Ten Highlights of China’s Commercial Sector 2017: Executive SummaryJanuary 2017

Consumer market continues steady growth; strengthening role of consumption to drive economic growth 01

Government issues multiple policies to support circulation industry development and facilitate supply-side reform

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Online retail sales growth decelerates; e-commerce players aim for new growth paths03

Smart business models emerge; social networks become new marketplace for commerce04

“New Retail Regime” sees emergence of new retail formats and business models05

Highlights of China’s Commercial Sector 201710

Lifestyle service sector proliferates; growth engine for the commercial sector06

Financing through public listing; smart logistics bring new opportunities to logistics sector10

Building a trustworthy business credit system 07

New forms of business collaboration; outbound M&A activities prevalent09

Strengthening agricultural produce circulation; contract farming gains attention08

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Fung Business Intel l igence

Consumer market continues steady growth; strengthening role of consumption to drive economic growth

In 2016, China’s economy faced persistent downward pressure against the

backdrop of a more complex internal and external economic environment. That

said, the Chinese government’s efforts to push forward supply-side reforms and

transform the economy into a consumption-driven economy have seen some

positive results so far. China’s economy is set to maintain its growth momentum in

2017. GDP growth is expected to grow at 6.7% yoy and retail sales to grow at

10.2% yoy in FY17.

Government issues multiple policies to support circulation industry development and facilitate supply-side reform

The government has promulgated several major policies to support the

development of domestic trade and the circulation industry over recent years.

Within the principle of supply-side reform (refering generally to the upgrade of

quality outputs to accommodate an evolving demand pattern), the country’s

development themes of innovation, coordination, green development, openness

and a shared economy will each play a crucial role in guiding the transformation

and upgrading of the circulation industry.

Online retail sales growth decelerates; e-commerce players aim for new growth paths

After years of rapid growth, many online retail segments such as apparel and

home electronics products have shown some signs of saturation. Players are now

seeking to tap into new market segments and extend their offline reach.

Additionally, they are finding new business practices in the hope of better

meeting the needs of consumers. At the same time, the rural online retail market

has become a particular growth engine with the near saturation of the urban

online market. Some leading e-commerce players have increased efforts to

expand their distribution networks in rural areas.

Executive Summary

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Ten Highl ights of China’s Commercial Sector 2017

Smart business models emerge; social networks become new marketplace for commerce

In today’s digitized world, the wide adoption of the mobile Internet and advanced

technologies has facilitated the creation of new business models and innovative

business practices. The adoption of virtual reality technology in business, the use

of social media in the context of e-commerce and live streaming on social

networks are examples. All these are set to revolutionize the ways enterprises

operate their businesses.

“New Retail Regime” sees emergence of new retail formats and business models

China’s retail market has seen a great deal of change as it entered a “New Retail

Regime”: An explosive growth of community-based small-format stores,

dominated by convenience store chains, specialized stores, small-scale

supermarkets and fresh produce grocery stores plus an increasing number of

concept stores aiming to enhance the shopping experience have opened in top

tier cities; larger numbers of online retailers are advancing from clicks to bricks.

Moreover, the deployment of online-to-offline (O2O) business strategies by

retailers to enhance shopping experience has transformed the retail landscape.

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Ten Highl ights of China’s Commercial Sector 2017

Lifestyle service sector proliferates; growth engine for the commercial sector

Thanks to the rapid development of e-commerce, booming O2O platforms and the

rise of the sharing economy, the local lifestyle service sector in China have enjoyed

impressive growth over the past year. Among the subsectors, the catering sector

took the lead with mass dining being the key driver of growth. As well, the concept

of O2O has evolved and extended to services beyond retailing. In particular, O2O

food delivery, accommodation and housekeeping service industries have witnessed

tremendous growth. These industries are expected to help push China’s transition

towards a more consumption-driven, service-based economy.

Building a trustworthy business credit system

China has witnessed extraordinary progress in economic development and

commerce over several decades. Yet, exponential growth has also been

accompanied by business malpractices. Food safety issues, corporate fraud,

fake products, tax evasion, illegal crowdfunding, “brushing” orders on

e-commerce platforms and raised prices before sale have drawn particular

attention. Creating a sound, trustworthy business credit system will become a key

government initiative in 2017.

Strengthening agricultural produce circulation; contract farming gains attention

China’s “Internet Plus” strategy has substantially boosted the upgrading and

transformation of agricultural circulation. The rise of rural e-commerce, in

particular, offers a new distribution channel for farm produce. At the same time,

agricultural production through contract farming, carried out according to prior

agreement, has gained increasing acceptance as an innovative move and will

continue to serve as a broad-based strategy for rural development.

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New forms of business collaboration; outbound M&A activities prevalent

New forms of business collaboration and partnership emerged in China’s

commercial sector over 2016. To strengthen their industry positioning, increasing

numbers of companies used mergers and acquisitions (M&A) to expand into

related businesses. Many M&A activities appeared not only within the same

industry but also between companies of different sectors, different channels and

between traditional rivals. Additionally, China’s “Go Global” strategy and “One

Belt One Road” Initiative have prompted large domestic companies to seek

overseas expansion through M&A. Both domestic and outbound M&A activities

are set to remain prevalent in 2017.

Financing through public listing; smart logistics bring new opportunities to logistics sector

China’s logistics sector has entered a phase of transformation and upgrading in

2016. The integration of the express delivery market, in particular, has been

expedited by M&A and restructuring, as increasing numbers of companies

embrace capital markets. This trend will continue into 2017 and remain a

strategic method for companies to expand their businesses. At the same time,

the development of smart logistics and adoption of advanced technologies to

improve operational efficiency and provide more high value-added services have

become winning cards for the logistics sector.

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Ten Highl ights of China’s Commercial Sector 2017

Fung Business Intelligence, Member of the Fung Group

Authors

Teresa Lam and Lucia Leung (Asia Distribution and Retail, Fung Business Intelligence)

Contributors

Christy Li and Renne Chan (Asia Distribution and Retail, Fung Business Intelligence)

Administrator

Yu Di (Deputy Secretary General, Expert Committee of the China General Chamber of Commerce)

For more information

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