new funding, courtesy of backers Gaolin Capital, Sino-Ocean Capital, and Ningbo Hanrun Investment. A portion of the money will go towards developing the service’s smart supply chain. ZJS’s stated goal is 50% to 100% annualized growth for the next three to five years. (Deal Street Asia)
• On April 9, Baishi Express and upstart Jitu Express were fined for price dumping. Previously fees were as low as RMB 0.8 per package in the eastern Chinese city of Yiwu, but prices doubled after the penalty. As a result, the two courier services have lost their competitive advantage and fallen out of favor among merchants. (Economic View, in Chinese)

As China’s government lays out goals to hit carbon neutrality by 2060, Chinese tech companies are pledging to follow Beijing’s lead by drastically reducing their own emissions. 

In the leadup to and aftermath of the annual meeting of China’s national legislature in early March, China’s biggest companies have been making big promises. Alibaba-affiliate Ant Group has vowed to hit carbon net zero by 2030. JD Logistics has pledged to go completely renewable by the same year. Tencent has announced that it has a plan for eventual carbon neutrality, without a timeline. None have laid out exactly how they’ll reach their goals. 

Wind and solar energy sources have reached parity with coal in parts of the country, but China’s companies have so far been slow to increase the share of electricity they get from renewable sources. Tech firms’ growth in carbon emission is eclipsing their growth of renewable energy use. 

Similarly, social media and gaming firm Tencent’s carbon emissions from its offices and data centers increased to 857 million tons in 2019, up 20% on the year, according to the company’s 2019 annual report. It did not disclose what percentage of electricity it sources from renewables. 

Previous top-down initiatives, including the government’s poverty alleviation initiative, have led to new opportunities for the country’s tech firms. Opportunities mean money, but cutting emissions means scaling back or potentially costly new investments.

The carbon pledges

Since September, when Chinese President Xi Jinping announced that China would reach carbon neutrality by 2060, several companies have laid out plans to control their emissions. These press releases typically lack detail on how the companies will reach their carbon goals. 

Net zero doesn’t mean that companies won’t produce carbon but they’ll offset their emissions by investing in carbon capture technologies or by planting trees, among others. 

JD

In a November press release, e-commerce giant JD said its delivery arm JD Logistics would reduce its carbon emissions by half of its 2019 levels in 2030, and only use renewable energy sources from the same year. JD Logistics is one of six branches of JD’s empire, and has filed for a Hong Kong IPO. The unit is the largest polluter of all JD companies, according to a company spokesperson.. 

JD.com, the JD brand’s flagship e-commerce platform, has yet to outline a plan to cut emissions. 

We’ve heard nothing about how e-commerce marketplaces plan to tackle carbon neutrality. That’s likely because the task is particularly difficult for these companies. They’d have to decide whether to make emissions standards for the millions of merchants who use their platforms. 

Tencent

On Jan. 12, Tencent, the company behind popular messaging app WeChat, unveiled its own plan to reach net zero emissions in a 2,500 character WeChat post. The document, which focused primarily on reducing emissions from its buildings and data centers, detailed methods it could use to do this, including reusing heat generated by its data centers and using novel liquid technology to lighten its electricity usage. The company placed heavy emphasis on using AI to cut emissions, but did not set a timeline to reach carbon net zero. 

“In the future, I expect the biggest part will be powering data centers with clean energy. It will be difficult, but we will work hard at it,” Pony Ma, CEO of Tencent, said in a WeChat post commenting on Tencent’s plan and shared by Chinese media. 

Alibaba and Ant

Alibaba-affiliate Ant Group, the world’s largest fintech company, has been the most explicit and ambitious. It plans to hit carbon net zero by 2030, according to a press release dated March 12. The company said it had created a roadmap to eliminate emissions from its electricity usage this year, and that it would completely cut emissions from its supply chain, which includes data centers and infrastructure, by 2030.

Alibaba also hasn’t released a plan aimed at cutting emissions, but ranked highest in a recent Greenpeace study focused on renewable energy use among Chinese tech companies.

Baidu

Baidu detailed its work on lowering its carbon emissions in its report on low carbon development, which came as a response to Beijing’s latest carbon goals. It also laid out the ways it is greening its data centers, but has not made public any emissions targets. At this year’s Two Sessions in Beijing, CEO Robin Li made a number of proposals for cutting emissions in transportation, including policies to promote rolling out autonomous vehicles, and increasing the efficiency of transportation systems using AI, big data, and 5G.

Big data, big challenges

Key to these plans will be how companies deal with data centers. Explosive energy use from these facilities are not a uniquely Chinese problem. Tech giants from the US have also been working on making their storage and computing facilities more efficient and eco-friendly. 

For tech companies, data is money, and the billions of WeChat messages, emails, photos, and videos uploaded by internet users everyday need to be stored somewhere. But more storage means more pollution. 

In 2018, data centers in China used 161 terawatt-hours (TWh) of electricity, according to 2019 research by Greenpeace and the North China Electric Power University. That’s enough to power a mid-sized nation, and is four times higher than New Zealand’s total energy consumption in 2018. 

During the same year, around 73% of all the electricity data centers in China used was generated by coal and bought from the grid, according to Greenpeace’s report. 

Total energy demand from data centers is expected to reach 267 TWh by 2023, around 4% of China’s total energy consumption in 2019. Should China’s energy mix not change, its tech industry will be responsible for generating 163 million tons of carbon dioxide, more than that generated by the entire population of Venezuela. 

Data centers in China have seen some improvements, with the efficiency of tech companies’ data centers rivalling their international counterparts. “While China’s data center industry has made significant improvements in terms of energy efficiency, the industry’s massive carbon footprint is proof that much more action is needed to increase reliance on clean energy sources,” said Greenpeace East Asia climate and energy campaigner Ye Ruiqi. 

As these companies push for growth, they’ll undoubtedly need more data centers to process and store information from their users. Last year, Alibaba said it would invest $28 billion in data centers over the following three years. Similarly, Tencent announced plans to pile $70 billion into new infrastructure, which includes data centers, cloud computing, and artificial intelligence. 

Increasingly, Chinese companies like Alibaba and Tencent have begun locating new data centres in areas that are rich in renewable energy, including northern China’s Hebei and Inner Mongolia, as well as Guizhou and Sichuan provinces in the country’s southwest. 

Nevertheless, officials in some provinces are becoming increasingly cautious of power-hungry data centers. Beijing, Shanghai, and Guizhou have mandated that new data centers meet efficiency benchmarks. Meanwhile, Inner Mongolia last month proposed controlling the growth of new data centers in the region after it was censured by Beijing for failing to meet energy consumption control targets. 

Mountains of trash

Aside from energy usage, some of China’s biggest e-commerce firms are responsible for producing mountains of waste. As firms like Alibaba, JD.com, and Pinduoduo see record-breaking sales figures, their plastic waste footprint increases. 

During last year’s Singles Day shopping festival, which ran from Nov. 1 to 11, China’s postal and express services delivered nearly 4 billion packages, according to the country’s postal regulator. There are no official figures on how much waste was produced during this time, but one estimate shows the 1.88 billion parcels delivered during the 2019 festival period produced 250,000 tons of garbage.  Around 20% of that total can’t be reused, though far more goes unrecycled because of the costs.

E-commerce platforms have attempted to deal with the issue. Last year, Alibaba’s logistics arm Cainiao said it had introduced biodegradable packing and cut down on tape usage. It also said it cut down on paper used for shipping labels. 

Long way to go

While China’s tech companies have shown increased interest in reducing their carbon emissions, there is still a long way to go. 

In a separate report from Greenpeace and North China Electric Power University at the beginning of 2020, researchers said China’s tech companies need to “dramatically scale up their procurement of clean energy.”

“Internet companies and data center operators should set targets for 100% renewable energy use,” the researchers wrote. 

To do this, companies can build or invest in renewable energy, an option used by data centers around the country by installing solar panels in their roofs. Additionally, companies can purchase renewable energy for provincial generators or buy green power certificates. 

“Buying green power certificates allows companies to claim environmental benefits associated with renewable energy generation, even if electricity from a renewable power plant does not feed directly into a data center facility,” Greenpeace said.

But the Chinese government is taking renewables more seriously, and that could spur tech companies to action. These companies often respond to policy priorities—for example, tech giants including Alibaba, Pinduoduo, and JD took Beijing’s drive to alleviate poverty seriously by narrowing in on China’s rural communities. Developing new markets in China’s hinterland was lucrative for the country’s tech firms, powering much growth seen in the past few years.

Could greening tech play out the same way? It’s not clear. The plans we’ve seen so far are promises to cut back, or install costly new systems, not develop new markets. Lasting change may rely more on companies who figure out how to get rich by going clean—and that’s the topic we’ll look at next month.

Chinese e-commerce giant JD.com said it will invest $800 million in Dada Nexus, the company behind on-demand grocery delivery platform JD Daojia and on-demand delivery platform Dada Now.

Why it matters: The investment underscores JD’s commitment to growing its presence in the logistics sector, which has seen rising demand due to shelter-in-place measures during the pandemic.

• Dada Nexus’ core strength in on-demand delivery—completing most deliveries to users within a three-mile radius in under an hour—is highly complementary to JD’s existing logistics operations, which focus on overnight shipment.
• Shares of Dada Nexus surged more than 11% Monday on the news.

READ MORE: Covid-19, an opportunity for e-commerce

Details: JD.com has entered into a share purchase agreement with Dada Nexus to buy $800 million of newly issued ordinary shares, according to a statement (in Chinese) from the company.

• The new shares were priced at $29 apiece, the Dada Nexus share price as of market close on March 19, the last trading day prior to the agreement.
• After the transaction, JD.com will hold approximately 51% of Dada’s shares, taking into account its existing holdings.
• “The company’s increased investment will facilitate both sides to promote the expansion of on-demand retail and delivery, as well as omni-channel collaboration,” Xu Lei, chief executive officer of JD Retail, said in the statement.
• The deal will help the company further diversify its retail services, improve business partners’ operating efficiency, and deliver better services for its customers, JD said.
• Dada Nexus’s total net revenues surged 85.2% year on year to RMB 5.7 billion in 2020, according to the company’s fourth-quarter earnings filed on March 8.

Context: Dada Nexus is an entity created by a merger of on-demand delivery platform Dada Now and JD Daojia, JD Group’s former on-demand local retail arm.

• The company raised $500 million from Walmart Inc. and JD in 2018.
• The Shanghai-based company went public on Nasdaq in June, raising $320 million.
• JD Logistics, the logistics arm of e-commerce giant JD.com, filed on Feb. 16 its prospectus for an initial share offering on the Hong Kong stock exchange.

Curbing community group-buy

China’s top market regulator levied fines totaling RMB 6.5 million (around $1 million) on five community group-buy platforms for price dumping, reinforcing Beijing’s efforts to regulate the red hot industry.

The companies subject to the penalty are Didi’s Chengxin Youxuan, Pinduoduo’s Duoduo Maicai, Meituan’s Meituan Youxuan, Alibaba-backed Nicetuan, and Wuhan-based Shixianghui. (TechNode)

Female consumers power growth

• Chinese female shoppers make household purchasing decisions in 75% of homes, according to a report released by online retailer JD.com, and are spending increasingly more on themselves as a proportion to the household. The report was released on International Women’s Day, which falls on March 8. Women are driving growth in a diverse range of categories such as cosmetics, baby products, luxury goods, alcohol, cars, and mobile gaming, the report said citing Meha Verghese, executive at agency MediaCom. (JD)
• A Pinduoduo consumption report identified the same trend, saying that the female users are spending more on products and services to “please themselves.” The sale of lipstick, skincare products, and apparel top the sales growth chart, according to the report. (Tencent Tech, in Chinese)
• A total of 2.72 million female drivers work for Didi across Asia, Latin America, Russia, and Australia, according to a report from the ride-hailing giant. China accounts for 2.37 million of the total. Many women, who are often also caregivers and homemakers, turned to gig economy apps due to economic uncertainty caused by the pandemic, the report said. (Ifeng, in Chinese)

Earnings season

• Chinese online grocer JD Daojia reported RMB 2.02 billion ($308.62 million) in revenue during the fourth quarter, an increase of 69.9% year on year. The revenue missed the $309.18 million average estimate compiled by Yahoo Finance. The company’s full-year net revenues in 2020 amounted to RMB 5.74 billion, a year-over-year increase of 85.2%. Total gross merchandise volume for the year of RMB 25.3 billion more than doubled compared with 2019. (Ebrun, in Chinese)
• Fourth quarter revenue for China’s online travel platform Trip.com dropped 40% year on year to RMB 5 billion, which the company attributed to the pandemic. The decline in revenue slowed compared with 48% year-on-year drop in Q3 and 64% in Q2, signaling a gradual recovery of domestic travel market. (KrAsia)

This week in funding

• Ymatou, the Chinese cross-border e-commerce site backed by microblogging platform Weibo, has closed a Series D Plus worth hundreds of millions of RMB from Prosperity Investment, local media reported. (36kr, in Chinese)
• Chinese beverage chain Manner Coffee received investment from investors including Singapore sovereign wealth fund Temasek Holdings at a valuation of $1.3 billion. The Luckin rival operates more than 100 stores across the country, mostly located in Shanghai. (Ebrun, in Chinese) 

JD Logistics IPO

• JD Logistics, the logistics arm of e-commerce giant JD.com, filed on Feb. 16 its prospectus for an initial share offering on the Hong Kong market. It could be the online retailer’s third publicly traded unit after its healthcare arm went public in December. JD.com will continue to hold more than 50% of the stock in JD Logistics. (SCMP)
• JD Logistic’s delivery hubs in Germany, the UK, and the Netherlands are expected to begin testing operations by the end of May. Chinese companies including Huawei will be among the first batch of firms using its services in the countries. (Blue Technology, in Chinese)

IPOs on the way

• Chinese grocery app Dingdong Maicai is reportedly gearing up for a US listing that may come as soon as this year. (Bloomberg)
• Online retailer Dmall E-commerce Co. is planning a $500 million US IPO that that could come the second half of the year, Bloomberg reported. Chinese supermarket chain Wumart Group, which backs Dmall, is also weighing a Hong Kong listing. (Bloomberg)

Big tech blunders

• Food delivery giant Eleme apologized in a Weibo post for poor judgment in an incentive plan to keep delivery drivers working through the Spring Festival holiday. Eleme rolled out a reward system that promises up to RMB 8,200 ($710) in financial incentives. To get the bonuses, drivers were required to reach weekly delivery targets from Jan. 11 to Feb. 28. The threshold for first three periods was around 250 orders, but jumped to more than 380 orders in the fourth week, a target some drivers said was impossible as many stores remained closed during the holiday. The company said in the statement that it will add more incentives and adjust the targets accordingly. (Pandaily)

READ MORE: Delivery drivers brace for low-pay Chinese New Year away from home

• A Chinese consumer in a public WeChat account accused e-commerce platforms like Taobao of accessing and reading unsent user messages to customer service members. A screenshot of a dialog between the buyer and a Taobao service agent showed that an answer was given before the question was sent. A Taobao employee denied the accusation and explained that it could be caused by a network delay. (The Paper, in Chinese）

Management change

• Chinese online travel giant Trip.com rolled out an executive rotation program, according to which each term lasts one to two years. Senior executive Xiong Xing was appointed the first acting CEO under the program.  (China Travel News)
• Meicai, the Chinese app that enables farmers to sell their produce directly to restaurants, announced Friday the departure of its chief financial officer Wang Can whose appointment in July was widely translated by local media as a sign that the company was accelerating its IPO process. Wang’s departure could potentially affect Meicai’s plans to list during which it reportedly seeks to raise around $300 million. (Bloomberg)
• Zhang Wei, public relations director of Alibaba’s digital media and entertainment business, passed away at his home before the Spring Festival holiday, which began Feb. 12. The news didn’t catch much public attention until a viral post alleging that Zhang committed suicide by jumping from Alibaba’s Beijing headquarters, hinting that work pressure caused his depression. Zhang’s family denied the rumors in a Wednesday statement, saying that they are “extremely distressed by the untrue remarks” and “only wish him peace and tranquility.” (Southern Metropolis Daily, in Chinese)

Alipay, JD Digits, and Didi Finance have completely removed all interest-bearing time deposit products from their apps, just days after authorities released relevant regulations. TechNode has independently confirmed that bank deposit products have been banished from Alipay.

Why it matters: The move is the culmination of a month-long crackdown on time deposits sold through third-party fintech platforms, which is part of a wider regulatory clampdown on fintech as regulators try to rein in China’s Big Tech.

• China’s Banking and Insurance Regulatory Commission (CBIRC) said on Jan. 27 that it will further scrutinize the cooperation of banks and insurers with fintech companies.

Full measures: As of Dec. 27, Alipay, JD Digits, and Didi Finance closed the app portals through which users could increase their existing deposits with banks, Chinese media reported. The outstanding balances will be returned to their accounts once the deposits have matured.

Half measures: On Dec. 15, Sun Tianqi, head of the central bank’s financial stability department, likened the partnership between banks and fintech platforms on deposit products to “driving without a license” and warned that regulatory supervision would intensify.

• On Dec. 18, Ant Group was the first of China’s biggest internet platforms to stop selling bank deposit products on the Alipay financial marketplace. The company said it was following regulator demands.
• Tencent, JD Digits, and Baidu’s Du Xiaoman followed three days later.
• The relevant portals could still be accessed by app users who had purchased the time deposits in the past.
• The CBIRC completely banned on Jan. 15 the sale of bank deposit products, including fixed-time deposits, on third-party internet platforms.

The risk: Small regional banks had been advertising time deposits with interest rates as high as 7% through fintech platforms.

• Regulators have said that these banks are high-risk and use online platforms to pump liquidity on their balance sheets and release pressure from their liabilities, without going through the more stringent process of interbank lending.
• After the Jan. 15 rules were implemented, small regional banks are still allowed to sell time deposits, but they must use their own channels to advertise and sell. Xin’an Bank, Blue Ocean Bank, and Wuxi Xishang Bank announced that they are moving their time deposits to their own apps, the Global Times reported.

READ MORE: CHINA VOICES | The unsigned op-eds that foreshadowed Ant Group IPO suspension

Meituan blamed for price discrimination

A WeChat post accusing Meituan of charging its paid members higher delivery fees than its free users went viral last week, renewing netizen attention to the topic of price boosting by Chinese tech companies. A user with the nickname “Piaoyi Shenfu” said in the post that he was shocked to discover that he was charged RMB 4 ($0.6) more for a delivery fee when ordering from a paid account that costs him RMB 6 to RMB 15 per month.

The Weibo thread (in Chinese) titled “Meituan accused of exploiting members” had attracted 720 million views as of Wednesday with many users reporting similar experiences as Piaoyi Shenfu.

The Tencent-backed company denied discriminating against paid users in a Thursday response, claiming that the additional delivery fees were caused by an error in the app’s location cache.

However, netizens remain unconvinced. Piaoyi Shenfu posted a follow-up post Tuesday, saying the company’s false excuse showed its insincerity.

A Weibo user accused Alibaba’s Taobao and online travel giant Ctrip of using similar tactics. Ctrip, which has been accused in the past of price optimization, denied the accusation and asked the netizen to provide evidence of the claim.

In November, Beijing rolled out a draft rule to curb monopolistic practices such as forced exclusivity and price discrimination, where customers are asked to pay different prices for the same product based on data gathered from users. (Piaoyi Shenfu, in Chinese)

Top livestreamers sell knockoffs

Luo Yonghao, an iconic Chinese tech entrepreneur who turned to livestream commerce after the failure of the smartphone company he founded, apologized in a Weibo post on Dec. 15 for selling knockoff sweaters bearing French brand Pierre Cardin labels in a November livestream. Luo’s company said it is establishing a research lab and cooperating with third-party institutions to tighten quality control.

In addition to Luo, several other top livetreamers were found to be endorsing and selling counterfeit products. Kuaishou’s top livestreamer Xin Youzhi, also known as Xin Ba, was slammed for selling fake bird’s nest soup, while “Lipstick King” Li Jiaqi was accused of saying the ordinary hairy crabs he sold were from Yangcheng Lake, the famed area in China for premium grade lake crab. (People.cn, in Chinese)

Business values

• JD.com Digits, JD’s financial arm readying its public listing in Shanghai, apologized on Friday for an advertisement featuring a depiction demeaning of migrant workers. The ad, which went viral on social platforms, features a scene where a poorly dressed migrant worker travels with his mother by airplane. Unfamiliar with air travel, the man asks the attendant to open the window for his airsick mother. While the surrounding travelers deride him for the request, the attendant informs him that a seat upgrade would cost him RMB 1,300 (around $200). While the migrant worker cannot afford the sum, a well-dressed businessman suggests that he take an instant loan of RMB 150,000 from JD Digits for emergencies like this to “avoid being looked down upon by rude people.” (Caixin Global)
• Alibaba Group came under scrutiny last week when news broke that clients of its cloud computing business could screen for ethnicity using its facial recognition software, enabling the identification of Uighurs and other ethnic minorities. In response to the news, the company removed the software and said it would not allow its technology to be used for targeting specific ethnic groups. (The New York Times)

India expands China ban

Border tensions have escalated to a broader tech war—India blocked another 43 Chinese apps on Tuesday, expanding the total number to more than 200. Alibaba’s global marketplace Aliexpress and livestreaming platform Taobao Live as well as several other dating and gaming platforms were added to the blacklist, joining a lengthy roster that already include some of China’s biggest apps such as Wechat, Tiktok, Weibo, and Alipay. Similar to earlier bans targeting Chinese apps, the government cited national security as the reason for the move. (Bloomberg)

IPOs and acquisitions

• JD Logistics, the logistics unit of Chinese online retailer JD.com, is looking to raise $5 billion in its IPO, a figure that would value the company at $40 billion. The valuation is much higher than its reportedly $30 billion valuation from late 2019. The public offering could come in 2021 and JD is choosing between Hong Kong and the US for the listing, according to a source cited in the IFR report. The JD affiliate operated approximately 750 warehouses that covered an aggregate gross floor area of over 18 million square meters, according to an internal letter (in Chinese) written in August by JD Logistics CEO, Wang Zhenhui. (IFR)
• JD Health, the healthcare arm of JD.com, is looking to raise $4 billion in Hong Kong’s largest listing of this year, potentially valuing the company at $29 billion. The offering is scheduled for Dec. 8, local media reported. The deal has attracted cornerstone investors including Hillhouse Capital Group, Singapore sovereign wealth fund GIC, and several long-term funds, according to Hong Kong-based media. (Reuters)
• Yatsen Holding, parent company of Chinese online cosmetics brand Perfect Diary, raised $617 million in its New York debut on Nov. 19, selling 59 million American Depositary Shares for $10.5 apiece. The four-year-old firm said the proceeds will be used for company operations, strategic investments and acquisitions, product and technology development, and offline expansion. (Beijing News, in Chinese)
• Bluecity, the Nasdaq-listed parent of China’s largest gay dating app Blued, has fully acquired local rival Finka for RMB 240 million ($36.4 million). The acquisition comes three months after Bluecity acquired China’s lesbian social networking app Lesdo. (Bluecity)

Regulating livestreams

• China’s National Radio and Television Administration rolled out on Monday a new rule that requires hosts and audiences of live-streaming platforms to register using their real names in a move to tighten control over China’s flourishing livestream market. The rule also banned teenagers from sending virtual gifts after several teenagers bankrupted their parents by tipping livestream hosts tens of thousands of yuan. The move could significantly impact revenue for companies including Kuaishou, Huya, Douyin, and YY Live. (Nikkei)
• US short seller Muddy Waters said revenue from livestreams for China-focused platform YY Live is “around 90% fraudulent” in a 71-page report released Nov. 18.  The report said the company’s international livestream platform Bigo could also be inflating figures. The report followed shortly after Baidu announced its plan to acquire YY Live.(Muddy Waters)

READ MORE: US-listed Chinese firms are on thin ice

China tech’s dark side

• Tencent-backed online recruiting app Boss Zhipin drew public ire this week after local media reported that employers are using the platform for recruiting prostitutes. The company denied the claim, saying that it has rigid rules in place to control job postings and block accounts once sensitive words are detected. The company was criticized in 2017 for failing to screen jobs involving a pyramid scheme, which reportedly lead to the death of a 21-year-old university graduate. (Beijing News, in Chinese)
• Shi Miao, formerly vice president of Cainiao Logistics, was arrested in September, accused of receiving improper payments of several million yuan, according to an internal announcement made public last week. Shi, who began working at Cainiao in 2016, resigned from his roles at Cainiao in June. (Late Post, in Chinese)

Shares in JD.com fell 7.4% in US trading on Monday, reflecting concerns that its profit margin is likely to shrink in the fourth quarter, even though earnings for the e-commerce platform exceeded expectations for the third quarter.

Details: JD.com reported net revenue of RMB 174.2 billion ($25.7 billion) in the third quarter of this year, a 29.2% year-on-year increase. This was on par with 28.7% year-on-year growth for the same period of 2019. Q3 revenue was also close to the $25.76 billion that was the average of analysts’ forecasts as compiled by Yahoo Finance.

• The company’s diluted non-GAAP earnings for the quarter was 50 cents per share, beating the Yahoo analysts’ average of 40 cents per share.
• The number of the company’s annual active customers increased by 32.1% to 441.6 million in the 12 months ending September 30, from 334.4 million in the same period last year. The figure represents the fastest growth rate in three years, JD chief financial officer Sandy Xu said in the conference call. She noted that lower-tier cities were responsible for about 80% of the more than 100 million customers added in Q3. Despite the growth, JD fell short of Alibaba’s 757 million active users and Pinduoduo’s 731 million for the period.
• Due to JD’s plans to invest in initiatives like supermarkets and delivery infrastructure, Bloomberg Intelligence analysts expect the company’s operating profit margin to decline sharply in Q4, deepening a seasonal trend observed in 2019. JD’s non-GAAP operating margin slid from 2.2% in Q3 2019 to 0.4% in Q4. Shopping sites in the last quarter of the year typically spend heavily on subsidies and marketing for big promotional events like Singles Day.
• JD’s cost of revenue increased by 28.5% year on year during Q3, to RMB 147.4 billion, up from RMB 114.7 billion in Q3 2019.
• JD Plus, JD’s paid membership program, recorded more than 20 million members in October. Individual members typically shop more frequently and spend more than non-members.

Context: JD.com’s gross merchandise volume (GMV) increased 33% year on year to RMB 271.5 billion for the Singles Day period from Nov. 1 to Nov. 11 this year. That compared with Alibaba’s GMV figure of RMB 498.2 billion for the same period.

• JD Health, the healthcare unit of JD.com, is planning a listing in Hong Kong.

Chinese e-commerce giants including Alibaba and JD.com have announced new record-breaking sales for Singles Day, the 11-day shopping extravaganza that ended Wednesday at midnight.

Why it matters: Singles Day, typically a 24-hour event, has evolved into a weeks-long shopping festival. Alibaba, credited with popularizing the promotion, extended the event this year by creating two shopping windows that combined spanned Nov. 1 to 11.

• Singles Day is the world’s largest sales event and is considered an informal bellwether for China’s economic health.
• The two checkout periods mean that gross merchandise volume (GMV) recorded on the actual Nov. 11 date do not total all of the sales for the promotion, as in prior years.

Details: Alibaba booked RMB 498.2 billion ($74.1 billion) in GMV for the Singles Day promotional period of Nov. 1 to 11, an increase of 26% compared to the same timeframe in 2019, according to the company.

• JD.com, which always discloses 11-day figures for the event, recorded RMB 271.5 billion in GMV during the same period, rising 33% year on year compared with the 28% annual growth seen last year, to RMB 204.4 billion.
• China’s overall e-commerce sales across platforms for Nov. 11 dropped to RMB 332.87 billion from RMB 410.1 billion booked last year, according data from China-based data services company Syntun. This figure does not include total sales for the 11-day period for all e-commerce platforms.

• Alibaba lengthened the shopping period to 11 days to allow consumers more time to browse and grab deals while easing pressure on the logistics infrastructure, therefore creating a better shopping experience, Alibaba chief executive officer Daniel Zhang said during the September quarter earnings conference held on Nov. 5.
• Despite splitting its sales with the first checkout window from Nov. 1 to 3, Alibaba remained the biggest Singles Day player on Nov. 11, accounting for 59% of total sales compared with 66% last year. JD.com accounted for 26% of sales compared with 17% last year, while Pinduoduo’s share stayed flat at 6% and Suning declined slightly to 3% from 5% a year ago.
• Chinese couriers processed 3.9 billion parcels during the 11-day time period, according to data from the State Post Bureau. More than 675 million parcels were processed on Nov. 11, up 26% year on year. The number of packages during the post-promotional period between Nov. 11 to 16 is expected to rise 28% compared with last year to 2.9 billion, double the average daily number.
• Brands are continuing to leverage the shopping event to promote new products. Syntun data showed 6.4% of the total 31 million stock-keeping units (SKUs) on sale on Nov. 11 were newly launched products, up from last year’s 5.4%.
• Home appliances, smartphones and consumer electronics, apparel, and cosmetics were the most popular product categories.

Stepped-up scrutiny: The event took place as authorities tightened regulations over internet companies to curb anticompetitive practices, such as forced exclusivity and price discrimination.

• The new rules have weighed on Chinese tech firms. Alibaba share prices in New York closed down around 9% on Wednesday since the draft rule was released on Tuesday, Beijing time. Share prices for JD.com dipped more than 2% during the timeframe.
• In addition to government scrutiny, Alibaba is weathering the impact from its fintech affiliate Ant Group’s public offering debacle.

READ MORE: China widens antitrust rules to rein in internet firms

Context: First popularized by Alibaba in 2009, Singles Day has become the biggest national shopping promotion day in China.

• This year’s shopping promotion comes as the whole country is focused on driving post-pandemic domestic consumption.

Tightened control from Beijing

• China’s State Administration for Market Regulation issued draft rules with the aim to block potentially unfair competition from tech giants leveraging their market dominance.
• The new rule could affect Alibaba, Tencent, JD.com, and Meituan—Chinese tech titans that cultivate their own, usually exclusive, ecosystems.
• The draft rules covers a group of anti-monopolistic practices such as forced exclusivity and price discrimination, where customers are asked to pay different prices for the same product, based on data gathered from users.
• Chinese tech shares fell on the news in Hong Kong. Meituan shares plunged 10.5% on Tuesday, while JD.com sank 8.3%. Alibaba dropped 5.1% and Tencent declined 4.4% the same day. (Reuters)

READ MORE: Explainer: China’s tech ecosystems and the barriers between them

E-commerce giants at CIIE

• At the third annual China International Import Expo (CIIE), Chinese e-commerce platform Alibaba said Thursday that it had fulfilled its pledge to import goods worth $200 billion by 2023 despite the uncertainties brought by the coronavirus pandemic. It surpassed its first-year goal by 123%, and hit its second-year goal by 102%, according the company. The number of new foreign brands selling through Tmall Global, Alibaba’s cross-border e-commerce platform, surged 125% compared with a year ago to more than 26,000 from 84 countries. (Tencent News, in Chinese)
• JD.com said that it on track to achieve its target of buying RMB 400 billion (around $61 billion) in imported brand goods by 2021, a goal the firm set at the second CIIE held last year. The company reached its 2019 target of importing RMB 100 billion in imported goods set at the first expo in 2018. (Jrj.com, in Chinese)
• The escalating intentions between China and Australia raised concerns among Chinese importers of Australian products, vendors at CIIE said. China is reportedly planning to ban at least seven categories from Australia including coal, wood, wine, and lobster. Australia joined this year’s CIIE after saying earlier that it would pull out from the event. (SCMP)
• China said that it hopes cross-border commerce to play a bigger role in invigorating foreign trade. (CGTN)
• Beijing rolled out Monday a new guideline for the development of the import trade industry, encouraging the the development of cross-border e-commerce pilot zones, setting up an evaluation system for the pilot zones, and building inventory centers abroad. (Ebrun, in Chinese)

Alibaba, Youzan

• Alibaba posted better-than-expected results Thursday with revenue rising 30% year on year to RMB 155 billion in the quarter ended Sept. 30. However, the company’s share price in New York weakened on slower sales growth and the suspension of finch affiliate Ant Group’s IPO. (TechNode)
• Youzan, the Chinese e-commerce service provider backed by Tencent and Baidu, earned RMB 1.3 billion in revenue during the third quarter, rising 65.4% year on year. Merchants using Youzan booked RMB 72.3 billion in gross merchandise volume (GMV) during the time period, outperforming the same period last year by 90%. Youzan chief executive officer Zhu Ning said in an internal letter on Monday that he expects GMV for Youzan merchants to exceed RMB 100 billion this year. Zhu noted in the letter that the company is upgrading its investment unit and is looking to invest in ecosystem partners, corporate service peers, and new merchants. (Youzan, in Chinese)

Updated: added details about vendors importing Australian goods at CIIE.

Alibaba Group and Cartier-owner Richemont announced Thursday a combined $1.1 billion strategic investment into Farfetch, the UK-based online luxury and fashion retailer building an increasing presence in China.

Details: As part of the partnership, Alibaba and Richemont will invest $300 million each in private convertible notes issued by the New York-listed luxury fashion retailer, according to a statement from Alibaba.

• The two companies will each invest $250 million in Farfetch China, taking a combined 25% stake in a new joint venture that manages Farfetch’s China operations.
• Existing investor Artemis, the controlling shareholder of French luxury giant Kering, will buy $50 million Class A ordinary shares in Farfetch.
• After the deal, Farfetch will launch luxury shopping channels on Alibaba’s platforms including Tmall and cross-border marketplace Tmall Global to tap into the company’s massive user base of 757 million.
• In the meanwhile, the two firms will cooperate to develop omni-channel retail solutions for e-commerce websites and apps.

Go deeper: The partnership makes Farfetch one of the few companies to receive investment in and cooperation with the two rival e-commerce ecosystems headed by Alibaba and JD.com. This highlights Chinese tech firms’ eagerness to tap into the online luxury market.

• Chinese consumers have expressed a strong appetite for luxury brands over the past few years. Consultancy firm Bain expects Chinese shoppers to make up nearly half of all luxury sales by 2025, up from representing 35% global luxury spending in 2019.
• JD.com, which has been locked in a battle with Alibaba’s Tmall to win over luxury consumers, invested $397 million into Farfetch in 2017. The Chinese online retailer merged its luxury goods platform Toplife with Farfetch in 2019.
• Tencent, the Alibaba rival and JD.com investor, participated in a $250 million investment into Farfetch with investment firm Dragoneer in January.

JD Health, the healthcare unit of JD.com, on Sunday filed a draft prospectus for a listing in Hong Kong, making it the third affiliate of the e-commerce company looking to go public this year. 

JD announced on the same day that its intends to spin off JD Health by way of a separate listing on the main board of the Hong Kong stock exchange. After the spin-off, JD Group will remain the largest shareholder in the company with a 81% stake through its subsidiary JD Jiankang. All the other shareholders, include private equity firms Sum Xi Holdings and Triton Bidco Limited, each own less than a 5% stake in the company.

JD Health’s core business is its retail pharmacy unit and online healthcare consulting services. The company earned revenue of RMB 8.8 billion ($1.3 billion) in the first half of this year, up 76% compared with the same year-ago period. Its revenue grew 32% year on year in 2019 and 46% annually in 2018.

The company’s main revenue sources are sales of pharmaceutical and healthcare products under JD’s direct sales model, commission and service fees from third-party merchants, as well as advertisements from suppliers and merchants, according to the prospectus.

JD Health has received with a total of $1.8 billion in funding since it was established, according to Crunchbase. The company’s latest $830 million investment was received in August from Hillhouse Capital.

The filing comes at a time of growing market interest in healthcare and biotech industries as a result of the pandemic. JD Health is competing with multiple rivals including Alibaba-backed Ali Health, Tencent-backed Wedoctor, and Pingan Good Doctor.

After a rough 2019, the e-commerce giant has been gaining momentum since the beginning of this year when e-commerce become one of the few industries which benefited from Covid-19. The company’s share prices surged more than three-fold to a historical high of $79 apiece in late August compared with around $20 at the beginning of 2019.

In addition to a Hong Kong dual listing of the core online retail business, JD’s grocery delivery unit Dada JD Daojia went public in the US in June and its fintech unit JD Digits filed for an initial public offering at Shanghai’s STAR Market in July.

Alibaba’s digital factory

• Alibaba Group unveiled on Sept. 16 the Xunxi Digital Factory featuring its cloud computing infrastructure and internet of things technologies. The Hangzhou-based factory offers small- and medium-sized companies a digitalized manufacturing supply chain that allows for customizable, more responsive production. Under the company’s new manufacturing model, a program Jack Ma introduced in 2016, Xunxi is primarily focused on apparel manufacturing in its early stages. The company said that the factory has nearly doubled manufacturing efficiency by leveraging new technologies such as real-time resourcing, as well as process and cost planning. (36kr, in Chinese)

Logistics: backbone for e-commerce

• E-commerce platform Pinduoduo has entered a strategic agreement with China Post, the state-backed postal service, to offer farmers support for their sales, logistics, and finances. China Post also pledged to build 150 agricultural production centers over the next three years. The cooperation highlights Pinduoduo’s efforts to deepen its agricultural product strategy. (Donews, in Chinese)
• Cainiao Guoguo, Alibaba-backed parcel delivery service plans to double its user base to 400 billion in the coming year, CEO Li Jianghua said on Sunday. Additionally, the company is going to support scheduled deliveries in 100 cities, build 200,000 delivery stations across the country, and use recyclable packaging materials in 30 cities, Li said. (Tencent News, in Chinese)

 Pet e-commerce on the rise

• JD Daojia, JD.com’s on-demand retail joint venture, launched a pet supplies shopping promotion with New Ruipeng Group, a leading pet service in China. As part of a partnership inked in July, orders for pet products placed on JD Daojia will be delivered directly from nearly 1,000 physical stores run by New Ruipeng. The orders will arrive within an hour in first-and second-tier cities like Shanghai, Beijing, Chengdu, and Shenzhen. New Ruipeng inked a similar deal (in Chinese) with Meituan’s on-demand delivery arm to capitalize on the popularity of grocery delivery. (JD Daojia, in Chinese)
• Petkit, pet specialty retailer and smart service provider, announced on Friday the completion of its Series C Plus led by current investor Qiming Venture Partners, joined by GGV and Ince Capital. The company said the funding reached eight digits in dollar value. The company’s most recent $20 million C round was received in 2019 from Qiming Venture Partners. (Petkit, in Chinese)
• Boqii Holdings, China’s top pet-focused online retailer, filed on Sept. 8 with the US Securities and Exchange Commission for a listing with a fundraise goal of $115 million. The pet e-commerce platform is extending its offline reach to connect brand partners, pet product manufacturers, pet stores and pet hospitals. The market size of China’s pet industry nearly tripled to RMB 204.9 billion ($30.2 billion) in 2019 from 2014, and is expected to reach RMB 449.5 billion in 2024, according to Boqii’s prospectus citing data from Frost & Sullivan.(SEC)

Healthcare boom

• JD plans to spin off its health care unit JD Health in a Hong Kong listing. The timing for the debut will depend on market conditions, according to a filing from the online retailer on Monday. JD Health is the latest JD.com affiliate preparing to go public in a recent spree. Mergers and acquisition deals as well as IPOs in China’s healthcare and biotech sector have surged amid the Covid-19 epidemic. (JD)
• A Hangzhou-based Pinduoduo affiliate set up a heath care subsidiary in Shanghai on Sept. 17, according to corporate intelligence service Tianyancha. Headed by Pinduoduo’s general counsel and VP of finance Zhu Jianchong, the subsidiary’s business scope includes telemedicine, medical services, health food sales, and medicine sales.  (Tianyancha, in Chinese)
• AliHealth, which rebranded as Yilu Fukang in early September, celebrated its fourth anniversary on Sept. 16. (Tencent News, in Chinese)

JD Health, the healthcare arm of e-commerce firm JD.com, is reported to be on the verge of filing a Hong Kong IPO that could be worth $1 billion. Tencent-backed Wedoctor is rumored to be coming next year. There’s no question that telemedicine is hot.

A pandemic that kept people at home for months is, of course, one big reason. The convenience and safety of remotely ordering medicine or texting a doctor appealed to many patients. Boosted by a Covid-driven influx of users, the user volume for online healthcare is expected to surpass 60 million this year, with a market volume exceeding RMB 700 billion (about $103 billion). But will this unique year prove to be a high water mark for the industry, or are doctor apps here to stay?

Bottom line: China’s telehealth industry got a big boost this year, offering vital medical services that would have otherwise been unreachable to many patients. But it’s too soon to say whether the surge in patients caused by lockdowns has lasted, or whether healthtech apps will be able to turn a profit. Achieving broader change in China’s healthcare system will require new regulations and industry standards, not just consultation apps. 

The Covid rush

The shock: The coronavirus exposed shortages in resources and inequalities between urban and rural hospitals, but it also revealed the potential of tech in solving some of China’s healthcare woes. 

