Crowded E-Commerce Market In China Sees Some Players Fall Away

Fitch Solutions / Consumer & Retail / China / Fri 29 Jul, 2022

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Key View

  • Mainland China continues to see high usage of mobile services like e-commerce. Key drivers of this trend include strong internet connectivity, high smartphone penetration rates, rising usage of 5G and the Covid-19 pandemic.
  • The e-commerce market, however, is saturated and highly competitive, pushing some players like Eachnet out of business. Similar observations can be made for Hong Kong, China.

Overview Of Mainland China’s e-Commerce Market

Online retail is booming all across the world, especially as countries shift their focus towards digitalising the economy. Mainland China is no exception and it is the largest e-commerce market globally, generating about 50% of the world’s transactions. Our Consumer and Retail analysts note that e-Commerce is the fastest growing portion of the retail sector in China, with the number of people online far outweighing any other market in the world.

A key driver of this trend is the strong internet connectivity and smartphone penetration rates in the country. The Chinese consumer is extremely mobile-centric, with the number of mobile Internet users in China reaching 1.03bn at the end of 2021, up by 42.98mn year-on-year (y-o-y). The proportion of China’s netizens accessing the Internet via their mobile phones amounted to 99.7%, according to the China Internet Network Information Centre.

China’s cyber capacity has also been growing. In 2021, China built the world’s largest fibre-optic and mobile broadband network as the country continues to focus on 5G to drive economic growth. China's 14th Five-Year Plan (2021-2025) released in March 2021, for instance, highlighted the importance of the ICT sector to the country's overall growth. Technologies such as 5G, Internet of Things (IoT) and cloud computing continue to be emphasised for investment and development, with the government aiming to achieve 5G penetration of 56% by 2025. At Fitch Solutions, we believe that the strong push to expand 5G networks will cement China's position as the largest and most advanced 5G market in Asia and the world. As such, by the end of our forecast period in 2031, we anticipate mobile subscriptions to reach 1.72bn, with 5G the only wireless technology in use by then.

5G Adoption To Grow Rapidly

China (Mainland) - Mobile Forecasts (2022-2031)

f = Fitch Solutions forecast. Source: Operators, Fitch Solutions

The robust uptake of advanced mobile services will continue to support the usage of mobile payments and e-Commerce in China. Already, China sees a very high number of users who shop online; as of December 2021, the user size of online shopping had reached 842mn, up 59.7mn y-o-y. Online retail sales reached 13.1tn yuan in 2021, a y-o-y increase of 14.1%. Moving forward, we expect online retail to grow at a faster pace, becoming an important force in driving consumer expansion.

Online Retail Grows At Fast Pace

China (Mainland) - User Size & Utilisation Ratio Of Online Shopping (2017-2021)

Source: CNNIC’s Statistical Survey on China’s Internet Development

Finally, we note that the Covid-19 pandemic has accelerated the wider adoption of e-Commerce in China, as consumers quickly shifted into this purchasing channel to get hold of goods during the extended periods of lockdowns imposed by the government. This trend introduced the convenience associated with e-Commerce to a new cohort of consumers, with consumers increasingly doing their shopping through this channel. Online retail sales growth continues to outperform conventional retail sales and is steadily gaining market share of total retail sales in China. Pre-Covid, online retail sales accounted for approximately 19.0% of total retail sales in the market in 2019, but the impact of the pandemic saw this jump to 22.7% in 2020. The proportion has remained steady since then, averaging 22.4% of total retail sales in 2021.

Strong Market Competition Crowds Out Some Players

The large consumer base in China has attracted many players in the e-Commerce market, leading to a very saturated market. Over the past two decades, China's e-commerce landscape has been driven by technology giants such as Alibaba Group Holding,, Tencent-backed Pinduoduo and food delivery platform Meituan.

The immense market competition has pushed some other players out of operations. In July 2022,, formerly a leading Chinese consumer goods auction site that was acquired by eBay, announced that it would cease operations after 23 years in business, making it the latest casualty of aggressive competition in the domestic e-Commerce market.

Other factors that could affect Eachnet’s exit from the market include a slowdown in online consumer spending, where the recent Shanghai COVID-19 lockdown may have acted as the final breaking point for the company. Retail sales in May 2022 dropped by 6.7% y-o-y, the third straight month of falling retail trade. This comes after retail sales contracted by 11.1% in April 2022, the steepest decline since March 2020 as restrictions continue to hinder consumer activity. Consumer confidence plummeted to 86.7 points in April 2022, down from March 2022's 113.2 points, suggesting that the intense pressure and economic uncertainty that Chinese consumers continue to face will hamper their spending activities.

Lockdown Weighs On Retail Sales And Consumer Confidence

China (Mainland) - Consumer Confidence & Retail Sales (2019-2022)

Source: National Bureau Of Statistics China, Fitch Solutions

Similar Observations Made Across The Region

Hong Kong, China has also seen similar trends in recent months. Just like Mainland China, Hong Kong, China's telecoms market is highly developed, with the special administrative region's small size making the rollout of networks rapid and the sale of the newest devices and 4G/5G-enabled SIMs relatively easier. However, we expect consumer spending in Hong Kong, China to slow y-o-y over 2022 with real household spending projected to grow by 2.4% y-o-y, a slowdown from the 3.8% y-o-y growth estimated for 2021. Inflation has also been ticking upwards, going from 2.6% y-o-y in January 2021, to 3.3% y-o-y in March 2022. We believe this rate will remain elevated over 2022, forecast to end the year at 5.0% y-o-y. These economic factors will weigh on consumer spending and we can expect consumers to cut back on their retail spending, especially on non-essential items.

Consumer Spending Growth To Moderate In 2022

Hong Kong, China - Total Household Spending (2019-2026)

f = Fitch Solutions forecast. Source: Hong Kong Census and Statistics Department, Fitch Solutions

In July 2022, Tmall Hong Kong, set up in 2021 as a dedicated shopping channel for merchants and consumers in the city on Taobao Marketplace, will similarly shut down operations in late October 2022. With the local market already dominated by HKTVmall, which operates the city’s biggest and most widely used online shopping app, the move is an unsurprising and needful one. Furthermore, with Taobao already present in the relatively smaller Hong Kong, China market, the strategy moving forward will be to consolidate the two platforms and sell mainland goods through Taobao instead.

This report from Fitch Solutions Country Risk & Industry Research is a product of Fitch Solutions Group Ltd, UK Company registration number 08789939 ('FSG'). FSG is an affiliate of Fitch Ratings Inc. ('Fitch Ratings'). FSG is solely responsible for the content of this report, without any input from Fitch Ratings. Copyright © 2021 Fitch Solutions Group Limited. © Fitch Solutions Group Limited All rights reserved. 30 North Colonnade, London E14 5GN, UK.

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