1. By Ahmed Al Romaithi Internal Equities Department 20 August 2015
E-Commerce In China
By Ahmed Al Romaithi
Internal Equities Department
20 August 2015

2. Content World’s Largest Internet Market.
31/05/2018
Content
World’s Largest Internet Market.
Chinese Internet User by Age Group.
Smartphone Penetration
China’s Mobile Internet User Growth.
China’s Mobile and PC Online Market Breakdown by Revenue.
China’s Online Retail Sales.
Alibaba vs. JD.com.
China's B2C market by category.
Conclusion.
e-Commerce in China by Ahmed Al Romaithi

3. China – World’s Largest Internet Market
31/05/2018
China – World’s Largest Internet Market
Chinese Internet users reached 649mn by 2014, according to CNNIC (23.2% of global internet user)
China’s Internet penetration (47.9%) was significantly lower than developed countries.
Chinese internet users are expected to reach 790mn by 2017, 58% of Chinese population, 10% higher than the penetration in 2014.
Chinese Internet users reached 649mn by 2014, according to CNNIC (23.2% of global internet user)
China’s Internet penetration was significantly lower than developed countries. (47.9%)
Penetration rate of online shopping was 56% in 2014.
These rates are expected to increase in the future. (penetration rate of Internet will reach 52%, while penetration rate of online shopping will reach 59% by 2016).
…. And Internet Penetration in China Is Expected to Reach 80% by 2025
Chinese internet users are expected to reach 790mn by 2017, 58% of Chinese population, 10% higher than the penetration in 2014.
WHY? Because of the ongoing long-term government-led urbanization will, in combination with broadband, 3G and smartphone take-up, serve as critical factors for growth in Internet penetration.
In 2014, penetration rate of Internet in rural area was 29%, lower than the rate in urban area, 63%.
e-Commerce in China by Ahmed Al Romaithi

4. Chinese Internet User by Age Group 2008-2025
31/05/2018
Chinese Internet User by Age Group
By 2025, we expect the Internet user mix to be more balanced.
The percentage of Chinese Internet users above 30 years old will be 65%, compared to 44% in 2014.
By 2025, we expect the Internet user mix to be more balanced, matching the demographics of the Chinese population by age group.
By 2025, we estimate that 65% of the Chinese Internet users will be above 30 years old, compared to 44% in 2014.
In our view, this is mainly due to an aging population trend in China, and the fact that Internet penetration is already high in the younger generations, but very low in the older generations.
We expect to see significant changes in the number of Internet users by age group. We estimate 308mn net adds of Internet users between the ages of 30-59, and 38mn net loss between years old from 2014 to 2025.
The number of Internet users age is estimated to reach an estimated peak in 2016, with 24mn net adds from 2013 to 2016, but 53mn net losses from 2017 to 2025.
Our analysis also shows that China’s Internet users aged 30+ will account for 66% of total Internet users by 2025, up from 44% in 2014, and 95% of the 469mn new incremental Internet users will be 30+ years old.
e-Commerce in China by Ahmed Al Romaithi

5. Smartphone Penetration 2011-2025
31/05/2018
Smartphone Penetration
Smartphone penetration as % of mobile subs reached 52% by 2014.
Smartphone penetration of mobile subs is estimated to reach 78% in 2017E.
Smartphone and 3G/4G User Penetration Rates Are Both Forecast to Exceed 80% of Population by 2017
Smartphone penetration as % of mobile subs reached 52%, and 3G/4G penetration reached 47% by YE14.
We estimate smartphone and 3G/4G penetration of mobile subs to reach 78% and 77% in 2017E.
e-Commerce in China by Ahmed Al Romaithi

6. China’s Mobile Internet User Growth
31/05/2018
China’s Mobile Internet User Growth
Chinese mobile Internet users will reach 770mn by 2017, 98% of total Internet users and 56% of total population.
… Driving China’s Mobile Internet User Growth. We Expect 770mn Chinese Will be Mobile Internet Users
Both 3G/4G LTE wireless and smartphones will drive mobile Internet user growth in China, as the development stages of 3G and smartphones are almost at the same level.
We estimate Chinese mobile Internet users to reach 770mn in 2017, 98% of total Internet users and 56% of total population.
The widespread use of mobile phones and the speed increase created by 3G and 4G Internet will attract more users, including the elderly population and those who live in rural areas.
Mobile Internet will attract more non-Internet users and the penetration rate of online shoppers will continue to grow.
The innovation of online payment, including sound wave payment, finger print payment and Alipay Wi-Fi, enables online payment to expand from online to offline, from product to service. The number of people using online payment has increased, the diversification of payment scenario leads to an increase of people using mobile payment. It has been predicted that the number of people using mobile payment will be no less than the number of people using online payment by 2016.
e-Commerce in China by Ahmed Al Romaithi