• Health insurance covers 95% of China’s population, but qualified doctors and specialized facilities are concentrated in urban areas. 
• Covid shut down some facilities and overwhelmed others, leading many patients to try mobile healthcare platforms for the first time. 
• “Covid has crushed confidence in institution-based medicine,” Wei Siang Yu, Chairman of Borderless Healthcare Group, told TechNode. “This is a very good transition from institution-centric to consumer-centric healthcare.”

The surge: As you’d expect, doctor apps saw surging use during the Covid period.

• Telemedicine platform Ping An Good Doctor reported 831,000 average daily online consultations in the first half of 2020; JD Health saw 150,000 patients per day use their consultation services. Online consultation orders increased nearly fourfold on Tencent-backed Wedoctor.  
• During the Covid-19 outbreak, 78% of doctors from tier 1 to tier 4 cities accessed digital channels, the most popular of which were mini programs and apps like Wedoctor, according to data from the China Pharmaceutical Market Research Association. After the experience, 73% of doctors surveyed said they would use telehealth services in the future. 

And then? So far, we don’t know how much of the Covid surge lasted after re-opening.

• No user numbers are available after April.
• The online penetration rate of the internet medicine industry is expected (in Chinese) to rise to 8.2% this year from 6.6% in 2019, according to Qianzhan Industry Research Institute. 
• JD Health’s IPO plans mean more data will be available soon—and probably suggest that they’re confident in what the data will show.
• But Koh Hau-Tek, Deputy Chief Medical Officer at Jiahui Health, did not see a permanent shift to remote consultations at the Shanghai-based private healthcare network. While many patients used the network’s private platform during lockdown, he told TechNode that demand fell off quickly as patients returned to face to face doctor visits as soon as they could. 

Who are the healthcare players? 

Covid-19 made existing online healthcare services more popular and pushed traditional medical companies to move online. As of Mar. 6, 2020, China had a total of 2,330 internet medical projects, according to data from 36kr. Existing startups and tech firms expanded their markets and services, offering products from virtual consultations to medical encyclopedias. 

Consultations and telemedicine:  A key service offered by many platforms is online consultations with doctors straight from your phone—often for free. Another common offering is medicine delivery. 

• Miaoshou Doctor offers pharmaceutical and consultation services, with some consultations as expensive as 399 RMB. It reached unicorn status after an $85 million Series C funding round in June 2020.
• Chunyu Doctor, founded in 2011, facilitates communication between doctors and patients by allowing customers to schedule appointments and send their medical history to doctors. It expanded its service overseas in March. 
• Alibaba entered health care true to its e-commerce roots by selling pharmaceuticals, a business it’s run since 2011. In response to the pandemic, the flagship Ali Health app started offering free medical consultation to users from mainland China in January, and to overseas Chinese nationals in March. Ali Health raised $1.3 billion in an August secondary sale in Hong Kong.
• Ping An Insurance’s offerings range beyond online consultation. Its popular “Good Doctor” healthcare platform, the largest in China, also offers digital prescriptions and medicine delivery. In 2019, it partnered with 94,000 pharmacies to deliver prescription drugs to patients. Backed by China’s most prominent insurance provider, Good Doctor helps users navigate healthcare insurance. 
• JD.com entered the fray in February with the launch of its JD Health app, which will reportedly soon IPO in Hong Kong. The platform facilitates both online consultations and offline appointments. Its “Family Doctor” service allows up to eight family members to save their records to the platform if only one member registers. 
• Tencent launched the Tencent Health mini program on Wechat in March 2019. Users can search a database of doctors across China and pay for text or video consultations, as well as digitally schedule appointments in-person at hospitals.
• Dingxiang Doctor began as a health information app, and won praise for helping bust rumors during the Covid-19 outbreak. It also provides consultation services: one million as of Feb. 20. 
• Therapists and mental health services are going mobile with popular startups like My Therapist, a platform that allows users to book and pay for consultations with mental health professionals from around the world.

Everything else: Outside of virtual consultations and prescription management, big tech companies are diversifying their focus to include health education or investment in new technologies. 

• Baidu drew from its position as top search engine in China to develop a medical information platform. It launched Baidu Health in March as a mini-program combining its encyclopedia of medical terms with an “ask a doctor” function. The platform hosted doctors from third-party platforms like Chunyu Doctor and Ping An Good Doctor. Baidu is also promoting medical innovation: Its AI solutions for healthcare and diagnosis have been adopted by nearly 2,000 hospitals as of Q2 2020. 
• Tencent has a broad presence in health. A “medipedia” provides health information through a partnership with WebMD, and a number of innovations such as a digital “health ID card” that records medical records from different hospitals and its own health code are grouped under the so-called “Smart Hospital” initiative. The tech giant also has three research labs focusing on medical applications of AI, and has invested in multiple healthtech startups like Wedoctor and Haodafu Online.

Telehealth’s longevity 

Is it profitable? The general consensus among observers is that telehealth apps have yet to demonstrate a viable business model. The healthtech market is big, but there has been “no proof of sustainable revenue,” Wei said. Different platforms are experimenting with different pricing models, seeking a balance between offering affordable services, paying doctors, and earning a profit. Even Ping An Good Doctor has difficulty breaking even. 

• Good Doctor’s “Private Doctor” service offers both free services and family packages for an annual fee of RMB 1,099 to RMB 7,999 for unlimited access to their services and discounts. 
• But the proportion of paying users is low: 3 million monthly paying users out of 67.3 million total monthly active users. 
• The company reported a net loss of $30.8 million in the first half of 2020, despite a ten-fold increase in customer traffic.
• Other firms also struggle to turn a profit and demonstrate the viability of their business models. Even as Wedoctor plans a Hong Kong IPO, doubts remain about the stability of the money-losing company.
• TechNode saw widely varying prices for consultations on Tencent Health’s Wechat mini program, ranging from RMB 1 to RMB 200. There seemed to be no fees besides these consultation fees, which themselves appear too low to be profitable.
• Medicine delivery seems a far more profitable angle. 2018 regulations allowed drug companies to go from selling to hospitals to selling directly on e-commerce platforms, boosting tech firms like Alibaba that were already in the game. Drug delivery also accounts for more than half the revenue of Ping An Good Doctor.

Shot in the arm from regulations: A favorable policy environment is another major factor driving growth. Chinese regulators loosened restrictions on healthcare provision in response to Covid-19. The national health insurance system has allowed online medical services to be covered by healthcare payment plans since late 2019. 

• During 2020’s “Two Sessions” meetings of the National People’s Congress and Chinese People’s Political Consultative Conference, 54 total proposals about healthcare were received. VC investors, CEOs, and other business leaders emphasized big data solutions to medical problems and integrated healthcare platforms.
• If you have any doubt about how policy-driven this sector is, check out the Chairman’s letter at the head of Ping An Good Doctor’s last annual report—he names five policy documents before his own company.

Privacy issues: The privacy of sensitive medical data will be a major concern for both companies and regulators. A data leak in October led to the exposure of 24 million patient records from Sichuan Lianhao Technologies and the medical department of Beijing’s Tsinghua University. 

• Data security in China is managed by several different laws and policies. Medical data is regulated under several different guidelines and rules, like the 2017 Cybersecurity Law and guidelines from the China Food and Drug Administration.

Healthcare beyond apps 

The coronavirus gave telehealth firms a publicity boost and added government goodwill, but mobile apps alone are just one part of the equation. Patients still need face-to-face consultations to avoid missed diagnoses. 

Lack of doctors: China struggles with a shortage of trained and qualified doctors, and apps have struggled to ensure quality. 

• “Whatever you see at the back of these mobile apps, the level of qualifications will be very different than the rest of the world,” Wei said.

The limits: Despite user numbers spiking during the pandemic, Wei argues that the mobile telehealth model has limits: “They’re good for someone in fifth or sixth tier cities that doesn’t have the resources or connections and wants to talk to somebody with a bit of medical background, but is he or she able to go into the clinic?”

• Virtual consultations are only so effective. Koh told TechNode that they work best for screening and triage, but most patients who need medical care will still need to go in person. There’s no way to virtualize many diagnoses, procedures, or care for complex health issues, which requires the physical presence of hospitals and qualified doctors. 
• Mobile apps haven’t evolved beyond thinking about healthcare “as a digital business rather than an experiential business,” Wei said. With the right moves, telehealth might end up becoming an integral part of medical care, he said, but “at the moment it’s not very sticky.” 

Big (medical) data: “Something good that will come out of this thing will be a certain level of big data,” Wei said. 

• Chinese Premier Li Keqiang stressed the importance of developing healthcare and medicine alongside technology as “drivers of growth” during an April speech. 
• Healthcare apps and existing “smart hospital” ideas have laid a foundation of tech in healthcare and are poised to further develop and standardize.
• But monetization of medical data will take some time, Wei said. “We need to watch the space of some of these mobile app players, how they go into other Southeast Asian countries.”

Now that China has lifted most Covid restrictions, telehealth companies are at an important junction. The first half of 2020 brought them new users and tacit government support, but the rest of the year will challenge firms working to maintain growth and make a profit. 

The upcoming IPOs will provide insight into the profitability of these firms and the prospects of the industry. 

Read more

• China’s healthcare industry overview 2020
• Investment opportunities in China’s healthcare sector after COVID-19
• COVID-19 makes digital care the norm in China

JD Health, the healthcare unit of Chinese online retailer JD.com, is preparing to file for an initial public offering in Hong Kong as soon as this month, Bloomberg reported Thursday.

Why it matters: JD Health is the latest JD.com affiliate preparing to go public in a recent spree. The potential listing comes amid mounting investor interest in the broader online healthcare sector triggered by the coronavirus pandemic.

• Covid-19 is bolstering investments as well as mergers and acquisitions in online health care and biotech. There were $3.9 billion worth of health care-related deals in Hong Kong during the first half of the year. The whole year figure in 2019 was $3.8 billion, according to data from Mergermarket.
• JD Health is competing with multiple rivals including Alibaba-backed Ali Health, Tencent-backed Wedoctor, and Pingan Good Doctor.

Details: JD Health could raise at least $1 billion in a Hong Kong initial public offering (IPO), according to Bloomberg sources who declined to be identified because the information is private.

• The sources said the IPO size and timeline are still subject to change.
• The IPO news comes just one month after the company announced the completion of a $830 million investment from Hillhouse Capital through the purchase of Series B preference shares.
• A JD.com representative declined to comment to TechNode on Friday.

Context:  Since the beginning of this year, several of the e-commerce giant’s business units have listed or are preparing to IPO, including the Hong Kong dual listing of the core online retail business, the US IPO of grocery delivery unit Dada JD Daojia in June, and a filling to Shanghai’s STAR Market for fintech unit JD Digits in July.

• JD Health began as an e-commerce platform that sold pharmaceutical products such as vitamins and supplements, medical supplies, and Chinese traditional medicine.
• The platform was spun off from the parent company in May 2019. It is diversifying its services with the launch of traditional Chinese medicine, head and neck medicine, and heart disease services centers by hiring the country’s top specialists.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts

In an earnings season tradition, Elliott and James bring on Michael Norris to discuss the quarterly earnings reports of Alibaba, JD, and Pinduoduo, and discuss what investors should be looking for from them going forward.

See supporting charts here.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

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Watchlist:

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• Luckin Coffee

Hosts:

• Elliott Zaagman– @elliottzaagman
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American customers can also experience the pleasure of placing an order and receiving it on that same day, provided the item(s) selected are eligible for same-day shipping, and the receiver is willing to pay a premium, or $13 per month for a Prime membership. 

But while Amazon benefits from a lack of any real competition (Walmart+, touted to be a serious rival to Amazon Prime, has again delayed its launch), China’s highly competitive e-commerce market engenders an intense environment of one-upmanship in the world of logistics. 

With Alibaba repeatedly increasing its stake in the postal tracking platform Cainiao, and JD Logistics exploring an initial public offering (IPO), the gap between Chinese and American e-commerce will continue to widen. 

Alibaba’s push for logistics dominance may soon expand past its domestic borders. Cainiao recently announced a five-fold increase in chartered export flights from 260 to 1,260 over the next nine months. The company says this will allow its cross-border shipment delivery times to decrease from 7-10 days to a mere 3-5 days, a step towards its ultimate goal of delivering packages anywhere in China within 24 hours and throughout the world within 72 hours. 

JD Logistics—the logistics arm of e-commerce giant JD.com—has not stood by the wayside while its fierce rival has poured money into improving its logistics capabilities. A pioneering 5G-powered smart logistics park in Beijing and fully automated warehouse in Shanghai have set the company apart in the realm of smart supply chains. 

If there were any doubts about these capabilities, the company’s actions amid the initial stages of the coronavirus pandemic put them to rest: JD.com leveraged its automated delivery technologies to ship supplies to hospitals in Wuhan Province, when vehicle operators were stationed 750 miles away in Beijing. Amazon, meanwhile, stumbled while trying to provide its customers with the same level of service at the height of the lockdown.

In China, major investments like the ones that JD and Cainiao have made point to what has become a simple truth in the e-commerce space: a company’s logistics capabilities can distinguish a platform from its competitors. If anything, “in-a-flash” delivery times and unparalleled efficiencies have become “table stakes” in China’s online retail space. 

As Wan Lin, President of Cainiao, said at the company’s annual industry summit, “Logistics has become a game-changer and a key differentiator that sets one business apart from one another.” The potential for efficiency in all nodes within the supply chain should lead to accuracy and cost savings that eventually reach the consumer. 

Indeed, it is the Chinese consumer who ultimately benefits from ferocious competition between e-commerce giants — competition which may escalate further should JD Logistics and Cainaio proceed with their intended initial public offerings. 

As this publication first reported, JD Logistics could go public in Hong Kong as early as 2021. If Cainaio were to follow suit in the coming years, the silos that have existed between Tmall and JD.com will begin to disintegrate. Consumers will no longer have to choose the best shipping option based on the platform they made their purchase; rather, the market will determine how a product is best shipped. 

Letting the market decide what goes where and for what price—usually the lowest one—will further accelerate the demise of brick-and-mortar retail in China and elevate digital platforms and ecosystems to own an even greater share of their consumers’ lives. This, in turn, will exacerbate the already-wide gap between the American and Chinese online consumer experiences.

To be sure, there is no fundamental reason why Americans shouldn’t experience the quality customer service and world-leading delivery times to which Chinese consumers have become accustomed. Amazon’s revenue dwarfs that of Alibaba, and it too has invested heavily in autonomous delivery systems and robotic warehouse workers, not to mention expanding its distribution hubs around the world. 

And yet, the US e-commerce landscape pales in comparison when it comes to logistics capability. SF Express, the second-biggest logistics company in China and one of the biggest in the world, predicts 12-hour delivery times will become standard across the PRC within the next five years. As competition for logistics supremacy continues — perhaps even accelerates — what is considered as an industry standard for delivery times in 2025 may be halved by 2030, and so on. 

Whether or not American companies learn from Chinese juggernauts like Alibaba and JD.com is their prerogative. What is true for now, and in the foreseeable future, is that China has taken the lead and shows no signs of sliding to second-place any time soon. E-commerce in China is for hares, not for tortoises.

JD.com shares closed nearly 8% higher on Monday after the Chinese online retailer posted robust top-line growth for the second quarter of this year, and announced a $830 million investment in its healthcare unit, JD Health.

Why it matters: JD announced its stronger-than-than expected results against a backdrop of domestic consumption slowly recovering from the disruption brought by the Covid-19 pandemic.

• Both the release of pent-up demand and shifting consumer behavior from offline to online boosted momentum for e-commerce giants in the quarter.
• Fresh from its June debut on the Hong Kong stock exchange, this is a critical time for JD with retail chief Xu Lei gradually taking over for founder Richard Liu as the Chinese online retailer’s new leader.

READ MORE: Much needed big numbers from 618 shopping festival

Details: JD.com reported net revenue of RMB 201.1 billion ($28.5 billion), representing a 33.8% increase from the same period in 2019, the company said in a statement on Monday. The revenue beat the high end of analyst estimates compiled by Yahoo Finance.

• The company’s net income attributable to ordinary shareholders was RMB 16.4 billion in the second quarter compared with RMB 600 million for the same period last year.
• Company CFO Sandy Xu attributed the strong growth to an improving macroeconomy and “record-high” 618 promotion, referring to its annual anniversary sale event held on June 18.
• The company also announced that healthcare unit JD Health received a $830 million investment from Hillhouse Capital through the purchase of Series B preference shares.
• The company’s annual active customer accounts increased by 29.9% year-on-year to 417.4 million in the 12 months ended June. “Over 80% of our new users added in the quarter came from lower-tier cities, the highest level on record,” Xu said during the earnings call on Monday.
• The cost of revenues rose in line with revenue growth, increased by 34.5% to RMB 172.4 billion for the second quarter of 2020 from RMB 128.2 billion for the second quarter of 2019.

Context: JD began this year moving to list a number of its affiliated companies, including JD Logistics, grocery delivery Dada JD Daojia, and fintech unit JD Digits.

• JD.com rival Alibaba will report quarterly results before the market open on Thursday, and Pinduoduo will release its Q2 report on Friday.

JD Group, the parent company of e-commerce giant JD.com, has announced a strategic partnership with China’s biggest online travel agency Trip.com to integrate their traffic and supply chains as the country’s travel industry works to recover from the Covid-19 pandemic.

Why it matters: JD’s push into the tourism sector underscores its confidence in the industry’s revival, which was brought to near-standstill during the lockdown.

READ MORE: Normalcy tracker: How China is adjusting to life after Covid-19

Details: JD Group and Trip.com inked a partnership under which the two companies would cooperate across various sectors including user traffic funneling, marketing, business development, and e-commerce, according to a statement from the company on Sunday.

• The Beijing-based online retailer is adopting a more open approach towards partner cooperation, diversifying the products and services on offer as well as enriching its marketing channels.
• Under the deal, JD will connect Trip.com with its 8 million enterprise clients and 400 million individual users.
• Meanwhile, the firm expects the tie-up will help diversify its business operations and upgrade its supply chain capacities.

Context: JD is on a shopping spree this month with a $100 million strategic investment in supply chain enterprise Li & Fung Group, the acquisition of home appliance chain 5 Star Electric, and RMB 3 billion ($432 million) acquisition of courier Kuayue Express.

• A corporation with Trip.com comes three months after JD inked a partnership with short video platform Kuaishou, a move to drive sales through livestreaming.
• The e-commerce giant renewed its push into the tourism market through an agreement with state-owned tourism operator Beijing Tourism Group (BTG) in July and pumped RMB 450 million into travel service Caissa in April for a 7.4% stake.
• JD rival Alibaba has a solid presence in the travel market with its tourism unit Fliggy.
• Trip.com, formerly known as Ctrip, is reportedly considering delisting from Nasdaq. The company is offering discounts and coupons to spur travel consumption.

JD Group, parent company of e-commerce giant JD.com, has inked a strategic partnership with a state-owned tourism operator as the online services conglomerate strengthens its presence in the travel industry.

Why it matters: JD’s renewed push into the tourism sector underscores its confidence in the industry’s revival, which was brought to near-standstill by the Covid-19 pandemic.

Details: On Monday JD Group announced a partnership with Beijing-based tourism services operator Beijing Tourism Group (BTG) on the construction of intelligent services and smart cities.

• As part of the deal, JD Group and JD’s technology service arm JD Digits have made a strategic investment of undisclosed size in Beijing BTG Huilian Technology, a subsidiary. It will act as the main body for the cooperation, promoting digitization of consumer-facing services in the tourism group.
• JD will help BTG build digital insights and private cloud platforms in order to improve its management of customers, merchants, and logistics, as well as capital and information flow.

Context: In June, JD sold all of its 21% stake in Tuniu, once a top online travel agency in China, for $65 million, five years after leading a $500 million round in the company in 2015.

• The BTG investment comes more than one month after JD pumped RMB 450 million ($63 million) in travel service Caissa, for a 7.4% stake.
• Travel in China is beginning to show signs of recovery as new cases of the novel coronavirus decline.
• Tech giants like Alibaba—a JD.com rival which has a solid presence in the travel market with its tourism unit Fliggy—and Ctrip are offering discounts and coupons to spur travel consumption.
• BTG is involved in various areas of the tourism segment including travel agencies, dining, hotels, shopping, and entertainment.
• Operating assets worth more than RMB 10 billion, the company is behind 132 brands including four domestically listed entities: hotel chain BTG Hotels, retail business Wangfujing and Beijing Capital Retailing Group, and roast duck restaurant brand Quanjude. The company operates more than 7,000 offline stores across 400 cities.

China’s online shopping festivals are usually about racking up the biggest sales, but things were slightly different for this year’s 618 festival, the mid-year shopping frenzy that ended on Thursday of last week. In China, shopping festivals have become landmark events that are used to build a “new normal” for sales volumes and to test e-commerce infrastructure. “This year’s peak volume [for Singles’ Day] will become the norm for the next year,” Alibaba’s Jack Ma once boasted.

Here’s how it went down in 2020.

A showdown moment for e-commerce platforms

Annual shopping events like 618 and Singles’ Day are high-profile showdowns for e-commerce players. Observers use sales totals from shopping holidays to gauge which platforms have pulled ahead and who has fallen behind. Updates on shopping events are often dubbed “battle reports” by both the companies and local media to hype up the competition. 

Alibaba still leads the pack in terms of total sales, but their rival JD is catching up quickly. 

• Alibaba booked RMB 698.2 billion in sales over the 18-day shopping festival. The company didn’t publish overall sales data last year, addressing growth over time by saying only that more than 100 brands enjoyed a higher GMV for 618 this year than they did for Singles’ Day 2019.
• JD, which had its Hong Kong IPO on June 18, racked up a record RMB 269.2 billion in sales from June 1 to June 18, up from RMB 201.5 billion in last year. That’s 33.6% growth compared with last year’s 26.6% uptick. The sales are on par with Alibaba’s RMB 268.4 billion one-day Singles’ Day sales on November 11, 2019.
• Pinduoduo did not publish overall sales figures for 2020. When contacted by TechNode, they said only that their sales of baby formula increased 510% year-on-year—and that their users don’t need to wait for twice-yearly sales to get the best value for their money because they get the best value on Pinduoduo platform “every single day.” 

Subsidized shopping propels post-Covid recovery

This year’s 618 festival comes as Beijing is gradually easing coronavirus lockdowns and encouraging people to go out and spend money again. The state has even launched a new digital coupon program to incentivize consumers to re-open their wallets after a difficult spring. Current sales data does indicate signs of economic recovery as the outbreak recedes.

To incentivize user consumption, subsidized shopping has become the order of the day. For an RMB 327 order that I placed for menswear on Alibaba’s Tmall during the 618 festival, I received a discount of just over RMB 80. That discount comprised RMB 60 from Tmall and RMB 20 from the brand itself—on top of an RMB 2 government consumption coupon. 

• The digital coupons issued by the state and distributed over various platforms—such as Alipay, WeChat, and shopping apps—totaled RMB 5.6 billion by the end of May. Though not issued specifically for the promotion, these digital coupons bolstered the consumption-boosting efforts and will continue beyond the holiday.
• Alibaba says this year’s 618 festival featured the biggest giveaway of consumer coupons and subsidies in the event’s history, totaling over RMB 14 billion in value.
• Pinduoduo claimed they had no upper limit for subsidies for the festival, doing anything they could to sweeten the GMV percentage increase. The company also pledged to make coupon usage easy by removing various pre-sales and deposit payment tricks that are popular on other platforms. (Such tricks are often very complicated, with bargain-seekers often joking that you need a talent for math to get the best deals.)
• JD.com planned to offer RMB 10 billion in subsidies, another RMB 10 billion in coupons, and “hundreds of billions of RMB worth of discounts.”
• China’s omnichannel retailer Suning launched their “J-10%” subsidy plan, targeting household appliances, mobile phones, computers, and groceries. The company pledged the products sold on its platform would be at least “10% lower than other major e-commerce platforms,” evidently benchmarking their rival JD. This is clearly a direct response to JD’s similar subsidy program aimed at Suning in 2012.

Despite the expansive subsidy campaigns, the competition among mainstream e-commerce platforms, during 618 and beyond, is still “rational,” according to Liu Yuan, an analyst at UBS Investment Research. “There’s still sustained revenue and profit growth across platforms,” he said.

The months-long lockdown has turbocharged China’s transition to an online world and propelled a huge leap in online shopping. 

The percentage of online shopping (out of total retail) jumped from 20.4% in December to 24.3% in June, according to data from China’s National Bureau of Statistics. “We expect the figure to jump to nearly 40% within four to five years, although it may drop slightly in the near future because of the gradual recovery of offline businesses,” Liu said. 

“Export companies, factories, and farmers who leverage on online channels to boost their sales may contribute to the growth during the 618 festival,” he added.

Livestreaming is a must-have

Similar to Singles Day, which usually launches with a star-studded countdown gala, 618 is increasingly filled with glitz and glamour, and livestreaming has further blurred the line between shopping and entertainment.

Livestreaming was already a big deal during last year’s Singles’ Day, but the feature is now a must-have for shoppers after livestream e-commerce gained momentum during the pandemic. 

Analysts project that sales achieved through livestream e-commerce will total RMB 961 billion in 2010, compared to 2019’s total of RMB 433.8 billion. Livestream shopping is expected to make up 8.7% of all online purchases. 

• As JD geared up for the 618 promotion, the company entered a partnership with Kuaishou on May 27 in a deal that allows Kuaishou users to purchase JD’s self-run products directly without leaving the short-video app.
• Alibaba’s Taobao Live invited more than 300 performers and celebrities to join livestream sessions during the festival.

To reach a wider audience, livestreamers partnered with e-commerce platforms and attended popular variety shows as part of the 618 campaign. Viya, the “livestreaming queen” with 28 million followers on Taobao Live, joined several of the country’s top reality shows, such as “Go Fighting,” to participate in their livestreams.  

Conclusion

As sales rebound, 618 has basically fulfilled the hopes placed upon it by both e-commerce platforms and the government: to spur post-Covid consumption recovery as the biggest shopping event after a months-long nationwide lockdown. Coming at this critical time, 618 has a chance to step out of the shadow of the more established Singles’ Day.

The strategies adopted by e-commerce platforms have proved effective. Livestream e-commerce will continue to be an important tool to reach increasingly online buyers, while subsidized shopping—either through discounts or coupons—will be key to retaining users in a weak economy, as more price-sensitive users from lower-tier cities become the major growth engine for e-commerce.  

The 6.18 shopping festival was China’s largest shopping holiday since the coronavirus outbreak. It was long-awaited as a barometer of how much Chinese consumption has rebounded after lockdowns were lifted.   

Explosive growth across platforms

Transaction volume on JD.com reached around RMB 269.2 billion (around $38.1 billion) during the 6.18 shopping festival (June 1—18).

• Transaction volume saw a year-over-year growth rate of 33.6%, which is higher than that of the 2019 event, at 26.6%. 
• A total of 187 brands reached transaction volumes of RMB100 million in these 16 days. 

Alibaba’s Tmall saw the total value of orders on the platform reach RMB 698.2 billion between May 25 and June 18 —2.6 times its sales on Singles’ Day 2019. Apple, Huawei, Adidas, Nike, and home appliances brands Haier and Midea reached RMB 100 million in the first hour of sales on June 1. It took Estee Lauder only nine hours to match its last year’s 6.18 sales on Tmall.

Other players, such as Pinduoduo and electronics retailer Suning, did not disclose their sales data for the event. We estimate sales revenue across all platforms to be around $155.2 billion, based on Alibaba and JD.com’s 2020 market share. 

With 400% year-over-year growth, video conferencing devices had the biggest boost on JD.com. In the post-lockdown world, businesses are trying their best to avoid face-to-face contact. 

As people try to avoid supermarkets, sales of essential consumer packaged goods, such as milk products, shampoo and conditioner, saw 360% and 300% year-over-year growth respectively. Healthcare products also saw significant growth, with 173% year-over-year increase, as consumers looked to boost their immune system to avoid the epidemic.

Top Performing Product Categories in 6.18 Shopping Festival on JD.com

The winning sales tool: live-streaming

To enhance its livestreaming capacity, JD.com teamed up with popular short-video platform Kuaishou on June 16. Around 100 key opinion leaders (KOLS) on Kuaishou promoted JD.com products. Users on Kuaishou could purchase JD.com’s products without leaving the Kuaishou app, as well as enjoy quick delivery and after-sales service provided by JD.com. 

E-commerce platforms also invited celebrities and company executives to join livestreaming events. Xu Lei, CEO of JD Retail, together with actress Zheng Shuang, singer Da Zhangwei, and actor Guo Qilin raked in RMB 475 million in their six-hour long livestreaming show. They broke last year’s 6.18 record by Top KOL Viya’s of RMB 62 million per hour.

No fancy gimmicks—low prices are the key

Compared with previous 6.18 shopping festivals, this year’s event was more straightforward and simpler in terms of marketing and promotions. E-commerce companies focused on giving out coupons and discounts directly, instead of gamifying the event. 

Previously, consumers had to play games to win coupons. Last year, on JD.com, users had to watch videos on JD.com and answer a few questions. This year, shoppers could directly receive coupons by just clicking a button on e-commerce platforms’ promotion pages. 

In terms of discounts, Tmall offered subsidies worth RMB 10 billion on over 10 million discounted products—equal to Tmall’s  Double 11 subsidies in 2019. JD.com and  Kuaishou gave out RMB 20 billion.

Suning.com tried to beat its competition on pricing. The platform launched a “J-10%” plan, selling products at 10% of JD.com’s price. This initiative covered several categories, including home appliances, mobile phones, computers, and groceries.

A Huawei Mate 30 smart phone cost RMB 3,289 on JD.com and RMB 3,559 on Tmall. On Suning, it cost RMB 3,149 and came with a pair of free earphones. 

Such pricing wars are situated against the background of decreasing per capita consumption expenditure in China. In the first quarter, per capita consumption expenditure fell 12.5% year-on-year to RMB 5,082, according to the National Bureau of Statistics. Urban residents spent RMB 6,478, down 13.5% year-on-year, while rural residents spent RMB 3,334, falling 10.7% in the same time period.

C2M products for price-sensitive shoppers

As shoppers become more cautious in making purchase decisions due to uncertainties caused by the pandemic, sales of customized products are increasing. The consumer-to-manufacturer (C2M) model, which leverages consumer data to produce tailored products at a low price point, is increasingly popular, meeting consumers’ needs and providing good value for money. 

During 6.18, C2M desktop computers sales increased by 400% year over year on JD.com. On Taobao Deals, Taobao’s designated app for direct-from-factory deals, sales of C2M products saw 500% growth year-on-year during the shopping festival.

Upgraded logistics 

Alibaba’s logistics arm Cainiao used a fleet of automated delivery vehicles and set up new pick-up stations to achieve faster delivery. The company also chartered more than 100 flights and 20 freight trains to ship goods during the event. 

The strategy worked—Around 70% of Tmall orders had already been delivered to consumers by 12:00 pm on June 18. 

Consumers came to Cainiao’s official Weibo account to compliment its service. One user called Amy commented that she could not believe that she ordered lipsticks at midnight on June 1 and received the product at noon of the next day.

Logistics is another important element for brands and retailers to consider in order to provide consumers with convenient and seamless shopping experiences. With consumers shifting more to shop online, quick delivery service would become a significant standard for consumers to choose which platform to shop with.

JD Logistics upgraded its logistics network to serve consumers in fourth to sixth-tier cities. The company estimates the growth rate of delivery orders in sixth-tier cities is 150% of first-tier cities. 

The upgrade included JD Logistics linking its 12 highly automated logistics parks to its 13 local warehouses to form an integrated network. The 12 highly automated logistics parks, known as “Asia No.1”, feature automated sorting machines and a smart warehousing software system, which uses algorithms to perform scheduling, coordination, and optimization. 

Key takeaways

The major sales rebound during the 6.18 shopping festival is an encouraging sign for the coming months. It was partly driven by multi-pronged strategies adopted by e-commerce platforms.

Brands and retailers leveraged livestreaming, which allows shoppers to interact with brands and KOLs/celebrities in real-time. Livestreaming has been an especially important tool as the pandemic has reduced visits to shops.

Low prices have also been key to retaining nervous shoppers. C2M products, which are tailored to consumers’ needs and usually sell at a lower price point, are an especially good fit for current consumer sentiment.

Finally, improvements to logistics are another important ingredient for brands and retailers seeking growth in the post-Covid world. With more consumers shifting to shop online, quick delivery services can be a significant competitive edge for platforms.

Shares of Chinese online retailer JD.com rose 5.7% on Thursday, its first day of trading on the Hong Kong stock exchange.

Why it matters: JD.com is the third Chinese tech firm to launch a secondary listing on the Hong Kong exchange, following rival Alibaba in September and gaming giant Netease last week. It was one of the largest market debuts for a Chinese tech firm as well as for the Hong Kong market this year.

• A secondary listing of the company’s core retail business is just a first step. JD is planning to take its affiliates public over the next two years, according to a source with knowledge of the matter.
• More dual listings may on their way. Chinese search engine Baidu and online travel platform Trip.com are reportedly gearing up for a Hong Kong IPO.

Details: JD.com shares opened at HK$239 ($30.8) on Thursday in Hong Kong, up from the offering price HK$226 per share.

• The e-commerce giant said the IPO would raise HK$29.77 billion in net proceeds.
• The company will use the proceeds to “invest in key supply chain based technology initiatives to further enhance customer experience while improving operating efficiency,” it said in a statement.
• JD’s US shares closed up 1.7% in Wednesday trading.

Context: JD’s Hong Kong IPO falls on the 22nd anniversary of the company’s founding in Beijing on June 18, 1998. The anniversary is also one of China’s largest shopping extravaganzas, known as 618.

• JD.com said in a filing to the Hong Kong bourse that the US government’s efforts to increase regulatory access to audit information could cause uncertainties, including delisting from the US markets.
• The deal is hailed as a homecoming for the company against a backdrop of escalating tensions between China and the US and following a string of Chinese tech companies that have admitted accounting fraud or have had accusations leveled against them.

One night, it was an ordinary walkway in a residential compound in an eastern suburb of Beijing. The next night, it was a night market. Days later, it was gone again. 

For a short while, dozens of stalls were set up along a walkway inside the community of around 40,000 residents, selling clothes, packed food, flowers, and accessories.

Wang Meng, 28, was one of those vendors, selling earrings and hairpins. 

“In the past, security guards would chase us away immediately,” she told TechNode on Wednesday. “A few days ago people rushed to the street and set up their stalls following Premier Li Keqiang’s remarks on street vendors. The guards tried to cast us out, but in the end they failed.”

The night bazaar popped up during a brief regulatory vacuum in Beijing after Premier Li said street markets were to be legalized on June 1, declaring the so-called “street-stall economy” an “important source of jobs.” This particular market vanished as quickly as it appeared, as Beijing authorities clamped down on spontaneous markets after a five day window. 

But elsewhere in China, cities have lifted bans on hawking on public streets in an effort to reboot the economy after the coronavirus outbreak. Chengdu in the southwest province of Sichuan and Nanjing in Jiangsu province have set up thousands of designated areas for street vendors to operate in, state media China News Service reported Thursday.

Li’s public support has made “street vendor” one of China’s hottest buzz phrases—the “internet Plus” or “AI” of summer 2020. Unsurprisingly, tech companies are also jumping on the bandwagon, offering a series of services and incentives tailored for street vendors, including interest-free loans, mobile payment tools, and even food vans for stallholders.

However, vendors interviewed by TechNode were not very interested in tech companies’ much-hyped offerings.

Thanks, but no thanks

Wang resigned her position as a middle manager at a wealth management firm in May. She now makes an average of around RMB 400 ($56.3) per day from her stall, which is equipped with just a table and a lamp.

She sources stock from e-commerce giant Alibaba’s business-to-business (B2B) marketplace 1688.com. The site announced last week it would offer RMB 70 billion in interest-free loans for street vendors for an undefined period of time, allowing them to stock up goods from the platform without paying before they’ve sold them.

Wang says she is aware of the service, but she is not using it. “I prefer to grow my business within the realm of my financial ability,” she said.

Following on the heels of the Alibaba announcement, e-commerce firm JD.com launched the “Spark” plan on Tuesday, pledging approximately RMB 50 billion worth of goods to supply stall owners and shopkeepers and providing up to RMB 100,000 of interest-free credit per merchant.

On the same day, retailer Suning.com said it would offer stall owners free space to store wares in 10,000 freezers in Suning convenience stores and Carrefour supermarkets across the country, according to local media reports.

Other tech companies responding to Beijing’s call to support street vendors include Tencent’s instant-messaging app Wechat, which said it would offer plans (in Chinese) to help with the “digital transformation of small businesses.” Alibaba’s payment tool Alipay said in a blog post (in Chinese) on Tuesday it would also provide small businesses with interest-free loans.

Wang also runs an accessory shop on Alibaba’s online marketplace Taobao which she opened last month. When asked about the incentives offered by tech companies, she said she is more worried about making sales face to face than digital transformation. 

Is ‘street stall economy’ the next business fad?

Policy and regulation can have a significant impact on the tech world, especially in China. From mass entrepreneurship to the artificial intelligence boom, government-backed initiatives have created lots of opportunities for Chinese entrepreneurs. 

Tech majors often react swiftly to government initiatives. In a Wechat post, Alipay responded to Premier Li’s call in the tone of a young pioneer reporting for duty: “Premier Li, we are already making plans!” The payments platform promised to help to raise income for small businesses from digital operations by 20% and the availability of online loans by 20%.

Chinese tech firms looking for new sources of growth likely also see the “street stall economy” as a new opportunity. Chinese tech companies have long trumpeted so-called “internet thinking”—a business philosophy used by low-margin internet-based services that attract new users by offering them free services or goods. After amassing a sizable user base, they monetize by leveraging online advertising and paid services.

With the potential for street markets to grow into bigger businesses, tech companies are offering them interest-free loans in order to capture their business now in hopes to later sell them lucrative services such as high-rate lending, payment systems, to raw material supply.

Most of the tech companies that are offering interest-free loans to street vendors already offered loans to small- and medium-sized enterprises (SMEs) at sky-high rates.

JD.com offers an online lending service for small businesses with an annual interest rate of 11%, according to its website (in Chinese). Alipay parent company Ant Financial offers a loan service targeting SMEs with an annual rate of up to 17.2% through its online Mybank (in Chinese). By comparison, China’s targeted medium-term lending facility, the Chinese central bank’s policy lending tool for small and private firms, has an annual rate of 2.95% as of April, according to Reuters.

Part-time vendor Li Nan told TechNode she’s looking at loans, but worries they won’t be free forever.

Li, a 22-year-old sales assistant at an internet company based in Beijing, sells prepared seafood she makes at home in the evenings at the same marketplace where Wang’s stall is located. She resigned from her previous company early in the year with the hope of finding a new job after the Spring Festival holiday in late January. However, it took her three months to restart her career because of the Covid-19 outbreak which brought the economy to a standstill. Her new company pays her around RMB 2,000 less than her previous job, she told TechNode.

Li says street selling is just an initial step and she wants to open her own—indoor—seafood restaurant in the future.

“Of course interest-free loans provided by tech companies may help me expand my business considering my financial situation,” she said. 

However, Li believes that those loans won’t always be free. “By the time I open my restaurant, I will choose services that suit me the best,” she said.

Come back later (at least in Beijing)

However, Li’s restaurant plans may have to wait for Beijing’s strict city management policies. On Saturday, the City Urban Administrative and Law Enforcement Bureau of Beijing pledged to purge “illegal behavior including street vending,” according to official newspaper the Beijing Daily (in Chinese). 

The authorities took action ahead of the announcement. On Friday night, after the city management authorities and security guards took over the night market, street vendors vanished from the street as quickly as they appeared a few days before.

The tech giants are still powering ahead with plans for the street stall economy—but you may have to get outside the fifth ring road to see the results.

Online retailer JD.com said on Thursday that it will buy $100 million worth of convertible bonds in Gome Retail, one of China’s largest physical electronics chains.

Why it matters: Chinese online retailers are working closely with physical electronics chains to expand their offline presence and product categories as well as complement their supply chain networks.

• JD and Gome have been considered competitors as both have core competencies in consumer electronics.
• JD’s investment in Gome Retail comes shortly after its rival Pinduoduo invested $200 million worth of convertible bonds in the Hong Kong-listed electronics chain in April.
• Another Alibaba vs Tencent alliance is taking form: Both JD and PDD are backed by Tencent and Alibaba is a major backer of Suning, another major electronics chain.

Details: JD and Gome Retail said in a joint statement on Tuesday that they are entering a strategic partnership for all-inclusive cooperation that ranges from service efficiency improvement to supply chain capabilities and financial services development.

• Foreshadowing the partnership, Gome Retail launched their flagship store on JD in March.
• Gome Retail is the latest addition to JD’s investment portfolio, including electronics chains such as 5Star, D.Phone, and Lenovo‘s Lecoo.
• Both Pinduoduo and JD invested in Gome Retail through convertible bonds, which is a “very smart way” for them to test out such investments, according to local media citing an investor.
• They can either hold the convertible bond or convert them to Gome shares depending on the effectiveness of their partnerships as well as the company’s future performance, according to the investor.

Context: NASDAQ-listed JD is reportedly gearing up for a secondarily listing Hong Kong as early as June.

