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China E-commerce Development Index

2019-02-20

01. Introduction

E-commerce, an abbreviation for electronic commerce, refers to the commercial activities that rely on information and network technology to facilitate commodity exchange. E-commerce has been developing rapidly in China over more than 20 years since China embraced the Internet in the 1990s. It has changed the way people shop and go about their daily activities. Online shopping events that have arisen with the advent of the internet, such as “Double Eleven” and “6.18 Shopping Festival” have become an integral part of people's lives. Tmall is one of China’s biggest E-commerce platforms. Looking at its real-time transaction data from the latest Double Eleven Global Shopping Carnival in 2018, which started from 00:00:01 of 11thNov 2018:

1、 In just 4 seconds, sales turnover exceeded 100 million yuan;

2、 In 21 seconds, turnover exceeded 1 billion yuan;

3、 In 2 minutes 05 seconds, turnover exceeded 10 billion yuan;

4、 By 08:08:52 of Nov 11, turnover exceeded the120.7 billion yuan mark, its own record set in 2016 for a full-day sales turnover.

With the popularity of online shopping, many small and medium-sized enterprises have embraced the E-commerce business model, where supply and demand are no longer bound by geography, and where quality products can reach any corner of China, or the world, within days. Therefore, with today’s E-commerce boom, the ability to assess and compare the E-commerce development of different regions attracts the interest of not only regional governments, but also the keen eyes of investors and business managers.

This report analyses the overall E-commerce business development across different regions in China. We aim to provide readers with a comparative overview of E-commerce development among the regions. We collated the monthly raw data from all of Tmall’s online stores in2016 and 2017. Using a rigorous theoretical framework, this study constructs the annual ranking of the E-commerce Development Index for 32 provinces (excludingTaiwan) and 331 cities. Five aspects of a region’s E-commerce development -quantity, quality, business starts, business failure, and creative destruction–are analysed to build a comprehensive profile of the region’s E-commerce development. We hope that readers will find this report useful in better understanding China’s E-commerce trends across the various regions.

02. Index Structure

The annual E-commerce Development Index analyses the five aspects in detail below. It shall be noted that in this report, “per capita” is based on the total number of working individuals in each region. Furthermore,all the indices in this study have been scaled to a range of 0 to 1.

03. Index by Province

3.1 Composite E-commerce Development Index

The following charts assess provincial E-commerce development in 2016 and 2017, respectively.

In 2016 and 2017, the top six provinces –Shanghai, Zhejiang, Beijing, Guangdong, Fujian and Jiangsu –held on to their positions as E-commerce leaders. This is due in part to their superior geographical location and developed logistics network. Remote provinces like Ningxia, Xinjiang and Tibet ranked the lowest inE-commerce development.

Zhejiang, a hub for E-commerce activities, saw its overall ranking fall to fifth place in 2017 from second place in 2016.

3.2 The Quantity Index

The Quantity Index focuses on the number of E-commerce shops and their sales volume. This index is derived from two dimensions:

1、Per capita E-commerce sales turnover in a region; and

2、Number of E-commerce stores per capita in a region.

The following charts rank each province according to the Quantity Index in2016 and 2017, respectively.

The above charts indicate the names of the top-five ranked provinces did not change much over the two years. Inland provinces and more remote provinces such as Xinjiang, Tibet, as well as the Northeast provinces ranked the lowest. What is significant is that Tianjin and Chongqing, though not ranked among the top six on the overall Composite Index, ranked much higher on the QuantityIndex.

3.3 The Quality Index

This Index focuses on the average size of the E-commerce stores in a region, as well as the number of unicorn stores in a region. Unicorn stores are defined as stores whose sales turnover exceed the 99th percentile of all stores in a year. The QualityIndex is derived from two dimensions:

1、Median value of a store’s annual sales in a region;and

2、Number of “unicorn” stores per capita in a region.

Firstly, there were significant changes among the top-ranked provinces from 2016 to 2017. Anhui and Fujian improved their rankings in 2017, with Anhui rose from 8thto 5th positon and Fujian rose from 7th to 6th positon. Meanwhile Beijing and Jiangsu slid to 7th and 8th positions. This shows the quality of E-commerce activities in each province can vary across years.

Secondly, when comparing the ranking of the provinces across the different indices in the same year, we find several interesting phenomena:

a. Some provinces that did not rank highly on the Quantity Index did better on the Quality Index. For example, in 2017, Hubei ranked 9th on the Quantity Index but 4th on the Quality Index.

b. Zhejiang, a hub for E-commerce activities, ranked 1st on the Quality Index in 2017, though its overall Composite ranking was 5th. This is because it had a large number of unicorn stores.