7. China’s Mobile and PC Online Market Breakdown by Revenue
31/05/2018
China’s Mobile and PC Online Market Breakdown by Revenue
Online Shopping Revenues Contributed More Than Half of PC Online and Mobile Market in 1Q15
China’s PC online economy reached $25 billion in 1Q15. E-Commerce contributed 55.2% of total PC revenue, followed by advertising with 17.1% contribution.
China’s Mobile online economy reached RMB77.9bn in 1Q15. Benefitting from increasing time spent on mobile and aggressive push into m-Commerce by major e-Commerce platforms, mobile shopping contribution kept gaining share to 57.6% in 1Q15.
Online shopping accounted for 12% of total consumption and is estimated to reach 23% in 2018
Disposable income per person has increased over time, reaching RMB 45k in 2014 and will surpass RMB 50k in 2016
e-Commerce in China by Ahmed Al Romaithi

8. 31/05/2018
E-Commerce in China
E-Commerce users in China reached 366mn in 2014, or 27% of the population, 56% of total internet user.
By 2018, we estimate there should be 615mn e-Commerce users, representing 45% of the population, 73% of total internet user.
Penetration of Internet, 3G/4G, Smartphone, Online Shoppers and E-Commerce Shows Ample Room to Grow
According to CNNIC, e- Commerce users in China reached 366mn in 2014, or 27% of the population, 56% of total netizens.
By 2018, we estimate there should be 615mn e- Commerce users, representing 45% of the population, 73% of total netizens.
China's internet, 2014 vs 2013: e-commerce up 20%, online payment up 17%, online banking up 13%— Paul Carsten.
In the past decade or so, China online shopping market was always driven by PC online shopping. Nevertheless, with the popularization of mobile Internet, PC online shopping gradually stepped into maturity and the growth rate even dropped to 14.2% in 2014.
It’s forecast that mobile shopping sector will have more than $312 billion GMV in 2015 and become the No.1 driving force of online shopping market.
We expect Internet user penetration as percent of population to reach 60.9% by 2018, up from 47.9% in 2014.
E-Commerce accounted for 10.7% of total retail sales in 2014A, and is expected to reach 19.1% in 2018E.
We estimate growing number of online shoppers to 615mn in 2018, 73.4% of total Internet population, up from 56% in 2014.
e-Commerce in China by Ahmed Al Romaithi

9. China’s Online Retail Sales
31/05/2018
China’s Online Retail Sales
China’s Online Retail Sales Is Forecast to Reach RMB7.3 Trillion in 2018 With a CAGR of 27%.
ecommerce sales of China vs. the world.
China’s Online Retail Sales Is Forecast to Reach RMB7.3 Trillion in 2018 With a CAGR of 27%
China’s online retail sales were $437 billion (RMB2.8 trillion) in 2014, +48.7% YoY, and accounting for 10.7% of total retail sales, according to iResearch.
E-Commerce market is estimated to further grow to $1.1 trillion (RMB7.3trn) in 2018, with a Compound Annual Growth Rate of 27%.
B2C market accounted for 45.8% of total online retail sales in 2014 and is expected to contribute 62% in 2018.
Due to B2C increase, C2C shares will drop from 54.2% in 2014 to 37.9% in 2018.
If we compare the ecommerce sales of China vs. the world:
China as a percentage of the global ecommerce sales in 2014 is 41%.
And this rate is expected to reach 51% by 2018.
China’s Online Penetration of Retail Sales Reached 10.7% in 2014; Expect Penetration Gap Between China and U.S. to Widen
China surpassed the US to be the largest e-Commerce market by GMV in 2013, according to iResearch and eMarketer.
China’s online penetration of retail sales (including food services and auto) reached 10.7% in 2014, compared to 5.9% in the U.S.
Excluding food services and auto, China’s online penetration of retail sales was 14% in 2014, compared to 8.5% in the U.S.
We expect e-Commerce penetration gap between China and U.S. to continue to widen.
e-Commerce in China by Ahmed Al Romaithi

10. About Alibaba Group Six growth drivers for e-commerce.
31/05/2018
About Alibaba Group
Alibaba is the No.1 e-Commerce company in China.
Tmall is the largest B2C market player.
JD.com is taking the leadership in China’s B2C Market Share (Excl. platform) by GMV in 1Q15.
Alibaba Dominates China’s E-Commerce Market with Leading Market Share
Alibaba is the no.1 e-Commerce company in China with 77.4% overall online shopping market share in 2014, according to Analysys International.
According to iResearch, Tmall is the largest B2C market player in China with 58.6% market share in 1Q15, +8pcpt YoY.
Excluding platform, JD.com further extends its leadership in B2C online direct sales market with 56.3% market share in 1Q15, up from 49% in 2014, according to iResearch.
Six growth drivers for e-commerce.
Demographics,
popularity of mobile Internet and smart devices
innovation and improvement in online payment
innovation in model
the development of smart hardware
the development of vertical ecommerce.
e-Commerce in China by Ahmed Al Romaithi