• Alibaba invested $4.6 billion in Gome rival, Suning, in 2015 to facilitate a range of collaborations.
• To expand its online traction, JD on Wednesday teamed up with short video app Kuaishou in a deal that allows Kuaishou users to buy JD products without leaving the app.

Baidu’s billionaire founder Robin Li. “Home appliance queen” Dong Mingzhu, of electronics maker Gree. Luo Yonghao, the indebted online celebrity founder of smartphone maker Smartisan. China’s livestreaming industry has welcomed a flurry of high-profile figures over the past few months.

Livestreaming is really, really big. From its low-budget, grassroots origins, it has become a mainstream habit and an essential part of marketing in post-Covid-19 China.

Livestreaming is closely intertwined with e-commerce, short videos, and gaming. China’s livestreaming-derived market grew to RMB 61 billion (about $8.6 billion) in 2019, and is projected by research firm Equalocean to achieve a 12% compound annual growth rate to reach RMB 100 billion by 2023.

Among various segments under the umbrella concept, livestreaming e-commerce has emerged as a key monetization model for players in the field—and a key marketing tool for businesses trying to reach China’s digital audiences. China’s livestreaming e-commerce market is expected to reach RMB 23.6 billion, on a 520 million live-show app user scale in 2020, the Equalocean report says.

Spokesperson or salesperson?

The most famous streams are hosted by celebrity KOLs, who build up loyal audiences with QVC-style online shows. The most famous, like “lipstick king” Li Jiaqi, are household names and fodder for memes far beyond e-commerce platforms.

But thousands of humbler streamers act as virtual salespeople, explaining products to potential customers. Lu Lu, who runs a virtual vegetable shop on Taobao Live, is a good example. When an order comes in, the stream (requires app download) shows her weighing out produce and preparing it for shipment.

Many e-commerce livestreamers come across more like a virtual salesperson than celebrity endorser, patiently explaining products on camera and fielding questions from live viewers. While browsing the product page for, say, an electronic toy or a brand of face cream, shoppers will often see a link to either a livestream or a recorded stream in which one of these streamers demonstrates the product.

Turbocharged growth comes with some serious growth pains, and the industry may have to contend with more regulation soon. Users have complained about false advertising, vulgar content, and misleading exaggerations. Currently, rules on false advertising are not applied to KOLs’ “product reviews,” but this loophole could be closed.

The Covid boom

Covid-19 was an unexpected boon for livestreaming e-commerce in China. Many brands and retailers have turned to livestreaming to help reduce the impact and losses from the epidemic. It has prompted businesses closely tied to offline showrooms to try online events—even electric carmakers Nio and Tesla.

According to China’s Ministry of Commerce, more than 4 million e-commerce live broadcasts were hosted in the first quarter of 2020, the key period when China was under countrywide lockdown due to the outbreak.

Compared to entertainment livestreaming, livestreaming e-commerce has a better chance of turning windfall users into recurring users by building up new marketing options for brands and an enriched shopping experience for consumers.

Read more: INSIGHTS | Brands turn to livestreaming as China stays home

The livestreaming players

Pretty much every company with a stake in either e-commerce or livestreaming has tried to combine the two. E-commerce platforms, like Alibaba, Pinduoduo, and JD, as well as short-video platforms such as Douyin and Kuaishou have all jumped on the bandwagon.

With a significant head start and a massive user base, Taobao is the elephant in the room, the one everyone else is responding to with varying success. In an increasingly crowded field, the challenge now for each of these platforms is how to differentiate itself from its peers and stand out by targeting different groups of buyers and brands.

It’s hard to compare exactly how the players stack up—as data on this phenomenon is still limited—but here’s a rough guide:

Taobao Live

• As one of the earliest pioneers of the “livestream + e-commerce” model, Alibaba’s Taobao Live is the clear heavyweight champion, with estimated 2019 GMV between RMB 200 billion and 250 billion.
• It’s one of the largest livestreaming platforms, whether in terms of the merchant size, user base, or sales achieved. 
• The platform accounted for nearly 60% of e-commerce streaming transactions in 2019. 
• It generated sales of RMB 20 billion during Alibaba’s November 11 Singles’ Day 2019 shopping holiday, or 7.5% of the total RMB 268.4 billion sales.
• Taobao Live is available both as an in-app feature on its parent marketplace Taobao, and as a standalone app.
• Just like Taobao, Taobao Live’s most popular product categories are women’s garments, skincare, food, and jewelry. 
• The platform is introducing big-ticket items such as cars and real estate, as well as consumer electronics.
• These popular categories reflect the fact that the platform is dominated by women and younger users. 
• Nearly 70% of Taobao Live’s audience are women, while most of the consumers belong to the post-’80s and post-’90s generation, says a Taobao report (in Chinese).
• Sales on the platform are driven heavily by top-tier KOLs, like Viya and “lipstick king” Li Jiaqi, who have highly sophisticated MCNs (multi-channel networks) behind them. 
• These professional content production agencies, now numbering more than 6,500, are a major force driving China’s livestream boom.
• An overall 20% (around 140) top MCN institutions on the platform contributed almost 75% of Taobao Live’s traffic and 80% of its GMV, according to the 2020 White Paper on Taobao Vendors.
• However, Taobao’s dependence on professional MCNs is highly costly to vendors. 
• Everbright estimates that marketing costs on Taobao Live eat up about 20% of GMV, with 70% of the spend going to MCNs, while Alibaba marketing platforms Alimama and Taobao Live take 10% and 20% respectively.

Social media: The most serious challengers to Taobao Live come not from e-commerce, but rather livestreaming. As livestream e-commerce matures, social media players Kuaishou and Douyin have made plays that leverage their traffic and KOL resources. 

These forays began as partnerships with e-commerce platforms to pilot livestreaming e-commerce features, but the companies gradually built up their own e-commerce capacities and ended the partnerships as trials developed into full-fledged services that keep users in the app when they buy.

Kuaishou

• Kuaishou launched livestreaming in 2017 to a relatively gender-balanced user base with a typical user in a third- or fourth-tier city..
• Kuaishou reportedly achieved an estimated GMV of about RMB 35 billion in 2019, and aims to multiply that to RMB 250 billion in 2020.
• Livestream e-commerce accounted for 19% of Kuaishou’s RMB 55 billion revenue in 2019, although 60% of the revenue still came from virtual gifts associated with traditional entertainment livestreaming. 
• These figures reflect the platform’s KOL-centered online culture, where users address each other as laotie (“old chap”), a colloquial term used in northeast China to refer to unbreakable brotherhood.
• Thanks to strong connections with users, Kuaishou’s e-commerce conversion is five to ten times higher compared to its peer Douyin, according to a report by Frees Fund. 
• But the products are mainly low-margin and low-price, with sales under RMB 50 accounting for 63.3% of total sales, compared with Douyin’s 41.5%.
• The most popular categories are personal care, cosmetics, clothing, local specialty foods, and alcohol.

Douyin

• Douyin did not emphasize livestreaming until 2019. Since then, the business has grown very quickly by encouraging KOLs to transfer their accumulated fans from short-video to livestreaming and online consumption.
• Douyin predicts RMB 200 billion in GMV on the platform in 2020.
• Unlike Kuaishou, Douyin relies on short-video quality and attractive products to make sales, rather than relationships between fans and content providers.
• Douyin users are largely concentrated in higher-tier cities, with purchasing power that results in larger ticket orders.

Read more: Why Kuaishou beats Douyin for e-commerce

Other e-commerce players: Taobao’s e-commerce peers are stuck in the lightweight division for livestreaming, with substantially smaller user bases and sales than Taobao and the video platforms, handicapped by business models that emphasize value for money over fashion-driven impulse buys. Nonetheless, Pinduoduo and JD have built real, if smaller, user bases around livestreaming.

Duoduo Live:

• As a marketplace, Pinduoduo has enjoyed robust growth since its establishment with a unique model that encourages users to get together with friends to buy in bulk.
• But livestream e-commerce didn’t win attention from Pinduoduo until recently, when growth slowed down.
• The Shanghai-based firm officially rolled out Duoduo Live as an add-on within the app in January 2019—after testing the livestream feature the previous November—making it a relative latecomer to the field.
• Over 1 million, or 20-30% of Pinduoduo’s 5.1 million active merchants have opened livestream sessions, according to data from the company.
• Users aged between 20 to 35 years old contribute the most to GMV.
• Pinduoduo’s approach to livestreaming is drastically different from Alibaba’s. With its distinctive consumer-to-manufacturer model, it has leaned heavily on the virtual salesperson model. 
• Duoduo live audiences likely have a potential buy in mind before loading a stream (e.g. drawn in by a discount or social referral), and will use the stream to gain more information before making a decision.
• Duoduo Live’s livestream sessions are centered around products, meaning they’re cheaper for merchants than Taobao Live’s slicker MNC-driven streams. 
• The anchors, often amateur KOLs, are mostly people with a stake in the product—CEOs of manufacturers, government officials for promoting agriculture products from their towns, or even the sellers themselves. 

JD Live

• Livestreaming is a poor fit for JD’s brand, which is built on keeping things simple for users. 
• JD Live is still playing catch-up to Taobao Live, following a similar high-production value approach. Many streams use an “expert + celebrity + host” format, which combines rich content with expert knowledge and a link to purchase. 
• It also serves as a medium to educate users and build brand awareness. 
• Like Taobao, this model means high costs for merchants.
• JD Live has partnered with both Douyin and Kuaishou to leverage their traffic and KOL network, in addition to building up super KOL celebrities to promote premium products. 
• On Wednesday, JD announced a new deal with Kuaishou which will allow Kuaishou viewers to make purchases from JD without changing the app.
• Like Taobao Live, JD Live is also diversifying product categories from consumer electronics, beauty, and food to big-ticket items like real estate. 

Who owns livestreaming eyeballs?

As e-commerce and content blend together, shopping and video platforms are becoming frenemies. On the one hand, they rely on each other: Video apps boast traffic and content, while e-commerce sites have brands and supply chains. On the other hand, they are competing to be the central platform for the new model.

Alibaba has the best of both worlds, with its Taobao Live emerging as a major content platform in its own right.

But the rival e-commerce sites do not have the same traction with in-house content, creating a dilemma. For JD and Pinduoduo, integrating with video apps means handing over some of their crown jewels—control of advertising, product search, and customer data. It’s no wonder that these partnerships can fall apart.

Power seems to be shifting toward video platforms. In the previous partnership model, video apps usually directed users to e-commerce apps such as Taobao and JD to finalize the purchase.  

However, as a new deal between Kuaishou and JD allows users to purchase JD products without leaving the app, JD is giving up its users’ eyeballs to drive sales.

Short video app Kuaishou and e-commerce giant JD announced today a new partnership as the Chinese tech titans are gearing up for China’s biggest mid-year shopping extravaganza 618 on June 18.

Why it matters: China’s e-commerce platforms and short video apps are working closer while livestream e-commerce is gaining traction. In the tie-up, e-commerce apps have their strengths in brands, supply chain, and after-sales support, whereas video apps have their advantages in rich content and access to potential buyers.

• Kuaishou’s closer relationship with JD comes a few months after a hiccup with Taobao Live, the Alibaba-backed livestream major that supports a similar referral feature.
• Livestream e-commerce, on the cusp of its boom, is expected to become a new driver for the upcoming shopping spree 618.
• The festival comes when the country is trying to boost domestic consumption to offset the economic slowdown resulted from the coronavirus outbreak.
• JD shareholder Tencent invested $2 billion in Kuaishou last year in Kuaishou’s $3 billion pre-IPO round, giving Kuaishou a valuation of around $28.6 billion.

Read more: Why Kuaishou beats Douyin for e-commerce

Details: The new deal allows Kuaishou users to purchase JD’s self-run products directly without leaving the short video app, offering a more streamlined shopping experience.

• An existing deal between the two parties, inked last June, transfers Kuaishou users to JD app for completing the purchase.
• This deal ensures Kuaishou users always stay inside the app, encouraging more impulse buying.
• Buyers who place orders through Kuaishou could enjoy the same delivery and after-sales services provided by JD, according to a statement from the online retailer.
• In addition, the two companies will work together in building up their supply chain networks, brand marketing, and digital capacities.
• The new feature will be live in mid-June during JD’s mid-year shopping festival 618 and Kuaishou’s 616 shopping festival.

Context: Kuaishou reportedly multiplied its goal for live e-commerce gross merchandise volume (GMV) this year to RMB 250 billion ($35 billion), up from last year’s RMB 35 billion.

• In comparison, Taobao Live achieved a GMV between RMB 200 billion to RMB 250 billion in 2019, while Douyin’s goal for this year is RMB 200 billion, according to local media.
• Both Alibaba and JD are working Kuaishou rival Douyin for similar e-commerce referral features.

Chinese online retailer JD is setting up tentative timetables to take its affiliates public over the next two years, a source with direct knowledge of the matter told TechNode.

The company will focus on its secondary listing in Hong Kong this year, JD Logistics in 2021 and then JD Digits in 2022, according to the source who declined to be named as the information is confidential.

The Chinese e-commerce giant is expected to see some of most valuable assets go public:

• Secondary listing
  • Details about JD’s Hong Kong listing have begun to emerge although the company remains silent on the matter.
  • The dual-listing could come as early as June, local media reported.
  • Despite impacts from Covid-19, it has beaten market expectations with $20.6 billion net revenue in the first quarter of this year.
• Dada Nexus
  • The company behind on-demand grocery delivery platform JD Daojia and delivery platform Dada Now, filed for a US IPO on May 13. JD is the largest shareholder of the firm with a 51.4% stake.
• JD Logistics
  • The logistics unit was spun off in 2017.
  • It is reportedly in early discussions with banks in December to raise $8 billion to $10 billion through an IPO.
  • The business raised $2.5 billion in February 2018 from a range of backers including investment firm Hillhouse Capital, China Development Bank Capital, as well as Tencent.
  • Once a loss-making business, JD Logistics gained momentum over 2019 and recorded a 91% revenue jump year-over-year in the first quarter.
• JD Digits
  • Formerly JD Finance, this affiliate offers data processing capabilities and the implementation of data technologies with AI and IoT among its core strength. 
  • Its data technology output includes its core capabilities on data warehousing, data mining, visual analysis, alongside other data-related functions. 

The potential listing spree comes as the company’s retail chief Xu Lei is gradually taking over from founder Richard Liu the company’s new leader.

Read more: JD readies for life after Richard Liu

JD.com isn’t the only Chinese tech giant seeking to bring its assets public. Tencent, a shareholder, has a bunch of its affiliates listed since 2017, including search engine arm Sogou, online reading unit China literature, online-only insurance firm Zhong An and Tencent Music. It’s also planning for IPO of healthcare affiliate WeDoctor. The Chinese internet titan had a bumper year with 16 portfolio firms going public in 2018.

Chinese online retailer JD.com could be offering share subscriptions on May 25 for its long-anticipated Hong Kong listing, according to media reports, with a debut on the city’s board as early as June.

Why it matters: JD.com’s secondary listing on the Hong Kong board will follow just a few months after rival Alibaba’s $13 billion blockbuster debut on the city’s bourse. It was one of the largest market debuts for a Chinese tech firm as well as for the Hong Kong market in the past year.

• The listing comes at a critical time. JD.com’s retail chief Xu Lei is gradually taking over for founder Richard Liu as the Chinese online retailer’s new leader.
• In addition to the dual listing, the Beijing-based firm is reportedly preparing for separate listings of its logistics arm and grocery delivery affiliate Dada-JD Daojia.
• The deal is hailed as a homecoming for Chinese companies and a win for the Hong Kong stock market amid escalating US-China tensions.
• Chinese search engine Baidu, online travel platform Trip.com, and Netease, China’s second-biggest gaming firm, are reportedly planning to dual list in Hong Kong.

Details: Chinese media have reported that JD.com is planning to raise $3 billion in its Hong Kong debut that could come as early as June. Bloomberg reported in April that it was seeking $2 billion for its Hong Kong offering.

• The firm hired investment banks UBS and Bank of America as underwriters for the listing, local media reported.
• A JD.com spokesman declined to comment on the news when contacted by TechNode.

Context:  JD reportedly filed a confidential application to list in Hong Kong as early as June, Bloomberg reported.

• In January 2018, founder and CEO Richard Liu indicated that the company was considering a dual listing either in Hong Kong or mainland China.
• Hong Kong removed its restriction on dual-class share structures in April 2018 to open the door for firms that sought to have share classes with different voting rights.

JD has rolled out a Zoom-like video conferencing app, JoyMeeting, amid its push into enterprise-facing services.

Why it matters: JD is the latest Chinese tech major to tap the remote work tool market.

• Interest in workplace technologies, such as productivity and videoconference tools, arose along with Chinese tech giants’ transition to enterprise-facing services.
• Enterprise tech is believed to be an emerging growth point for tech firms in China, where consumer-facing services are already mature.
• By entering the sector, JD is competing with global rivals like Zoom as well as local competitors Tencent, Alibaba, and ByteDance.
• While the pandemic is spreading across the world, Alibaba, Tencent, and ByteDance are increasingly setting their sights on the global market by doubling down on global versions of their workplace apps. 

Read more: Chinese tech firms eye the work collaboration app market

Details: JoyMeeting, developed by JD subsidiary Jingdong Shangke Information, was a video conference tool previously only available to JD’s team and partners.

• JoyMeeting comes with videoconference features for one-on-one conversations, meetings, interviews, and lectures

Context: It is a common practice among large Chinese tech firms to develop homegrown communication apps to facilitate workflows as well as keep their data secure. More companies are opening their internal work apps, developed and tested within the company, to mark territory in the growing market. 

• Chinese tech firms have released a bunch of workplace apps since late 2019, including Tencent Meeting, Alibaba Cloud Conference, Dingtalk Lite, Feishu Meeting.

JD.com has signed a partnership with South Korean manufacturer LG Electronics to sell RMB 5 billion ($707 million) worth of products on the e-commerce platform.

Why it matters: Chinese e-commerce giants are increasingly partnering with manufacturers to facilitate product development and marketing. The trend propelled emerging e-commerce models such as consumer-to-manufacturer (C2M), which connects consumers and producers to manufacture tailored products at lower prices. 

• The defining feature of a C2M model is highly competitive pricing brought about by connecting factories with consumer insights, such as preferences, location, and behaviors.
• The C2M model has powered Pinduoduo’s rapid ascent and is now gaining momentum among Pinduoduo rivals including Alibaba and JD.com. 
• Covid-19 has made health-related home appliances more popular across online marketplaces. JD sales for air purifiers and steam sterilization washing machines surged during the pandemic, the company said.

Details: Under the partnership, the two companies will cooperate in a range of areas, including product development under the C2M model, smart supply chain operations, marketing, offline expansion, and manufacturing of exclusive products. 

• LG will also invest in JD Home Appliance Stores and set up more than 1,000 whole-house appliance demonstration stores, creating smart offline retail platforms in lower-tier markets.
• The two companies have already worked under the C2M model for small home appliances. In May 2018, they started to develop C2M air purifiers, beauty tools, hand-held vacuum cleaners, and clothing care steam “styler” systems based on JD.com data. 

Context: JD.com rolled out its C2M unit Jingzao in 2018. The platform now offers products including custom shirts, luggage, towels, and bedding.

• JD also partnered with electronic brands such as Lenovo, Konka, HP, and Dell to develop tailored products under the C2M model.
• Alibaba boosted its C2M push recently with plans to transform 1,000 manufacturers into “Super Factories” with output exceeding RMB 100 million ($14 million) each within the next three years.

In the last week, we’ve seen Alibaba executive Jiang Fan demoted for an (alleged) affair with a major business partner, and Dangdang founder Li Guoqing attempt to seize control of the company by force as part of a very messy and very public divorce.

2020 has been the strangest year anyone living can remember. A localized outbreak that seemingly few expected to turn into a economy-crushing pandemic, an increasing vitriolic war of words between China and the Western world, one of the largest accounting frauds in China tech goes public, and a raft of bad behavior from China’s tech personalities. One does have to wonder just how bad this could all get. 

However, there are broader problems and themes that still need to be addressed.

It’s only when the tide goes out that you learn who has been swimming naked.

– Warren Buffet

Bottom line: Buffet’s quote was about companies and investors, but the same aphorism holds true for any number of phenomena: when things are bad, bad behavior comes into the light that much easier. Unfortunately, bad behavior and a lack of consequences in tech are nothing new. The origin of this week’s Insights is most certainly in part a victim of availability bias and, as we will see, there really is nothing new under the sun.

Recent headlines

The last two weeks saw two examples of bad behavior, one alleged and the other verified-by-video, one with big potential fallout, the other barely registered except for its soap opera-like quality.

Alibaba: Jiang Fan was the definition of an up-and-comer: one of the youngest Alibaba Partners and heir apparent to current CEO Daniel Zhang. It’s a pretty messy story, but here’s a concise summary:

• 2016: Alibaba takes an 8.56% stake in Hangzhou-based influencer agency Ruhnn.
• April 2019: Ruhnn goes public on the NASDAQ, raising $125 million. 
• April 17, 2020:  A Weibo user whom Chinese media identified as the wife of Jiang Fan posts a warning to Zhang Dayi, Ruhnn’s best performing KOL, not to “mess around” with her husband. Zhang accounted for nearly half of Ruhnn’s sales for almost three years. So far, we have seen no evidence to suggest the affair actually occurred.
• April 20: Jiang Fan calls for a probe into whether the alleged relationship with Zhang affected Alibaba’s dealings with her or Ruhnn, including their Taobao and Tmall operations as well as the investment in 2016.
• April 27: Alibaba announces that they have removed Jiang Fan from its list of Partners and demoted him from senior vice president to vice president. The company’s market cap falls by HKD 50 billion (around $6 million).

Listen to more: After Luckin, fraud will still be a problem

Dangdang: You’d be forgiven for forgetting that Dangdang still existed. We certainly had. The recent break in by co-founder and former CEO is a sharp reminder of the company as well as what a total a-hole Li Guoqing is. 

Pure sex without being in an extramarital affair does little harm to one’s wife.

– Li Guoqing in reference to accusations of rape against JD founder, Richard Liu

• 1999: Li Guoqing and wife Yu Yu found the company and, like Amazon, start by selling books. 
• February 2019: Li announces that he will leave the company, saying: “I believe that after I leave Dangdang and end the husband-and-wife business structure, Yu Yu will lead the company to future success and continue providing high-quality service to our 300 million customers.” 
• October 2019: Marital discord between Li and Yu goes public. Li blames Yu for forcing him out, and Yu fires back by accusing Li of stealing RMB 130 million from their joint savings account, having extramarital affairs with men, and domestic abuse.
• April 26, 2020: Li Guoqing, along with six others, storm into Dangdang’s Beijing headquarters in an attempt to take control of the company by taking the company’s official stamps. 

Chinese women pick men based on their ability to make money and they don’t care if they are good people. Chinese women’s depravity has led to the nation’s depravity.

– Yu Minhong during a speech at an education forum

No matter right or wrong, Lao Yu does not have to apologize to women, because his views just prove that he is a feminist.

– Li Guoqing referring to sexist remarks made by New Oriental founder, Yu Minhong

Not too distant headlines

In case you’ve forgotten, these aren’t the only cases of men in China tech behaving badly:

Richard Liu:

• July 23, 2018: Richard Liu is named as the host of a dinner party in 2015 that was the focus of a rape trial. Guest Xu Longwei was found guilty of seven charges, including raping a woman he met at the party.
• Aug. 31, 2018: Richard Liu is arrested in Minnesota for the alleged rape of a 21-year-old Chinese student who attended a dinner party with Liu. 
• Dec. 21, 2018: Charges against Liu are dropped for lack of evidence.
• Dec. 22, 2018: The Paper, the Chinese-language sister site to Sixth Tone, publishes an article with the headline: “Richard Liu’s attorney: Everything that happened was consensual, the girl kept asking for money.” Soon after, online mobs begin to go after the alleged victim.
• April 16, 2019: Liu Jingyao, the alleged victim, files a suit against Richard Liu in Minnesota Civil Court. 

Read more: JD readies for life after Richard Liu

Bao Yuming:

• November 2015: Bao Yuming, VP for oil company Jereh Group and independent non-executive director of ZTE, adopts a 14-year-old, identified in media reports as Xingxing. One month later, she tells police, he starts raping her.
• April 9, 2020: After years of Xingxing reporting the crime to the police in both Beijing and Yantai, Yantai police finally announce they are investigating the case after the accusations go public on Weibo.
• April 10, 2020: Jereh, ZTE, and Southwest University, where Bao was a researcher, announce they had severed contracts with him. Bao also announces his resignation from ZTE. 
• As of this writing, Bao is still a free man.

Not just China: Lest someone accuse me of being biased against China, I’d like to remind you of the following cases coming from Silicon Valley:

• Justin Caldbeck: On June 23, 2017, The Information reports on allegations made by six women in the tech industry who received unwanted and inappropriate advances from Caldbeck. One day later, Caldbeck issues an apology and announces an indefinite leave of absence.
• Andy Rubin: In 2014, Rubin is accused of coercing a fellow Google employee into performing oral sex on him in 2013. According to the New York Times, Google investigated, found the accusations credible, and asked for his resignation. Rubin resigns and leaves the company with an exit package of $90 million. In 2019, Rubin is sued by his ex-wife for cheating her our of a large portion of his personal wealth through an unfair and devious prenuptial arrangement.
• Dave McClure: On June 30, 2017, McClure is publicly accused of sexual assault and unwanted advances by two women. He makes a public apology in a now deleted Medium post and resigns as CEO of 500Startups. In 2019, McClure founds Practical Venture Capital.

An important reminder: We still don’t, and may never, know if Jiang cheated on his wife nor whether he gave Zhang and her company preferential treatment. Dangdang will probably never regain its leadership in China’s e-commerce industry, but the point here is much larger. As I wrote in 2017:

. . . much of the reason these men were able to get away with it for so long has much to do with the power that they hold and the ability to decide who gets what. Much like incumbents in traditional industries, these leaders acted as gatekeepers: determining who gets what funding, which part in a movie, or what job.

. . . 

China has been, and still is, a country rife with unethical and immoral behavior. While the corruption crackdown has certainly gone a long way to stem the tide of some of this behavior, old habits die hard. Not only are those old habits still alive, but since there’s no one talking about it, these unhealthy and damaging behaviors continue unabated and unpunished.

As prominent feminist thinker Leta Hong Fincher has written, things are actually getting worse for women in China. The equality of sexes of previous generations has been slowly but surely eroded as the traditional patriarchy of East Asia makes its resurgence in China.

At its most innocuous, men with money and power like Jiang Fan will continue to have mistresses. At its absolute most evil, men with money and power like Bao will continue to abuse, permanently and irreparably damaging, the nation’s young women and children. And not just in China.

Chinese online retailer JD introduced its mini program open platform on Wednesday, joining a list of Chinese tech giants that leverage the technology.

Why it matters: JD’s adoption of mini program is relatively late in the game. The lightweight applications, which offers a diverse range of functions without leaving the main app, are increasingly a key, must-have feature for mainstream apps.

• JD claims more than 270,000 third-party merchants on its platform.

Read more: WeChat mini programs: the future is e-commerce

Details: JD’s mini program will be open to brands and merchants on JD’s platforms as well as external partners from various industries, including home appliances, baby and maternal care, cars, sport, education, and hospitality.

• The mini programs can be adapted for the WeChat platform thanks to the company’s strategic partnership with Tencent.
• The mini programs are accessible through various apps in the company’s ecosystem such as its main app and JD Finance. It will also be introduced to 7FRESH and JD Health.
• The newly-launched feature is still under development. A test shows that it’s placed in an inconspicuous place now instead of a more prominent access point along the lines of WeChat.
• A group of services, including Tencent-backed Yonghui Superstores and JD Electric Appliances and electronics rental service Jingxiaozu, have launched their mini programs.
• More brands, including China Telecom, Burger King and Mehood Hotel, ehi Car Services, will join in the coming months.
• The company is recruiting more merchants, according to a JD spokesperson.

Context: First pioneered by WeChat in 2017, mini-programs have been adopted by leading Chinese super apps, including Tencent’s QQ, Baidu, Meituan, Alibaba’s Alipay, and Taobao, as well as Bytedance’s Jinri Toutiao and Douyin.

Search giant Baidu has accused a former executive of corruption and handed the case over to the police, the company said on Tuesday.

Why it matters: An increasing number of Chinese firms have launched anti-graft initiatives that mimic the Chinese state’s approach to dealing with misconduct.

• Since 2013, Chinese president Xi Jinping has led a far-reaching campaign against corruption, targeting members of the government and corporate figures.
• Apart from Baidu, companies including lifestyle services giant Meituan, dronemaker DJI, e-commerce company JD, and ride-hailing firm Didi have sought to weed out corruption.

Read more: Even global tech darling DJI is not immune to culture of corruption

Details: Baidu’s Professional Ethics Committee said Fang Wei, a former vice-president at the company, is suspected of corruption following an internal investigation and has been handed over to the police.

• Wei served as a director of finance at the company until he was promoted to vice president of finance in 2018. He has also held supervisory roles at more than a dozen Baidu companies.
• Baidu’s ethics committee did provide details about Wei’s alleged offenses.
• The company said it will crack down on any behavior that violates the law or infringes upon professional ethics.
• Baidu dismissed 14 employees in August that were allegedly involved in 12 cases of internal corruption. The company accused those involved of bribery, infringing on trade secrets, fabricating expenses for reimbursements.
• Like most companies, Baidu has stepped up its anti-graft campaign in recent years. The search giant set up its ethics committee in 2011 and has since investigated more than 100 employees.

Context: Anti-corruption campaigns are common among China’s tech companies but some take more drastic steps than others.

• E-commerce giant JD.com sent some of its employees on prison tours to view firsthand the cost of corruption. These tours are common in state-owned enterprises or financial institutions, not tech companies.
• Meanwhile, drone-maker DJI said last year that it was investigating 45 employees for graft, adding that the company could lose up to $150 million as a result of internal fraud.
• E-commerce giant Alibaba, smartphone maker Xiaomi, gaming and social media giant Tencent, and telecommunications firm Huawei have all launched similar campaigns.

Thousand-point stock market losses, extensive media coverage, and a steady increase of never-before-seen disease. You would be forgiven thinking this was a Hollywood movie. If it were, the next act might involve global calamity and dire, permanent consequences. 

First order impacts

As China enters its fifth month of confirmed cases of the novel coronavirus, the data has slowly begun to paint a more detailed picture of adjustments made by Chinese consumers. WPIC’s data show that purchases related to outdoor activities and recreation decreased significantly, to the tune of 40-50%. 

A reduction in consumption might be skewed by pre-virus efforts by the Chinese government to encourage physical activity, but the reality of a near country-wide dampening of time spent outdoors is notable—and will undoubtedly persist until China returns to full normalcy.

Brick-and-mortar retail has been even more affected by changes in consumer behavior and  caution about the virus. Until recently, the government has encouraged people to remain at home and avoid normal daily interactions. This means, unsurprisingly, a decrease in the foot-traffic that stores depend on. 

For a sector of the economy already under pressure from a paradigm shift towards online shopping, the impact of COVID-19 could deal a devastating blow.

That isn’t to suggest that consumers have altogether refrained from shopping—far from it. Certain everyday products on e-commerce platforms are even seeing modest increases from this time last year (WPIC data).

Why? Because many consumers have begun aggressively shopping online for products that might have been procured at physical storefronts if not for the outbreak. Meicai, a fresh food e-commerce platform, has announced it will recruit an additional 6,000 drivers and 4,000 food sorters from 40 cities across the country to help with the increase in consumer demand.

Medical supplies—such as protective masks, over-the-counter medications, and anything related to the virus—are doing particularly well. We are also seeing the broader “health” and “nutrition” product categories do exceptionally well. Vitamins and nutraceuticals, for example, have seen triple-digit increases in online searches and sales. 

So, while Chinese consumers might have been delaying the purchase of a new pair of running shoes, anything that is perceived to lead to a better chance of maintaining good health and staving off the virus are enjoying a clear boost. 

A similar spike in online activity is also occurring in food sales and fresh produce. On a week by week basis, the number of online searches for fresh produce on Baidu for the first two months of the year was up anywhere from 273% to 2800% YoY (data courtesy of Discripto, WPIC’s big data tool). 

Industrial-sized orders of fresh food (representing cooking ingredients and specialty ingredients for restaurants) completely stopped on e-commerce platforms, but individual and family sized fresh food orders from the platform have surged. This tells us that more and more consumers are turning to e-commerce as a means to stock their pantries and fridges. And as the threat of contagion dissipates, we are asking whether consumers will return to their old habits after experiencing the relative ease and convenience of shopping online?

As an example, data from WPIC shows that orders of instant noodles are up between 71% and 520% YoY (depending on the week). Furthermore, downloads of fresh produce apps like Hema Fresh, Dingdong Produce, JD Home, and others have surged in the App Store to unprecedented heights (entering the top five in some cases). Meicai.com, for instance, was hovering between the #120-#140 spots at the beginning of the year, and reached #4 at the height of the virus.

The auto industry in China is another sector facing massive disruption due to the effects of Covid-19. Aside from the fact that the sector’s supply chain is particularly vulnerable to the virus, Chinese consumers have also cut back on purchases of cars in automobile dealerships. Initially, this could be attributed to government mobility and travel restrictions, which meant no customers in auto malls and dealerships. However, now those same customers are behaving much more conservatively with their money, as a result of the economic uncertainty the virus presents, according to RIWI. Those who were thinking about walking into a dealership and purchasing a car are now having second thoughts.

Eventually, car buying will return, but what does this inability to access a dealership mean in the long run? At a minimum, it provides an opportunity for online shopping for cars (which had previously been one of the last bastions of brick-and-mortar retail) to take off. And as younger generations (Millennials, Gen-Z) grow in their economic power, they’re the very consumers who are going to be more comfortable with purchasing their cars online (as opposed to their parents and grandparents).

It should be noted that an increased proclivity towards online shopping is not only because of Covid-19. Part of the continued rise in the penetration of e-commerce in Chinese tier-3 and tier-4 cities is also driven by: middle-income earners having greater access to online retailers as a repository for their disposable income; rapid advancements in and adoption of mobile shopping; and Chinese retailers investing heavily in omnichannel capabilities. 

These factors have all conspired to create a reality where north of 25% of all retail shopping is done online. These factors were in play long before the first case of the novel coronavirus was diagnosed in Wuhan. 

That said, the situation on the ground in Hubei Province and throughout the PRC appears to have caused an acceleration of the trajectory towards digital sales. The outbreak could very well have prompted someone who might have previously visited a local store for vitamins, cars, and groceries to turn to online resources. And if the e-commerce experience proved fruitful, then there’s nothing stopping that person from continuing to leverage technology to acquire those necessities once more in the future—especially when Chinese platforms invest heavily in building out a pleasant online shopping experience designed to retain users. 

Second order effects

What will be particularly interesting to watch over the coming months and years will be second order effects of Covid-19 across the Chinese consumption spectrum. 

For instance, leading social e-commerce platform Pinduoduo has announced that condoms and birth control are among the most popular items for sale on its platform right now. What is clear is that while people may be having more sex than they were previous to the outbreak, what they evidently are not doing is procreating. People are unsure of how long this virus is going to last and are delaying having children for now. For an economy that relies on growth in population, this will have massive effects. 

One that immediately comes to mind is the child-baby-mother sector in China, which annually accounts for roughly RMB 9.62 billion (as of 2018) and is growing. As a result of the virus, the sector is going to have a massive decline, six-nine months from now. From milk formula to toys, swaddling blankets to nursing bras, producers of those items should prepare for a cold Fall this year. 

In addition to the changes in the apparel sector in China, we expect the real estate sector to take a huge hit. With real estate sales at a standstill this past February, Chinese consumers are going to hold on to their money for the next few months, while the country’s economy fully returns to pre-virus levels.

At the end of February, 34% of Chinese survey respondents, said they could only survive one month on their current cash levels (33% said they could hold out for two months). This means that, just like auto’s, big ticket purchases like housing are going to face significant delays until consumers feel more economically secure.

And then there’s the psychological impact of Covid-19. As Chinese parents and students witness how seemingly disorganized the United States, the UK, and the EU appear to be with their respective Coronavirus responses (especially when compared to that of the PRC), more and more are going to hesitate taking up the opportunity to get educated abroad.

Additionally, with thousands of Chinese students abroad kicked out of their dorms as universities and colleges closed down across the United States, the interruption they’ve experienced to their degrees is only going to make it easier to drop out.

According to RIWI’s survey data, 39% of Chinese respondents already felt that domestic post-secondary education was the best option for them (followed by 26% in the US; 13% in Europe and 9% in Canada). We’re expecting that domestic number to increase over the coming months, as the rest of the world comes to an economic halt, while China gets back online. 

Just as the psychological impacts of the 2008 Financial Crisis permanently altered the behavior of North American and European millennials, so too, do we expect Covid-19 to have permanent effects on the psychology of Chinese parents and children.

Will online retail trend last?

The lasting impacts of Covid-19 on China and the world are yet to be revealed. But recent history offers some insight into what the globe can expect: SARS is one of the most obvious analogues for assessing the novel coronavirus’ impact. SARS also had its genesis in China and proceeded to spread to almost every continent. It infected around 8,000 people and claimed almost 800 lives worldwide, accounting for a 0.5-1.0% blow to the Chinese economy in 2003, and modestly impacting the global economy as a whole. However, its broader economic impact was arguably minimal.  

As of late March, the World Health Organization reported over 3,200 Covid-19 related deaths in China alone, and infections in more than 150 countries worldwide. This outbreak is clearly more widespread and impactful than anything before it. More dire and lasting consequences to China’s economy and its people would therefore be expected. And while the sale of certain products has benefited from adjustments made by Chinese consumers, China’s strategic position in the world economy and as a primary node in the supply chain are much different now than they were during the SARS outbreak. 

Quick and decisive action by Chinese health authorities have attempted to contain the spread of the virus and decrease the number of overall infections. The potential world health crisis posed by Covid-19 is rightfully being taken seriously by both national and international bodies around the world. 

But a return to normalcy in China and around the world is not imminent. When it comes to Chinese consumer habits, normalcy pre-and-post coronavirus will be different. Because if the news that e-commerce is often a more convenient and increasingly common way to shop hadn’t sunk in before the outbreak, those who have turned to the internet to buy products that help them live their lives might well consider it the new normal. 

Shares of Chinese online retailer JD.com surged nearly 9% on Tuesday after the company announced a $2 billion stock buyback plan.

Why it matters: JD.com’s repurchase plan comes amid a tumultuous week for global markets as a result of the panic surrounding Covid-19, which has claimed more than 7,400 lives around the world. 

• JD.com shares fell 11% over the past months, showing some resilience compared with the 29% plunge for the Standard & Poor’s 500 index over the same period.

Since the outbreak of COVID-19, JD.com has leveraged its strengths in supply chain, logistics and technology to ensure the normal operation of its various businesses. JD.com’s management team has always maintained firm confidence in the sustainable and long term development of the company.

—JD.com spokesperson in an emailed statement

 Details: JD.com’s board of directors has authorized a share buyback program under which the company may repurchase up to $2 billion of its shares over the next 24 months, according to a company statement. 

• The buyback will be made on the open market at prevailing market prices, in privately negotiated transactions, in block trades, and others. 
• The firm will fund the plan with its own cash balance, and it will not impact the company’s operations, the spokesperson said.
• JD posted strong growth for the fourth quarter, pushing shares up 12% on the same day. However, intensifying Covid-19 outbreak concerns ended the rally, with share prices falling to a low of $34.7 on March 16 from $44.9 apiece on March 5.

Context: The e-commerce giant is reportedly planning a secondary listing on the Hong Kong stock market as early as mid-2020, following the lead of rival Alibaba’s November listing.

Chinese online retailer JD.com is reportedly eyeing a secondary listing on the Hong Kong stock market as early as mid-2020, following rival Alibaba’s blockbuster $13 billion listing in November.

Why it matters: JD.com could be the latest addition to a group of Chinese tech firms that are gearing up for a dual listing in Hong Kong.

• A successful listing would be a vote of confidence for China’s e-commerce market as well as the broader economy, which is struggling to return to full capacity following country-wide lockdowns. However, the economic effects from the pandemic as well as the protests in the city adds uncertainty to a potential Hong Kong debut.
• Chinese search engine Baidu, online travel platform Trip.com, and Netease, China’s second-biggest gaming firm, are reportedly planning to dual list in Hong Kong.
• The possible listing would further boost Hong Kong’s status as a major capital markets hub.

Details: JD.com is in discussions with investment banks including UBS and Bank of America on details about a secondary listing, Hong Kong Economic Journal reported, citing people with knowledge of the matter.

•  A spokesman for JD.com declined to comment on the news.
• The two banks underwrote the company’s 2014 initial public offering (IPO) on Nasdaq, and have a long history of working with the company.

Context: In January 2018, founder and CEO Richard Liu indicated that the company was considering a dual listing either in Hong Kong or mainland China.

• JD announced in January a $1 billion note offering to refinance and fund general operations.
• The e-commerce giant beat market expectations of its Q4 2019 earnings, though it said the crisis around the Covid-19 outbreak will cost the company about 10% of its net revenue growth in Q1.