3.4 The Business Starts Index

The Business Starts Index is the number of new E-commerce store openings per capita in a region. This figure is indicative of the region’s business generation capacity. E-commerce is an economic ecosystem, thus each region’s business starts ability is worth studying as an indication of its potential.

The following charts rank the provincial Business Starts Index for 2016 and 2017, respectively.

In 2017, the six highest ranked provinces wereShanghai, Zhejiang, Hubei, Guangdong, Beijing and Jiangsu. Among them, Hubei and Jiangsu were new entries, reflecting the strong business starts capacity of their e-commerce economies.

3.5 The Failure Index

Although it is a good sign to see the creation of new E-commerce enterprises, their ability to survive in the intense e-commerce economy is also noteworthy.

The Failure Index is derived from the number of store closings per capita in a region. To be consistent with the other indices, we define the failure index in such a way where higher values represent lower failure.

The charts indicate the regions with the top spots on the composite index were ranked lowest on the FailureIndex. This means that a firm in the regions with a vibrant E-commerce sector is more likely to fail compared to a firm from a less vibrant region. While seemingly counter-intuitive, the explanation is simple. Due to a large number of online stores in the regions with a vibrant E-commerce sector, the number of shop closures per year will naturally be higher. For example,Hong Kong has fewer online stores, hence the number of shop closures will also be correspondingly lower.

3.6 The Creative Destruction Index

The Creative Destruction Index measures the resilience of a region’s E-commerce ecosystem. It looks at the metabolism of a region’s E-commerce. The index takes the lower of the following two measures:

1、Number of new store openings per capita in a region;

2、Number of store closings per capita in a region.

For example, if region A has a large number of new shops opening and a small number of shops closing down, this indicates that the E-commerce economy is relatively stable; hence the Creative Destruction Index of regionA is low. However, if in regionB, both the number of shop openings and number of shop closings are high, the CreativeDestruction Index is high, signaling the dynamics and resilience of a region’s E-commerce.

In 2017, the six provinces that ranked the highest on the Creative Destruction Index were Shanghai, Beijing, Fujian, Guangdong, Zhejiang and Jiangsu. Jiangsu rose to 6thin 2017 from 8th position in 2016.

04. Index by Municipality

4.1 The Composite E-commerce Development Index

Firstly, we use the results of the Composite DevelopmentIndex to analyze the development of E-commerce across various cities in 2016 and 2017, respectively.

Most of the highly ranked cities are concentrated in the Yangtze River Delta and the Pearl River Delta. The E-commerce in the highly ranked cities also has a ripple effect on theE-commerce activities on the surrounding regions: as the E-commerce markets in the coastal cities became saturated, the E-commerce business activities started to spread to the inner second and third tier cities. For example,Jinan and Qingdao are now among the top 25 E-commerce economies, nationwide.

4.2 Sub-Index

The city-level Composite E-Commerce DevelopmentIndex is derived in the same way as the provincial index. The following tables rank the top 25 cities within each of these indices for 2016 and 2017, respectively.

It is clear that the cities along the coast, such as Jinhua, Shenzhen, Shanghai, were the strongest performers across all the indices. Moreover, many cities in Zhejiang and Guangdong provinces (both major e-commerce hubs) ranked prominently on the Creative Destruction Index, an indication of their competitive environment and bright future.

  • 柯滨

    教授、长江学者

    新加坡国立大学商学院教授、长江学者。 美国密歇根州立大学博士学位,曾任教于宾夕法尼亚州立大学,2010年至今任新加坡南洋理工大学南洋商学院会计系教授,2010年获聘教育部“长江学者”讲座讲授。曾任北美华人会计教授会(CAPANA)会长。兼任《Asian Pacific Journal of Accounting and Economics》副主编、《The Accounting Review》、《Journal of American Taxation Association》、《The International Journal of Accounting》编委。柯滨教授先后在《The Accounting Review》、《Journal of Accounting and Economics》、《Journal of Accounting Research》、《Review of Accounting Studies》和《Contemporary Accounting Research》上发表学术论文15篇,是为数不多的在全球五大顶级会计学术期刊上都有论文发表的学者之一。柯滨教授擅长从经济学的角度研究会计信息的生成与运用过程,主要研究领域包括盈余管理、内幕交易、机构投资者与财务分析师行为等,近期主要关注新兴市场(尤其是中国)的财务报告、管理层激励和投资者保护问题。