11. At the operational level
31/05/2018
At the operational level
Alibaba became the world’s largest e-commerce platform in 2011.
Alibaba’s GMV was 2.2x of Amazon’s, 4.4x of eBay’s, and 8.7x of Jingdong’s
It grew twice as fast as Amazon, and about four times as fast as eBay.
Alibaba’s gross margin was 2x of Amazon’s and 5x of Jingdong’s.
Tmall Leads in General Merchandise; JD Leads in 3C
Tmall took over half of the China’s B2C apparel and mother & baby product markets, with 69.9% and 50.1% market share by GMV in 1Q15, respectively.
JD.com maintained its leadership in the 3C, with 38.9% market share and Dangdang still dominated the book and publishing market.
e-Commerce in China by Ahmed Al Romaithi

12. 31/05/2018
About JD.com
China’s leading online direct sales company and the country’s largest Internet company by revenue.
Market share in China of 49.0% (source: iResearch).
Active customer accounts increased 104% from 47.4 million in 2013 to 96.6 in 2014
Fulfilled approximately million orders in 2014 compered to million in 2013.
One of the largest fulfillment infrastructure of any e-commerce company in China. Operated 166 warehouses and a total of 4142 delivery stations and pickup stations.
JD.com will start making profit within 2 years
JD.com has a higher GMV growth than competitors in china:
Strong financial services.
High quality products.
Supply distribution (high speed services).
Failure of eBay in China
In 2003, eBay entered China’s C2C market by acquiring EachNet for US $180m
EachNet founded in 1999 and was China No. 1 auction.
Alibaba invested US $52m in 2003 to enter the C2C market. (Taobao.com)
By 2004, Taobao occupies over 50% of China’s C2C market.
Ebay spent another US $100m to strengthen it presence in china.
In 2006, eBay sold 51% of it’s Chian division EachNEt to Tom Online.
eBay continued to lose market share to taobao.
e-Commerce in China by Ahmed Al Romaithi

13. China's B2C market by category
31/05/2018
China's B2C market by category
Tmall took over half of the China’s B2C apparel and mother & baby product markets.
JD.com maintained its leadership in the 3C.
Tmall Leads in General Merchandise; JD Leads in 3C
Tmall took over half of the China’s B2C apparel and mother & baby product markets, with 69.9% and 50.1% market share by GMV in 1Q15, respectively.
JD.com maintained its leadership in the 3C, with 38.9% market share and Dangdang still dominated the book and publishing market (42.1%).
Market Share - 1Q2015
Apparels
Maternity and baby products 3C
Book and publishing
Market Size (RMB bn)
120.5 / $18.8 bn
26.4 / $4.1 bn
123.5 / $19.3bn
4.8 / $750 million
Tmall
69.9%
50.1%
36.4%
7.9%
JD.com
8.5%
20.1%
47.3%
22.9%
Others
21.6%
29.8%
16.3%
69.2%
e-Commerce in China by Ahmed Al Romaithi

14. 31/05/2018
Conclusion
The Chinese government want to make China a global e-commerce leader, in line with China’s transition from an investment-heavy growth model, towards a more consumption- driven model.
China will lead all other countries in B2C and C2C purchases.
it’s clear that e-commerce is booming in China.
Rating for Alibaba and JD.com
In 2000, China had yet to develop any e-commerce applications, and had only 2.1 million total internet users. Payment systems and physical delivery mechanisms to facilitate the development of e-commerce transactions were well-developed in other markets, but were simply lacking in China.
Fast forward to the end of 2013: with Chinese internet users quickly approaching 600 million, and e-commerce revenue growth (from ) topping 70 percent compounded annually, China became the largest e-commerce market in the world.
Essentially, China’s large and growing middle-class have become accustomed to making frequent e-commerce purchases.
Furthermore, as in many longer-standing e-commerce markets, they are also developing brand awareness, an increasing proclivity to purchase high quality.
The future development of China’s e-commerce channel is closely linked to technology developments and also the behaviors of Chinese consumers, including the way they research and order products online, and their preference for speed and convenience.
“in other countries, e-commerce is a way to shop, in China it is a lifestyle”. Jack Ma
e-Commerce in China by Ahmed Al Romaithi