Dr. Jiang would usually be busy over the Lunar New Year, jabbing patients with acupuncture needles for aches and pains. This year, she was able to oversee her son’s homework and make a few hundred dumplings. The beds on the eleventh floor of her hospital, in Shiyan, Hubei province, were empty—except for the patient in the coma. 

Unless they are truly desperate, people are steering clear of hospitals. Even those with flu-like symptoms don’t make the hospital their first port-of-call. Instead, they headed online. Online medicine platforms like JD Health saw respiratory-related queries surge tenfold. JD Health general manager Xiao Junbo said they saw five to seven times as many consultations from people worried about their mental health. 

JD Health rivals tell the same story—steep uptakes in consultations. Alihealth reported that its first 24 hours of launch on Jan. 25 saw around 400,000 visits to its homepage. It fielded an average (in Chinese) of 3,000 consultations per hour. Newly registered users increased tenfold for Ping An Good Doctor, which also reported 1.1 billion visits during the outbreak period. Dingxiang, another online consultation provider, reported over 1 million consultations as of Feb. 20. 

Industry insiders say a 2018 nod from Premier Li Keqiang was better than any subsidy.

The virus has also pushed regulators to act. For this period, the state insurer now allows prescriptions and consultations handled by designated online platforms to be reimbursed under medical insurance. Previously, they were not covered.

More than two hundred public hospitals opened their own online consultations. In a set of opinions released jointly by the top Party and government bodies on March 5, all the signals (in Chinese) point to online healthcare becoming a big part of ongoing healthcare reform.

Healthcare reform 

Health care is a trillion-dollar market (in Chinese) in China. Put together, tech companies and other established online health care players have just 4% of market share, said a JD Health employee. 

That’s not for lack of government resolve. China wants a more efficient, cheap healthcare service enabled by 5G and new tech. But there is not yet a consensus on the precise form the full gamut of e-services should take and what kind of safeguards are necessary to ensure online services solve more problems than they make.

When 2014 regulations created a framework for online healthcare, players rushed in. Investors also loved the industry: at one point there were over five thousand players (in Chinese). By 2017, over a thousand of those were in the online medicine graveyard. 

A boost came the following year, when Premier Li Keqiang mentioned online hospitals in a high-profile speech. His nod-from-above reassured doctors that if they participated, they would not get into trouble. Industry insiders say that was more helpful than any subsidy. 

Covid-19 has given online medicine platforms a leg up in consumer awareness.

The 2018 retooling of China’s bureaucracy drove drug companies to drug-selling platforms. Previously these companies sold directly to hospitals. This arrangement allowed hospitals to negotiate directly with drug companies, leaving space for kickbacks and corruption. The newly centralized public medical insurance system moved to bulk buy to lower costs for public hospitals. Drug companies that lost tenders were in desperate need of additional sales channels, and many started selling online for the first time. 

Once the outbreak ends, online healthcare providers will be watching closely how the government will decide to manage online prescriptions, e-medical records, and online insurance. While all of these have had regulatory mentions, there is not a centralized platform for them all. If the government manages to set standards for these services, it could quicken an online migration of health care service chains. 

Medical insurance doesn’t cover all drugs bought from private online platforms, and it’s unlikely this will change completely. A gradual roll-out, first covering chronic illnesses like diabetes, and high blood pressure is more likely, said one industry insider, and would still be a boon to online sales. 

Too few doctors

Covid-19 has given online medicine platforms a leg up in consumer awareness. But users may not be the biggest hurdle.

Run out of shirts and you can source more, but that doesn’t apply for doctors.

“A difficulty faced by every player in the healthcare industry is that qualified doctors are in short supply,” a healthcare investment professional told TechNode. The more doctors platforms have (particularly famous ones), the more patients they can attract, and the more they can treat. 

Online healthcare players will not sweep away the old system any time soon.

Online platforms want to take on full-cycle treatment, with educational public health videos, preventative advice, initial online consultations, hospital referrals, and offline treatment if you really need it. JD Health’s initiative led by star cardiologist Hu Dayi is the prime example. Tencent and Alibaba are already buying up brick-and-mortar hospitals. Beyond regulation, the race is likely to come down to supply.

They are up against brick-and-mortar hospitals, possessive of their staff. A Shanghai-based medical professional told TechNode that they’ve seen doctors quit Ping An Good Doctor out of fear of consequences at their hospital days jobs. After hospital administrators asked them to fill out a form confirming whether they would work for the platform, two doctors known to the source took it as a warning and stopped.

Online healthcare players will not sweep away the old system any time soon. For one, Covid-19 has disproportionately affected the old and frail—the proportion of the population least likely to use apps. Resources are still concentrated in hospitals, and the rural-urban health gap remains.

“Online consultations definitely have value, if only to point people towards higher-level care in severe situations. But the challenges of access, quality, and availability still remain,” said Pei Hao, a Beijing-based global health expert.

Doctors who spoke to TechNode also described problems with online consultations, mentioning issues of patients presenting only the symptoms they considered important, or self-diagnosing by reading descriptions online. Patients, on the other hand, are worried about fake doctors. 

Platforms, however, can bolt on new efficiencies and expand private healthcare. A former senior manager at AliHealth told TechNode that “the government will stay the largest player [in healthcare], but a lot is possible at the periphery.” He expects new players, established pharmaceutical companies, pharmacies and foreign hospitals will enter the market as rival players in years to come. 

A JD Health employee said “even focusing on a single district or city gives a small company enough to bite off.” E-retail companies may find they do not define healthcare, as they do markets like beauty and electronics, but they do not need to, simply because the need is so big.

Chinese online retailer JD.com posted on Monday robust top-line growth for the fourth quarter of 2019, sending shares up 12% by market close.

Why it matters: The Chinese e-commerce giant has gradually been winning back investor confidence. The company’s shares hit a historical low in late 2018 after founder Richard Liu faced rape allegations in the US, compounded by other factors including intensifying competition from rivals like Alibaba and Pinduoduo and a management reshuffle.

• JD.com’s share price more than doubled in 2019, up from a low point of around $20 in the beginning of 2019 to the $43.30 per share value as of market close on Monday.

Details: JD.com’s total net revenue rose 26.6% year on year to RMB 170.7 billion ($24.51 billion) in the December quarter from RMB 134.8 billion the same period a year earlier, the company said in a statement on Monday. The revenue beat the high end of analyst estimates compiled by Yahoo Finance.

• The company’s net income attributable to ordinary shareholders was RMB 3.6 billion in the quarter ended December compared with net losses of RMB 4.8 billion for the same period a year earlier.
• Cost of revenues rose in line with revenue growth, increasing 26.8% year on year to RMB 146.7 billion in Q4, driven by the company’s online direct sales business and third party logistics services.
• Liu attributed strong customer growth to ongoing penetration of lower-tier cities. Annual active customer accounts increased 18.6% to 362.0 million in 2019, while monthly active users on mobile soared 41% compared with December 2018.
• The company expects to record at least a 10% annual growth in net revenue for the first quarter of 2020, down from a 20.9% growth in the same period of last year.
• JD warned that the 2020 Q1 estimate is subject to change in light of uncertainties related to Covid-19.
• Separately, the company’s chief financial officer Sidney Huang will retire in September. JD Retail’s finance chief  Sandy Xu will take over Huang’s role.

Context: Chinese tech firms like JD.com and Alibaba have been contributing to efforts to battle the epidemic by making donations and offering support to small and medium-sized companies.

• JD.com founder Richard Liu began handing over his management roles at a number of JD subsidiaries in 2019.

In Shiyan, Hubei, Jiang Xiaosa wants to buy a tablecloth off e-commerce platform Taobao. But no deliveries are coming to Shiyan, so she’s waiting to place the order. Normally, Jiang, who owns a baijiu shop in Hebei province, would have left Hubei weeks ago. Instead, she’s living a low tech life while waiting for the quarantine to end.

Deliveries still make their way into Wuhan, the first city that went into quarantine following the Covid-19 outbreak. But Shiyan is a tier three city 600 kilometers from Wuhan.

The digital economy was one of the first things to go when quarantine started.

The virus has dealt a blow to e-commerce and food deliveries, but consumers in tier one cities still depend on them to avoid now-risky supermarket trips. In Beijing, fresh produce platforms like Alibaba’s Hema saw a surge in demand. In Shanghai, local platform Dingdong feeds families. Those that order takeout on apps like Ele.me must wait longer and pick up deliveries left outside, notified by a call from the delivery man once he’d already left.  

That’s not what getting food looks like in third-tier Hubei. While e-commerce companies may be helping to deliver supplies in the background, people are living like their interfaces, the likes of Taobao and Ele.me don’t exist. In Shiyan and neighboring Xiangyang, there have been no parcels since the quarantine began, and food delivery is close to non-existent. The low tech era is back.

Low tech food

Before the virus emerged, residents preferred brick-and-mortar for groceries. People in Shiyan can usually walk downstairs to a local store, usually at the foot of the residential compound.

This lasted until the local government asked people to stop going outdoors on Feb. 2. Loudspeakers started broadcasting rhymes discouraging shopping trips: “If you have one grain of rice, don’t go out in the crowds; if you have one stalk of spring onion, don’t rush to the market.”

The local store moved some of its produce into the apartment compound. Jiang can now buy tangerines without venturing onto the street. 

Low tech fresh food networks have sprung up. The local neighborhood Party committee is now the equivalent of a Hema delivery man. Jiang can scan a QR code, join a WeChat group, and post a list of what she’s run out of. She says that the neighborhood committee also collects her rubbish and helps pay her gas bill.

A resident in Jiang’s building had symptoms similar to the coronavirus and no one from that building was allowed to leave the compound for a week. Jiang is considering joining the Party committee as a volunteer just so she can get outside more often.

In the neighboring city of Xiangyang, Zhong Shaoxiong manages on his own. Unlike Shiyan, his neighborhood committee does not deliver groceries. They have barred his family from leaving their residential compound since Feb. 1, when cases were discovered within.

“There’s a nearby supermarket; we have their WeChat, we tell them what to buy, they send groceries to the gate of the compound,” said Zhong. He pays at the gate, which separates the local supermarket’s staff and himself. 

Cooked food delivery is totally gone in Shiyan. It’s almost gone in Xiangyang. There was one shop open on Ele.me in the whole city when Zhong checked at 7 p.m on Feb. 11. The choices aren’t bad. Among them are prawn fried noodles, fried rice with Laoganma chili sauce, and Sprite to wash it down. Before the virus, Zhong said, “food delivery was everywhere in Xiangyang.”

E-commerce companies operate in the background. Pinduoduo, for instance, has told Xinhua (in Chinese) that it has shipped agricultural produce to Xiangyang. Fu Zheng, Pinduoduo’s team head for epidemic control, said in the interview that the company has set up new procurement and purchasing channels to circumvent road closures and disruption of normal logistics and that it bought over 100 tons of fresh vegetables and fruit and delivered them to 16 hospitals across seven cities in Hubei.

Nothing comes in, nothing goes out

Quarantine has thrown Shiyan’s residents into a pre-Taobao world. Local governments have implemented strict and varying rules on what is allowed in and out. Nothing comes in unless it’s of the turnip or mask variety, and these go straight to supermarkets or pharmacies. Individual deliveries don’t get past the roadblocks.

TechNode writer Wei Sheng posted masks to his parents who live in a village near Huanggang city on Jan. 26. His parents were waiting to collect the parcel from the nearest town, Gaoqiaozhen. Three weeks later, they are yet to arrive.  “I’ve given up,” he said.

People are getting by without Taobao, but they miss it. Local residents in Shiyan said that they were among its earliest adopters. After placing an order, the seller would call to confirm. The buyer would traipse to the local post office and send money directly to the seller’s account. It could be a ten-day wait before the parcel arrived at the local postal point. “The first people to use it were brave,” said Jiang. The most popular purchases, said her daughter, Yaning, were nicer clothes and shoes then unavailable in the city’s shops.

Jiang can wait on the tablecloth. But there are other problems. During her time in quarantine, her washing machine has broken. She ordered a new one off JD.com.

Not only are no parcels coming in—none are going out. She wanted to post the key to her shop to a colleague back in Hebei. No one would come to pick it up. 

Cut off from the digital economy, Jiang isn’t worried about not being able to sit down to home-cooked meals—the Party committee guarantees that. What she doesn’t know is when she can go back to work and use her washer.

Chinese consumers have made few e-commerce purchases during the first three weeks of China’s battle with Covid-19, Alibaba officials said during its quarterly earnings call on Feb. 13, during which it forecasted slower or negative growth in its China retail and local services businesses during the current quarter as a result. With takeout food orders also affected, the only exception is grocery deliveries.

Alibaba was the first major e-commerce platform to describe trends in online consumption during the virus period. Rivals JD and Pinduoduo are likely facing similar challenges. Their difficulties, however, pale compared to much brick and mortar retail. Nearly all non-essential physical stores are closed indefinitely. 

Millions of people confined to their homes might seem like a golden opportunity for online platforms to make sales. But in fact, the crisis has upended the momentum of China’s digital economy, depressing sales and sending many consumers back to local markets.

Supply-side difficulties

Alibaba said that supply-side disruptions accounted for much of the decline, as many merchants on its online marketplaces were not able to do business under quarantine conditions. Disruptions to logistics further affected business, the company said, observing that “significant numbers of packages were not able to be delivered on time.” Company executives added, “The demand is there, but the means of production have been affected.”

However, customers were not interested in buying nonessentials such as clothing and electronics during the height of the epidemic, the company said, normally among the top-selling categories on its marketplaces. It predicted a slow return to normal business, noting that many workers across China are still in their hometowns and face difficulty returning. 

E-commerce marketplaces have been dysfunctional during the quarantine period. Many listed products warn halfway through a product description that the seller will not ship orders for weeks, while orders that are shipped can get stuck in logistics company warehouses. A bag of coffee bought on Tmall on Feb. 6 has spent eight days in two Hangzhou warehouses, according to the app’s tracking information. 

Deliveries have had to contend not only with short-staffed companies, but a patchwork of quarantine regulations and checkpoints which greatly limit inter-city travel. Many cities, towns, and villages have declared themselves closed to outsiders. E-commerce platform Pinduoduo allowed merchants to delay delivery of goods ordered as early as Jan. 17 until Feb. 12, a three-week wait that reflects the limits of China’s logistics sector during this crisis.

In a statement, Alibaba competitor JD claimed that its in-house logistics network gave it a competitive advantage in fulfilling orders, but conceded that “delays are expected.” 

Consumers stock up on basics

What people have been buying are household necessities. Both data and on the ground observations suggest that consumers stuck at home have been doing a lot more cooking, and buying weeks’ worth of vegetables and other household supplies at once. Online services appear to have won some of this traffic, but brick and mortar vegetable markets have also played a major role. 

Both Alibaba and JD described robust growth in orders for groceries and other essentials compared with the same holiday period last year. JD said that orders for food products on its platform grew 154% compared with a similar period following last Chinese New Year (which follows the lunar calendar), with rice and wheat products selling a respective 5.4 and 4.7 times more. 

Alibaba CEO Daniel Zhang said on the call that the crisis is bringing in new customers for food and household supplies. “We’re seeing this epidemic cause many newly-online users in lower-tier cities and less-developed cities to begin to purchase daily necessities, which is a very good sign for the future,” he said.

Zhang described “fairly rapid growth” in these categories, noting that part of the growth was driven by deliveries from nearby shops. New retail grocery market Hema, also known as Freshippo, he said, saw increases in orders but also had difficulty making deliveries because of staffing issues. 

However, the crisis has also demonstrated the resilience and popularity of local vegetable markets. TechNode reporters in smaller cities saw people rush to these markets during the early days of quarantine to stock up. Even as quarantine measures intensified and people avoided, or were banned from, leaving their homes, they continued to buy vegetables from these markets. 

In Zhangjiagang, a modestly sized city of 1.3 million in eastern Jiangsu province, local merchants organized deliveries using WeChat groups populated by residents of neighborhoods and housing compounds. A vegetable seller at the Zhangjiagang East Wet Market told TechNode that her retail business was better than usual, although the gains were offset by the loss of restaurant trade. “I think now is the time we can really serve the people,” said another. While Shanghai has ordered most stores to remain closed, vegetable markets and supermarkets are exempt, along with pharmacies and other medical services. 

In a small city in eastern Zhejiang province where local authorities banned residents from leaving their homes, they made an exception for visits to the vegetable markets. Initially, the system relied on paper ration tickets, but on Feb. 13 these were replaced with a WeChat mini app. Residents are required to apply for approval to go outside based on a risk factors survey and to scan a QR code to report each trip to the market.

A Meituan delivery driver in the Zhangjiagang market told TechNode that he was seeing fewer overall orders than usual during the period despite the uptick in grocery deliveries.

Perfect storm

E-commerce platforms face a larger challenge than getting parcels through: keeping their merchants in business.

The timing of the quarantine measures maximized their effect on the economy: beginning as China celebrated its most important annual holiday, they caught many businesses while they were closed for a long holiday. In US terms, it’s as though Christmas Day lasted through the middle of January—only the bare minimum of businesses are open.

While e-commerce platforms have experienced disruptions, many of the merchants who populate online marketplaces have been completely closed for weeks. Without revenue, many small merchants are struggling to survive. In the face of merchant mass extinction, e-commerce marketplaces will not be able to recover supply for a long time.

They appear to be prioritizing medium-term measures to help merchants stay afloat, including subsidized loans.

E-commerce has taken a big hit from the crisis, but it could still be a long-term winner. The operational difficulties of the past few weeks give them a head start over brick and mortar rivals, who are in most cases still closed. If e-commerce can recover faster—or if an extended crisis drives alternatives into bankruptcy—they could have a clear field for rapid growth ahead.

JD Logistics issued an announcement on its WeChat public account today saying that in response to the urgent needs of Hubei Provincial Coronavirus Pneumonia Prevention and Control Headquarters, JD cooperated with the Hubei Provincial Government to officially build its emergency material supply chain management platform. The platform provides a full visual-tracking process of the production, inventory, allocation, and distribution of protective clothing, masks, goggles and other materials that are deemed urgent to fight the epidemic. On top of that, it also assists with an accurate measurement, scientific scheduling and reasonable distribution of medical supplies in Hubei.

Because there are many types of anti-epidemic materials, it is difficult to match the front-line anti-epidemic needs and the timely collection of materials in the traditional way. Under such circumstances, JD Logistics provides a customized solution for Hubei, integrating all data and information on anti-epidemic materials in a digital form, and centralized management by a systematic supply chain platform, thereby providing powerful logistical support for the fight against the epidemic.

 According to the design of the platform, demanders, purchasers, and suppliers are required to complete the procurement information and logistics in order to achieve fast and accurate matching of supply and demand at the front end of the supply chain.

JD Logistics representative said that after the platform goes online, it will achieve two goals:

• To ensure that the front-end can handle more complex input of material information while the back-end can connect with different logistics data with openness and transparency;
• To integrate front-end procurement, inventory management, and cargo flow with big data management with the processes of warehousing, signing, acceptance, and reviewing to facilitate the allocation and management of materials in order to increase efficiency

On January 21, JD.com has started to provide emergency medical transportation for local pharmaceutical companies in Hubei, and has opened the “Priority Order Delivery Service for Medical Institution-Specified Orders” and “Voluntary Transportation Channels for Rescue Materials in Wuhan Across the Country”. 

As of February 10, JD Logistics has delivered more than 2,000 tons of epidemic prevention materials and emergency supplies for people’s livelihoods to Wuhan and its surrounding areas, while providing services in Hubei within the capacities of infrastructure, supply chain, technology, and manpower. Including Jingdong Logistics, Jingdong Group has invested a total of nearly 200 million yuan of donations in protection and medical supplies, transportation capacity assistance to Hubei, and livelihood insurance for Hubei and other severely-affected areas.

Editor’s note: This is part of our ongoing Tech for Good series, highlighting how Chinese tech companies are helping fight the impact of the coronavirus. This was originally written by Steven Lee, a writer for our sister site, TechNode Chinese. Read the Chinese version here. 

Chinese e-commerce platforms are redoubling efforts to help farmers hit hard by the Covid-19 outbreak to sell their overstock agricultural products online.

Why it matters: Connecting farmers with e-commerce as a method of poverty alleviation has part of the government’s agenda in recent years. During the Covid-19 outbreak and subsequent locality lockdowns, e-commerce has became a crucial sales and distribution channel for farmers.

• Shuttered brick-and-mortar produce markets, logistical interruptions, and labor shortages caused by the Covid-19 outbreak quashed the seasonal sales spike normally seen during the Spring Festival holiday week.
•  Farmers are facing huge losses resulting from China’s paralyzed economy as wholesalers aren’t purchasing as normal during the outbreak. The Covid-19 effect on China’s agricultural sector may be felt over the longer term due to the time needed for crop growing cycles.

Details: Major e-commerce sites like Alibaba, JD, and Pinduoduo have launched special campaigns and subsidy funds to facilitate online sales of fresh produce.

• Pinduoduo unveiled on Feb. 10 a special campaign for direct-from-farm produce, listing fruits and vegetables from nearly 400 agricultural areas countrywide. Of the total, 230 are officially recognized poverty-stricken counties.
• The Shanghai-based firm also allocated RMB 500 million ($71 million) in subsidies in the form of coupons or discounts for buyers to apply to purchases of applicable produce.
• The company said that in addition to the subsidy fund, it also allocates RMB 2 per order to farmers to assist with logistical costs.
• The company has not responded to requests for specifics about the subsidies. Pinduoduo does not hold inventory and users purchase the produce directly from farmers listed on the platform.
• Alibaba’s Taobao is setting up a RMB 1 billion fund for the initiative. The company is maximizing advertising reach for the produce by linking customers with a dedicated landing page on Taobao’s home page.
• JD launched on Feb. 11 a dedicated sales channel for farmers affected by the crisis to sell their produce.

Context: E-commerce has become an important sales channel for farmers, especially those in remote areas.

• Thanks to the rise of content-driven e-commerce, tech companies from e-commerce giant Alibaba to short video apps like Douyin and Kuaishou are leveraging livestreams and videos to boost online sales.
• Pinduoduo earned sales revenue of more than RMB 65 billion in 2018 from a special program that sells farm produce from poverty-stricken regions.

Chinese e-commerce giant JD.com has completed its first delivery of medical aid via autonomous vehicle in the central Chinese city of Wuhan, the epicenter of the current novel coronavirus outbreak.

Why it matters: The coronavirus epidemic may drastically accelerate real-life applications for deliveries via unmanned vehicles and drones in China, which has remained limited despite widespread attention.

• Apart from parcel delivery, unmanned driving technologies applications in food delivery and street sweeping may surge as human-to-human contact is discouraged across the country to reduce the risk of infection.

Details: JD’s unmanned vehicle delivered medical supplies to Wuhan Ninth Hospital from its Renhe delivery station 600 meters away, according to a company statement (in Chinese).

• A video of the delivery shows that users can collect their orders by inputting a pickup code.
• In addition to delivery vehicles, JD Logistics will open up its Level-4 autonomous driving solutions, allowing more autonomous delivery robot manufacturers to update and benefit from the technology, according to the company. Level 4 automation refers to vehicles which can operate in self-driving mode within a limited area.
• JD Logistics will also use drones for delivery to remotes areas in Hebei, Shaanxi, and Jiangsu provinces which have also been hit by the virus.
• Shenzhen municipality in southern China has started to adopt autonomous robots for street sweeping and public area disinfection, according to Chinese media reports.
• Regional governments are pushing (in Chinese) for unmanned delivery solutions to prevent spreading the virus.

Context: The noval virus has claimed 637 lives after sickening more than 31,200 individuals on the Chinese mainland as of Friday.

• In 2018, Meituan Dianping launched the Meituan Autonomous Delivery Platform featuring driverless delivery vehicles that shuttle meals from restaurants to consumers.
• McKinsey estimated that autonomous vehicles will deliver 80% of all goods in less than a decade.

Chinese e-commerce platforms are cracking down on fake or substandard protective masks, potentially the most visible symbol of the novel coronavirus outbreak that has rocked the country.

Why it matters: The coronavirus outbreak has triggered a rise in global demand for protective masks. Online retailers are tightening monitoring efforts to fight unethical sellers looking to benefit during a country-wide crisis by offering substandard products.

• Face mask production capacity in China is around 20 million per day, a representative of the Ministry of Information and Technology told local media.
• Daily demand for masks in China with its population of 1.4 billion surged to the hundreds of millions within a few days according to estimations from e-commerce platform Pinduoduo, according the company’s head of anti-epidemic team Fu Zheng in an emailed statement.

Chinese tech firms ramp up support to battle outbreak

Details: Alibaba has permanently barred 15 stores from operating on its shopping platforms for selling “problematic” masks, the company announced Tuesday through its official account on microblogging platform Weibo.

• The company has removed 570,000 questionable mask listings and has referred five of the banned stores to authorities for further investigation, Alibaba said in the statement.
• Alibaba’s marketplace regulatory unit reiterated its “zero tolerance” stance towards such behaviors in the statement released Wednesday. The firm suggested that the government should add such sellers to a country’s credit blacklist.
• Alibaba did not respond to requests for comment.
• Pinduoduo has removed 500,715 items and has closed more than 40 stores as of Feb. 4, the company said. Pinduoduo’s anti-epidemic group will run spot checks on protective gear listed on the platform, Fu Zheng added, to assess whether masks are up to national standards for particle filtering.
• Sellers found to be selling problematic products will be removed from the platform, have their cash accounts frozen, and will be reported to the police, the company said, and the platform will reimburse the buyers.
• JD has removed seven merchants from its platform, local media reported.

Context: Counterfeit goods have long plagued Chinese e-commerce platforms. To fight the issue, e-commerce platforms have rolled out anti-counterfeit initiatives by forming industry alliances, and implementing new technologies like artificial intelligence and big data, among others.

• The platforms are assessing protective product quality by analyzing in real-time merchants and product listings using data points such as product specification and user reviews. In addition, they are pulling random samples to examine and test the products.
• On Feb. 2, China’s Ministry of Public Security ordered a clampdown on sales of counterfeit and inferior protective products, the stockpiling such items, and inflating prices during the virus outbreak.

Updated: added the Ministry of Public Security statement.

China’s largest technology companies are contributing to efforts to battle the deadly coronavirus which has immobilized the country, donating millions in the form of cash, relief supplies, logistical support, and medical research.

Why it matters: Corporate social responsibility (CSR) is a relatively recent concept in China, where the country’s corporate law first included mention of social responsibility in 2006. As Chinese tech giants like Alibaba, Tencent, and Baidu look to compete globally, they are embracing social and environmental practices in alignment with international CSR standards.

Chinese tech firms brace for impact from coronavirus

Details: As of Feb. 1, nearly 150 Chinese tech firms have donated a combined total of more than RMB 4 billion ($570 million) for efforts to treat those affected by the outbreak, according to Chinese media reports. The funds were raised in addition to other forms of support from medical goods to telecommunications and logistics.

• Alibaba established an RMB 1 billion public health fund to purchase medical products and ensure hospital food supplies. Baidu and Tencent set up RMB 300 million funds each, while Meituan and Bytedance offered RMB 200 million each in aid.
• Alibaba-backed Cainiao Logistics announced on Sunday that it will provide free logistical support to relief materials delivered from more than 38 countries and regions.
• Starting Feb. 2, Ant Financial’s online commercial lender Mybank reduced interest rates for business loans by 10% for 1.8 million small business owners in Hubei, where the outbreak was first reported, including 1.5 million mom-and-pop-type store owners and 300,000 medical supply dealers.
• As of Jan. 28, JD Logistics had transported nearly 70 tons of medical supplies from cities including Shanghai and Guangzhou to Wuhan via rail.
• Pinduoduo, which set up a RMB 100 million fund on Jan. 29, shipped on Jan. 31 100 tons of fruits and vegetables to Wuhan hospitals.
• Bytedance has offered for all the features on its enterprise messaging and productivity app Lark for free to support efforts to work remotely.

Context: The current novel coronavirus has infected 14,557 people as of Feb. 2 , according to the World Health Organization. Infections have been identified in more than 20 countries.

• The catastrophic Sichuan earthquake of 2008, which claimed 70,000 lives, appeared to be a turning point for Chinese CSR efforts. Donation to the victims of the earthquake reached an unprecedented $1.5 billion.
• A growing number of Chinese tech billionaires are doubling their philanthropic efforts, similar to their western counterparts such as Bill Gates and Mark Zuckerberg, the Facebook founder who committed 99% of his company shares to charity initiatives.
• Alibaba’s Jack Ma pledged RMB 100 million to “support the development of a coronavirus vaccine.” Pony Ma, the founder and CEO of Tencent, donated 100 million of Tencent’s shares to the firm’s charity foundation in 2016.

Chinese technology majors are scrambling to prepare for a public health crisis stemming from a deadly strain of coronavirus that is beginning to spread across the country ahead of a major holiday travel season.

Why it matters: Fears about the outbreak are compounded by its timing just ahead of the Spring Festival holiday, when millions in Asia plan to travel. The impact on consumption levels is another concern, as many are expected to remain home to avoid crowded areas.

• Spread of the virus has sparked panic for items such as protective masks and hand sanitizer, and driven up prices in brick-and-mortar shops and e-commerce platforms alike.

“While we seek to ensure quality supply at speed, JD is also rigorously regulating our third party platform to forbid unfair price hikes, with penalties to third party sellers if unfair price hikes are discovered.”

—a statement from JD.com on Wednesday

Details: The new coronavirus epidemic is pressuring share prices for major Chinese tech companies including Alibaba, JD, Baidu, and Ctrip, which all traded down on Tuesday. Share prices for Ctrip fell the most sharply, declining 10.3%.

• In a Wednesday letter addressing merchants on its e-commerce marketplaces like Taobao and lifestyle services platform Ele.me, Alibaba called on vendors to maintain “stable” pricing of virus protective devices such as masks and disinfectant. The company said that it will offer subsidies for merchants in order to keep pricing down and maintain supply.
• Inventory for virus protection masks were running low on mainstream Chinese e-commerce platforms such as Taobao, JD.com, and Pinduoduo. Some masks, including those rated N95 and recommended by manufacturer 3M, were sold out and are expected to be back in stock in early February, based on a TechNode reporter’s observations on Tuesday.
• JD.com said that it is actively working to ensure adequate supply of face masks and other health protection products. Its efforts include sourcing, warehousing and delivery, and controlling sales to avoid consumer stockpiling.
• Online travel platforms may be hit the hardest. Chinese online travel platforms including Trip.com, Alibaba-backed Fliggy, Qunar, and Mafengwo are waiving cancellation fees for trips to the central Chinese city of Wuhan.
• Travel platforms are offering customers free cancellation on all hotels, car rentals, and tickets for tourist attractions in Wuhan until Jan. 31. The platforms are pledging to cover the cost if the hotels refuse to cancel.
• The government is leveraging popular social media platforms like microblogging platform Weibo and short video apps Douyin and Kuaishou to educate the public about the new virus and disclosure information.

Context: The fallout from this new virus recalls for many impact from the severe acute respiratory syndrome (SARS) epidemic which originated in Asia in 2003 and spread throughout the world. More than 5,327 of the 8,098 global infections were in China, where nearly half the 774 deaths worldwide took place. The epidemic took an economic toll of RMB 93.3 billion ($13.5 billion), according to government data.

• The current strain of coronavirus originated in the central Chinese city of Wuhan. There are more than 440 confirmed cases in China in Hubei province, Guangdong province, Beijing, Tianjin, and Shanghai, as well as abroad in Thailand, Japan and more. Nine death cases were recorded as of Wednesday early afternoon.
• Concerns about the virus reached new heights Tuesday after China confirmed that the disease can be transmitted between humans.

Chinese services platform Meituan Dianping has unveiled a credit payment feature named Maidan, following its technology peers which have launched similar services.

Why it matters: Meituan is deepening its fintech offerings, an important component for platform’s core service businesses which require payment transactions.

• With this push, the Chinese food delivery giant is competing head-on with Alipay, JD.com, and Tencent, which also have their own virtual credit payment tools.
• The new feature will bring additional revenue through fees charged for installment payment services and late payments.

Meituan shares hit historical high after Golden Week surge

Details: The new financial service offers users credit to delay payments by a month, and interest-free loans for up to 38 days.

• The credit payment option now supports all the major apps within the company’s ecosystem including Dianping, ride hailing service Meituan Dache, and grocery delivery service Meituan Maicai.
• Meituan users qualify for credit lines from RMB 300 (around $43) to RMB 1,500 according to credit and spending histories on the app.
• A select group of merchants and users have been testing the credit payment feature since September.

Context: The Hong Kong-listed firm reported RMB 1.33 billion ($191 million) in profits in the third quarter of 2019, a second consecutive quarterly profit since its September 2018 listing.

• Companies that run online payment services in China must obtain a license, which the firm nabbed through its acquisition of a third-party payment startup Qiandai in 2016.
• In addition to the company’s homegrown payment channel Meituan Pay, the app also supports popular payment tools Alipay, WeChat Pay, and Apple Pay.
• The app works with local banks such as Bank of Shanghai, Bank of Guangzhou and Bank of Qingdao to issue joint co-branded credit cards. It also offers loan services through its micro-credit subsidiary Meituan Sankuai Micro-loan.
• Which Tencent only launched its Fenfu credit payment service in late 2019, JD.com launched Baitiao in 2014 and Alipay debuted Huabei in 2015.

JD.com is planning a $1 billion note offering to refinance and fund general operations, according to a filing to the US Securities and Exchange Commission on Tuesday.

Why it matters: The Beijing-based e-commerce company is joining other domestic tech firms in seeking out cheaper capital as China’s economic slowdown continues. Alibaba’s blockbuster $13 billion secondary IPO in Hong Kong set a precedent for its peers.

• JD raised $1 billion in its 2016 debut on the global bond market. The first five-year $500 million tranche offered at a 3.125% rate will be due in around a year.
• US-listed Chinese tech firms including search engine Baidu, online travel booking platform Trip.com, and gaming firm Netease are reportedly proceeding with secondary listings in Hong Kong.
• In addition to Alibaba, rival e-commerce platform Pinduoduo raised new capital with its $1 billion convertible debt offering in September.

CHINA VOICES | JD’s vision of the future

Details: The public offering consists of $700 million of 3.375% notes due in 2030 and $300 million of 4.125% notes due in 2050, according to the filing.

• The notes are expected to be listed on the Singapore exchange.
• The company expects to receive net proceeds from the offering of approximately $988.3 million, after deducting underwriting discounts, commission, and expenses.
• Bofa Securities and UBS are joint book runners for the deal.

“As Alibaba and Tencent have been actively expanding their ecosystems, issuing $1 billion notes gives JD more financial flexibilities and lowers its cost of capital; It puts the company at a stronger financial position to acquire new businesses.”

—Deborah Weinswig, analyst at research institute Coresight Research, in written response to TechNode

Context: JD recorded net revenue of RMB 134.8 billion ($18.9 billion) in the third quarter of 2019, an increase of 28.7% year on year and the highest quarterly growth for the past five quarters.

• The company is reportedly in early discussions with banks for an overseas listing of its logistics affiliate, JD Logistics.
• Founder and CEO Richard Liu last year stepped down from a series of top management roles at the company’s subsidiaries last year.

Updated: included additional information about the company’s 2016 bond offering and analyst comment.

JD Logistics, the logistics arm of Chinese online retailer JD.com, is in early discussions with banks about raising $8 billion to $10 billion through an overseas initial public offering (IPO), Reuters reported on Monday.

Why it matters: JD Logistics, with its assets in supply chain, logistics, and warehouses, is one of the most valuable properties of the Chinese e-commerce giant. The possible IPO could come as the company continues to open its delivery and warehousing services to third-party companies in a bid to commercialize its delivery capacities.

• The once-loss making unit saw growing momentum this year. The logistics company expanded its third-party businesses with external revenues accounted for nearly 40% of its total revenues in the third quarter.
• JD founder and CEO Richard Liu stepped down as manager of a Xi’an-based unit that wholly owns JD Logistics on December 5th. He still holds a substantial 45% indirect stake in the subsidiary.

JD readies for life after Richard Liu

Details: The possible IPO is expected to value the company at $30 billion at least, Reuters reported, citing a source who declined to be named.

• The company is expected to select banks for the IPO in the second quarter of next year. The final debut could take place in the second half of 2020, the source added.
• The listing destination hasn’t been decided yet. Hong Kong and New York are possible choices, the source told Reuters.
• The funds will be used for warehouse expansion and potential acquisitions.
• A representative of the firm declined to comment on the matter when asked by TechNode.

Context: The Chinese e-commerce tycoon spun off its logistics arm into a standalone business in April 2017, pivoting from an internal department into an express delivery company servicing both consumers and enterprises.

• The unit raised $2.5 billion in February 2018 from a range of backers including investment firm Hillhouse Capital, China Development Bank Capital, as well as Tencent.
• The transaction, which was JD Logistics’ first outside funding event, valued the company at around $13.5 billion.
• JD Logistics raised $218 million in an RMB-dominated industrial fund this June to invest in startups.
• As of June 30, 2019, the online retailer operated approximately 600 warehouses.
• The total warehouses covered an aggregate gross floor area of over 15 million square meters, including approximately 2.5 million square meters managed under the JD Logistics Open Warehouse Platform.

Alibaba’s second-hand goods marketplace Idle Fish has added a location-based-service (LBS) feature in its latest update released Wednesday, as it redoubles efforts to support a rising e-commerce segment.

Why it matters: The company’s new initiative will help drive consumption through community engagement, linking people that are geographically close to each other or who share similar interests.

• Launched by Taobao in 2014, Idle Fish, known in China as Xianyu, is now the country’s largest used goods selling platform with 24.4 million monthly active users (MAU) as of March, based on figures from analytics firm Big Data-Research. Its users tend to be young, with more than half born after 1990, the company has said.
• China’s resale goods market reached RMB 694 billion ($99 billion) in 2018, up 22% year on year from RMB 567 billion in 2017, according to data from iiMedia Research.

Four cornerstones for China’s 2nd-hand goods exchange unicorn

Details: The new feature allows users to filter product listings according to seller location in a bid to boost transactions on the platform, which drives sales through its 1.3 million interest-based communities, according to its September 2019 quarterly earnings filing.

• Additionally, the update signals greater focus on key features such as livestreams and content from key opinion leaders (KOLs), which are featured prominently on the home page.
• The app update is only available for Android at present.
• The company has also been expanding offline since the beginning of this year by setting up brick-and-mortar stores in eight, mainly top-tier, cities including Beijing, Shanghai, and Guangzhou.

Context: Different from Taobao where sales are king, Idle Fish is a used-goods C2C marketplace that emphasizes community engagement. There are many interest-based communities for kids and baby goods, for example, where parents can exchange tips. Location is an important feature for the community element.

• As part of Taobao’s ecosystem, the used goods marketplace generated upwards of RMB 100 billion in annual gross merchandise volume (GMV) in fiscal year 2019, according to the company, a negligible portion of the RMB 5.73 trillion total GMV the company’s retail marketplaces earned during the same time period.
• Reselling “idle” items is on the rise as China’s consumers grow wealthier. The rental economy has also primed Chinese consumers for second-hand good sales.
• Idle Fish had 1.3 million interest-based communities and 60 million active sellers of long-tail products including second-hand, recycled, refurbished and for-rent products, as of fiscal year 2019.
• Mirroring Taobao’s efforts to create quality content, Idle Fish announced its plans to foster 100,000 key opinion leaders (KOLs) in April this year.
• Competitors include Tencent-backed Zhuanzhuan, JD-backed Aihuishou, and classifieds platform 58.com.

Chinese tech giant Tencent has increased its stake in Chinese online retailer site Vipshop to 9.6% from 8.7%, upping its push into the country’s crowded e-commerce industry.

Why it matters: The bigger stake grants Tencent increased control over the discount retailer, something it has sought for the past two years. The gaming and social conglomerate is pushing further onto Alibaba’s turf by leveraging its messaging service WeChat and its online payment systems to drive shopping demand.

• Support from Tencent is expected to fuel the US-listed firm’s expansion, which has seen growth slow as competition intensifies from Alibaba, Pinduoduo, and Xiaohongshu.
• Vipshop’s core base of young, female shoppers complements Tencent’s businesses.

Content emerges as new driver of Chinese e-commerce

Details: Shenzhen-based Tencent purchased an aggregate of 6.47 million American depositary shares (ADS) in Vipshop for a combined $84.19 million in the open market through a series of transactions from Nov. 25 to Dec. 13, according to a Vipshop filing on Tuesday.

• Tencent acquired the shares through a wholly owned subsidiary at an average trading price of $13.01 per ADS.
• After the transaction, Tencent remains the company’s second-largest shareholder after company CEO Shen Ya, who holds 12.7%.
• Vipshop’s shares on Tuesday climbed 3.5% to a fresh high for 2019 at $14.34 each, boosting its market capitalization to $9.6 billion, but share price remains only half of its historical high of $30.0 apiece from April 2015.

Context: Tencent and JD.com stuck a deal with Vipshop in 2017 to jointly invest $863 million in the online discount retail platform for 7% and 5.5% stake in the company, respectively. Tencent and JD.com’s two-year Vipshop share lockups expire Wednesday.

