China in Focus
Ten Highlights of Mainland’s Commercial Sector
Ten Highlights of Mainland’s Commercial Sector

Ten Highlights of Mainland’s Commercial Sector

At the 19th National Congress of the Chinese Communist Party (CPC) last year, General Secretary of the CPC Xi Jinping outlined the country’s policy direction in all major fields. 

He called for more effort to promote the integration of the internet, big data and artificial intelligence (AI) with the real economy. The aim is to foster new growth areas in consumption, innovation-driven development, the green and low-carbon economy, the sharing economy, modern supply chains and human capital services. Xi also advocated support for upgrading traditional industries and for accelerating the development of the modern services industry. These will all open up new opportunities for commercial enterprises to tap or further expand their presence in the Mainland.

Fung Business Intelligence has published the Ten Highlights of China’s Commercial Sector 2018 with the Secretariat of the Expert Committee of the China General Chamber of Commerce. These were identified after a series of votes and panel discussions by more than 170 experts. 

A key principle of the19th Party Congress: China’s distribution industry to evolve from big to strong; aims to improve people’s lives through innovation and transformation
The 19th National Congress set out new and clear directions for the country’s development. The government’s determination to speed up the transformation of the domestic trade and distribution industry will facilitate the rapid development of standardisation, digitalisation and modernisation. 

A series of adjustments are expected to take place in the trade and distribution industry this year focused on improving quality and efficiency. Industry practitioners will aim to satisfy the needs of different consumer segments, while new retail formats and business innovations that accentuate the importance of consumer experience will continue to emerge. In the near term, the distribution industry is set to become an important element in the economy’s foundation and the leading industry to meet people’s growing needs for a better life. 

New commercial input and innovation sustains consumer market growth; technology brings smart advantages 
The Chinese Mainland’s economy has been transitioning from a phase of rapid growth to a stage of high-quality development, underscored by stable economic growth. The government’s determined efforts to push forward supply-side structural reforms, promote innovation and strengthen the role of consumption in driving economic growth have led to the country’s steady economic development. At the same time, commercial enterprises have been eager to carry out format revisions to accommodate changing customer needs. Consumption will remain a major driver of economic growth. In 2018, China’s GDP growth is expected to be 6.7% year-on-year and total retail sales of consumer goods is expected to grow at 10.1% y-o-y.

Business innovations become evident, embracing “New Retail” strategies to attract consumers
The “New Retail” concept that uses customer data and technologies to integrate online and offline (O2O) businesses will continue to revolutionise the way companies operate.  The “New Retail” concept and other innovations have one common aim: to anticipate and satisfy customers’ needs. With increasing adoption of technologies and upgraded consumption, the concept is expected to continue to shape the development of the retail sector. 

AI facilitates the creation of new retail formats; smart business models become the next digital frontier
The AI market has entered a period of rapid growth while receiving strong support from the government in recent years. Baidu, Alibaba and Tencent have dominated the AI market and made substantial investment in AI technologies and infrastructure, as well as in product development. As a result, new retail formats facilitated by AI, such as unmanned stores, have emerged. Meanwhile, increasing numbers of commercial enterprises in the Mainland have also incorporated AI in their day-to-day operations and invested heavily in retail technologies as part of their customer engagement strategies. 

Convenience stores see robust growth; technological innovation a key driving force
The development of convenience stores played a significant role in O2O integration in 2017, extensively applying technology-driven innovation. Two key trends have emerged. First, traditional retailers are branching out into the convenience store sector; secondly, technology companies are partnering with store operators to trial various types of technologies in-store. These trends are set to continue in 2018 with greater depth and variation. 

Distribution sector supply chain integration: leading to optimal supply-demand matching, national supply-side structural reform
In response to demand and consumption upgrading, enterprises are integrating their supply chains to achieve more precise supply-demand matching. Supply chain upgrading has focused on balancing supply and demand, and optimizing resource allocation. These are also key tenets of national supply-side structural reform. With the government’s support, coupled with the advent of new technologies, distribution enterprises are set to speed up their integration processes by combining digital technologies with supply chain operations.

Rural areas become a new powerhouse for e-commerce growth; e-commerce plays a larger role in agricultural upgrading, alleviating rural poverty
In recent years, rural e-commerce has witnessed explosive growth on the back of the government’s policy to cultivate e-commerce as part of the economic restructuring of underdeveloped villages. Prompted by sustained governmental support and the promising outlook of the sector, major e-commerce players have expedited their expansion in rural towns. As a result, the rural e-commerce sector is a fast new growth engine. This boom is expected to drive deeper online integration with traditional industries in the countryside, promoting the growth of the digital economy and agricultural upgrading.

Demand for lifestyle services surge; growth rate far exceeds consumer goods consumption
With China’s unprecedented O2O development, lifestyle services subsectors such as catering, accommodation, housekeeping, beauty and car repairs have entered a new trend for growth. In particular, the sharing economy is on the rise as increasing numbers of consumers conduct business transactions via online sharing platforms. Proactive measures taken by the government to promote the healthy development of lifestyle services ensure that the sector can realise its huge development potential. Lifestyle services that are O2O driven and customer- and experience-oriented are set to see huge growth this year.  

Physical retail market rebounds; transformation and innovation are imperative for the future of the commercial sector
In 2017, key physical retailers including supermarkets and department stores showed signs of stable recovery with reports of upbeat sales, indicating a rebound in the Mainland’s physical retail sector. In particular, retailers that have continued to innovate, remained active in product optimisation, and made use of online and offline resources have enjoyed significant success. Conversely, the arrival of the nation’s e-commerce giants into brick-and-mortar retail has also been successful, pioneering many innovations and new business models. Into the future, the market will be dominated by the “best of breed” in “boundless retail” — companies which consistently transform to meet evolving consumer needs. 

Digitalisation facilitates transformation of the Mainland’s agricultural produce wholesale markets, with electronic systems greatly enhancing product traceability
Thanks to accelerated digitalisation, the agricultural produce wholesale industry has undergone rapid transformation and upgrading in recent years. To match consumers’ rising expectations and take on challenges brought about by new business models, increasing numbers of traditional wholesale players have increased their digital transformation efforts. They have embraced big data analytics, establishing electronic clearing and settlement systems as well as partnering with e-commerce platforms. 

Top