Online consumer spending on physical goods in China slowest since 2015 amid maturing market and pandemic slowdown

  • Growth in online sales of physical goods is now on par with total retail sales growth at about 12 per cent, as e-commerce continues to decelerate
  • Total online sales of goods and services topped US$2 trillion last year, as consumer spending recovered from a pandemic-induced slowdown

Growth of online Chinese consumer spending on physical goods, the bulk of e-commerce spending, was the slowest in 2021 since the data started being recorded in 2015, according to the latest government data.

Online spending on physical goods including food, clothing and cosmetics grew just 12 per cent year on year in 2021, according to the data released on Monday by the National Bureau of Statistics.

The slowdown in online consumer spending casts a shadow over business prospects in the world’s second largest economy. After a rough 2021, partly the result of a government crackdown on Big Tech, e-commerce players such as, Pinduoduo, Meituan and Alibaba Group Holding, the owner of the South China Morning Post have been searching for new growth. The trend could also bode ill for the burgeoning live-streaming e-commerce market, in which TikTok owner ByteDance and Kuaishou Technology are significant players.

Growth in China’s maturing e-commerce market is now on par with the rest of the retail market, which grew 12.5 per cent for the year. Online sales made up 24.5 per cent of total sales for physical goods last year, a slight drop from the 24.9 per cent in 2020.

Sales of physical goods online have tripled since 2015, but growth has seen a steady decline since that year, when such revenue saw a 31.6 per cent jump over 2014.

Sales of all goods and services online grew 14.1 per cent last year to 13.09 trillion yuan (US$2 trillion), according to the statistics agency. It was an improvement over the 10.9 per cent the year before, when lower consumer spending took a toll even as many activities moved online amid the Covid-19 pandemic. Growth remained slower than in 2019, when online sales grew 16.5 per cent.

Barclays economists led by Jian Chang wrote in a research note that China’s consumer spending is expected to remain weak in 2022, in part because of China’s zero-tolerance approach to containing Covid-19, including the most recent Omicron variant.

“While globally countries have mostly taken an open view towards Omicron and maintained their reopening policy … China’s zero-Covid policy will be maintained through 2022, at least through the Party Congress in the fourth quarter,” they wrote. “China’s continued zero-tolerance Covid-19 approach will inevitably slow the recovery in consumption and services in the coming months.”

Nomura economists Ting Lu and Jing Wang also noted that China’s overall consumer spending and sentiment could be undermined by mini outbreaks of the disease.

“Retail sales and the services sector could be severely hit again, with retail sales growth in real terms perhaps falling deeper into negative territory,” they wrote in a note following China’s latest gross domestic product data, which showed growth in the fourth quarter slowed to 4 per cent.

The government aims to have online sales reach 17 trillion yuan by 2025, according to its 14th five-year plan.

Anticipating the slowing growth of online sales, the government has turned its focus to promoting e-commerce in industrial settings, rural areas and cross-border trade, according to the plan released in October. By 2025, Beijing hopes to have e-commerce penetration in the industrial sector reach 73 per cent, e-commerce turnover in rural areas reach 2.8 trillion yuan, and cross-border e-commerce reach 2.5 trillion yuan.

Author: Yaling Jiang, SCMP

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