• Tencent bought 5.8 million Vipshop shares to grow its stake to 7.8% late last year, then further boosted its stake in March this year to 8.7%, according to the company.
• In addition to Tencent, company filings show that JD.com has also boosted its stake in Vipshop to 7.6% in August.
• The company’s total net revenue grew 10% to 19.6 billion yuan ($2.7 billion) in the third quarter, slowing from 16.4% for the same year-ago period.

With contributions from Wei Sheng

A series of recent changes to JD.com’s management team indicates that tech billionaire Richard Liu may be ready to take a step back from operations at the Chinese e-commerce giant he founded over two decades ago. 

JD is different from Chinese tech majors like Alibaba, which is based on a partnership system: JD doesn’t have an official co-founding team. Liu’s absolute rule has typified the company since its beginning. 

Liu stepped down on Dec. 5 as manager of a Xi’an-based unit that wholly owns JD Logistics, the firm’s delivery arm. Liu holds an indirect 45% stake in the subsidiary, according to corporate data platform Tianyancha. The development is the latest example of Liu withdrawing from the company’s ongoing operations:

• In May, Liu walked away from his role as the manager of the Jade Palace Hotel in Beijing, an iconic building in the capital that JD acquired for $400 million in February.
• He resigned as the legal representative for a subsidiary in Suqian of eastern Jiangsu province in July. The unit is a shareholder in JD Digital.
• In November, Liu stepped down as manager of two cloud computing units that the company registered in February.
• In the past month, he has given up top roles at four healthcare subsidiaries registered in Beijing, Yinchuan in Ningxia Autonomous Region, as well as Huizhou in Guangdong province. 

The moves echo remarks made at a November 2018 earnings call when Liu announced plans to start handing over some responsibilities to other top executives in order to “focus on new business lines.”

That announcement came amid a very public investigation by local attorneys in Minnesota over his possible prosecution over suspected “criminal sexual misconduct.” The allegations had led to Liu’s one-night arrest in Minneapolis on August 31.

The case, involving a 21-year-old female Chinese student at the University of Minnesota, was ultimately dropped by local prosecutors in late December due to “insufficient evidence.” However, the student, Liu Jingyao, filed a civil lawsuit against him and JD in April, seeking damages in excess of $50,000.

Key-man risk

Shares tumbled by one-third between September and December 2018 as analysts voiced concerns that the incident could harm the company’s access to Chinese government officials. They said the issue highlighted JD’s key-man risk, where an organization’s success depends to a great extent on one individual.

“Mr. Liu’s personal issues affect brand image. It also affects the authority of JD’s management team—you may no longer get invited to government meetings,” Li Chengdong, chief executive of a Beijing-based tech consultancy, told the Financial Times in an interview in November 2018.

Liu was not included in a list of China’s “100 outstanding private sector entrepreneurs” issued by the country’s top union and the ruling Communist Party’s Central Committee in December 2018. Rivals like Alibaba founder Jack Ma and Suning’s Zhang Jindong were included.

Liu, a member of the Chinese People’s Political Consultative Conference (CPPCC), the advisory panel for China’s parliament, was notably absent at the country’s largest political event in March. He resigned from the CPPCC advisory panel in November, citing “personal reasons.”

“As the CEO and face of the company, anything that happens to him would pose a key-man risk, where the company’s operations would go into dire state of affairs where decisions made might not be valid,” Derrick Chin, a Singapore-based analyst at Swiss financial services company UBS, wrote in an investment note published on December 3.

Firmly in control

Despite Liu’s moves away from power, he is still firmly in control of the company. He remains the CEO and chairman of the board of directors at JD.

Liu, with a 15.5% stake in the company, holds 79.5% of JD’s voting rights thanks to the company’s “dual-class” share structure where founders own a special class of shares with more voting rights. The company’s five-member board is inquorate without Liu, according to company statutes.

With his tight grip over the company, Liu’s departure brings more uncertainties after a slow recovery from a troubled start to 2019. On top of that, succession is still up in the air after severe brain-drain. During April, three top executives stepped down, including Chief Technology Officer Zhang Chen. General Counsel Rain Long Yu and Chief Public Affairs Officer Lan Ye.

A JD representative declined to comment when contacted by TechNode on Wednesday.

Breathing new life into the brand

Liu is trying to revive JD’s image again, an analyst who asked not to be identified due to the sensitivity of the topic told TechNode.

Many top-ranking executives have left the company and it has not made any merger and acquisition moves since last June, the analyst added. The company’s share price bounced back to $33.26 on Tuesday on the Nasdaq, a similar level to August 2018 when the sexual assault scandal was initially made public.

The rally is partially due to the strong financial performance of the company with revenues in the first three quarters of the year up 20.9%, 22.9%, and 28.7%, respectively. 

The company posted net earnings of RMB 134.8 billion ($18.9 billion) in the third quarter of this year, an increase of 28.7% year on year, the largest expansion in the last five quarters.

“I think the best way for Liu is to leave JD and remain as [an] honorary advisor,” said the analyst.

“He would still be able to have some impacts [on the company], which would be focused on what he wishes—the company’s vision and strategy.”

This week, China Voices brings TechNode Squared members a detailed take on JD’s quest for profits, reprinted by courtesy of Huxiu. TechNode has not independently verified the claims made below. This article was co-authored by Jordan Schneider.

JD’s stock performance in 2019 has ticked up from its disastrous 2018, marred by a CEO rape accusation and the meteoric rise of rival Pinduoduo. The firm has since committed to prioritizing profit over scale as well as following its competitors down into third and fourth-tier cities. The following article by Huxiu’s Ran Liu reports on a recent JD-held conference where they laid out their plan to follow in Pinduoduo and Taobao’s footsteps of both emulating group buying, working directly with factories to develop new products, and increasing their reliance on retail warehouses for distribution. 

JD Retail: Where to next?

Ran Liu, Huxiu, 19 November, 2019

JD’s performance has ticked up in 2019, as reflected in the financial statements issued this year. From the most recent statements, it’s clear that “continuous profitability” has been set as target, as JD is transforming itself from pursuing scale to profit, and it will likely drive JD decision-making for a long time to come.

At present, JD is trying to increase its profitability mainly through reducing costs and increasing efficiency. This guideline was highlighted at JD’s Discovery Global Conference by three CEOs of JD Group (Lei Xu, CEO of JD Retail; Shengqiang Chen, CEO of JD Digital; and Zhenhui Wang, CEO of JD Logistics). 

Still lower-market penetration; still supply chain

In today’s retail world, everyone is talking about penetrating lower-tier cities, and JD’s strategy has become particularly obvious. It is now using its main site and Jingxi, JD’s online group-buying platform [akin to PinDuoDuo], to drive growth.

This August, JD’s main site upgraded its “Daily Specials” on its homepage while, outside the main site, group-buying platform Jingxi was officially launched on September 19 this year to compete with Pinduoduo and Juhuasuan, respectively owned by Tencent and Alibaba, to penetrate third-tier cities and even rural areas. Jingxi was officially integrated with WeChat in November, and is present on several other mobile channels. 

The integration of Jingxi to WeChat shows the increasing importance JD has been attaching to the lower-market penetration. 

There is no data yet about Jingxi in the most recent financial statements, but the data given by JD shows that the peak number of goods sold by the Jingxi platform in one hour has reached 16 million pieces, and within the week right after the launch, the average daily growth rate of items sold was 365% compared with the week before (Oct. 24 to Oct. 30); the number of new users after switching was 217% higher than the previous week (Oct. 24 to Oct. 30). In the meantime, Jingxi, with this spike in traffic, also gave the main site some rewards: nearly 40% of Jingdong’s new users came from Jingxi.

JD, however, has a different focus on Jingxi—reverse customization from customers to manufacturers (C2M). During the Nov. 11th Shopping Spree period this year, the daily average number of orders that required manufacturers to tailor-make products increased by 394% than September.

Lei Xu also introduced JD’s C2M results today: up till now, the proportion of games, books and home appliances developed based on the C2M model has reached 40%; compared with the traditional method, JD’s C2M model reduces product research time by 75%, the new product launch cycle has been shortened by 67%, greatly improving the chances a new product has of succeeding.

Given JD’s  hopes for Jingxi’s supply chain, it plans to release 100 million new products and C2M products in the next three years, of which more than 70% will be new.

Perhaps due to the nature of the JDD conference, all of the above figures about lower-market penetration and supply chains were attributed to technology. 

Without the support of our technology, it is impossible to achieve such a good sales performance within such a short period of time.

–Lei Xu

In Xu’s definition, JD Retail has completely become “technology-driven.”

‘People, goods, and fields restructured’ everywhere

Being part of the retail world, JD was no exception to one of the common phenomena: disruption. “New Retail,” once feverishly championed by Alibaba, has been replaced by “New Consumption” since the Nov 11 Shopping spree this year. The “new” here refers to new groups of people, new supply chains and new fields of consumption.

What JD talks about now is the “all-channel platform,” where key warehouses, warehouse-to-store, store-to-store, and store-to-person distributions, are all combined and optimized. The aim is to reduce cost, increase profits, and optimize experiences.  

In the second stage, they hope to do multi-field digital links and service capabilities, with online fields being the APPs of JD, mini programs and Jingxi targeting lower markets. 

Offline, there would be JD Home, home appliance stores, 7fresh, JD New Channel, Youjiapuzi online store, Natural Selection Project, JD Pharmacy, JD Carholders Club, and other offline stores and communities.

The third stage is to market to wider range of customers that, with the help of JD, Jingxi has contributed to bringing in more downmarket who were previously ignored. 

But the all-channel platform is still quite broad. For JD, a firm used to target customers directly, connecting warehouses to stores is still a big challenge.  

In Chen Lin’s eyes, what JD has been doing and accumulating over the past decade is to provide a solution based on a single B2C logic. Today, faced with more challenges and opportunities in the complex Chinese Internet environment, JD needs to crack these issues. “To connect warehouses to stores, and to integrate business-end with the customer end, well, that’s harder,” said Lin. 

An all-channel platform is the next big thing for JD. But whether it can yield good financial results depends on how JD is capable of “restructuring people, goods, and fields.”

Executives from several Chinese internet companies are jumping onto a public bandwagon to convey support for a former NetEase employee who publicized his termination from the company over the weekend in an effort to share the spotlight on a top trending topic on Chinese social media.

Why it matters: Following a heated round of protest early in the year against “996,” shorthand for a demanding work schedule from 9 a.m. to 9 p.m. six days a week, the Chinese public has become more sensitive to harsh employee treatment, particularly within technology industries.

Details: The show of support ranged from publicizing beefed up corporate policies to pledges of outright financial support from Chinese tech executives.

• At the request of CEO Richard Liu, e-commerce giant JD.com on Monday updated its employee benefits to cover education and living expenses for dependent children in the event of an employee death. The support will last until the children reach age 22 regardless of the cause of death, according to a WeChat Moments post from company Vice President Song Yang.
• Song also reiterated in the post an existing company policy that covers all expenses for treatment of serious illnesses, applicable to employees who have worked at JD.com for five years or more.
• Chinese crypto entrepreneur Justin Sun, who was in the media spotlight after he won a charity auction with a record $4.57 million bid for lunch with famed investor Warren Buffett, said in a Weibo post that he would cover all medical expenses for the former NetEase employee.
• Xu Bo, the CEO and founder of Guangzhou-based gaming company Duoyi Network, also offered a donation of up to RMB 1 million for the former NetEase employee. However, Xu said in a Weibo post that the employee has to receive treatment at a specified hospital in Guangzhou to be eligible for the donation.
• Xu also echoed JD in offering a new death benefit for employees’ dependent children, but included restrictions such as providing for “normal living and domestic education expenses.”

Context: NetEase came under fire on Chinese social media over the past few days for laying off an employee with a serious heart condition who claimed that he was fired without cause.

• In a WeChat article, the former employee detailed how he had the second-highest output on his team but still didn’t pass his employee evaluation, as well as how the company tried to deny him adequate compensation.
• NetEase apologized for its “insensitive” and “crude” practices but stated that the former employee did not meet quality standards in his work despite his high output.
• According to the newest statement from NetEase, the employee has received a compensation of RMB 240,000 ($34,000) following labor arbitration and has filed a new claim for an additional RMB 616,929.

NetEase under fire on Chinese social media for treatment of ill employee

Chinese internet retail giant JD.com announced its new financial technology service at an event in Beijing on Tuesday, as the company takes aim at Chinese financial institutions looking to digitize their operations.

Why it matters: The fintech solution is part of its broader strategy for JD.com to open its technology to partners and furthers the transformation of subsidiary JD Digits (JDD)—formerly JD Finance—from a financial company to a technology service provider.

“As we enter the second half of the fintech game, financial institutions and technology companies will develop ever more close partnerships.”

—Xie Jinsheng, vice president of JD.com

Details: The solution aims to be a one-stop-shop for Chinese financial institutions seeking to leverage technologies such as big data to digitize and optimize their operations, said Xie Jinsheng, vice president of JD.com. The service, JDD T1, offers customizable digitization tools to help optimize efficiency, lower transaction costs, and reduce risk.

• The product combines infrastructure-as-a-service (IaaS), platform-as-a-service (PaaS), data-as-a-service (DaaS), and function-as-a-service (FaaS) to financial institutions and banks, said Xie Jinsheng, vice president of JD.com. JDD T1 is an important component of JD.com’s vision of developing a “financial technology operating system,” he added.
• JD Digits will offer technology support to financial institutions, allowing them to leverage big data analysis tools for customer segmentation and marketing. The company said that the solution will increase monthly active users (MAUs) by 15% using predictive models and intelligent recommendation technology without additional sales and marketing spend.
• The service will provide support for financial institutions to develop mobile apps, mini-programs, and websites.
• Retail business sales for the company’s partner banks has a reached nearly RMB 500 billion.
• The company has not disclosed when JDD T1 will launch.

Context: JD Digits, formerly JD Finance, rebranded itself late last year to align with plans to integrate digital technologies across sectors.

• CEO Chen Shengqiang said (in Chinese) at an event in April 2018 that the company is transitioning into a technology service company.
• In February, JD Digits announced a one-stop system for its asset management business, allowing financial institutions to apply technologies such as big data, artificial intelligence, and blockchain.

Chinese e-commerce giant JD.com’s net revenue surged in the third quarter, powered by stronger e-commerce sales from lower-tier markets and easily beating analyst estimates.

Why it matters: Lower-tier cities are a key segment for Chinese e-commerce platforms as top-tier markets reach saturation. JD had a firm foothold in higher-tier cities, and is seeking growth by tapping rising consumer demand from the lower-tier regions.

• Pushing into lower-tier cities positions JD for an extended competition with rivals like Alibaba Group and Pinduoduo.

“JD’s commitment to providing consumers with the best possible online shopping experience drove another strong quarter of growth. In particular, more and more consumers in China’s fast-growing lower-tier cities are turning to JD for our superior value and service. We will continue to invest in technology and innovation to meet the growing needs of Chinese consumers and businesses for fast and reliable e-commerce and supply chain solutions.”

—Richard Liu, JD.com chairman and CEO, in a statement

Details: JD recorded net revenue of RMB 134.8 billion ($18.9 billion) in the third quarter of this year, an increase of 28.7% year on year, the highest growth rate in the last five quarters. It surpassed by a significant margin analyst expectations of RMB 128.6 million, according to Reuters citing IBES.

• Net revenue growth was driven by consumers in lower-tier cities, or cities within the third to sixth tiers, as well as continued demand for highly competitive pricing on products, the company said. JD’s customer-to-manufacturing (C2M) program—a direct-shipping model using data to inform manufacturers of consumer preference—is a major component of its lower-tier market push.
• The cost of revenues increased 29.4% year on year to RMB 114.7 billion in Q3, primarily due to the growth of the company’s online direct sales business and the logistics services provided to third parties.
• The company’s annual active customer accounts increased to 334.4 million in Q3 from 321.3 million in Q2. Customers in lower-tier cities accounted for more than 70% of new customer growth during Q3.

Context: JD launched its re-brand of Pinduoduo lookalike app JD Pingou to Jingxi in October as part of its strategy to push further into lower-tier cities.

• Similar to Pinduoduo, Jingxi aggressively leverages Tencent WeChat’s viral marketing capabilities using the mini-program feature and favorable “first-level” positioning on WeChat’s third-party listings.

JD takes aim at lower-tier markets with re-brand of Pinduoduo clone

China’s Singles Day shopping extravaganza came to a close Monday at midnight having posted 30% year-on-year growth in sales across e-commerce platforms, a modest recovery from last year’s figures which had marked a distinct shift in consumer sentiment.

Why it matters: Singles Day, the “Olympic games for merchants,” has helped catapult China’s retail development over the past decade and is seen as an informal bellwether for economic health.

• Overall sales growth for major Chinese e-commerce platforms during last year’s event slowed to 23.7% year on year from highs of more than 40% seen in earlier years.
• Although still far lower than before, this year’s growth figure is a sign that Chinese consumer confidence is relatively healthy given the impact of a slowing local economy amid trade tensions with the US.

Details: China’s overall e-commerce sales during the day increased more than 30% year on year to RMB 410.1 billion ($58.56 billion) across platforms, according to reports citing data from China-based data services company Syntun.

• Alibaba Group sold RMB 268.4 billion ($38.4 billion) in gross merchandise volume (GMV) on Nov. 11, 2019, an increase of 26% compared with GMV of RMB 213.5 billion in 2018, but slower compared with last year’s 27% year-on-year comparison.
• JD.com recorded RMB 204.4 billion in GMV over 11 days from Nov. 1 to 11, rising 28% year on year compared with last year’s RMB 159.8 billion GMV figure and faster than last year’s 26% growth rate.
• Pinduoduo does not reveal its Singles Day sales data, but Syntun data showed that Pinduoduo has overtaken Suning.com as the third-largest online sales platform during the festival, after Alibaba and JD.
• Suning.com, the omini-channel retailer, announced 76% year-on-year growth in orders. Sales through its newly acquired Carrefour China surged 43% year on year to RMB 312 million.
• The e-commerce giants have expanded the promotion across their ecosystem to include online travel, local services, and even healthcare.
• Alibaba’s sales include those from online travel platform Fliggy. JD reported that orders for its JD Internet Hospital for promotions on services such as health and dental checkups, vaccines, and cosmetic surgery, increased 45 times year on year in the first hour of of the event.

Context: Singles Day, a promotional concept first conceived by Alibaba and based on the single person’s version of Valentine’s Day, is heading into the second decade.

• The event generated more than 1.66 billion parcels this year, exceeding the size of the Chinese population, highlighting the significance of the shopping promotion for the e-commerce industry.
• Smartphone and consumer electronics, home appliances, and cosmetics were the most popular product categories.

After Singles’ Day’s dazzling first decade, what’s next for global shopping fest?

JD.com officially launched on Tuesday the re-brand of its Pinduoduo clone app JD Pingou, renamed Jingxi, as China’s e-commerce giants gear up for this year’s Nov. 11 Singles’ Day shopping festival.

Why it matters: Along with rivals Alibaba and Pinduoduo, JD is focusing its efforts on lower-tier markets as its new growth drivers. Consumption levels in China’s lower-tier cities are quickly catching up with those in first-tier hubs like Beijing and Shanghai.

• The rise of consumers in lower-tier cities became an area of focus during the 618 shopping festival held in June, China’s mid-year shopping extravaganza that serves as an e-commerce barometer. Platforms use insights from 618 sales data to work out their Singles’ Day strategy.
• JD’s transaction growth during 618 was twice as high in lower-tier cities compared with total sales on JD.com, company data shows.
• By targeting lower-tier markets, Jingxi is competing with Pinduoduo and Alibaba’s Taobao Tejia.

Details: JD has re-branded group-buying app JD Pingou as Jingxi.

• Similar to Pinduoduo, Jingxi aggressively leverages the viral marketing capabilities of Tencent’s WeChat and QQ platforms for customer acquisition.
• The app is expected to connect 1,000 industrial and manufacturing hubs in the next three years and provide services to one million merchants within five years.
• JD also disclosed that it had laid aside tens of billions of yuan in merchant subsidies for Singles’ Day promotions.

Context: JD has been facing a slew of negative news since the turn of the year, but the firm is gradually regaining confidence from investors after posting better-than-expected earnings in the second quarter of this year.

• Subsidizing steeper discounts during promotional periods is an effective move when entering lower-tier markets, where users are more price-sensitive.
• Pinduoduo launched a joint “RMB 10 billion” subsidy plan with brands and merchants for promotions during this year’s 618 festival. It saw gross merchandise volume more than quadruple compared with the same 18-day period a year earlier. The company said it received more than 1.1 billion orders, 70% of which came from lower-tier cities.

JD.com has launched a new supply chain program integrating offline channels and multiple retail partners in an effort to boost delivery efficiency.

Why it matters: As China’s new retail industry further blurs lines between online and offline shopping, related sectors like logistics and supply chain are pushed to innovate.

• The initiative is based on an inventory integration program between JD and Walmart. The duo inked a strategic alliance to explore new opportunities combining e-commerce and retail in 2016.
• Offline stores are seeking out alternatives as orders and traffic slow amid a shift in Chinese consumer preference in favor of online platforms, which deliver to customer doorsteps.

“The fact is a lot of products, especially ones that we need and those we use every day, are already in nearby stores, but they are delayed by going through the many links of the traditional supply chain. This program cuts out unnecessary steps, improving efficiency for retailers, maximizing resources, reducing costs, and improving the customer experiences.”

—Carol Fung, president of JD FMCG in an emailed statement

Details: The new program integrates multiple offline channels for JD and its partners including supermarkets, convenience stores, and some branded offline stores, as well as Dada-JD Daojia, its online grocer. It covers 20,000 offline stores spanning 54 cities, including 175 Walmart hypermarkets, 198 Nongfu Spring offline water stations in Beijing, and 166 9bianli liquor stores throughout the country.

• Under the partnership, when customers use JD’s first-party platform to buy a product that is also available from an offline partner, they may receive it from there if delivery is faster.
• Instead of routing every product through an inflexible system of traditional warehouses, distribution centers, and delivery stations before reaching the customer, offline channels can now directly fulfill orders from JD.
• The average delivery time through the program is two hours, but the company said that some customers receive orders within 30 minutes.
• The program has been in testing for six months so far, a JD spokeswoman told TechNode
• Brands participating in the program are likely to see increased offline store traffic and a higher number of orders, the company said.
• The program currently covers items such as non-alcoholic beverages, beer, wine, rice, and flour, which are typically bulky and heavy, and hard to store and ship.
• Other partners have joined the program include supermarket chain Better Life, Nestlé, Coca-Cola, Tsingtao Beer, and liquor retailer 9bianli.

Context: JD.com and Walmart invested $500 million in Dada-JD Daojia in 2018.

JD.com’s private label brand Jing Zao, which translates to “made by JD”, rolled out a new service on Monday to create custom-made shirts to the precise fit and specifications of the customers.

Why it matters: China is facing a rising trend of customer-to-manufacturer (C2M), a model that connects the manufacturers and consumers for the production of tailored products at lower prices. E-commerce platforms are applying user preference data analytics from consumers to inform manufacturing.

• A number of industry players are riding the technology wave. Pinduoduo, a top player in the sector, doubled down on the model last December to support around 1,000 Chinese original equipment manufacturers.
• Other e-commerce giants are also having their eyes on the sector with each operating their own C2M units, such as NetEase’s YEATION and Taobao’s Xinxuan.
• Amazon.com was awarded a patent in 2017 for an on-demand apparel manufacturing system for making tailor-made garments, a change that’s expected to shake up the fashion industry.
• E-commerce platforms that are building up their home brands are entering the competition with manufacturers that sell their products through the platforms.

Details: A basic service allows JD users to custom-made their shirts online by selecting from different sizes, fabrics, colors, as well as patterns for the collar, pockets, and cuffs. For a premium service, on-demand tailors will be sent to the customers for offline measurement.

• The shirts, priced at RMB 399 ($56) and RMB 699, will be delivered within seven to ten days after placing the order.
• In addition to shirt manufacturing, the firm is offering tailor-made suits, T-shirts and sweaters for individual and business clients.

Context: Introduced in 2018, Jingzao now offers 2,000 products with a style reminiscent of Japan’s Muji, selling household goods like luggage, towels, and beddings.

Dada-JD Daojia is reportedly in talks with bankers for a $500 million US IPO in May next year, The Information reports, citing sources familiar with the matter. The company is a grocery delivery joint venture between JD.com and crowdsourced logistics platform Dada.

Why it matters: The potential IPO means that the company is seeking more ammunition to maintain its foothold in an increasingly competitive online grocery delivery market that includes rivals like Ele.me and Meituan.

• In addition, the listing of JD Daojia also points to the rise of online grocery delivery market in China.
• Parent company JD.com posted better-than-expected second-quarter earnings last week.
• Fu Bing, an executive of JD Logistics, revealed earlier this year that the company is planning a separate IPO for the logistics arm.
• Meituan is tapping its existing infrastructure to expand to grocery delivery industry, for example, by requiring its food delivery drivers to deliver groceries during peak demand times.
• Smaller players such as FreshMarket and Dingdong are also eyeing the market.

JD shares jump as Q2 earnings beat expectations

Details: A lot still remains unclear.

• The firm still hasn’t made a final decision on which US exchange to go public nor for how much to list.
• JD Daojia declined to comment when reached by TechNode on Monday.

Context: JD Daojia raised $500 million from Walmart Inc and JD last year.

• The joint venture currently has more than 100,000 offline retail stores, providing Chinese consumers in more than 100 cities with one-hour delivery services for fresh, groceries, flowers, medicine, beauty, household items, and other products.
• The venture now claims more than 74 million users and partners with more than 5,00 retailers including Walmart, Carrefour, Vanguard, Yonghui, and Watsons.
• During this year’s 618 festival, the platform doubled sales compared with the same period last year.

Shares in JD.com closed 12.9% higher in US trading overnight after the e-commerce player posted better-than-expected earnings for the second quarter of the year.

Why it matters: The results provide investors with renewed confidence in not only JD but also China’s overall e-commerce sector.

• There have been concerns at JD due to a slew of negative news over the past year including mass layoffs and sexual assault allegations leveled at its founder.
• Investors had also lowered expectations of the online shopping sector as a whole, due to slowing economic growth in the country and trade tensions with the US.

“In light of the accelerated growth momentum in the second quarter and July, we expect net revenue to grow between 20% and 24% on a year-over-year basis (in Q3). We remain optimistic about the Chinese consumer market and JD.com’s competitive market position despite uncertainties with the macro environment.”

—Sidney Huang, chief financial officer at JD, during the Q2 earnings call.

Details:  JD posted Q2 net revenue of RMB150.3 billion ($21.9 billion), up 22.9% on the year and topping the $20.9 billion consensus from financial data and service firm FactSet.

• Net service revenues for the second quarter grew 40% to RMB16.8 billion (US$2.4 billion), while annual active user accounts increased to 321.3 million for the twelve months ended June 30, from 310.5 million before.
• Costs of revenue increased more than one-fifth to RMB128.2 billion in the reporting period from RMB105.8 billion in the year-ago period. The rise was driven by direct online sales and the logistics provided to third parties.

Context: China’s consumer market is still showing signs of life despite a slowing economy.

• In this year’s 618 shopping promotion falling within the most recent reporting period, JD racked up a record RMB 201.5 billion in sales from in less than three weeks, up 26.6% on last year’s RMB 159.2 billion. Alibaba’s sales grew 38.5%, and those of Pinduoduo increased by 300%.
• Demand in lower-tier cities is driving the growth momentum in China’s e-commerce market.
• JD.com narrowly beats estimates in its Q1 earnings, reporting net revenue of RMB121.1 billion.

Chinese e-commerce giant JD.com has spun off its Pingou group-buying business as a separate division and will cut commission fees in an effort to attract more merchants and expand its presence, local tech media outlet 36Kr reported (in Chinese) yesterday.

Why it matters: The move indicates that JD’s rivalry with social e-commerce giant Pinduoduo—whose business model is based on group buying—is intensifying as the pair compete for market share in lower-tier cities.

• The target consumers for group-buying platforms are mainly based in third to sixth-tier Chinese cities, where purchasing power may not be as high compared with those living in top-tier cities.
• As competition in China’s top-tier cities becomes increasingly fierce, lower-tier cities represent a new opportunity for e-commerce giants like JD.com.
• The rise of Pinduoduo exemplifies the potential of the lower-income market, which, in the past, had been largely ignored.

Details: JD.com has reclassified Pingou as a separate unit focusing on social e-commerce, highlighting its importance. JD Pingou also announced lower commission fees and a large-scale recruitment drive for third-party vendors in August.

• From September, WeChat users can visit JD Pingou directly through the shopping gateway in the app’s Discover section.
• The move places JD Pingou at the front and center for the WeChat user base—a vast market of more than one billion users.

Context: JD Pingou debuted in 2014, and its parent has placed increasing importance on the business following the meteoric rise of group-buying models like that of Pinduoduo.

• Platforms offer discounts for users who buy in a group, and users are encouraged to share their potential buys with friends on social networks.
• Pinduoduo has been scrutinized for offering poor quality and counterfeit goods—a fate which some speculate JD Pingou could also suffer in the future.

Pinduoduo’s reputation as fake seller endures as Apple seeks to halt sales

If you can’t see the YouTube player above, try watching here instead.

Using social media as a platform, an increasing number of male beauty bloggers have emerged in the public consciousness, changing the perception of male beauty.

When interviewed by TechNode, some respondents were able to name bloggers like Aike Lili and Heima Xiaoming.

But by far the most widely-known male beauty bloggers among our respondents was Austin Li, who has amassed nearly three million followers on microblogging site Sina Weibo, as well as 5.8 million on Taobao Live and 28 million on short video platform Douyin.

After selling cosmetics on the side during his university days, Li became a full-time livestreamer on Taobao in 2017. Nowadays, millions of people tune in to his livestreams daily.

In one livestream, Li reportedly applied upwards of 380 lipsticks during a two-hour livestream session, selling a whopping 15,000 tubes in 15 minutes.

For many men, makeup is still a taboo. “The mindsets of many Chinese men are still not as open as men from other countries,” said one respondent.

However, times are changing. Makeup has never been a topic widely discussed by men, but an increasing number are embracing cosmetics.

The Chinese male beauty market is brimming with untapped potential. Male customers on average spent more on beauty products and sunscreen than their female counterparts on social e-ccommerce platform Pinduoduo, accounting for 40% of overall sales in the busy shopping season following the college entry examination period.

During this year’s 618 shopping season, JD posted record sales of male face masks and eye cream among other products. Male customers who purchased beauty products increased by 61% year-on-year, and masks, lipsticks, BB creams, eyebrow pencils were hot-sellers.

Most respondents felt that Generation Z—loosely defined as those born after 1995—were the most likely among men to buy cosmetics. According to JD, users born after 1995 accounted for 27% of 618 cosmetic sales. 18.8% of these males had the habit of using BB cream while 18.6% of them had the habit of using lip balm or lipstick.

Half of the customers who bought male cosmetic products were actually female, pointing to a possible reason for the booming demand: more women want their partners to care more about their appearance.

One respondent said, “It (makeup) could boost their self-confidence, and let other women know that they take care of themselves.”

“Makeup for men may not be widely accepted now,” said another respondent, “But it has become a trend, and society could become more accepting of it.”

Taobao doubles down on livestreaming with ambitious Taobao Live plan

Chinese e-commerce giant JD.com has named Xin Lijun, president of JD’s local lifestyle service group, the chief executive officer of its healthcare subsidiary JD Health, and JD Retail CEO Xu Lei was appointed chairman of the business unit.

Why it’s important: As economic headwinds persist amid decelerating growth, JD.com is diversifying beyond its core e-commerce business. JD Health is its third subsidiary with unicorn status after closing a May funding round totaling $1 billion, in addition to its digital technology and logistics arms.

• The market size of China’s online healthcare industry is forecasted to reach RMB 20.4 billion (around $3 billion) in 2019 according to data from data analytics firm iResearch. Retail online pharmacy sales, a sector which is one of JD Health’s core businesses, makes up the lion’s share of the total market, 89.2% in 2017, the iResearch data showed.
• Many Chinese tech giants are doubling down on their healthcare investments. Alibaba has its smart hospital plan and Tencent has invested in multiple healthcare startups and is building up offline services.

Details: Xin will be fully responsible for the subsidiary’s strategy, management, and business development.

• He joined JD in October 2012 and has been responsible for business operations in many divisions within the company.

Context: JD Health began as an e-commerce platform for pharmaceutical products such as vitamins and supplements, medical supplies, and Chinese traditional medicine.

• JD Health was spun off from the parent company in May when the unit secured funding from investors including CPEChna Fund, CICC Capital, and Baring Private Equity Asia. JD remains the majority shareholder.
• JD Health’s main business lines are online-to-offline pharmacy, a third-party platform for wholesale drugs, and web-based hospitals.
• The company says that its pharmaceutical wholesalers number in excess of 100,000 in 47 cities at present.
• Its online hospitals offer online-to-offline (O2O) treatment through a partnership with medical institutions. The doctors on the platform come from 327 cities in 32 provincial-level administrative regions.
• JD Health is also working with a number of well-known medical institutions to explore medical information and intelligent solutions.

China Tech Talk is an almost weekly discussion of the most important issues in China’s tech. From IPOs to fake data, from the role of WeChat to Apple’s waning influence, hosts John Artman and Matthew Brennan interview experts and discuss the trends shaping China’s tech industry.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

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In June, Carrefour sold 80% of its China operations to electronics retailer Suning. The news is representative of a much broader shift in the new retails space. When we first covered new retail in 2018, unmanned stores were gaining traction and it was unclear if Alibaba was going to win. In 1.5 years, unmanned stores are almost dead and Alibaba is a clear winner.

To discuss this shift, we’re happy to welcome Michael Norris, research and strategy manager at AgencyChina.

This episode was recorded on June 25, 2019.

Key questions:

• Why would Suning be interested in Carrefour?
• How did JD lose the new retail battle?
• What makes Hema and the Alibaba model so successful?
• What makes the China market so difficult for non-China retailers?

Links

• New Retail Keynote (Dropbox)
• Carrefour sells 80 per cent of its Chinese retail operations to Suning for 4.8 billion yuan
• Why it’s time to wake up and smell the coffee on Luckin
• WeChat Conference: CHina CHat 2019!
• Become a member of TechNode Squared

Guest

• Michael Norris, LinkedIn

Hosts

• John Artman, @knowsnothing, TechNode
• Matthew Brennan, @mbrennanchina, ChinaChannel

Editor

• Peter Isachenko

Podcast information

• iTunes
• Spotify
• RSS feed
• Music: “Theme from Penguins on Parade” by Lee Rosevere, Music for Podcasts 3

Online retailer JD.Com ranked highest among tech firms at 17th in the latest edition of Fortune’s top 500 Chinese companies released on Wednesday. Alibaba Group came in at 24th and Tencent at 33rd. Baidu was way off the pace in 92nd. The list compares financial performance of listed companies in the country.

Why it matters: The ranking demonstrates how far JD.Com has come and how Baidu has failed to keep up with its peers. Baidu was one of three leading companies in China’s dot-com era along with Alibaba and Tencent, known collectively as BAT. The company reported a quarterly net loss this year for the first time since listing in 2005.

• Revenue at JD.Com rose over one quarter last year to hit RMB 462 billion ($67.2 billion), while that of Baidu was RMB 101 billion.

“Influenced by the economic cycle, traditional property and financial industry performed weakly in the past year. New economic sector including electronics, internet services and computer-related industries keep a high-speed growth.”
— Fortune announcement

Details: Although state-owned firms continue to dominate the list, some 37 companies from electronics, internet services and computing are also included.

• JD.Com rose one place to 17th while Alibaba and Tencent improved nine and six places respectively to 24th and 33rd. JD failed to make a profit, losing RMB 2.5 billion.
• Online retailer Suning, Xiaomi and electronics giant TCL all outperformed Baidu last year, while Meituan lost the most money among the entrants.
• Aside from commercial banks, insurers, and China mobile, Tencent and Alibaba were also among the 10 most profitable companies.
• The edition marks the first time on the list for Meituan, which posted a RMB 115.5 billion net loss.
• Bytedance and Huawei are not on the list as they are yet to go public
  

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京东为企业市场垃圾分类提供定制化服务 – Sina Tech

What happened: JD Business, an arm of the retail giant which provides enterprise procurement services, is rolling out customized solutions for companies of all sizes in adapting to the trash-sorting program, newly mandatory in Shanghai as of July 1. The enterprise procurement channel offers trash-sorting supplies including garbage bins and bags, as well as custom services such as labels or tags to assist with trash sorting.

Why it’s important: The new trash-sorting rules present opportunities for Chinese tech companies. The waste management program has inspired services from connecting consumers with trash-sorting facilities to creating fun ways to spread garbage-sorting know-how. Households and companies across the municipality are scrambling to comply with the new policies, and businesses face higher recycling standards and stricter punishments. Individuals who flout garbage sorting rules can be fined up to RMB 200 (around $29), while businesses face fines of up to RMB 50,000 (around $7,200). First launched in Shanghai, the government is expanding the recycling system to 46 key cities before 2020.

Logistics unit of JD raises 1.5 billion yuan investment fund – The Guardian

What happened: JD Logistics, the logistics arm of Chinese e-commerce giant JD.com, announced Monday it had raised $218 million in a RMB-dominated industrial fund. JD Logistics and parent company JD.com will be limited partners of the fund with participation from several listed companies, government-led funds, reputable Fund of Funds, and asset management platforms, according to the company. It said that it will focus on investment in early and growth-stage startups in the supply chain, asset management, finance, technology, and intelligent manufacturing sectors.

Why it’s important: Logistics is a core business initiative for JD.com, but its logistics unit is still loss-making. The new fund will complement JD.com’s other fund established in February, which is focused on warehousing facilities. JD.com and GIC, Singapore’s sovereign wealth fund, invested RMB 4.8 billion in the warehouse fund. Chinese tech giants commonly use investment to expand their business empires. Baidu, Alibaba, and Tencent, or BAT as they are commonly referred to, are all assiduous dealmakers. More than half of China’s unicorns are either founded or invested by BAT, and more than 90% of Chinese companies with a market cap of $5 billion or more are linked to at least one company in the trio, according to data from investment information site Ctoutiao.

This year’s mid-year shopping festival, commonly known as “618” in China, came to a close on Tuesday. Since the launch of the event in 2010, Chinese e-commerce companies have raked in billions of Chinese yuan during the buying frenzy.

For e-commerce players, 618, which ran from June 1 through June 18,  isn’t only about winning Chinese consumers’ hearts and money. Perhaps more importantly, platforms aim to spot the latest trends that could be valuable in molding their strategies in the second half of the year. The high-profile e-commerce event, and others like it, are showdown moments for Chinese companies and those at the helm.

But this year was different: It was the first time the next generation of young leaders shaping China’s largest e-commerce platforms went head-to head-during a major online shopping event. 

JD’s efforts were led by Xu Lei, the rumored creator of the 618 festival who became the new chief executive of JD Retail just months before CEO Richard Liu’s arrest in the US last year. At the same time, 34-year-old Jiang Fan—who, ahead of Jack Ma’s expected departure in September, has headed Alibaba’s Tmall and Taobao since March—led the e-commerce giant in the shopping festival. 

Meanwhile, Huang Zheng, founder and CEO of social e-commerce firm Pinduoduo, became the leader of a publicly listed company last July when Pinduoduo debuted in the US.

Statistics from this year’s 618 shopping festival highlight some changes that might shape future strategies for the industry, with China’s hinterlands driving consumption while e-commerce upstarts accused more establish players of “unfair competition.” 

Emerging growth in lower-tier cities

Consumption in China’s lower-tier regions, including third, fourth, and fifth-tier cities, is quickly catching up with that in Beijing and Shanghai. The trend points to a changing dynamic in the country’s gargantuan e-commerce sector, in which the country’s interior, and particularly the youth that live there, drive consumption.

While these mostly inland provinces are home to more than 600 million mobile internet users, e-commerce penetration is below the national average. E-commerce platforms see these areas as untapped markets as consumers have more access to disposable income and demand for high-quality goods is increasing.

The growing demand from lower-tier cities was evident across platforms during the 18-day event. Alibaba’s gross merchandise volume (GMV) from third- to fifth-tier cities grew by 100% year-on-year during the period. Beitun and Tumxuk, county-level and prefectural-level cities from China’s northwestern Xinjiang autonomous region, topped the of the 10 fastest growing areas during Alibaba’s 618 festival this year. Nonetheless, GMV in cities including Beijing, Shanghai, Guangzhou, and Shenzen was still unmatched by other areas.

Similarly, transaction volume growth was twice as high in lower-tier cities than the overall growth of transaction volumes on JD.com. Meanwhile, sales of 3C products, which include computers, communication devices, and consumer electronics, in lower-tier cities overtook those in their first- and second-tier counterparts. More than 70% of Pinduoduo’s physical goods during 618 were sold in lower-tier regions.

Behind the spike in sales is an expanding e-commerce userbase from lower-tier cities. Alibaba recorded a 100% year-on-year jump in the number of users from lower-tier regions on its platforms during the festival. Furthermore, the e-commerce giant recorded 654 million annual active consumers for the fiscal year ending March 2019, representing an annual increase of 102 million users. More than 70% of these were from lower-tier regions and below, the company has said.

These consumers are also “trading up,” showing greater interest in luxury brands and shopping experiences. According to Tmall, half of the newly launched products on the platform during the event were purchased by customers outside first- and second-tier cities.

“One of the interesting trends we’ve seen is premiumization–Chinese consumers’ preference for premium products, Carol Fung, president of JD’s fast-moving consumer goods unit, told TechNode. “This is particularly true in the lower-tier cities, where Chinese consumers are trading up for higher quality and valued goods.”

As a result, e-commerce platforms are adjusting their strategies. Pinduoduo has launched a joint “RMB 10 billion” subsidy plan with partners that include premium brands like Dyson, Boss, Apple, and Sony, shifting focus to where budget or even counterfeit commodities once prevailed.

Meanwhile, JD-Daojia, the on-demand delivery arm of JD, has brought its one-hour delivery system to more than 50 lower-tier since the second half of last year, bringing the total number of cities that offers this service to 91 during the 618 festival.

Interest in branded products is especially strong among younger generations from lower-tier cities, who have gained a newly coined moniker: “small-town youth.” The term refers to young residents living in China’s third-tier and lower cities, or prefectural and county-level urban centers, who benefit from China’s urbanization process. They are quickly adapting to premium urban lifestyles to fuel China’s next stage of consumption growth.

Sales of Tmall’s Luxury Pavilion, Alibaba Group’s dedicated site for high-end brands, more than doubled from last year, boosted by customers in emerging cities and shoppers born after 1995, according to Alibaba. Nearly 80% of Pinduoduo’s sales during the 618 campaign came from users born in the 1980s and 1990s.

“We believe this group of customers will continue to grow into a strong and sustainable force for brands who are looking at further developing the Chinese market,” said Jiang Fan, president of Taobao and Tmall, in an emailed statement.

“Forced exclusivity” practice persists

The fight for China’s upwardly mobile online population reached a fever pitch during 618. On June 17, home electronics manufacturer Galanz accused Tmall, Alibaba’s online marketplace, of hiding its products—200,000 home appliances—from search results, which Galanz claimed began on Monday afternoon.

Galanz said in a statement on Wednesday that Tmall requested the company to remove its listings from Pinduoduo in May, but it didn’t comply. During the same month, Galanz signed a long-term partnership with Alibaba rival Pinduoduo. Galanz said it was blocked from Tmall’s 520 shopping promotions in May soon after denying the company’s request.

The “forced exclusivity” tactic, also known as the “choose one of two” rule in China, is an unspoken edict that pressures merchants to choose a single platform on which to sell their products. 

In e-commerce, the practice dates back to 2012 when Alibaba registered trademarks for its “Double 11” shopping event. JD and other e-commerce companies also started launching sales promotions during the Alibaba shopping event. The resulting fallout left merchants in the middle of a battle between platforms, in which they were asked to “take sides,” and forced to sign exclusive partnerships during the shopping craze.

JD and Alibaba have quarreled over unfair competitive practices several times, but the competition in China’s e-commerce space worsened when Pinduoduo went public last year.

Pinduoduo’s Huang previously condemned the monopolistic practice, saying that the company’s strategy has never been to “disrupt a monopoly in order to create a new one.” Over the 618 shopping festival, Victor Tseng, vice president of International Corporate Affairs at Pinduoduo, said in a press release that the company had a successful 618 campaign, despite “unfair competition and circumstances.”

According to Tseng, these arrangements “ultimately hurt merchants, brands, and consumers and should be put to an end.” Many of those who participate in exclusive partnerships are young, fast-growing companies.

China passed a new e-commerce law last August, which officially came into effect this January, to prohibit e-commerce platforms from engaging in monopolistic practices to undermine competitors.

Forced exclusivity practices also plague other sectors. Food delivery platforms like Meituan and Ele.me would offer lower commission rates for restaurant owners that are willing to list exclusively on their platforms. Similarly, drivers on ride-hailing platforms would get a lower commission rate if they only work on through one app.

With contributions from Nicole Jao.

Carrefour to Open JD.Com International Store – Yicai Global

What happened: Chinese e-commerce giant JD.com has reached a partnership with the Chinese unit of French retailer Carrefour to offer cross-border logistics services. As part of the deal, Carrefour has set up a store on JD’s international marketplace to sell imported goods, following last year’s opening of a store which sells the retailer’s domestic goods on the platform. JD will import the goods and arrange customs clearance, sorting, and distribution for Carrefour. The company’s cross-border import logistics network has established more than 10 trade ports in China, as well as three direct ports in Beijing, Shanghai, and Guangzhou.

Why it’s important: The partnership is a further tie-up between the two companies. Carrefour is already working with Dada-JD Daojia, JD’s joint venture which offers on-demand logistics services to users who grocery shop online. Dada-JD Daojia received $500 million from Walmart and JD.com last year as online grocery shopping rises in popularity. Tencent, a JD investor, had been in talks about an investment in Carrefour China alongside Shanghai-listed supermarket chain Yonghui Superstores according to an announcement from January 2018.

As this year’s 618 mid-year shopping festival indicates, China’s consumer market is still showing signs of life despite a slowing economy.

Chinese retail giant JD, which started the 618 shopping promotion in 2010, racked up a record RMB 201.5 billion (around $29.2 billion) in sales from June 1 to 18. The figure was a 26.6% increase from last year’s RMB 159.2 billion, and was driven by growth in various categories from consumer goods, electronics, fresh food, fashion, and lifestyle items, according to the company. JD said that it served around 750 million customers around the world during the festival.

This year’s mid-year shopping festival featured upgrade trends in China’s consumer market, Xu Lei, CEO of JD retail noted in an internal letter (in Chinese) to employees on Tuesday. High-quality brands and pricier imported goods were especially popular among consumers, he said.

Another highlight was the rise of consumers in lower-tier cities. Liu Hui, director of JD Big Data Research Institute, said yesterday at JD’s 618 press conference that consumers in lower-tier cities were driving sales growth during the promotion. Sales contributed by sixth-tier cities are growing the most rapidly, Liu said. Consumers in third- and fourth-tier cities seem are showing interest in brands and products similar to their counterparts in top tier cities, the company data show.

Combining online and offline shopping for a “boundary-less retail” (JD’s term for new retail) experience, the company is partnering up with millions of stores and experience centers around China. During the 618 festival, Dada JD-Daojia, JD’s online-to-offline (O2O) e-commerce platform, doubled sales compared with the same period last year.

JD rival Alibaba also offered promotions for the festival, but revealed fewer details on its sales. Within the first hour, from midnight to 1:00 a.m. June 1, GMV surpassed that of the first 10 hours last year, the e-commerce giant said. Alibaba engaged Tmall users with new features such as Taobao Livestreaming, and “Flash Sales” and “Daily Deals” channels.

Annual shopping events like JD’s 618 and Alibaba’s November 11 Singles’ Day are showdown moments for e-commerce players, where they compete for consumer attention with promotional campaigns and special discounts.

China’s e-commerce space, long dominated by JD and Alibaba, has become increasingly competitive with newcomers like Pinduoduo entering the space. The Shanghai-based social e-commerce upstart, which launched a joint “RMB 10 billion” subsidy plan with brands and merchants for the promotion, saw GMV exceed 300% year-on-year during the same 18-day sales period. The company said it received more than 1.1 billion orders, 70% of which came from lower-tier cities.

However, JD’s mid-year shopping gala, along with a series of shopping festivals such as Alibaba’s Double 12, are on a smaller scale than Singles’ Day, during which Alibaba recorded GMV of a whopping RMB 213.5 billion in one day in 2018.

JD shifted its direction from brick-and-mortar to e-commerce in 2004. The same year, the company started rolling out online promotional campaigns and discounts to celebrate its anniversary. The 618 mid-year shopping festival was officially launched in 2010 and has since become a nationwide shopping promotion for large and small e-commerce players across the country.

With contributions from Emma Lee.

More than four weeks after the Trump administration placed Huawei on a trade blacklist, the stock market is still reacting. Tech companies in China and the United States alike have seen share prices fall.

Huawei’s suppliers and competitors have lost share value since the Trump administration’s ban. Chipmakers NeoPhotonics and Lumentum, and semiconductor firm Qorvo have been hit the worst. NeoPhotonics relies on Huawei for 47% of its revenue, Lumentum and Qorvo for 11%, according to Goldman Sachs data analyzed by Reuters.

Huawei’s American chip suppliers in blue and red; those which depend on Huawei for more than 10% of their revenue in red. In green, Huawei’s international competitors. The semiconductor composite index in purple. (Image credit: TechNode/Eugene Tang)

South Korean electronics giant Samsung has seen its shares increase the most, exceeding 5%. Share prices for other non-Chinese telecom equipment companies have also gained: Finland-based Nokia and Swedish telecom firm Ericsson both rose around 3%. China’s other smartphone and telecom equipment makers, Xiaomi and ZTE, have both lost share value.

Huawei’s American chip suppliers in blue and red; those which depend on Huawei for more than 10% of their revenue in red. The semiconductor composite index in purple. (Image credit: TechNode/Eugene Tang)

Nearly all American chipmakers which supply Huawei with electronic components have seen share prices fall. The composite index for the semiconductor industry declined about 5%.

(Image credit: TechNode/Eugene Tang)

Chinese phone makers have also lost share value, whereas Huawei’s international competitors have seen a steady rise.

China’s housing unicorn Danke appoints ex-Baidu executive as new COO – TechCrunch

What happened: Danke Gongyou, a Chinese housing startup valued at $2 billion, has hired Gu Guodong as its chief operating officer. TechCrunch reports that he will roll out targeted marketing and real estate acquisitions, and oversee more rigorous operational procedures. Gu was one of five top-level Baidu executives following Baidu’s disappointing quarterly earnings report. He oversaw marketing staff for search, Baidu’s highest-grossing division, helping earn annual sales of around $14.4 billion.

Why it’s important: Founded in 2015 and backed by Tiger Global and Ant Financial, Danke rents shared houses targeting young professionals. It now manages nearly 500,000 housing units in 10 major Chinese cities including Shanghai, Beijing, and Guangzhou.The industry of housing startups is increasingly competitive, with tech giants like JD.com claiming a piece, but it has had a tumultuous year. One of the largest Chinese online rental platforms, Ziroom, has hit with a series of scandals over data theft, hidden cameras, and elevated levels of formaldehyde in apartments. Danke’s aims for Gu are to leverage his extensive operational experience to help the startup set stricter operational standards and shore up long-term growth prospects.

俄平台Yandex.Market 6月起将销售京东商品 – Ebrun

What happened: Chinese online retailer JD.com has reached a partnership with Yandex.Market, an e-commerce joint venture between Russian search engine Yandex and the country’s bank Sberbank, to increase cross-border trade from China to Russia. Yandex Market will start selling JD.com goods in Russia through its online marketplace starting in June.

Why it’s important: Russian and its neighboring Commonwealth of Independent States (CIS) countries are new frontiers for competition between Chinese e-commerce giants seeking new markets to boost their growth. Alibaba announced last week a joint venture plan between AliExpress and Russian partners including Mail.ru Group, a media and information technology conglomerate. Yandex set up an office in Shanghai in 2015 to oversee partnerships with Chinese businesses selling to Russian consumers. In addition to JD.com, Yandex has already helped several Chinese companies enter the Russian market, including Chinese B2C e-commerce site Lightinthebox and biological technology company ZKTeco.

JD.com announced today a merger between its secondhand-selling platform Paipai and online electronics recycling platform Aihuishou. The Chinese e-commerce giant lead a RMB 500 million ($72 million) funding round in the new entity.

After the merger, JD will be the new entity’s largest shareholder. Wang Yongliang, Paipai’s general manager, was named co-president of the new company alongside Zheng Pujiang. Other investors include Morningside Venture Capital, Tiger Fund, Tiantu Capital, Genbridge Capital, and Fresh Capital.

A customer-to-business (C2B) platform, Aihuishou buys second-hand electronic items such as mobile phones and laptops from users and resells them to users or to recycling companies. It already has a close relationship with JD and had partnered with Paipai on consumer electronics recycling. JD has also participated in its three most recent investment rounds. Aihuishou’s most recent $150 million round in July last year valued the company at $1.5 billion.

The deal is expected to bring more “synergy” between the two companies in a bid to further standardize the electronics recycling process and improve efficiency by leveraging on JD’s retail, logistics, and insurance technologies, Liao Jianwen, JD’s chief strategy officer said.

Starting from electronic items, the new entity will expand its focus to other categories such as books and home appliances, among others, JD spokesman Brad Burgess told TechNode.

JD.com acquired C2C marketplace Paipai in 2014 as part of a sweeping $215 million deal with Tencent to align the two companies against Alibaba. After a brief shutdown in 2016, the service was relaunched in 2017 to focus on secondhand sales.

China’s secondhand goods market, which hit a trading volume of RMB 202.54 billion in the first quarter of this year, is in a duopoly featuring Alibaba’s Xianyu, or Idle Fish, and Zhuanzhuan of classified listings site, 58.com.

Xianyu leads the market with 24.4 million monthly active users (MAU) as of March, with Zhuanzhuan trailing with 11.4 million MAU Aihuishou and Paipai ranked a respective sixth and seventh, according to a report commonly cited in Chinese media from BigData-Research.

Li Jiaqi, a 27-year-old video blogger, is known as the “Lipstick King” in China.

He rose to fame for selling over 15,000 of the essential cosmetic item in five minutes, a striking number compared with few hundreds the former L’Oréal makeup artist could achieve per day at brick-and-mortar outlets of the French cosmetics brand.

Li is among a growing number of online content creators who are contributing to and cashing in on the integration of content production and e-commerce industry in China.

Chinese consumers’ shopping preferences and brand awareness are influenced by content from digital influencers, or key opinion leaders (KOLs), who spread their views in WeChat articles, usually with the function to direct users to the shopping site, to social media livestreams, photos and videos.

“Quality contents from KOLs and web celebrities have a huge influence on my purchasing decisions,” Qu Lijie, a 27-year-old student from Changchun from northeastern China’s Jilin province told TechNode. “The more I like a certain blogger, the more I want to dress like her.”

Although the idea of using quality content as a marketing tool for the promotion of commodities is not completely new, the current trend brings the two sectors closer, opening more possibilities for both sectors.

It’s neither about e-commerce nor content alone, it’s about the combination.

Getting in on the action

“Content is the king and it always is,” Deborah Weinswig, an analyst at research institute Coresight Research told TechNode. “Chinese tech giants are betting on content to further develop their [ecommerce] businesses.”

Alibaba has been exploring the possibilities of boost its ecommerce business by leveraging the power of quality content since its early days.

One of the first attempts by the e-commerce giant to use content to drive sales dates to the early 2010s when it entered into partnerships with fashion platforms such as Mogujie and Meilishuo, a Pinterest-style social sharing sites where users can share their shopping experience along with URL link to Taobao shops.

Although partnership with these shopping guide sites turned sour as the latter began to eat into Taobao’s traffic and hurt its advertising revenues, the examples nonetheless showed the value of quality content.

Since then, Alibaba has been building its own content ecosystem that include Taobao’s built-in social commerce platform Weitao, and fashion and shopping news aggregation Taobao Toutiao.

But perhaps the most significant development that pushed traditional e-commerce startups to content creation was the emergence of Xiaohongshu, also known as Little Red Book, a fashion community and e-commerce platform which claims over 200 million users.

At the same time, the entry of hugely popular video apps like Douyin and Kuaishou, weighed in on the trend.

Bytedance’s Douyin rolled out a shopping cart feature earlier in December last year. In the same month, its rival Kuaishou upgraded its e-commerce services, giving preference to domestically produced goods and partnering with Chinese e-commerce giants in the hope of commercializing its 150 million daily active users.

To fend off competition from tech upstarts, Alibaba’s doubling down on content initiatives since late last year. After inking a partnership with Bilibili in December, Alibaba took a step further to acquire an 8% stake or 24 million shares in the Chinese online video platform in February. The Bilibili deal is seen as a move to leverage the power of KOLs and content creators to allure the attention of younger audiences who are voracious consumers of digital content.

In addition to external investment, Alibaba has upgraded its internet content activities by drastically expanding the operations of Taobao’s live streaming unit Taobao Live.

Integration between online content and e-commerce is now quite streamlined and friendly, Weinswig explained. For example, users watching Taobao Live is just two clicks away from the shopping site.

Weibo, China’s microblogging services which Alibaba has a stake in, will invest RMB 2 billion (around $291 million) in the next two years to support content-driven e-commerce, key opinion leaders, actors, and agencies.

Although late to the game, JD.com launched a new program on its WeChat mini program, enrolling influencers in an attempt to build up a KOL-driven shopping guide community.

Why now?

Chinese e-commerce giants are in need of a new driver while facing saturating markets and the plateauing of new user numbers. The year-over-year sales growth rate for Alibaba’s Singles’s Day last year dropped from 36% a year earlier to 27%.

Underlying this is changing consumer behavior. Different from two decades ago when shoppers use e-commerce platform to find cheaper prices for the products they had already decided to buy, browsing through various platforms has now become an essential part to the shopping journey as well as an “entertainment” experience.

“It’s all about shopping experience and storytelling. Content gives the products a background story that we want to be part of. I just purchased two lipsticks introduced by Li Jiaqi, even though I’ve already got more lipstick than I can use,” says Li Weilin, mom of 9-year-old from Harbin in the northeastern province of Heilongjiang.

Chinese e-commerce giants pioneered the “shoppertainment” concept to combine the purchasing and entertaining experience. Further, e-commerce is a good means for content platforms to commercialize their user base.

“The e-commerce platforms have all the data, they know 100% what’s working. It is obvious that targeted content to niche audiences that offers educational or entertainment value is what establishes trust, builds affinity, and ultimately converts to sales.” says Elijah Whaley, CMO of KOL marketing platform PARKLU.

Despite the boosting effect for e-commerce, some say that contents with promotion goals are ruining contents. At times, fake or overly exaggerated reviews have tarnished the credibility of some platforms. Xiaohongshu has removed more than 1.38 million paid posters and 1.21 million biased reviews from its platform.

E-commerce and contents are going hand in hand in China, but this is just “one example of a larger global trend,” according to Eytan Avigdor, CEO & founder of influencer marketing platform Klear.

“China’s ability to integrate payments across social networks is more sophisticated than any other market. With users able to shop directly in platforms like WeChat, influencers in China play an extremely important role in direct sales,” he added.

“Comparatively, platforms like Instagram make direct purchases very difficult for brands looking to integrate,” says Avigdor. “As China continues to lead this market I believe we’ll continue to see influencers playing an extremely important role in the Chinese e-commerce industry.”

京东物流3.76亿投新宁物流 计划管控超200万车 – Sina Tech

What happened: JD Logistics, the logistics arm of Chinese e-commerce giant JD.com, has invested RMB 376 million (around $54 million) in Xinning Logistics, a supply chain logistics service provider listed on China’s A-stock market that it inked a strategic partnership with in October. The two companies plan to include more than 2 million vehicles in their smart logistics system, including the internet of cars, internet of cargo, and smart warehousing technologies.

Why it’s important: The partners have been working on integrating their supply chains and implementing intelligent logistics and unmanned delivery technologies. JD.com remains focused on growing its logistics business, although its logistics arm is still loss-making. JD.com logged RMB 121.1 billion in net revenue in the first quarter this year, but its costs surged 19.7% year on year to RMB 102.9 billion as it increases spending on highly automated warehouses and other technology.

Chinese e-commerce giant JD.com exits Australia – Financial Review

What happened: Chinese e-commerce giant JD.com has quietly closed its Australian office fewer than 15 months after opening the location with great fanfare in February last year. The head of its Australian operations, Patrick Nestrel, has departed. However, the company will continue to conduct business in Australia and New Zealand and its partnerships with exporters from the region are unchanged. Staff in China will take over Australian operations.

Why it’s important: Globalization and cross-border e-commerce has been an important theme among Chinese e-commerce giants for the past few years. To keep up with the trend, JD.com had singled out Australia, New Zealand, and Europe for the first phase of its global expansion plans. Facing a slowing macro economy, a scandal involving its founder, internal turmoil, and financial pressure, the online retailer has been struggling since late last year to keep up its growth momentum. JD is pulling the plug on its Australian office in a reshuffle to retain focus on businesses that are more profitable.. The restructuring is also affecting JD’s expansion to Europe. Company founderd Richar Liu announced last July that JD will enter the region to compete with Amazon and Alibaba. An office in Germany and a logistics hub in France were on the program, but now these plans may be on hold.

A version of this article originally appeared on Daxue Consulting’s blog. Daxue Consulting is a market research and management consulting firm focusing on the Chinese market. 

The retail world is evolving at a dizzying pace, and this transformation goes far beyond online shopping. The Chinese e-commerce giant Alibaba has announced a “new retail” strategy—but what does new retail mean?

For Ali founder Jack Ma, the future of retail is not about new retail channels, but about new experiences. His new retail idea is to offer a new shopping experience without boundaries: combining the best of both online and offline commerce. In China, the established marketing strategy of Online to Offline may be overtaken by OMO—“Online Merge Offline.”

The one-dimensional purchasing tunnel as it existed a few years ago is no longer relevant. The entire customer journey is being redesigned. Chinese consumers will no longer think in terms of separate purchasing channels, but use them at the same time for various purposes: product research, comparison, Click and Collect, Store To Home, delivery or customer service.

However, for years, physical network and digital sales networks were managed separately by companies, each with its own databases, customer relationships, loyalty program and KPIs. Alibaba’s OMO model has made this differentiated management obsolete. The retail giant understands that the real challenge is to succeed in following customers through the multiplicity of contact points and devices.

Key innovations

• Digitalization: In China, consumers are already used to digital commerce: they use their phones for everything and scan dozens of QR Codes every week. For instance, New Retail stores allow users to try on clothes virtually, fill a virtual cart that will then be delivered to their home, or pay via facial recognition without going to a checkout counter.
• Data hunger: But such a strategy is essentially based on personal data collection. New Retail makes stores all but omniscient, collecting phone numbers, purchase history, payment activities, financial transactions and addresses for their customers.
• Immediate shopping: See Now Buy Now is an innovative practice in the fashion industry that allows consumers to immediately buy the clothes they see during a fashion show. Alibaba tested this technique during the annual Singles Day (11.11) shopping extravaganza in 2016, but it is now implementing immediate shopping in stores: You see a product, you scan it, you leave and it arrives at your home. Or even more agile, while watching a showcase of products, you can directly choose to have one on your plate or shopping cart.
• Traceable quality: The youngest Chinese consumers are becoming more selective in the choice of their products, and are willing to pay more for quality. Thus, new retail stores offer product tracking. For example, at Hema, customers can scan a QR code to watch short reports on the origins of items, including, pictures of the distributor’s operating permits and food safety certificates.

The giants race

Alibaba/Hema Xiansheng: Launched in January 2016 in Shanghai, Ali’s Hema Xiansheng has opened over 100 stores across China. Hema supermarkets allow customers to purchase products by scanning a QR Code. Using the Hema app, customers fill a virtual shopping cart. Once the customer has paid using Alipay, the customer can opt to have all or some purchases delivered to straight to their house.

This store reviews the entire traditional distribution chain: when an order is taken in-store or online, Hema teams pick the products in-store and hang the basket on a high rail that runs through the store to transport it in reserve.

In addition, Hema emphasizes freshness, particularly seafood; stores display many large water tanks containing live crustaceans.

JD.COM/7 Fresh: JD.com, the second largest e-commerce platform in China has announced a retail strategy similar to Alibaba’s New Retail, called “Unbounded Retail.”

To implement its Unbounded Retail strategy and to compete with Hema supermarkets, JD.com has opened stores in Beijing, called 7 Fresh. 7 Fresh sells only food products, 75% of which are fresh. Like Hema, 7Fresh offers a fast delivery service (in 30 minutes within a five-kilometer radius compared to 3 km for its rival Hema) and a kitchen/restaurant area. The greatest innovation is robotic smart carts, which guide customers through the aisles and can even follow them.

Tencent/Carrefour le Marché: Last year, Carrefour China and Tencent launched their first smart store in Shanghai, Carrefour’s first global initiative in intelligent distribution. Carrefour is trying to reposition itself on the Chinese market from the classic hypermarket model to more flexible retail models. Indeed, last year, Carrefour saw turnover fall by 6.6%.

According to Fung Business Intelligence, the store has more than 25,000 different references, and food represents about 80%. In partnership with the giant Tencent, which provides Wechat Pay authorizations, Carrefour le Marché offers a Scan & Go system to pay without going through the checkouts. Carrefour Le Marché looks like the other smart supermarkets riding the New Retail wave, focusing on technology, fluidity, quality and an omni-channel approach.

Grocery market disrupted

The grocery retail landscape in China is traditionally composed of three different types of stores: huge hypermarkets often located on the outskirts of cities, more traditional supermarkets within towns and ubiquitous convenience stores. Hypermarkets and supermarkets appear to be in decline, with stores closures a constant theme, while convenience stores have remained popular. Traditional hypermarkets and supermarkets are likely to suffer in a new retail environment, to the benefit of convenience stores.

As Alibaba pushes for physical omnipresence in China, has announced that it wants to connect with 6 million local stores in China. The strategic idea is to bring its new retail management technology, the Ling Shou Tong system, to these physical stores to strengthen its bricks-and-mortar presence.

LST is an app developed by Alibaba that helps stores optimize product supply and increase sales. This “one-stop solution for digital transformation” provides recommendations to stores, helps them analyze their sales and expenses, manage promotions and improve the presentation of their products in stores.

Alibaba began to deploy this solution free of charge in strategic stores; in exchange, stores must let Alibaba use their storefronts and provide all their customer data. At the end of 2018, at the Alibaba LST Retail Conference, Lin Xiaohai, general manager of the LST Retail business, announced that the number of retail outlets covered by Ling Shou Tong had exceeded 1 million.

According to Alibaba, New Retail will allow convenience stores to remain competitive on the market: “We share a common goal with millions of small shop owners, which is to turn every one of them into a smart store that blurs the boundaries of online and offline retail to bring together the power of both retail spaces,” said Ali CEO Daniel Zhang.

JD.com to spend over $900m on Thai fruit amid Alibaba food fight – Nikkei Asian Review

What happened: JD.com plans to bring RMB 6.5 billion (around $965.8 million) worth of fresh produce into China overt the next three years. In an agreement with Chinese supermarket chain Yonghui Superstores made earlier this month, the two companies will purchase fruit, mainly durian and mangosteen, worth RMB 5 billion from Thailand. JD.com also signed memos with several Thailand-based agricultural food suppliers to buy RMB 1.5 billion worth of fruit, including longan and coconuts, on its own.

Why it’s important: Imported fresh food is becoming increasingly popular with Chinese consumers. Figures from China customs show that it is on the rise: in 2018, fruit imports rose 26% year on year to 4.85 million tons worth a total of $6.9 billion, reported Yicai (in Chinese). Higher value-added imported fresh food presents growth opportunities for online retailers including Alibaba and JD.com as overall e-commerce growth decelerates. However, the lack of quality cold chain logistics hampers profitability, according to Everbright Securities cited by Jiemian, causing losses exceeding RMB 100 billion each year for the category.

京东：雄安地下物流系统已开始架构规划– Tencent Tech

What happened: JD Logistics, the logistics unit of Chinese e-commerce giant JD.com, disclosed on Thursday that its underground logistics project in Xiong’an New Area is in the structure planning stage. The program was commissioned by the government of Xiong’an, a state-level new economic zone in China’s northern Hebei province. The system as planned will connect buildings and underground pipelines in order to deliver parcels to pick-up centers, which are assigned to customers. In real application scenarios, express parcels may be sent directly from the underground logistics channel to user doorsteps.

Why it’s important: China’s express delivery market has grown rapidly over the past few years, bolstered by various drivers such as a growing e-commerce market and increasing demand for service quality. However, the sector remains heavily dependent on human labor. Chinese tech companies have been engaged in increasing delivery efficiency by leveraging cutting-edge technologies such as autonomous driving, computer vision, and artificial intelligence (AI). The likes of JD.com, Alibaba, and Meituan-Dianping have rolled out their autonomous delivery vehicles and delivery drones. However, the underground logistics system is still in a very early stage of the application although it has its unique advantages in a higher degree of automation and proposes a solution to urban traffic problems.

On Monday, a GitHub user called on those who condemn 996 to respond to Jack Ma’s endorsement of the widely criticized work schedule by sending an official copy of China’s labor law on May 4 to the Alibaba headquarters.

The post calls the action “performance art” aimed at raising awareness over the harsh and arguably illegal working conditions in China’s tech industry. Chinese labor law states that staff shouldn’t work more than 36 hours of overtime a month. But the demands of the industry have employees working 9 a.m. to 9 p.m., six days a week.

Ma, founder of Alibaba and the richest man in China, dismissed outcry on social media over the grueling working hours in China’s tech industry in a blog post on April 12. “To be able to work 996 is a huge blessing,” he said.

The GitHub post estimates 1,000 participants will participate. As of Thursday afternoon, the post has received 710 stars on GitHub, which work as bookmarks on the code-sharing platform.

One of two hashtags that translate into #SendLaborLawToJackMa disappeared earlier today along with hundreds of posts, according to Weibo users who posted under the second hashtag.

Ma, founder of Alibaba and the richest man in China, dismissed outcry on social media over the grueling working hours in China’s tech industry in a blog post on April 12. “To be able to work 996 is a huge blessing,” he said.

The GitHub post explained, “This is a low-cost, humorous, artistic protest that mimics sending blades, but is completely legal compared to sending blades” (our translation).”Sending blades” is a slang term, which literally means mailing a blade to someone, but often denotes an attack against a public persona who has somehow upset the public.

The post explained that under civil law, it is difficult for this act to be found illegal, since only letters that “endanger national security, public interests, or the legitimate rights and interests of others” are outlawed. Further, the cost of purchasing an official copy and sending the document are estimated to be less than RMB 5 (around $0.74), according to the post.

Official copies of the law are published by the Law Press, an entity managed by the Ministry of Justice, and can be purchased at bookstores for a nominal fee of RMB 4, on average.

The “performance art” organizer invites participants who can spare more than $0.75 to also send the official copies to Richard Liu, founder and CEO of JD.com, and Ren Zhengfei, founder of Huawei, and provides addresses to all three company headquarters.

The day the protest will happen holds particular significance. It is China’s National Youth Day, which was established by the CPCC, a legislative body, in 1949 to celebrate the May Fourth Movement, a student protest against imperialism that started on May 4, 1919, at the end of of the first world war.

Ma’s comments came in response to a GitHub post that went viral, protesting 996. In late March, a user created a repository called “996.icu” which explained the exhaustion caused by the 996 schedule and the potential health dangers; “996 working, ICU [Intensive Care Unit] waiting.” It ended with “Developers Lives Matter,” a reference to the “Black Lives Matter” movement in the US.

The post quickly gained over 30,000 stars, and became the number one trending topic as overworked tech employees expressed their frustration on the site, which is not censored by the Great Firewall, the China’s vast censorship system.

The call for “performance art” also calls for a push in Chinese social media under a hashtag which translates into #SendLaborLawToJackMa, inviting participants to post videos of themselves sending the labor law on video-sharing platforms and post on micro-blogs on May 4, in order to help the action go viral.

JD.Com, Dada-JD Daojia to Launch One-Day Intracity Logistics Service in China – Yicai Global

What happened: Chinese online retailer JD.com has rolled out intra-city logistics services targeting individual consumers in a partnership with Dada-JD Daojia, the company’s grocery delivery joint venture in which it holds a 47% stake. Mainly targeted at the delivery of food, medicine, consumer electronics, apparel, and groceries, the express logistics service will operate in Beijing, Shanghai, Guangzhou, Shenzhen, and Tianjin. A package sent at 6 p.m. from Beijing will reach Shanghai at 10 p.m. the next day, the firm told local media.

Why it’s important: Thanks to the booming e-commerce industry, Chinese city-to-city logistics has expanded with names such as SF Express. As a company with fast and reliable delivery networks, it makes sense for JD to enter the emerging area. What’s more, launching an express service presents an opportunity for the embattled company to further monetize its in-house logistics capacity. Just a few days earlier, JD launched 30-minute delivery service within a three mile range for Beijing, Shanghai, Guangzhou, and Changsha. JD’s logistics arm faces increasing financial pressure after 12 years of losses. JD founder and CEO Richard Liu said in an internal letter earlier this month that the e-commerce firm’s logistics arm recorded net losses exceeding RMB 2.3 billion ($343 million) in 2018. Liu adds that the money the firmed has raised so far will only last two years if nothing changes.

At the end of March, a challenge to overtime-heavy working conditions at China’s tech giants appeared in an unlikely place. Github repositories are usually used by developers to share, contribute and test code, but the 996.ICU repo and official site are protests against “996” culture—the expectation that employees will work from 9 a.m. to 9 p.m., six days a week. The viral repo contains materials encouraging others to raise awareness of overwork in China’s tech companies, including a blacklist of 996-requiring companies and a whitelist of 955 (9 a.m. to 5 p.m., five days a week) companies. Tech leaders, including Alibaba’s Jack Ma, and JD.com’s Richard Liu have all come out in support of the grueling work schedule. They have, however, been met with scorn and censure in both online discussions and official state media for being tone-deaf and uncaring.

Sogou founder Wang Xiaochuan took to social media to dismiss claims made by some company employees that they were required to work longer than normal hours, adding that if people didn’t agree with the company’s culture, they were free to leave. Separately, a statement from Sogou said it “strictly complies” with Chinese labor laws.

Bottom line: China’s workforce is changing. As younger generations enter the labor force, they are no longer willing to trade their personal lives and health for a paycheck. Industry leaders, government officials and managers need to realign expectations and inefficient management systems to adapt to evolving employee demands for better work-life balance. As wages rise, Chinese productivity is lagging behind global averages. 996 schedules are an ad hoc solution for companies that don’t know how to manage workers effectively.

A brief history:

• 2015: 996 is publicly adopted by 58.com and Xiaohongshu. The term 996 becomes associated with China’s startup and tech culture, linking “hard work” with China’s broader success.
• January 2019: At Youzan’s annual meeting, the CEO announces the company will officially adopt 996 as their official working hours.
• March 2019: It is revealed that JD.com is implementing 996 and 995 in certain departments as company begins a painful contraction period.
• March 2019: The 996.ICU Github repository goes viral.
• April 2019: Jack Ma, Richard Liu and Wang Xiaochuan defend the 996 practice, prompting rebukes in social and official media.

What the law says (paraphrased for clarity):

• Constitutional guarantee: Workers have the “right to rest,” including vacation time.
• Workers should work for no more than eight hours a day and no more than 44 hours a week on average.
• Employers should not force workers to work overtime.
• If workers do work overtime, employers must provide overtime pay, performance bonuses and welfare benefits.
• After consultation with and approval from the relevant trade union, workers and government departments, employers may extend working hours, but not beyond one extra hour.
• If employers require more than one additional hour, they must safeguard the health of the worker; extra hours shall not exceed three hours, with total extension not to exceed 36 hours per month.

Enforcement, expectations and corporate culture:

• The Labor Law has been rarely enforced effectively. China’s employers do not often require overtime, but are notorious for creating workaholic cultures where working extra hours is implicitly mandatory in order for an employee to succeed.
• Workers that we talked to were not optimistic about change. They expressed a sense of powerlessness and felt that companies and government hold most—if not all—the power.

What companies say:

I personally believe 996 is good luck. Many companies and people don’t even have a chance to 996. If you can’t 996 when you’re young, when can you 996? If you haven’t done 996 in your life, should you feel proud? If you don’t wish to expend extra effort, how can you achieve the success you want?
— Jack Ma, founder of Alibaba, in an April 12 WeChat post

When I started working in e-commerce, I had to save every penny. I slept on the office floor just so I wouldn’t have to pay rent. For four years, I didn’t sleep for more than two hours in a row … These days, there are fewer hard workers and more lazy people … Those lazy people are not my brothers. My brothers are the ones who fight together, the ones who take responsibility and pressure together, the ones who share our success together… JD.com has never forced any employee to work 995 or 996.
— Richard Liu, founder and CEO of JD.com, in a WeChat Moments post

That’s bullshit. There’s enough on Maimai [a popular professional social network] to prove the contrary.
— overheard on the Friends of TechNode WeChat group, in response to Richard Liu’s claim that JD.com has never forced employees to work a 995 or 996 schedule

Changing demography, higher expectations: No longer fighting for survival, China’s young workers want meaningful employment. The post-’90s generation was the first to be born in a post-Mao, post-Tiananmen and one-child China.

• Smaller: From 2011 to 2018, the population between 16 and 59 years old (working age, according to the National Bureau of Statistics), shrank 2.8%.
• Younger: Those born in the ’90s and ’00s are entering the workforce, with the post-’90s population becoming mature workers.
• Greater expectations:
• Raised in affluence: In 2012, nearly 70% of China’s working population made between $9,000 and $34,000. In 2012, it was just 4%.
• Higher education: Chinese universities saw enrollment rates of 42.7% in 2016, a 12.7% increase from 2012. Graduation rates are as high as 90% at some universities, likely indicating lax standards.
• Less loyal: In 2016, only 40% of post-’90s respondents reported that they stayed at their job for more than two years, while 8% reported having four or more jobs within a three-year period.

Deeper productivity problems: While the speed of China’s growth has been stunning, it has resulted not from greater productivity, but because of low wages and the practice of throwing people at the problem. As the country leaves its impoverished past behind, companies need to break their reliance on cheap labor.

• In 2017, workers spent 44.7 hours a week at work on average.
• China reached the Lewis Turning Point in 2013, according to Standard Chartered, pushing up wages for unskilled workers.
• Wages, on average, doubled between 2010 and 2017, from RMB 3,100/month (about $461) to RMB 6,200/month.
• China’s professional culture is still lacking. Hours-long meetings, ad hoc communication and reliance on informal networks are the norm. While this may mean more flexibility, it also means longer hours as priorities change rapidly.
• Longer hours do not equate to high efficacy or efficiency. Many employees find nonproductive ways to fill up their time, including eating breakfast while they “work,” chatting with colleagues and taking extended after-lunch naps. Huawei, in fact, encourages napping, but then also demands adherence to tight delivery schedules.
• As businesses grow, they not only demand longer hours but also staff up faster, hiring for perceived needs instead of examining organizational structures and habits.

Go further:

• Research on Initiative Turnover Rate of the Post-90s Workforce―Taking Labor-Intensive Enterprises as an Example —Journal of Human Resource and Sustainability Studies, 2014, 12-25
• China Labor-force Dynamics Survey: Design and practice
• Fast and furious: Chinese unicorns to overtake American counterparts, says BCG report
• 2018 in review: China incubates 25 new unicorns worth $58 billion
• Github gives Chinese developers censor-proof forum
• A Chinese tech giant’s message about layoffs shows it won’t be easy to fight crazy working hours
• Facing Challenges: China’s Post-90s Generation and Their Employment Market Conundrum

Clarification: This story has been amended to reflect that Wang Xiaochuan, founder of Sogou, did not “come out in support” of the 996, as originally stated. He has neither confirmed nor denied such practices at his company. The story also adds a statement from Sogou that says the company complies strictly with the relevant Chinese labor laws.

Surveillance Clips Show Chinese Billionaire With Accuser – The Associated Press

What happened: Two edited videos of JD.com founder Richard Liu and a woman who has accused him of rape were posted Monday to Chinese microblogging site Weibo. The woman filed a lawsuit against Liu on Apr. 16, four months after prosecutors declined to file charges citing lack of evidence. One video shows that Liu and the woman, named Liu Jingyao (no relation), left a group dinner in Minneapolis and the other shows the woman holding Liu’s arm as they walked to her apartment. The law firm representing Liu Jingyao said the videos are consistent with what she told law enforcement, but Liu’s attorney in Minnesota said the clips had dispelled “the misinformation and false claims that have been widely circulated.”

Why it’s important: Though nothing in the videos disproves Liu Jingyao’s account of the alleged attack, the two videos have sparked widespread discussion on Weibo. Many have commented that the videos reveal a “plot reversal,” indicating that Liu may have been falsely accused. The Associated Press reported that Liu’s attorney showed the news agency full, unedited surveillance videos, which contained the same footage as the online videos. The user behind the account, named “Mingzhou Events” (translated), is unknown. It was created on Jan. 31 and has no other posts.

Hundreds sign online petition supporting woman suing JD.com CEO in rape case – Reuters

What happened: More than 500 of people have signed an online petition supporting Liu Jingyao, the Chinese University of Minnesota student who last week filed a civil lawsuit against Richard Liu, founder and CEO of JD.com, China’s second largest e-commerce operator, whom she had accused of rape. It remains unclear who launched the petition under the hashtag #HereforJingyao. Chinese students at overseas as well as domestic universities signed the petition, which states, “We believe in survivors, we believe in your bravery and honesty, we will always stand with you.”

Why it’s important: Liu Jingyao first accused the JD founder in August, but criminal charges were dropped on lack of evidence. Last week’s lawsuit comes at a difficult time for the company, when the founder’s ability to lead through a tumultuous time has come into question. The online outrage is part of a budding #MeToo movement, whose growth in popularity has been slow in a country where sexual harassment and abuse are often shoved under the rug.

Amazon is shrinking its e-commerce offerings in China, where market share for the US mega e-tailer is barely negligible amid fierce competition from countless rivals including giants such as Alibaba and JD.

“We will cease support for third-party merchants on Amazon China’s website starting Jul. 18, 2019,” (our translation) the company said in a statement to TechNode on Thursday. Amazon provides its merchants with tools to boost selling, including fulfillment and advertising services, according to its website.

Its withdrawal from the domestic marketplace will allow the company to sharpen focus on its cross-border e-commerce business, which mainly sells overseas products to Chinese customers, and its cloud computing service, it said in the statement.

The global e-commerce giant had struggled to gain share since it strode into China’s booming e-commerce industry in August 2004 through the acquisition of online book seller Joyo for $75 million from Xiaomi founder Lei Jun, the largest shareholder of the company at the time.

Yet according to market research institute eMarketer, Amazon China held less than 1% share of the total e-commerce market as of June 2018, eclipsed by Alibaba, which holds a share of more than half the market, and JD.com with less than a fifth. Social e-commerce platform Pinduoduo, local retailer Suning, and Tencent-backed Vip.com round out the top five.

Long time coming

To some, the news is just a formal acknowledgement of Amazon’s reality in China.

“Honestly, I didn’t even know they still had a domestic business left,” Ker Zheng, marketing specialist at a Shenzhen-based e-commerce solution provider Azoya, told TechNode.

“They should have done away with the domestic business a long time ago. There’s no point to compete with Alibaba, JD, and JD isn’t even that profitable,” he added.

Netizens on social media appear to agree. “Amazon shut their in-house inventory business several years ago. Third-party merchants business is also not doing well. For me, Amazon has quit the game for a long time,” (our translation) one  Weibo user using the handle Summer wrote in a post dated Thursday.

The company’s strategic decision to retain key segments is a reflection of its platform’s polarity in China. “Not a big deal for me as long as Kindle and the cross-border operation is around. Amazon offers smaller discounts than Taobao and JD,” a Weibo user going by Shanika said.

China’s e-commerce market requires deep commitment that not all companies are prepared for.

“Basically all platforms provide a commodity service, since everyone sells the same products. To differentiate you have to either provide a lower price or a better customer experience, which means wider product selection, faster shipping. All of that requires a ton of investment and not making money for a long time. JD is willing to do it but not Amazon,” Zheng said.

Commitment can also mean evolving with consumers. Cao Lei, director of the China E-Commerce Research Center, attributes the company’s failure to gain a solid foothold to its lack of innovation. “The e-commerce platforms in China, both old and new, have developed lots of localized business models, such as Pinduoduo’s “group purchase” model and multi-echelon distribution model, to acclimatize themselves to the local market. But Amazon has missed many chances to make innovations, and lost a large number of users,” said Cao.

Regardless of its missteps, Amazon maintains that the move is not a complete pull-back from the China market, but is “a transitional period” (our translation).

However, the US giant also lags the competition in the cross-border e-commerce segment.

China’s leading e-commerce platforms, including Alibaba and JD, announced commitments to assist with importing a combined $250 billion worth of foreign goods at the first-ever China Import Expo held in Shanghai in November.

Rivals Tmall Global, NetEase Kaola, JD Worldwide, and Xiaohongshu lead the market, leaving Amazon China with a 6% share of the vertical as of the fourth quarter of 2018, according to data from research institute Analysys.

“[It] makes much more sense to focus on cross border imports since they have an advantage in sourcing foreign goods,” Zheng of Azoya told TechNode.

Cloudy Skies

The company’s other remaining business in China faces hurdles of its own. Amazon Web Services (AWS), the empire’s cloud computing platform, is a slow mover in the burgeoning cloud computing market.

Figures from Synergy Research Group showed that it held the leading share of the Asia-Pacific region with 24.1% share in revenue in the fourth quarter of 2018. However, in China, domestic tech giants hold the lion’s share with AliCloud comprising 40.5%, Tencent coming in a distant second with 16.5%, and AWS with around 9.7% share.

AWS made its China debut in August 2016, when it licensed the rights to Chinese telecommunication and data service provider Sinnet to offer local cloud services. China’s cyberspace watchdog requires foreign enterprises partner with local companies in order to run cloud infrastructure services in China for data security reasons.

Stay or go?

Early reports about the company’s shrinking China business were fractured, signaling internal confusion about the move.

Reuters reported on Wednesday that Amazon was preparing to close its China marketplace by withdrawing support for third-party merchants over the next 90 days. Chinese media also reported the closure of its main domestic retail business in China, citing a source as saying some employees are now hunting for new jobs.

However, according to China Business Journal, Amazon China announced the decision to close its e-commerce business including the proprietary retail segment in an internal meeting that took place Thursday morning.

Amazon China’s president, Zhang Wenyi, who took the post in April 2016, will reportedly leave, according to an unnamed executive. Around 2,000 people work for the company in China, and will learn more about the company’s layoff plans next week, said the source.

Amazon is not the first international retailer to fail in China.  The platform’s refusal to adapt to Chinese consumer preferences may have also taken a toll.

“If Amazon continues its cross-border e-commerce into China, it is highly suggested that they adapt and provide Chinese consumers the entertaining shopping experience that Chinese consumers like, instead of a global interface and rigid structure pushed to the consumer,” said Ron Wardle, CEO of e-commerce solutions firm, Export Now (Shanghai) Inc.

Cao of the E-Commerce Research Center agreed that Amazon China’s special “foreign-company style” corporate culture led to its weak execution of innovative ideas. “Decisions such as changing festival logos and launching new projects have to be approved by the company’s US headquarters, which results in its inefficiency and lack of indigenization,” he said.

JD.com founder and CEO Richard Liu—a leading figure in China’s e-commerce landscape whose own company and management has recently come under close scrutiny—uses a battle metaphor to describe the dynamic in a March 2018 video interview.

“It’s like soldiers who are told that they only have 10,000 bullets and before shooting each of the bullets, they have to check with the general whether more ammunition is coming. How can you expect the soldiers to win a war like this?” Liu said.

Additional reporting by Emma Lee and Wei Sheng. With contributions from Colum Murphy.

Renewed rape allegations against Richard Liu, the founder and CEO of JD.com, China’s largest retailer and second-largest e-commerce operator, represent only the tip of the iceberg when it comes to the Chinese tech behemoth’s problems.

In 2018, Liu was arrested in Minneapolis, Minnesota, on suspicion of rape. He was not criminally charged, but the fallout of the highly publicized case contributed to a downward slide in the company’s share price.

On Tuesday, Liu faced renewed allegations as the alleged victim decided to pursue a lawsuit seeking damages of more than $50,000. The suit names JD as a defendant.

Reports of massive layoffs, steep pay cuts, and constant comings and goings in JD’s C-suite have Alibaba’s nearest competitor in an uneasy position, prompting many to ask what’s next for JD and to question whether Liu is fit to stay on as leader.

The company has an excellent track record in terms of providing high-quality e-commerce services and logistics. However, the recent unwanted attention has brought closer scrutiny to JD’s business in general, including the company’s efforts to move into new areas such as cloud computing, finance, and new retail.

JD declined to comment for this story.

The turmoil has been reflected in the company’s stock price performance, which hit a historic low in November 2018 at $19.27, less than five months after notching a high of around $43. The company’s shares have more or less bounced back. At market close on April 16, the stock price was $29.91.

JD is at a turning point. The question is whether the company can develop existing lines of business in logistics, its core strength, while succeeding in new ones, such as cloud computing. Many recent announcements indicate that the company is restructuring, shedding staff, and trying to adapt quickly to new business models and opportunities.

E-commerce wars

JD’s reported year-on-year growth of net revenue in 2018 was 27.5%, though exact gross revenue figures are undisclosed. By contrast, Alibaba witnessed a 40% year-on-year growth for its core e-commerce business. In 2014, JD went public on Nasdaq, raising $1.78 billion. Four months later, Alibaba made history with the largest IPO on the NYSE at $25 billion.

JD might come in second from a numbers perspective, but it has amassed valuable assets in supply chain and logistics. As far back as 2007, JD began to build out its own logistics network. Dissatisfied with China’s existing delivery infrastructure, it established delivery hubs of its own, starting in Beijing, Shanghai, and Guangzhou.

While its competitors mainly relied on third-party couriers to deliver their goods, JD’s in-house logistics arm allowed it to control the quality of its service. In 2010, it became one of the first e-commerce companies to launch same-day and next-day delivery service.

However, building logistics infrastructure across a country as expansive as China is not cheap. It is believed that more than 70% of the $1.78 billion proceeds JD raised in the 2014 IPO was spent on logistics construction, according to a paper from a Shanghai-based consultancy that was reviewed by TechNode.

In 2017, JD founded a separate logistics business group, raising $2.5 billion during its first financing round in 2018. After the deal, Jingdong Group, as JD is also known, still held an 81.4% stake in JD Logistics, which is currently valued at over $10 billion. The remainder was held by a consortium that includes Hillhouse Capital, Sequoia China, and Tencent.

But JD’s asset-heavy approach to logistics is gradually losing traction in a massive market where rivals like Alibaba’s Cainiao Logistics are also raising the bar in terms of service quality, while enjoying greater nimbleness by creating a network with courier companies outside of the Alibaba group.

Despite its physical assets, JD Logistics recorded a $343 million loss in 2018. In a leaked internal memo, Liu said that if the trend continues, the subsidiary’s funding would last only two years.

What is more, efficient delivery has proved insufficient to boost growth in the current landscape of e-commerce. “JD has not kept up with the new trends in the Chinese market: drawing online traffic and entertaining younger users. Its e-marketplace simply looks like an online shopping mall, which makes people feel bored,” said a longtime observer of JD who goes by the name Youkaku and who claims to have insider knowledge.

Top-down turmoil

As one of the rare tech companies in China without an official co-founding team, JD has been characterized by Liu’s absolute rule. Unlike companies like Alibaba, JD’s operations are not safeguarded by partnerships or succession planning.

Fang Hao, former editor-in-chief of Chinese media Cyzone, wrote that JD’s management team is considered “barely nothing” compared to Tencent, known for its president Martin Lau and WeChat head Allen Zhang, or Alibaba, where Jack Ma has laid out a succession plan featuring Alibaba CEO Daniel Zhang.

For a decade, Liu almost singlehandedly led JD’s employees in the charge for market share. This situation did not change even after 2011, when, in preparation for their IPO, the company welcomed a long line of executives for the first time.

Leading the charge once again, Liu vowed in a Tencent Tech report in February 2017 that JD’s strategy over the next 12 years would be highly driven by technology. He hoped that people would recognize JD as “a successful technology company.”

This year, within the course of a month, three top JD executives have stepped down, including CTO Zhang Chen. The former Yahoo vice president had been expected to lead a fundamental technology revolution in the company.

General counsel Rain Long Yu and chief public affairs officer Lan Ye also recently quit JD. Experiencing this many high-profile exits in such a tight timeframe is considered highly unusual for China’s tech industry.

Youkaku told TechNode Zhang’s leaving reflected that JD’s long-entrenched political culture complete with “fiefdoms and cliques,” which was criticized by Liu himself recently in an internal meeting, according to Chinese media. This makes the integration of new hires difficult. Youkaku believes the executives’ departures will not have a large impact on the organization, since “only one person is the leader.”

According to a JD employee who asked to remain anonymous because of company policy, the organization is overly centralized with inefficient layers of accounting, reporting, and resource allocation.

“Goals and purposes are barely conveyed to each staff member in an accurate and effective way,” this employee told TechNode. JD is run more like a traditional Chinese state-owned enterprise than an agile tech company, she said.

To be sure, JD has made attempts to boost the vitality of certain parts of the organization. In January, the company upgraded its main segments—retail, logistics, and digital technology—into three independent units, with Xu Lei, Wang Zhenhui, and Chen Shengqiang named as chief executives, respectively.

The restructuring was later highlighted by Richard Liu as part of a decentralization push. In an internal New Year’s memo obtained by Tencent Tech, Liu announced that the company headquarters would relinquish some management control and give greater autonomy to the units. “Each business group will fight battles with its own will,” the memo stated.

Old brothers, new markets

Liu was raised in a family that worked in the coal shipping business. He refers to the nearly 100,000 (predominantly male) delivery personnel as his “brothers” and has often expressed pride in their employment conditions, which gives them higher compensation and better treatment than JD’s competitors.

Those employed at the company for five years or more enjoy unemployment insurance, medical insurance, accommodation, and full medical expenses. Such benefits are unusual for the industry.

“JD will never fire any one of our brothers,” Liu said in a trade conference in May 2018, as cited by Leiphone.

Yet less than a year later, the layoffs began. In February 2019, the e-commerce giant unveiled plans to cut the 10% lowest-performing executives. It later claimed to be eliminating three types of employees, including those who “could not work hard” for any reason, be it health or family.

Last Friday, a report revealed that Liu took a tough tone in his WeChat Moments, saying, “Those who mess around without achieving anything are not my brothers any more.”

“Mass layoffs are happening right now, and everyone is anxious,” said the JD employee. She told TechNode that many of her colleagues are planning to jump ship for other jobs.

For its part, JD disputes the job cut claims, preferring to point towards its plan to create 15,000 new positions this year as part of its organizational overhaul.

One relatively new business area for the company is cloud computing. In April 2016, JD entered China’s fast-growing cloud market by establishing a dedicated subsidiary, JD Cloud.

IDC Consulting expects China’s cloud market to become the largest in the world by 2023, accounting for a quarter of global spending on cloud infrastructure.

In 2015, Alibaba invested $1 billion in its cloud computing arm Aliyun, which it had launched in 2009. The investment proved wise. Since then, Aliyun’s revenue has boasted double—and often triple—digit growth, carrying Alibaba’s growth despite a slowing economy.

“In e-commerce, everybody knows the cloud is important. If you don’t offer it, your clients will look at your competitors,” said Chris Dong, research director at IDC China. “They want to retain their relevance.”

Much like Amazon internationally, Alibaba’s early mover advantage crowned it the king of the Chinese cloud services, holding 43% of the market, according to IDC figures for the first quarter of 2018. The same report indicates that it is followed by Tencent at 11%, China Unicom at 8%, and Amazon at 6%.

“Everyone is looking at powerhouses,” Dong said, referring to companies which dominate the market, like Alibaba and Amazon. However, he added, with plenty of potential customers who are not serviced by their cloud offerings, there’s still room for new arrivals. Still, Dong does not foresee JD Cloud aggressively competing with Alibaba, as that would require major investment.

Tough road ahead

For a long time, people have compared JD with Alibaba, but it appears that comparison is no longer apt. While Alibaba has found success and profit expanding to new areas such as the cloud, finance, and entertainment, JD is still essentially an e-commerce company. The company has been slow to adapt to emerging trends in its core business.

Its unyielding organizational structure, alongside its “macho” and rigid company culture, have also slowed its response to market needs. Meanwhile, Alibaba’s Taobao launched a live-streaming tool in April 2016. Pinduoduo has established a market presence by offering social tools for group-buying models to consumers seeking lower prices.

One possible option for JD to catch up with the e-commerce trends driven by China’s rising millennials could be a merger with Pinduoduo. JD’s presence is strong in higher-tier cities where Pinduoduo is weak, and vice versa. They are also both Tencent-backed and individually outmatched by Alibaba. But this scenario seems far-fetched, given that they are similar-sized entities that appear to lack the financial muscle to make the deal work.

JD’s plan to seek growth in the cloud market, however, takes advantage of its superior logistics network to deliver digital services to areas not yet saturated by the top cloud providers.

JD holds the strongest logistics chain in the countryside, so it is well-positioned to deliver digital services in these areas. “This is where JD Cloud could step in—to build a cloud foundation to help rural governments establish e-commerce capabilities for locally produced goods, so that they can be sold more broadly and effectively on the JD platform,” Dong said.

If it can develop an inclusive and agile corporate culture, and attract a more dynamic team of executives who can implement necessary changes, JD could do a better job of keeping up with or even anticipating technological and internet trends.

A key factor is whether Richard Liu—assuming he holds on to the leadership role—can navigate the changes essential for the company’s long-term survival. Because he has been JD’s indisputable leader, much depends on his standing within the company, as well as his public image.

In March, Liu requested leave from the Two Sessions, China’s biggest annual political event, for unspecified reasons. In contrast, senior executives from China’s other tech giants—Baidu, Tencent, Huawei, and Xiaomi—were all present.

Additional reporting by Jill Shen and Eliza Gkritsi. With contributions from Elliott Zaagman. 

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Troubled Chinese e-commerce giant JD.com faced a fresh setback as the student who accused JD.com founder Richard Liu of rape in August filed a civil lawsuit against the billionaire on Tuesday.

The lawsuit comes nearly four months after Minnesota prosecutors declined to pursue criminal charges. JD.com is also named as a defendant.

JD did not provide comment on the new lawsuit but referred TechNode to a statement from its lawyers.

“We are not in a position to comment at this time, but we will vigorously defend these meritless claims against the company,” Peter Walsh from Hogan Lovells, counsel for JD.com, told TechNode.

Just as the dust stirred up by August accusations against Liu had started to settle, the lawsuit sparked another round of discussion on Chinese social media—only this time with a slight shift in focus.

Before Liu’s arrest, the market was relatively bullish on JD.com, with Nasdaq-listed share reaching a high point of $43 in June.

Netizen reactions when the rape allegations originally emerged reflected the public’s empathy for Liu’s wife Zhang Zetian, an internet celebrity, as well as criticism for Liu. He later admitted to cheating on his wife.

This time around, Chinese netizens’ concerns seem primarily aimed at the company. Recently JD has been featuring prominently in the news as rumors of layoffs, pay cuts, and management reshuffles proliferate against a backdrop of an uncertain economic climate in China.

Questions about Liu’s fitness to head JD.com have also resurfaced.

“Dongge for the success, Dongge for the failure, Dongge can consider resigning from JD,” said a netizen using the handle, Anne, on microblogging site Weibo, referring to a nickname that translates into “Brother Dong,” shorthand for Liu’s first name, Qiangdong.

Liu’s alleged victim, University of Minnesota student Liu Jingyao, is seeking damages of more than $50,000. This is the first time the student’s name has been revealed.

Some Weibo object to the release of the identity of the alleged victim. “It’s not cool to reveal the girl’s name, no matter what,” says Weibo user with the handle, YimiaoS.

Others saw significance in the amount of damages sought. “The girl is not claiming a big sum, this might reflect her stance in the case—it is going to be settled with money. It will take a long time for Liu and JD to settle the matter,” said Weibo user Bao Manman.

Richard Liu, the founder and CEO of JD.com, sent a note to JD Logistics employees early Monday, calling for unity and cooperation from delivery drivers at a crucial time for the company.

According to an internal letter obtained by Chinese media, the e-commerce firm’s logistics arm recorded net losses exceeding RMB 2.3 billion ($343 million) in 2018. If costs from internal platform, JD mall, are included, that widens to RMB 2.8 billion.

“We have lost money for 12 years in a row… if this continues, the money we raised will only last for two years. I believe none of our brothers is willing to see us go out of business,” (our translation) Liu said in the letter, which said that the fate of the company hangs in the balance.

Liu’s remarks to employees comes just days after JD.com confirmed it would replace its couriers’ fixed base salaries with commission-based compensation, as it aims to increase income from external orders. It will also lower contributions to employee housing funds to 7% from 12%, which Liu stated remains within market averages and exceeds the government requirement of 5%.

JD.com spun off its logistics arm into a standalone business in April 2017, pivoting from an internal department into an express delivery company servicing both consumers and enterprises. It raised $2.5 billion in February 2018 from a range of backers including investment firm Hillhouse Capital, China Development Bank Capital, as well as Tencent. The transaction, which was JD Logistics’ first outside funding event, valued the company at around $13.5 billion.

It posted solid results after the spin-off, recording revenues of RMB 12.3 billion in 2018, a 142.0% surge compared with the year prior. However, cost of revenues rose 27.1% year on year to RMB 396.1 billion in the same period, primarily due to services provided to merchants and other partners, according to the company.

JD.com started building its own logistics network as early as 2007, including 500 large-scale warehouses and fleets of 100,000 delivery drivers to service customers across the country. The company announced it has more than 200,000 enterprise clients at the beginning of this year, according to Chinese media. However, the volume of external orders turned out to be “too small,” which resulted in “huge costs” for the company, according to Liu.

Deep Cuts Planned at China’s JD.com – The Information

What happened: JD.com is working on a new round of layoffs that could affect up to 8% of its 150,000 employees, or more than 12,000 positions across various business units, The Information reported citing investors in the Nasdaq-listed company. However, the company denied the report to TechNode on Wednesday.

“We don’t know the source of that figure, but it’s inaccurate. There have been some adjustments as a normal part of our business. In fact, JD.com plans to make 15,000 new hires, and hire 1,300 new college graduates,” JD.com spokeswoman told TechNode.

Why it’s important: So far 2019 has proved a tough year for JD.com, which is facing the pressures of a slowing macro economy, competition from Alibaba, internal reshuffling, and the aftermath of sexual assault allegations against founder Richard Liu. Rumors swirled on social media that JD.com laid off 10% to 15% of its workforce in November, although the company refuted the story. However, reports of significant personnel turnover at the executive level have been confirmed. JD.com had announced in February plans to cut the bottom-performing 10% of its management; the departure of its chief human resources officer, chief technology officer, and chief public affairs officer quickly followed. JD.com’s net losses in the fourth quarter of 2018 widened to RMB 4.8 billion (around $715 million) from RMB 900 million a year earlier, while revenue in the same period rose 22% year-on-year.

Update: story was updated on Apr. 10 to include a response from JD. com.

In a bid to boost margins, JD.com is reducing salaries for its more than 100,000 deliverymen across the country by shifting to a commission-based payment scheme and reducing benefits.

The news began circulating widely on Chinese professional networking service Maimai over the weekend, the latest development for the e-commerce giant following a series of layoffs, executive resignations, and—most recently—rumors about founder Richard Liu’s impending divorce.

JD.com will replace its couriers’ fixed base salaries with commission-based compensation starting in June, according to Chinese media reports. In the meantime, it will lower contributions to employee housing funds to 7% from 12%, which still meets the minimum 5% set by the government. The shift in compensation could result in wage reductions, as the order target is “a bit hard to complete,” according to anonymous employees quoted by Chinese media.

JD Logistics, the logistics arm of the Beijing-based tech heavyweight, responded on Sunday via its official Weibo account, saying that as the number of orders from business clients increase, the company now looks to adopt “a more standardized salary policy” to reward outstanding employees (our translation).

It also stated that after the adjustment, delivery staff wages will still exceed the industry average, with many deliverymen in the southern regions earning “a monthly salary of more than RMB 8,000 (around $1,190) under the current pilot scheme.”

“As JD Logistics is providing services to more industry clients, we plan to add more than 10,000 headcount this year,” the company said.

JD.com could not be reached by TechNode for comment.

Rumors about repeated rounds of layoffs appeared on Maimai at the start of April and began circulating widely on Sunday. In an internal letter obtained by Chinese media, JD.com said it was eliminating three types of employees, including those who “could not work hard” for any reason, be it health or family.

“Spending cuts are acceptable considering overstaffing at company headquarters. However, couriers should be treated better,” said a netizen named Xue Pan quoted by Chinese media. The company’s “good reputation,” added Xue, was built on its delivery service.

JD.com later confirmed on Maimai that the internal announcement was “misinterpreted without context,” and that it is looking for employees to show initiative to improve their lives while creating a better environment for hard-working employees.

Following recent resignations of the CTO and general counsel, the Chinese e-commerce giant announced last week that Lan Ye, its chief public affairs officer, would be leaving his post for “personal and family reasons” on May 31. This is the latest high-profile departure for the company, which in February announced that it would cut the bottom-performing 10% of executives in 2019.

The Beijing-based online retailer is struggling following the arrest of its founder, 45-year-old internet tycoon Liu, on suspicion of sexually assaulting a 21-year-old female University of Minnesota student in September. US prosecutors announced in December they would not indict Liu due to insufficient evidence. Following the charges, JD.com’s stock has slumped and rumors that Liu and his wife, 26-year-old Zhang Zetian, plan to divorce have been spreading on Chinese social media.

JD.com’s cloud service JD Cloud has gained the exclusive rights to “Minecraft: Education Edition” in China, according to a joint announcement released Wednesday by JD.com and Microsoft. The move is part of JD Cloud’s foray into the education sector.

The game is the educational version of the popular sandbox game by the same name, with additional features to help teachers incorporate the software to their curriculum. The Chinese version of “Minecraft” was released in China in 2016 under a licensing agreement between China’s second-largest online games publisher NetEase and Swedish game developer Mojang. The educational version has been used by K-12 educators in over 100 countries and has a user base of over 90 million, including 35 million in the US.

JD Cloud plans to partner with companies in China and overseas and becomes a provider of educational services, content, software and hardware—essentially, a one-stop platform for educators and students. It also looks to leverage JD.com’s resources in cloud computing, big data, IoT, and internet.

The China-specific version of the educational game is still in the testing phase, according to Chinese media Yicai (in Chinese). Currently, the priority is developing content for the Chinese audience and finding curriculum partners, Deirdre Quarnstrom, general manager at Minecraft Education, told Yicai.

The company expects the game to help bring world-class interactive technology solutions to China, said Wu Yiheng, vice president of JD Group and head of markets for JD Cloud. JD Cloud and Microsoft will continue to work side-by-side to explore China’s smart education industry, he added.

JD.com established its education business unit in 2017, which covers areas including K-12, adult education, language training, and online education. The company claims that its education unit has more than 200 institutional users, and 36 million active student users. JD Cloud signed a strategic partnership with Foxconn’s classroom technology brand, SMART Technology, last year.

Still, JD Cloud is playing catch-up with peers who got a head start in edtech. US e-commerce giant Amazon’s cloud service AWS launched its education and research category in 2014, focusing on incorporating cloud technology for data management, analytics for educators, and developing programs for cloud technology learning. Chinese e-commerce giant Alibaba’s cloud computing arm has also launched education programs providing resources for developing technical skills.

Chinese online retailer JD sent a group of employees to visit a Beijing prison on March 20, the company announced through its anti-corruption WeChat account in a post that bears a straightforward title, “Freedom is life’s greatest fortune” (our translation).

A group of JD employees from its public affairs department paid a visit to No.1 Beijing Detention Center to witness in-person the cost of corruption, according to the post.

Prison tours are a common anti-corruption tactic in China, though it is used more often by state or financial institutions, not tech companies. However, this is not JD’s first use of unconventional anti-corruption measures. JD employees were asked to report to the company the details of their spouses, direct relatives, extended relatives by blood within three generations and their spouses, and schoolmates, according to a leaked email that has gone viral on Chinese microblogging platform, Weibo. Though it was billed as a move for transparency in workplace promotions, it was aimed at curbing internal corruption, according to Chinese media.

However, JD’s prison tour holds a difficult irony at its core as the company’s CEO Richard Liu was nearly sent to prison himself following an accusation of rape last year. The charges were later dropped on lack of evidence.

JD did not respond to TechNode’s inquiry on the matter.

One of China’s tech giants, JD has seen its fair share of internal corruption cases. The company revealed 16 corruption cases in August, involving departments ranging from the company’s retail division to finance.

JD is stepping up efforts to boost vitality within the organization amid fierce competition from Alibaba and slowing growth. The company announced that it would be slashing the bottom-performing 10% of its executives by year-end to push internal competition. Two key leaders, CTO Zhang Chen and legal head Long Yu, have left the company within the past two weeks.

Other Chinese tech companies are also speeding up internal investigations to curb corruption. Ride-hailing giant Didi dismissed more than 80 employees last year after its compliance staff found more than 60 cases of internal corruption. Drone maker DJI placed 45 of its employees under investigation for a case that could result in losses totaling as much as RMB 100 billion (around $150 million).

JD.com is seeing a round of shake-ups on its management team. Long Yu, the company’s legal head, announced her resignation on her WeChat Moments on Wednesday, the second key executive departing from the company in a matter of days, reported Chinese media Jiemian.

Long cited family reasons for her departure, saying that she hopes to spend more time with her daughter who is in college, Jiemian quoted her as saying. Long also said that her departure would provide an opportunity to younger employees to take the company forward.

Long joined JD.com in 2012 as head of human resources and general counsel, and is known for her role in establishing and running the company’s talent system. The Chinese e-commerce giant has ballooned to nearly 180,000 employees, according to Jiemian, from 8,000 in 2012. A former executive at the Hong Kong-based telecommunications company Utstarcom, Long met JD.com founder Richard Liu during her EMBA studies at China Europe International Business School (CEIBS) in 2009.

The news of Long’s departure comes just four days after JD.com announced that its chief technology officer (CTO) Zhang Chen would be leaving due to family reasons. The former Yahoo vice president has been credited with bringing the company’s technological structure back on track. JD.com’s technological capabilities vastly improved after Zhang joined the company in 2015, according to Chinese media, citing several system outages during its 618 shopping festival in mid-June 2012.

The Chinese e-commerce giant is undergoing a round of reshuffling with plans to cut the lowest-performing 10% of executives in 2019, as pressure from rivals mount. Despite a slowing economy, Alibaba reported 40% year-on-year top-line growth for its core e-commerce business in its financial quarter ended Dec. 31, 2018. JD reported year-on-year growth of 22.4% for net revenue during the same time period. The company does not disclose gross revenue figures.

Another rival, Pinduoduo, grew explosively in 2018 with revenue skyrocketing 652% compared with a year earlier. Analysts expect the Shanghai-based social e-commerce firm to catch up to Alibaba in active user base size in 2023, and surpass JD.com a year later in terms of average user spending, according to a report by Swiss investment bank UBS released earlier this month.

Chinese Student Receives 10-Year Jail Term for JD.Com Fraud – Yicai Global

What happened: A court in the central China province of Hunan has sentenced a college student with the surname Wang to more than 10 years of imprisonment and fined him RMB 80,000 (around $11,900) for scamming Chinese online retailer JD.com out of RMB 1.1 million in 2017. Wang, along with accomplices, exploited an identification loophole in JD Finance’s credit payment service, Baitiao, and created multiple fake Baitiao accounts in order to buy electronic devices on credit and resell them online. JD fixed the issue in 2017.

Why it’s important: China has lower credit card market penetration relative to many other economies, but demand for micro-lending has surged in the past five years, especially among younger consumers. Chinese tech giants have launched online lending services to target these segments. JD has its Baitiao service, while Tencent-backed WeBank offers a similar online consumer loan product called Weilidai. Alibaba’s Ant Financial offers a micro-credit service, Huabei, in addition to holding a stake in Qudian, a micro-lending company. However, the booming industry suffers from security issues. More than 200 people have been convicted and sentenced for fraud in cases similar to Wang’s, according to data from the China Supreme Court website.

Pinduoduo share prices tumbled 17.5% on Wednesday after disclosing heavier-than-expected losses and skyrocketing operating expenses in the fourth quarter of 2018.

The social e-commerce company grew explosively in 2018, with full-year revenues surging 652% to RMB 13.1 billion ($1.9 billion) compared with the previous year. Gross Merchandise Volume (GMV) also grew 234% year-on-year to RMB 471.6 billion in 2018, driven by rapid user growth and average user spend doubling, said Huang Zheng, Pinduoduo founder and CEO.

However, 2018 operating losses soared more than eight-fold to RMB 3.96 billion in 2018 compared with RMB 469.2 million in 2017, more than half of which (RMB 2.1 billion) was recorded in the fourth quarter, a seasonal high point due to important shopping promotions. Chinese e-commerce companies usually burn more cash to boost sales and compete for users during the 11.11 shopping festival in November and year-end sales, vice president of finance Xu Tian stated during the earnings call.

The company reported earning losses of $0.24 per share for the fourth quarter, missing analyst estimates of $0.22. It did not offer guidance for the first quarter of 2019.

“It should develop its own living products like Muji rather than spending huge money on marketing events,” a netizen named Daniel Yue said on online trading platform, Fufu. Another investor who asked to be identified by his surname, Huang, commented that the company’s stock price was vulnerable to slowing growth, and expressed concerns about future performance.

Chinese e-commerce giants face increasing concern from global investors that an economic downturn will slow growth. Pinduoduo’s fourth quarter growth in monthly active users (MAU), while nearly doubling to 272 million, was marked deceleration from 495% year-on-year in the second quarter and 225% year-on-year in the third quarter of 2018. In late February, its rival JD.com said that it expected revenue growth would further slow after declining for two consecutive quarters.

Employees of Chinese e-commerce firm JD.com have publicized its directive to “make full contributions” to the company by working 12 hours a day, five days a week as competition in the e-commerce sector heats up.

A number of JD.com employees posted on Chinese professional networking service Maimai on Tuesday, claiming that the company is adopting a compulsory “995” working schedule, which refers to work schedules on weekdays starting at 9 a.m. and finishing at 9 p.m. Netizens cited by Chinese media questioned whether this new initiative was part of the company’s layoff strategy, forcing resignations for employees reluctant to work mandatory overtime.

Liu Li, a director in JD.com’s public relations, responded on Maimai on Wednesday, saying the company was not making overtime compulsory, but rather encouraging efficiency in hopes that all employees make full contributions and create value for customers and for themselves, as well. “Devotion and passion are in JD.com’s DNA, and we have no better choice but to work harder for the future of the company,” Chinese media cited Liu as saying.

Any work hours beyond eight hours per day, 40 hours per week is considered overtime under Chinese labor laws. Employees who refuse to work overtime cannot be disciplined or fired for this reason. Regardless, the number, 996, is well-known shorthand for working hours at top Chinese technology companies, referring to 12 hours a day, six days a week.

JD.com is stepping up efforts to boost vitality within the organization amid slowing growth and mounting challenges. Last month, the company announced that it would be slashing the bottom-performing 10% of its executives by year-end.

In 2018, the US-listed e-commerce giant recorded total revenues of RMB 462 billion (around $69 billion), posting 27.5% year-on-year growth compared with 40.3% year-on-year growth in 2017. The company expects growth to further decelerate in the first quarter of 2019 to 18% to 22% year-on-year.

The push for performance comes as competition heightens in the sector. Analysts view JD.com rival, Pinduduo, as “best-positioned to benefit from growth” in late adopters to online shopping, according to a report from Swiss investment bank UBS report dated Mar. 5. Pinduoduo revenues rocketed 697% year-on-year in the third quarter of 2018. UBS analysts forecast that new shoppers in lower-tier cities could drive 24% growth in users in 2019.

JD, China’s largest retailer and second largest e-commerce company, had a tough 2018.

Its stock plunged about 50% on concerns about slow economic growth, rising competition, shrinking profits, and a rape allegation against founder and CEO Richard Liu. Adding insult to injury, Pinduoduo, an e-commerce upstart focused on consumers in lower-tier cities, overtook JD to become China’s second-largest e-commerce platform by monthly active users.

A year to forget, by any measure. But it gets worse. There’s a strong case JD lost whatever grip it had on omnichannel retail in 2018, throwing the company’s next stage of growth into question.

New retail race

China’s e-commerce market experienced massive growth over the last decade. About 10 years ago, China was less than 1% of the global e-commerce market. Now, that share is around 40%, with more e-commerce transactions per year than France, Germany, Japan, the United Kingdom, and the United States combined. China’s e-commerce giants, Alibaba, JD, and Pinduoduo, have reached staggering heights and revolutionized the way local consumers shop.

But brick-and-mortar retail accounts for three quarters of China’s total retail sales. It’s no secret that China’s e-commerce giants want a piece of that action. Since 2016, Alibaba, JD, Suning, and NetEase have opened physical stores, partnered with existing retail chains, invested in automated convenience stores, and experimented with private label direct-to-consumer propositions. (For an in-depth look, you can check out a presentation I’ve delivered on the subject).

As China’s leading e-commerce companies, Alibaba and JD made early moves to snap up pieces of the brick-and-mortar pie. Alibaba led with Hema, an “omnichannel” supermarket that services both online and offline orders. JD countered with a string of offline retail partnerships companies including with supermarket group Yonghui and American behemoth Walmart. Since then, Alibaba and JD have been scrambling over and around each other to expand and fortify their omnichannel retail offerings.

Bravado vs. reality

JD’s offline retail play involves a series of bold decisions.

From new retail’s outset in 2016, JD shied away from matching Alibaba’s omnichannel expansion. It currently operates three omnichannel supermarkets, compared to Hema’s 100-odd stores dotted across first and second-tier cities.

In 2017, JD went big on automated convenience—think 7-11 without a cashier. It committed $4.5 billion to retail-related artificial intelligence research and unveiled plans to launch over 100 cashier-less, staff-less convenience stores by the end of 2018.

Also in 2017, JD CEO Richard Liu announced it would open one million mom-and-pop convenience stores between 2017 and 2022 under a franchise model. This is retail ‘blitzkrieg’ on an unprecedented scale. As a reference point, 7-11 has around 65,000 worldwide. Assuming it acquires 200,000 franchisees per year under its plan, JD expects to open three times 7-11’s worldwide footprint each year, for five consecutive years.

Despite the bravado, there are clear signs these decisions haven’t gone to plan.

Alibaba’s Hema supermarket is an unqualified success. Analysis from China Merchant Securities, a securities and trading firm, suggests Hema stores that have been in operation more than 18 months make anywhere between three and five times more revenue per square meter than China’s traditional supermarket chains.

That’s a significant blow for JD, which could have been an omnichannel first mover. Hou Yi, Hema’s CEO, is a former JD Logistics executive. He was originally tasked with spearheading JD’s omnichannel retail efforts. Reporting by 36kr suggested that Hou Yi’s defection to Alibaba last year was precipitated by frustrations with CEO Richard Liu’s tepid commitment to omnichannel. If true, decision-makers and shareholders must be sorely lamenting the misstep.

JD’s unmanned convenience stores haven’t found a foothold. An estimate using China’s two largest mapping services, Baidu Maps and Gaode Maps, shows that JD has probably opened around a dozen out of the hundred unmanned convenience stores it originally planned. This isn’t surprising. Unmanned convenience propositions fell on hard times last year, as about a dozen chains went out of business.

Two years into its plan to build the world’s largest retail franchise, JD has accrued an estimated 50,000 mom-and-pop convenience stores under its franchise model. In April last year, Richard Liu claimed JD gained 1,000 franchisees a week. While impressive, that’s well behind schedule. Further complicating matters is that we don’t know how many mom-and-pop retailers have actually become franchisees, as opposed to those have signed up for JD’s retail-as-a-service solution. Chinese analysts speculate that it conflates the two to puff up announcement numbers.

Concerted effort

At this stage, it’s fair to say JD’s new retail missteps are combination of bad luck and inopportune timing.

Omnichannel supermarkets were a breakout hit, rather than the cost-intensive new retail posterchild JD thought they would be. Unmanned convenience stores presently add more costs than they save, but future technical maturation could tip that balance. JD’s also found convincing mom-and-pop convenience stores to cough up franchise fees and forfeit current supplier arrangements is a hard sell, particularly in cities and towns where JD isn’t a household name.

JD’s new retail struggles have important ramifications for its future growth.

To date, JD’s growth has been driven by two engines: a focus on high-margin product categories and expansion from Tier 1 to Tier 2 cities without compromise to its much-vaunted same-day delivery standards.

As I wrote previously, JD is trying to develop new engines to survive the end of easy growth. These include extending from online to offline retail, entry into lower-tier cities, and developing service revenue from its logistics network. Its mom-and-pop convenience store push shows that offline retail efforts are linked to its entry into lower-tier cities. The plan was to quickly accumulate JD-branded stores in lower-tier cities, boost brand awareness, and shape consumers’ e-commerce purchase habits.

All fine, in theory. But, to quote Mark Twain, “How empty is theory in the presence of fact.” Fact is, JD’s new retail big bets haven’t exactly paid off.

With a handful of omnichannel supermarkets and struggling unmanned convenience stores, JD’s extension from offline to online retail hangs in the balance. Two years into its “retail blitzkrieg,” clouds hang over its fledgling franchise network. To be a new retail contender, JD needs a concerted effort to turn things around.

Chinese e-commerce company JD.Com launches store on Google shopping site – Reuters

What happened: Chinese online retailer JD has started selling goods in the US via a partnership with Google Express. Some 500 items in categories including electronics, home appliances, automotive, and pet supplies are available through Google’s e-commerce site. Most of the products are priced under $100 and come from little-known brands. The shop will likely add more products in the future. The large proportion of consumer electronics in the offerings highlight JD’s reputation as an online marketplace for computer, communications, and consumer electronics (3C) products. Bloomberg reported in October that JD will handle the logistics and Google will take charge of processing orders and payments for the store.

Why it’s important: Facing heavy competition from the likes of Alibaba and Pinduoduo at home, JD is making strides abroad in an attempt to spur new growth. With this goal, the company has been building tie-ups with global giants to push its global expansion. JD received $550 million in cash from Google as part of a strategic partnership last year; JD’s biggest shareholder, Tencent, has a close relationship with Google. Retail giant Walmart co-led a $500 million fundraising round in August for JD’s grocery delivery unit Dada-JD Daojia. The partnership with the Chinese online giant could bolster Google’s e-commerce push in its competition against long-time rival Amazon.

JD.com sets strategy to expand into China’s smaller cities, offline businesses – SCMP

What happened: JD.com founder Richard Liu late last week said that the online retailer is planning to accelerate its expansion into smaller cities this year. JD’s Pigou service, a Pinduoduo rival, will develop its own app and add more products to attract customers from lesser-developed cities, as well as female users.

Why it’s important: As the competition in China’s first- and second-tier cities grows more fierce, lower-tier cities represent a new opportunity for Chinese e-commerce giants like JD.com and Alibaba. The rise of social e-commerce platform Pinduoduo exemplifies the potential of the lower-income market, which, in the past, went largely ignored. In addition to JD, Alibaba is also eyeing the market with the launch of similar services. On the other hand, Pinduoduo is trying to tap the higher-tier market through grocery delivery and cross-border e-commence.

Chinese e-commerce giant JD.com announced on Thursday that it will sell its luxury business Toplife to London-based Farfetch Limited for an undisclosed sum.

Toplife will merge with Farfetch’s existing China business, according a company announcement. Access to Farfetch will be added to the JD.com app’s main page as part of the deal.

An “important step” for its development in the sector, the “win-win collaboration” should offer more than 3000 brands to 300 million active users on the Chinese e-commerce platform, said Jon Liao, JD.com’s Chief Strategy Officer.

JD.com made its name selling electronics to a primarily male customer base, and has been pouring money into high-end fashion luxury businesses over the past three years as it seeks female shoppers willing to spend on beauty products. It teamed up with Farfetch in July 2017, spending $397 million to become one of its largest shareholders.

Three months later, JD.com launched Toplife as its first-ever online marketplace for luxury products. This was followed by an investment of $863 million in VIP.com, a rival of Farfetch China, at the end of the year.

JD.com has been locked in a protracted battle with Alibaba’s Tmall to win over the luxury consumer. More than 80 luxury brands have an online flagship store on Tmall, including Burberry, Versace, and Bottega Veneta. In the first half of 2018, Tmall had captured nearly 100,000 customers that spend more than RMB 1 million (around $150,000) on luxury items annually, according to the company.

A top executive told 36kr (in Chinese) in an August 2018 interview that Toplife has formed partnerships with 34 global brands, though other operational figures were not disclosed.

JD.com shares take off despite slowing revenue growth – TechCrunch

What happened: Shares of JD.com surged after the Chinese online retailer recorded better-than-expected fourth quarter and annual earnings. Fourth quarter net revenue rose 22.4% to RMB 134.8 billion ($19.6 billion) compared with the same period a year earlier, beating analyst expectations of $19.2 billion but posting the slowest quarterly growth since the company’s 2014 IPO. Net revenues for the full year were RMB 462.0 billion ($69.0 billion), a 27.5% year-on-year increase. Fourth quarter operating margin swung back into profit at 0.2% compared with operating losses of 0.5% the same period a year ago.

Why it’s important: JD has been shoring up revenue streams other than e-commerce, including offering its logistics services to other retailers like Rakuten and boosting ads on its marketplace platform. It is also refocusing internally with plans to hire 15,000 more front line workers while cutting high-level executives. Against the backdrop, beating expectations and improve margin was enough to trigger investor interest.

JD.Com’s HR Strategy 2019 Says Yes to 15,000 New Frontline Staff But No to Top Execs – Yicai Global

What happened: Chinese online retailer JD is planning to recruit 15,000 more employees, or around 9% of its current workforce, in 2019. New headcount will mainly go to fill lower-level positions from customer service to logistics management. The rest will be assigned to jobs for enhancing user experience in technology and retail businesses.

Why it’s important: The current recruitment plan comes just a week after the company announced a 10% job cut among executives. The hires support an enhanced user experience with faster and more reliable delivery, known to be part of JD’s core values. Unlike Taobao’s customer-to-customer (C2C) marketplace, which partners with third-party couriers, JD is a business-to-customer (B2C) platform that holds its inventories and uses its own logistics network to fulfill orders. The company is also integrating autonomous solutions to its logistics network, though it remains heavily dependent on human labor.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

(Can’t see the player? Check out the podcast on iTunes)

In this episode of the China Tech Investor Podcast powered by TechNode, hosts Elliott Zaagman and James Hull discuss ByteDance allegedly asked to IPO on Shanghai’s tech board, gaming regulations (again!), Blackrock upping its stake in JD and Baidu & iQiyi’s Q4’2018 earnings.

Emma Lee joins to discuss and add Meituan-Dianping (HKEx: 3690) to our watchlist. Emma Lee is a Shanghai-based tech writer, covering startups and tech happenings in China and Asia in general.

The discussion should not be construed as investment advice or a solicitation of services. Please note, the hosts may have positions in the companies discussed. 

Watchlist:

• Tencent
• Alibaba
• Baidu
• iQiyi
• Xiaomi
• JD.com
• Pinduoduo
• Meituan Dianping (new!)

Guests:

• Emma Lee – @EmmaLee12345

Hosts:

• Elliott Zaagman – @elliottzaagman
• James Hull – @jameshullx

Producer

• Peter Isachenko

Podcast information:

• iTunes
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

Social e-commerce platform Pinduoduo is expanding into China’s booming cross-border e-commerce business in an effort to meet growing consumer demand for quality goods, according to Chinese media citing people familiar with the matter. The company launched into the e-commerce stratosphere by appealing to consumers seeking lower prices by offering social tools for discounted group buys on its main selling platform.

An invitation-only version of the platform, dubbed Duoduo International, has been up for select merchants already on its main platform as well as prospective sellers. There are four store types, including a hypermarket format for sellers with at least 35 registered brands, and a flagship store for merchants with exclusive brand distribution rights.

A company spokesperson confirmed the project with TechNode, but would not elaborate further.

The platform is charging zero commission at present for key accounts including consumer brands and online retailers. Global FMCG giants including Nestle, Unilever, and Beijing-based Japanese consumer goods retailer Wandougongzhu have filed their applications and are waiting for approval.

Pinduoduo unveiled the platform in November during the China International Import Expo in Shanghai, detailing plans for 500,000 small and mid-sized global merchants to join the platform over the next three years, said company vice president Li Yuan, according to Chinese media.

While cross-border goods sell at a discount compared with goods imported through conventional channels, it appears Pinduoduo is expanding its portfolio to capture higher-ticket sales than goods on its main site, which are sold at striking discounts through a combination of group buys, coupons and other incentives.

The expansion comes as Chinese e-commerce giants are raising stakes in their globalization initiatives, aiming to bring in more imported products – seen as higher quality – to increasingly selective customers. Alibaba pledged in November to import $200 billion worth of goods into China over the next five years to satisfy consumer demand, said CEO Daniel Zhang.

JD.com announced in September that it will build supply chain sites in 30 countries including Russia to support 48-hour international deliveries. NetEase’s e-commerce affiliate Kaola, meanwhile, is reportedly in negotiations with Amazon to combine their cross-border businesses to provide consumers a wider range of products and more inventory.

Imported goods sell at a premium to domestic goods, though savvy shoppers have quickly grasped that goods sold on cross-border platforms are cheaper than goods imported through conventional channels.

JD.com’s drones take flight to Japan in partnership with Rakuten – TechCrunch

What happened: Chinese online retailer JD.com has announced a partnership with Japanese e-commerce giant Rakuten, which will deploy the Chinese e-commerce giant’s drone delivery and unmanned vehicle service in Japan. Rakuten has over 20 years of experience with commerce and IT in Japan and launched a drone delivery service in 2016. JD.com started trialing drone flights in the same year. It is currently operating or testing drones for delivery in Beijing, as well as the Chinese provinces of Sichuan, Shaanxi, and Jiangsu.

Why it’s important: JD.com began developing its drone program in 2015, in its JDX innovation lab. It is the only company in its native country with a regional license to deploy drones for logistics. Lately, the company has been trying to expand its drone solutions beyond China. In January 2019, JD.com announced the success of its first government-approved drone test flight in Indonesia, opening the door for future commercial drone use in the region. JD’s push for unmanned aerial vehicles is part of a wider trend. Chinese tech giants, like Alibaba and Meituan, are pushing for automated delivery. McKinsey estimates that autonomous vehicles, such as drones, will deliver 80% of all goods in less than a decade.

As I wrote previously, China’s digital economy has reached a turning point.

Before, new user growth could offset digital businesses’ strategic and commercial missteps. Double-digit or triple-digit MAU growth could mute criticism of flimsy unit economics, absent strategy, dodgy investments, or lackluster monetization efforts.

Now, internet user saturation within China’s consumer class makes it harder to avoid scrutiny with eye-popping user growth. Companies like Meitu, JD, and Zhihu are facing tough questions: shareholders and investors want to whether these platforms can turn their impressive scale into profits.

Weaker players might have a hard time meeting impatient investors’ demands for return on investment, but China’s digital giants are adapting. They are repositioning themselves to adjust to new market dynamics, developing strategies to take advantage of enduring opportunities as mature businesses.

Previously, China’s internet companies grew by latching onto investment frenzies in a particular product or industry vertical, known as fengkou (literally “a gap where a strong wind blows”) in Chinese startup lingo. These rapid influxes of capital and speculative behavior are so notorious that leading Chinese executives have joked that investors could pump in enough money to make pigs fly.

Investment frenzies have reshaped markets, delivered exponential growth, and minted some of China’s internet success stories. Meituan, Didi, and VIPKID were built off all the back of them. These companies identified white space, shaped user behavior, and benefited from oodles of capital to achieve scale and outlast a slew of competitors to win winner-take-all or winner-take-most positions. However, as the mobile internet’s white space shrinks, these investment frenzies are more volatile and less conducive to value-creation.

The recent struggles of live-streaming, bike sharing, and automated convenience stores illustrate the danger of relying on speculative investment flows. My own analysis estimates 80% of live-streaming players with Series-A funding didn’t last two years. ofo, a bike-sharing firm, has gone from a $2 billion valuation to the verge of bankruptcy. There are now serious doubts that Bingo Box, the automated convenience store darling backed by GGV Capital, can survive long enough (Chinese link) to make a meaningful dent in China’s retail landscape.

Six durable white spaces

China’s digital giants—Baidu, Alibaba, Tencent, Bytedance, Meituan, Didi, Pinduoduo, and JD—are looking for something more durable than spaghetti-against-the-wall investment flows.

When they first burst onto the scene, today’s digital giants were a thin, interfacing layer between consumers, products, services, and attention. Now, being a thin, interfacing layer isn’t enough. The giants are making themselves thicker in a way that adds new users, gives depth to existing offerings, deepens competitive advantage, and creates new revenue streams.

The giants are pursuing six avenues to growth:

New Tech R&D: China’s digital giants can develop or apply technology to existing or new operations. Leading players, such as Baidu, Tencent and Alibaba are developing leading capabilities in artificial intelligence, big data, and cloud computing.

Industry digital transformation: They can also offer new products and services to industry. Having shaped consumers’ digital behavior, China’s digital giants are lining up to lead the digital transformation of traditional industries such as retail, hospitality, tourism, and agriculture, packaging software and platforms as services.

Overseas expansion: They can seek growth overseas. China’s digital giants consider themselves well-placed to service mobile-first emerging markets, such as India and South-East Asia. These markets also have the growth prospects associated with relatively low existing internet user penetration.

Lower-tier cities: They can develop products, services and experiences for consumers in lower-tier cities. The stunning rise of Pinduoduo, Qutoutiao, and Kuaishou have shown that existing e-commerce, news, and entertainment apps don’t always meet the needs of users in China’s populous third, fourth, and fifth-tier cities.

Local services: They can further penetrate and digitize food, accommodation, shopping, and transportation markets. The size of the local services market and its potential for further digitalisation means the competition between “super-apps” like Meituan, Ele.me, Didi, and Alipay is just getting started.

New mediums: They can also explore new ways to search, connect, shop, and get informed. Innovations in newsfeeds, multimedia messaging, gamified reading and social commerce present opportunities to unseat incumbents in search, social media, and e-commerce.

Who’s playing where

Each of China’s digital giants has restructured in the last two years. That’s no coincidence. China’s digital giants are re-orienting themselves for future growth. If you cross-reference each restructure’s relationship to the above growth directions, you get a pretty good sense of who’s playing where for future growth.

Alibaba and Tencent’s investments, products and proxies will fight for market share across all six growth avenues.

Baidu continues its push to be relevant beyond search through artificial intelligence investments and applications.

Bytedance plans to take its content creation and recommendation products into lower-tier and overseas markets. At the same time, its recent tinkering with e-commerce integration and social messaging shows that it’s thinking about next-generation video commerce and social media.

Meituan hasn’t abandoned its ambition to be a super-app but has doubled down on services to restaurants and retailers on its platforms, with new features like order-management systems.

JD will strengthen its core business through investments in smart logistics, expand its offline retail partnerships and open up its logistics network to third parties.

Didi’s quest to become the world’s largest transport platform in 10 years continues unabated with overseas expansion, investments in developing markets’ ride-hailing services and autonomous driving tests.

Pinduoduo, China’s newest force in e-commerce, will improve merchant quality and test the upper limits of user growth.

As China’s digital economy has reached a turning point, China’s digital giants haven’t stood still. They’re seeking out durable sources of future growth. In so doing, they’ve set the stage for a new wave of intense competition.

消息称京东2019年将末位淘汰10%的高管 – Tencent Tech

What happened: Chinese e-commerce giant JD announced plans to cut 10% of its vice president or higher level executives who come at the bottom of the company’s performance evaluation mechanism in 2019. With a total employee of over 180,000, the company now has around 100 such executives, according to the report.

Why it’s important: Rumors about JD’s workforce cuts have been circulating since the end of last year. In November last year, JD was reported to be cutting between 10% to 15% of its workers, but the firm refuted the news. The current news is significant because it would be a rare case for the e-commerce site to launch a round of job cuts targeting high-level executives. The decision was made to solve various organizational problems existing in the US-listed company as well as to regain the entrepreneurial spirit, the source noted. The news comes as Chinese tech companies generally are controlling headcount.

App自动保存用户图片 京东金融道歉功能存在技术问题 – Sina Tech

What happened: JD Finance’s customer service issued an apology over the weekend for the controversy surrounding a privacy issue within its Android app, which stored a screenshot of other apps in a folder on a user’s smartphone without authorization. JD Finance said that it is sorry for making such a “rudimentary mistake” and for hurting users’ trust in the company. The problematic function has been taken down.

Why it’s important: Chinese netizens are becoming increasingly aware of privacy issues with the websites they visit and the apps they use. Not only have numerous privacy breaches and data leaks occurred, but a large number of mobile apps available in China have also been found to collect an excessive amount of personal data, according to a report released in December. Authorities announced last month plans to deal with Chinese apps’ excessive collecting of personal information and data.

Why is JD.com spending US$400 million to buy this hotel in Beijing? – SCMP

What happened: China’s e-commerce giant JD.com has acquired 100% ownership of the Jade Palace Hotel in Beijing for $400 million. The Nasdaq-listed company is planning to transform the building into a space for technology innovation and commercial businesses. The hotel, which started operation in 1998, posted a net loss of RMB 47 million ($6.93 million) for the nine months from January to September 2018.

Why it’s important: JD’s purchase of the iconic building comes as a surprise given that it already has very large headquarters in the southeastern suburbs of the capital. The hotel’s convenient location at the center of Beijing’s Haidian District, where it enjoys proximity to top universities and the high-tech area of Zhongguancun, could be a big factor in the deal. JD’s move to strengthen its foothold in downtown Beijing bucks the trend among Chinese tech firms who are escaping tech hubs and shifting their R&D centers and headquarters to second-tier cities where they can access more affordable space, avail of lower salaries and tap preferential policies offered by local governments.

With the Chinese New Year holidays coming Feb. 4 to 10, Chinese consumers are already preparing for the most important holiday of the year with increased consumption spending as they shop, eat and travel. Despite reports of a slowing economy, holiday spending appears to remain strong this year.

Before the feasting and travel of the New Year, people go out to shop for holiday supplies (nianhuo)—most importantly, food. During the holiday shopping period, food and beverage is the number one sales category by volume on JD.com, according to data from the JD Big Data Research Institute, a China-based data services company that leverages data from JD.com’s platforms. Food and beverage leapfrogged the normal leaders of skincare, cosmetics, apparel, and childcare products. Smartphones, encouraged by holiday discounts, and new clothes followed during this year’s Spring Festival sales.

Both online and offline retail space are filled with Spring Festival promotions. China’s State Post Bureau has, as usual, required logistics companies to maintain normal operations and most have announced arrangements for the holiday period to ensure smooth delivery of products while much of the country is shut down.

Though e-commerce gets most of the press, Chinese consumers still prefer brick and mortar outlets for their holiday shopping. According to Penguin Intelligence, a China-based internet analytics firm, in 2018 more than 80% (Chinese link) of people born in the 1980s and 1990s bought New Year products at physical shops, as did over 90% of those born in the 1970s. Even among shoppers born after 2000—who normally prefer digital channels—79% bought their New Year items at physical stores. Most of this spending takes place before the holiday begins, as stores close to allow staff to return home for the holiday.

Physical outlets offer a festive and traditional atmosphere: Shops are normally decorated heavily with colorful (mostly red) decorations, gifts, fruits, candies and other festive foods to attract shoppers. Chinese consumers have memories of going to pick out sweets and try on new clothes before the holiday.

Alibaba has taken a chunk of the Spring Festival bonanza with its signature cross-channel new retail venture, fresh food supermarket Freshippo, formerly known as Hema. The smart retail outlet reported a 50% increase in sales orders during the 2018 Chinese New Year period compared to normal days. Smart retail, which links online services, portals and mobile payments, has an advantage by making it easier to shop, eat and order home delivery through one channel.

Online-only sellers are also in on the act. E-commerce platforms such as Tmall, JD.com and Suning started Chinese New Year promotions by hosting a holiday goods shopping festival (nianhuojie). The most common online promotions are first-come-first-served coupons and theme days during which the company has special offers for different product categories. For instance, Tmall offered limited coupons of RMB 30 ($4.47) off for every RMB 300 purchase; JD.com’s “Computers and Digital Day” offered a discount of RMB 100 off for every RMB 1,000 purchase of computers or digital products.

While offline business dominates most Spring Festival activities, online is grabbing a bigger share in one area: The tradition of giving red packets of good-luck money (hongbao). Since Tencent launched a digital red packet function on WeChat, much of this giving has moved online. According to Tencent, around 768 million people sent red packets on WeChat during the 2018 Chinese New Year, about 55% of China’s total population. WeChat red packets are also used by employers and brands as an engagement tool, sent to workers and customers.

No sign of slowing

The New Year period is the time for family reunion and gatherings—almost always involving large meals. Chinese consumers go to restaurants and enjoy feasts with family and friends, resulting in a seasonal boom in the food and beverage sector. In 2018, Chinese consumers spent RMB 926 billion shopping and dining out during the week-long holiday period, an increase of 10.2% compared to the 2017 holiday season, according to Ministry of Commerce statistics.

Holiday tourism has also become increasingly popular in recent years, boosting retail sales at popular destinations. According to online travel agency Ctrip, around 6.5 million people made overseas trips during last year’s New Year holidays, up 8.3% year over year with an average spend of RMB 9,500. Domestic travel was even more popular, with around 386 million tourists and an average spend of RMB 1,200, according to China’s National Tourism Administration. The government’s figures also reveal an upward trend in the number of domestic travelers during the New Year period from 2015 to 2018.

This year, tradition seems to have won out over economic concerns. Year end bonuses are down this year—according to a report from Zhaopin.com, a Chinese job application website, only 55% of white-collar workers received a year-end bonus in 2018, compared to 66% in 2017; the average bonus fell RMB 200 to RMB 7100. We have not seen evidence that consumers have foregone holiday spending this year, although we may see reduced travel during the holiday period if consumers cut back on pampering themselves.

Alibaba recently launched an initiative that it says will help companies of all sizes, across a wide array of industries, embrace digital transformation.

The program, dubbed A100, marks another step by Hangzhou-based Alibaba Group to expand its footprint beyond new retail, and represents the latest shift to enterprise-facing tech, which recently has been gaining momentum in China.

A100 will be powered by Alibaba Business Operating System, a term used by the company to refer to its amalgamation of technology services, including online marketplaces like Taobao and Tmall, payment tool Alipay, logistics Cainiao, cloud computing Alibaba Cloud, and productivity tool DingTalk.

“This is a continuation of a race to snap up leading retailers and lock them into Alibaba or Tencent’s service ecosystems,” says Michael Norris, strategy and research manager of AgencyChina, referring to the program and similar enterprise-focused initiatives by Chinese tech giants.

Deborah Weinswig, CEO and founder of Coresight Research, says she expects A100 to help Alibaba foster its relationship with brands and retailers even more closely.

“Since Alibaba already is dominating the online retail space, it is trying to leverage on this strength, to get an even tighter bonding with the brands and retailers,” says Weinswig.

A100 debuted late last week at the Alibaba One Business Conference, which took place in the hometown of the e-commerce giant.

At the event, Daniel Zhang, chief executive officer of Alibaba Group named 11 key elements for enterprises to realize transformation in the digital era, namely: branding, product development, sales, marketing, channel management, manufacturing, customer services, finance, logistics and supply chain, organizational structure, and communication management.

Toby Xu, vice president of Alibaba Group and head of the A100 program said that while many of customer-facing companies in China have already embraced digitalization, for corporate-facing companies the process is more difficult given the complexity of enterprise environments.

“The name, A100, symbolizes Alibaba’s goal of providing digitized solutions to a large number of companies,” says Xu. The plan is initially to take a focused, step-by-step approach targeting a defined number of industries, before later expanding the scope of A100’s application to a broader array of industries.

Xu says Alibaba has developed a strong set of technological capacities in running various services under its brand. “We want to share these capacities to with our partners, helping them to improve work efficiency and generate value,” he says.

Norris says that when we look at the 11 different areas where Alibaba is proposing to offer digital transformation services, it can be seen that the group is looking to help brands digitize their entire supply and value chain.

Enterprise gains momentum

The enterprise tech is picking up pace in China. Alibaba rival Tencent, which has its core services in consumer-faced gaming and social networking, upgraded its organizational structure to focus on enterprise services and cloud last year. Early stage startups are catching up too with their innovative ideas.

One of the major reasons that driving the shift is a changing mindset of small- and medium-sized businesses operators, according to Kuantai Yeh, partner at Qiming Venture Partners, said at a recent demo day of Shanghai-based startup accelerator Chinaccelerator.

They are more “willing” to pay for software as a service (SaaS) experiences primarily because these new SaaS companies were leveraging new technologies of AI and cloud computing to “add more value.”

The transition also comes as more Chinese tech companies expand overseas, especially to Southeast Asian markets. Alibaba Cloud now has 49 availability zones across 18 economic centers globally, while Tencent Cloud zones in on Asian markets with a second center in India. This means Chinese tech companies offering enterprise-focused services will increasingly come into direct competition with international brands such as Amazon Web Services (AWS), Microsoft (Azure), IBM, and Google. Intensified competition from Chinese companies could also impact productivity tools such as Slack and Salesforce.

At the Hangzhou event, special attention was paid to Alibaba’s brand-oriented e-commerce platform Tmall and productivity tool DingTalk.

By digging into big data, Tmall’s innovation center is helping over 600 brands to develop nearly 400 products, of which around half become top sellers three months after launch, according to Jet Jing, President of Tmall.

Meanwhile, DingTalk streamlines internal communication and organizational structures for companies. “If Alibaba’s ecosystem gets bigger, then that should bring benefits for DingTalk, especially in the sphere of retail,” says Weinswig of Coresight Research. “But that doesn’t mean DingTalk will be the winner in the battle between it and WeChat Work in the enterprise environment, because there are many types of enterprise businesses other than retail.”

Industries that are not directly related to new retail such as hotel, and food and beverage, will continue to use WeChat Work for their businesses, she says. “So it will be a very delineated market and Alibaba is poised to dominate in retail space,” Weinswig adds.

New retail and beyond

Dustin Jones, a managing director with Fung Retailing Group, a retailing enterprise that represents over 30 foreign brands in the Chinese market, says its partnership with Alibaba Group will help Fung Retailing to gain deeper marketing insights. Jones cites the geo-targeting of consumers and brands, and marrying them together, as an example.

“We do not only say ‘We know these consumers will like these brands.’ It’s deeper and more powerful than that,” says Jones. “We know these consumers will like this brand, and will like this product from this brand, and will like this color, this size in this location at this time.”

To be sure, the trend is not confined just to Alibaba. JD is pursuing a similar strategy under the banner of “unbounded retail,” while Meituan-Dianping also joined the battle to offer its own offline concept stores.

Alibaba’s A100 pits its new retail ecosystem against what Tencent and JD have been building through acquisitions and partnerships. Combined, Tencent and Alibaba spent $12 billion on retail-focused merger and acquisition activity between 2017 and 2018, according to Norris at AgencyChina.

The first batch of customers for A100’s rollout includes global brands like Starbucks, Nestlé as well as Chinese snack brand, Bestore. 

Apple has reduced the price of some iPhone models on Chinese e-commerce platform JD.com, shortly after cutting its sales forecast and blaming flagging revenue on trade tensions and China’s slowing economy.

The price of the iPhone 8 has dropped by about RMB 600 (around $90) with a starting price of RMB 3,999. The iPhone 8 Plus saw a steeper drop of RMB 800.

The reduced prices for the iPhone 8 models are more than $150 lower than the prices listed on Apple’s China website.

On Thursday, rumors that Apple would lower iPhone prices, including those for the latest models, began to circulate online (in Chinese). The news was later denied by electronics wholesaler Huaqiangbei. Apple customer service representatives also responded by saying they were not aware of any price reduction for wholesalers or authorized retailers.

Chinese news reports point out that this is a price strategy to boost sales in China rather than a limited time offer, as it originally appeared to be part of JD.com’s Chinese New Year sales promotions.

Apple has had a rough start to the year. Last week, the US multinational tech company announced that it would cut its quarterly sales forecast by a $5 billion, blaming its week performance on the ongoing trade tension between the US and China and on China’s weakening economy. It also reportedly cut its production plan for January to March by 10%.

What Cook and company are still getting wrong about Apple in China

Apple’s smartphone sales in China declined 8% in the third quarter of 2018 compared to the same period last year.

Analysts note that Apple’s increasing price tag for its smartphone line could have also contributed to slowing sales in China. China’s smartphone market has been cooling over the past year, and many local brands have filled the mass market with devices at a more affordable price tag.

Looking at China tech headlines of recent months, one trend becomes evident: a whole lot of companies are not laying off workers. At least, officially.

In reality, it’s becoming clear that headcount control is occurring across China’s tech sector, and jobs are becoming scarce.

At the end of November, embattled e-commerce giant JD.com refuted rumors circulating that the company would be cutting 10% to 15% of its workers.

Online services company Meituan-Dianping, which recently had its IPO, said in December that reports of large-scale job losses were untrue, and that staff changes were part of “normal operational restructuring.”

Tencent claimed in late September that it had “no plans for layoffs,” as it announced a “strategic upgrade” amid gaming regulations that have threatened to kill one of the Shenzhen-headquartered company’s main cash cows.

Knowledge-sharing platform Zhihu also recently denied slashing its workforce.

It’s difficult to prove or disprove such rumors or refutations specifically. In China, few companies admit to laying off staff, even when downsizing is obvious. Part of this is often attributed to culture, but to be sure, no company would like to bring attention to fact that they are putting some of their employees out of a job.

Yet another reason why few companies in China publicize job cuts is that in many cases, they are technically not laying workers off.

“To officially conduct sizable layoffs, a company shall file with its local labor bureau after consultation with all employees or labor union,” explains Alex Luo, an attorney and partner at Anli Partners, a law firm that works with many of China’s top technology and internet companies. “However, this is rarely done, as it reflects poorly on the company, is a tedious process, and the labor bureau will often challenge it.”

Instead, it is far more common for companies to negotiate with workers individually, hoping to come to amicable terms of separation. “In the best cases, a company will offer an employee a few months’ salary, the specific number usually depending on their total number of years spent working at the company, and the employee agrees to leave of their own volition,” says Luo.

In less pleasant circumstances, a company could threaten to dismiss the employee based on poor performance, potentially damaging their future career prospects, Luo adds. “In this case, the company usually will agree to give the employee a positive reference, on the condition that they accept the severance terms.”

Time to let go

Once-hot startups like bike-sharer Ofo and phonemaker-turned-messaging-app-investor Smartisan now face overwhelming financial challenges, prompting speculation of potential bankruptcy.

Ride-hailing firm Didi Chuxing is reportedly cutting staff bonuses in half after a scandal-plagued year that saw the company lose money at an accelerating rate.

Fintech platform Qudian is also reportedly letting go of hundreds of workers, as the company struggles. Its NYSE-listed stock price is down more than 80% from its October 2017 IPO price.

Meanwhile, Xiamen-based selfie app Meitu was rumored to have been cutting staff throughout 2018, after a failed overseas expansion and disappointing foray into e-commerce.

Two stars of the once-hot cryptocurrency arena, Bitmain and Huobi, have confirmed layoffs. Bitmain has denied rumors that they will be cutting its workforce in half.

Looking at the difficult conditions facing Chinese tech firms, it is unsurprising that many are evaluating again their staffing needs. While the top headlines have focused on Chinese trade tensions with the US and the overseas legal and political troubles faced by Huawei and ZTE, there are a number of other factors at play.

“It seems to me that there are two big problems facing many Chinese technology companies,” explains Luo, the attorney. “The first is that it is very hard for startups to raise funds. For more mature companies, the slowdown of the Chinese economy is hurting sales.”

Indeed, the funding tap, which was flowing freely in early 2018, has since dried up. As tech valuations have come back down to earth from their highs a year ago, investors are wary of getting burned, as has been the case for several the late-stage investors in Xiaomi and Meituan-Dianping, whose stocks have performed poorly after their high-profile IPOs.

Indeed, many of the hottest destinations for capital in China’s tech world just a few years ago have since proven to be bottomless money pits. Bike-sharing, once labeled as one of China’s “four new great inventions,” has failed to develop a business model to match the ambitions of startups and investors.

The P2P collapse revealed a number of “fintech” startups to be little more than Ponzi schemes. The smartphone market is saturated and slowing in growth, offering companies few options with which to differentiate themselves and their products.

For larger firms that have risen to prominence by capitalizing on China’s growing economy and consumer class, times are getting tough as well. The trade war with the US has weakened Chinese consumer confidence. The wallets of Chinese spenders are also being impacted by the government’s deleveraging campaign, meant to control the country’s unsustainable surge in corporate debt, which has been fueled by loose lending from state banks over the past decade.

As the country attempts to ween its firms off their borrowing addictions, the trickle down of that austerity effect that is likely hitting consumers. For retailers like Alibaba and JD.com, this may cause them to adjust their sales expectations.

Mounting challenges

To further complicate an already-fraught situation, regulation has also hampered some of the most promising areas of China’s tech sector. A nearly year-long freeze in gaming approvals, along with a regulatory clampdown, has placed strain on a field in which Chinese companies had been excelling.

Restrictions on development and application of blockchain technology have caused many Chinese startups to at least partially relocate overseas. A series of crackdowns in online content has limited growth options for social media platforms, and required many to spend heavily on managing and censoring content.

To be clear, job cuts are rarely a pleasant ordeal in any part of the world. Yet in China tech, there are some unique factors at play. The bulk of the individuals losing their jobs were born in the 1980’s or 1990’s, forming part of the country’s one-child per family generation.

Many of these people are saddled with the burden of being the only caretaker for their aging parents, while also either personally desiring or socially pressured to have a family and children of their own. For this cohort, losing a job is disappointing not only for themselves, but their entire families, too.

China’s tech firms are also known to place high demands on their employees’ time and attention. The “9-9-6” work schedule—9 a.m. to 9 p.m., six days a week—leaves little time for family, relationships, or hobbies. In these instances, being laid off can feel like losing more than just a paycheck.

“To be honest, I feel betrayed [by the company’s CEO],” explained one recently laid-off tech worker in Shenzhen, who asked to remain anonymous citing privacy concerns.

“I did so much for him, for the company. They demanded that every employee love the company, to give them everything we had. They didn’t just want our minds or our skills, they wanted our hearts. That’s what we gave. And yet, when the time came to let us go, what to us was personal, to them, became ‘just business.’”

China’s JD.com Plans $1 Billion Share Buyback – Wall Street Journal

What happened: Chinese e-commerce giant JD.com announced plans on Wednesday to buy back up to $1 billion worth of its shares over the course of next year. The buyback is said to be partly due to concerns about China’s slowing economy amid trade tensions with the US and JD.com’s recent woes surrounding the rape allegation against CEO Richard Liu.

Why it’s important: Just last week, US prosecutors decided not to press criminal charges against Liu, who was accused of raping a young female undergraduate student at the University of Minnesota. JD.com’s shares slumped nearly 16% in the two days after Liu’s arrest, and 50% in the past year. Last month, the company reported that its active user accounts fell from the preceding quarter for the first time in four years. Other Chinese tech companies also suffered this year. Alibaba’s shares also dropped significantly and Tencent also spent more than a month buying back its shares this year.

JD Finance has removed its second peer-to-peer (P2P) lending feature from its app after it had been online for less than 10 days, highlighting difficulties in China’s P2P loans sector.

Despite initial reports of the feature’s disappearance, Hefeng Online Lending was still available until 4 p.m. on Wednesday. Previously, all products were labeled as being “sold out” after it was removed from the app’s main page. It has subsequently been completely removed.

This year has been one of crisis for China’s P2P lending market as the central government cracks down on small and medium-sized P2P lending platforms amid increasing default rates. According to US-listed financial company Rong 360’s research institute, users from a total of 841 Chinese P2P loan platforms had trouble withdrawing their money between February and November.

A spokesperson from JD Finance confirmed to TechNode on Monday that Hefeng Online Lending had been put online. It also vowed to abide by the relevant national laws and regulations. However, the company was not immediately available for comment concerning the removal of the feature.

In total, the feature offered four short-term loan products. Investors were allowed to provide loans for periods of one month, three months, six months, or one year.

Hefeng Online Lending was JD Finance’s second P2P lending platform that disappeared in a matter of days. The Chinese e-commerce giant launched its first P2P service Xuhang Online Lending on Dec 14. It was pulled from the company’s financial service app several days later. According to a report by 36Kr, a company employee disclosed that the service was still “partially open to some users,” though no reasons for the limited access were provided.

Editor’s note: A version of this article originally appeared on Azoya Consulting’s website. 

It has been a great year for the cross-border e-commerce industry in China. It’s clear that the cross-border e-commerce industry in China is becoming more and more complex. Brands and retailers will have to choose an appropriate market entry model, and be more targeted in their marketing efforts. This means narrowing down what kinds of customers they want to reach, as well as what kind of brand image they want to convey to them.

However, the government’s support for the cross-border e-commerce industry remains strong and policies are likely to be further relaxed. All in all, we remain positive on the outlook for the industry and think that 2019 will be a year in which many new opportunities will arise. Brands and retailers who remain flexible and open-minded will be best positioned to succeed.

That being said, the competition is heating up and brands and retailers are finding it increasingly difficult to differentiate themselves in a crowded market.

Here is Azoya Consulting’s Top 10 predictions for the industry in 2019:

1. Chinese government will continue to lower tariffs and restrictions on cross-border e-commerce 
What’s going on: China is expanding the scope for cross-border e-commerce because cross-border e-commerce (CBEC) can be better tracked and taxed, when compared to gray-market daigou purchases. It also makes it easier to protect consumers from fake/shoddy goods. The recent limits on CBEC purchases have been expanded to RMB 5,000 (around $75) per transaction and RMB 26,000 per year, up from RMB 2,000 and RMB 20,000, respectively. In November, taxes on inbound postal shipments for the top two tax brackets were reduced to 25% and 50% from 30% and 60%, respectively.

Implications: Expect the government to relax more restrictions on the industry and expand its scope.

2. The ‘consumption upgrade’ trend in China will continue to power cross-border e-commerce growth
What’s going on: Despite concerns over the slowing economy, young professionals in Tier 1-2 cities will continue to spend on higher-quality imported products, specifically those that can enhance one’s health and aesthetics. AliResearch showed that average spending on Tmall Global was more than RMB 550 for Tier 1 cities, up from RMB 400 in 2014. Cosmetics and skin care take up almost 40% of total sales on Tmall Global, up from less than 25% in 2014, according to figures from consultancy Deloitte. Similarly, Hong Kong Trade Development Council (HKTDC) also expects the health food market in China to grow to RMB 300 billion by 2021 from RMB 237.6 billion in 2017.

Implications: Demand for cross-border e-commerce imports will remain strong. Brands marketing healthy, natural products will continue to be in demand.

3. Niche-focused categories will continue to emerge as Chinese consumers become more sophisticated 
What’s going on: In the past, Chinese consumers have flocked to the same well-known brands that everyone else buys. Now, as consumers become more sophisticated they are beginning to consider long-tail products that do a better job of catering to a specific need or function. Examples include Chinese women adding more steps and products to their makeup routines, and more niche sub-categories such as probiotics emerging within the health & nutrition category.

Implications: It might be more beneficial for foreign brands to start focusing on smaller niches where there may be less competition.

4. New and creative marketing tactics will continue to emerge
What’s going on: To differentiate oneself in a competitive market, brands have to come up with unique ways to connect with customers and build their loyalty. Brands are mixing e-commerce with games, live streaming, short videos, and more to stand out from the crowd. Some recent examples include L’Oreal livestreaming Chinese influencers at the Cannes Film Festival on its WeChat mini-program, and Dior designing a Tetris game to promote its lipstick products.

Implications: Brands should think more carefully about how to make themselves stand out from competitors.

5. Daigou will split into two groups and some will exit the market completely
What’s going on: China’s new e-commerce law is forcing individual sellers on WeChat and Taobao to obtain business licenses and file tax returns. This includes daigou agents using personal accounts to sell online. Other smaller daigou may forego selling and become micro-influencers, helping larger daigou organizations market products on WeChat, getting a commission in the process. Many daigou may exit the market completely.

Implications: All in all, expect the quality of daigou agents to improve, the supply of goods to shrink, and more consumers to purchase from official cross-border e-commerce channels.

6. More retailers may leave large marketplaces like Tmall Global and consider other alternatives
What’s going on: Large e-commerce platforms such as Tmall Global, JD Worldwide, and Netease Kaola are procuring their own inventory directly from brands, and stocking them in bonded warehouses closer to China. This means that Tmall Global can provide lower prices, faster logistics, and stronger customer experience. Third-party retailers selling the same brands on these platforms will find it difficult to compete on price and logistics and may launch their own independent websites instead. Macy’s is one retailer that has left the China market after closing down its Tmall store and official China website.

Implications: Expect more retailers to leave Tmall Global, JD Worldwide, etc.,  and launch their own platforms.

7. Customers’ expectations for faster shipping times will become higher and higher
What’s going on: The large cross-border e-commerce platforms are purchasing more inventory directly and stocking them in bonded warehouses in China and Hong Kong. JD.com has pledged to purchase RMB 100 billion in imported goods, and Kaola announced its plans to spend three billion Euros on European goods last year. Because they are stocking more inventory in warehouses closer to China, shipping times are being reduced drastically, raising customer expectations.

Implications: There will be more pressure on other brands and retailers to ship packages quickly. Those with clear, predictable demand should stock more inventory in Hong Kong or Chinese free trade zones to keep up.

8. Smaller e-commerce platforms will continue to fall into Alibaba’s and JD’s orbit
What’s going on: E-commerce is becoming more competitive as Alibaba and JD can provide lower prices, wider product selections, and faster shipping when compared to smaller competitors.
Smaller players are partnering with Alibaba and JD because they have stronger operational capabilities (logistics). Alibaba and JD are partnering with smaller platforms because they are niche-focused and do a better job at marketing to certain audiences. Examples include Little Red Book (Xiaohongshu) contributing product reviews to Taobao and Farfetch partnering with JD.com.

Implications: Expect Alibaba and JD.com to make more investments in the e-commerce space as growth slows and they look for additional channels to drive traffic.

9. Marketplace platforms such as Tmall Global, JD Worldwide, and Netease Kaola will set up more offline cross-border e-commerce stores
What’s going on: Offline retail is good for driving brand awareness amongst potential customers who may not normally purchase cross-border e-commerce products. JD’s latest experience center in Chongqing is one offline cross-border e-commerce store that’s opened in recent months. Customers can browse and test out products at the store, and the products are shipped from bonded warehouses within the same day.

Implications: Expect more of these stores to open up as the big players seek to expand their reach. However, these stores are likely to be limited to well-known brands, as opposed to emerging ones.

10. Cross-border WeChat shops built on mini-programs will grow in popularity
What’s going on: For small brands, WeChat stores are a cost-effective way to build a China e-commerce presence without paying large upfront fees for marketplace platforms or setting up an official Chinese website. For big brands, they can be used for different functions such as launching limited collections, livestreaming makeup tutorials, or designing creative games.

Implications: Smaller brands based overseas will enter the China e-commerce market through WeChat mini-programs, though traffic will still be hard to drive. Expect bigger brands to design more creative marketing campaigns and mini-programs to differentiate themselves from the pack.