Alibaba’s secondhand trading app Xianyu is on track to open an offline marketplace in the Gongshu district of Hangzhou, the resale operation’s latest eye-catching move after the platform was anointed one of Alibaba’s four “strategic-level innovation businesses” last November.

Why it matters: Alibaba is giving Xianyu three years to prove its value and operate as an independent subsidiary, with this attempt at a physical store seen as the first major step.

Details: The bricks-and-mortar flea market, scheduled to open this Sunday, will see local customers sell their used items and purchase items from other secondhand sellers directly, the platform said in a post on its official WeChat account.

• Xianyu says individuals can also list services such as running errands for others and walking dogs to earn extra money.
• The opening of the store aims to simplify communication between buyers and sellers, with sellers able to receive immediate payments via Alipay once their items are sold, unlike online where the process relies on a buyer clicking the “Received Goods” button for payment to proceed.
• Xianyu says the marketplace will accommodate digital products, outdoor sporting goods, clothing, and shoes, as well as luxury goods. However, trading in food and health products, pets, plants, and jewelry will be strictly prohibited.

Context: The popularity of Xianyu has been overshadowed by e-commerce retailers Taobao and JD in recent years as consumers have tended to seek brand-new goods, but, when it comes to collectible toys or cards, the platform has become a popular destination, especially for young people. This status has meant that Gen Z users, born between 1995 and 2010, account for more than 60% of Xianyu’s 500 million account holders, the company’s latest figures show.

• Alibaba CEO Eddie Wu in November identified Xianyu, along with 1688, DingTalk, and Quark as the company’s most promising businesses, saying he saw the potential for China’s largest secondhand trading platform to “become a lifestyle platform for consumers’ hobbies and interests.”

In a brief letter to Kuaishou staff from CEO Cheng Yixiao on Tuesday, the short video platform operator announced it had achieved its first yearly profitability since listing, and was offering staff vouchers of up to RMB 2,866 valid for purchases on Kuaishou as an expression of gratitude for employees’ efforts.

Why it matters: The rival to ByteDance’s Douyin (China’s TikTok sibling) accelerated its monetization efforts in real estate and short dramas after achieving its first quarterly profitability in the second quarter of 2023. Rapid growth of these sectors in turn appears to have boosted the Beijing-based company’s further attainment of quarterly profits.

Details: China’s second-largest short video platform, Kuaishou deepened its focus on the real estate industry in a recent restructuring following impressive sales results.

• The platform’s real estate operations saw housing agents and professional property influencers engage potential homebuyers via videos and livestreaming sessions, following up with on-site property viewings, and in some cases, remote contract signings resulting in the postal delivery of keys for their new house or apartment.
• According to data revealed by Kuaishou, during a one-month campaign in September, more than 5,500 properties were sold on the platform, valued at more than RMB 6.9 billion in total. In 2022, over 100 million users on Kuaishou watched real estate sales livestreams or related videos; total sales of the sector for that year surpassed RMB 10 billion.
• Mini web dramas, meanwhile, have served as another business sector with growth potential for Kuaishou. As widely popular short video platforms have reshaped user preferences for content delivering quick fire stimulation, short and cheap to make series with episodes lasting little more than five minutes, have gained favor with large Chinese audiences. 
• Kuaishou said last week that daily active viewers of its short dramas reached 270 million by the end of 2023, with 94 million people watching more than 10 episodes per day.

Context: In the first nine months of 2023, Kuaishou reported a net profit of RMB 2.79 billion compared with a loss of RMB 12.15 billion in the same period of the year before. 

TikTok is seeking to significantly expand its e-commerce business in the US, with plans to achieve a tenfold increase in merchandise sales in the world’s largest economy this year, a target of $17.5 billion, Bloomberg reported on Thursday, citing unnamed sources.

Why it matters: TikTok’s ambitious goal will see it push harder to redirect users’ attention from short videos to in-app shopping in a potential threat to established US e-commerce giant Amazon. The move also signals that the ByteDance-owned short video app, which has 150 million users in the US, will compete more directly with its Chinese counterparts Temu and Shein in 2024.

Details: The global value of goods sold on TikTok was expected to reach around $20 billion last year, according to Bloomberg, with its Southeast Asian platforms contributing the bulk of these sales. Singapore-based research company Momentum Works projected in mid-2023 that TikTok Shop was poised to capture a 13.2% share of the Southeast Asian e-commerce market by the year’s end.

• The highest selling products on TikTok Shop are mainly those that more easily lend themselves to promotion by video, such as clothing and beauty items, while its competitors offer a broader range, from kitchen utensils to digital products.
• Shortly after TikTok Shop went live in the US in September, the hit social media platform experienced early success at its first Black Friday and Cyber Monday events, with the major shopping days seeing more than 5 million new customers from the US make purchases on TikTok.
• Meanwhile, TikTok announced this week that transaction fees for merchants in most product categories will increase to 6% of each sale starting in April, and by July, these will rise again to 8%. TikTok Shop currently charges a commission of 2% plus 30 cents per transaction. The change is likely to have an impact on profit margins for store operators.

Context: Since its initial trial in 2021, TikTok’s foray into e-commerce has sought to replicate the proven path taken by its Chinese counterpart Douyin in the online retail field, guiding loyal users previously attracted by viral short videos to engage in shopping on the platform. 

• Indonesia, the first country in which TikTok Shop launched, banned online shopping on social platforms in September, pointing to the protection of small businesses and user data, and forcing TikTok Shop to suspend operations. Despite this setback, TikTok quickly made a comeback in Southeast Asia’s most populous nation through a deal with local company GoTo backed by a $1.5 billion investment.

China’s two largest bubble tea chains Mixue and GoodMe both filed prospectuses for Hong Kong listings on Tuesday, with the aim of broadening the companies’ financing access through share sales, providing vital support for the new-style tea brands to navigate an extremely competitive industry.

Why it matters: Three China-founded beverage retailers have now lined up to apply for IPOs in Hong Kong in less than five months, incluing fruit tea chain ChaBaiDao submitted its application last August, signaling that the industry leaders are betting big on store expansion and tea consumption in China’s delayed post-Covid economic recovery.

Details: Mixue, which also sells ice cream for RMB 2 (less than $0.3) per cup, generated RMB 15.4 billion ($2.17 billion) in revenue and recorded a net profit of RMB 2.5 billion in the first nine months of last year. Mixue’s numbers are nearly triple those of rival GoodMe on both metrics.

• With an eye-catching snowman logo, Mixue boasted 32,180 stores across China as of September 30, 2023, with over 55% of those stores in third-tier and below cities. GoodMe, a 13-year-old brand selling bubble tea mainly in second-tier and below cities, had opened a total of 9,001 stores by the end of 2023.
• The primary revenue streams for Mixue and GoodMe are driven by the sales of raw materials and equipment to franchisees; the former has derived over 98% of its income from this strategy in the past three years.
• According to GoodMe’s prospectus, revenue from directly operated stores in the first three quarters of 2023 accounted for only 0.1% of its total, while the income from selling goods to franchisees made up as much as 75%.

Context: Mixue shifted to exploring a Hong Kong IPO instead of a mainland China listing due to a lack of progress following a proposed RMB 6.5 billion Shenzhen IPO filing back in 2022. The tea chain’s decision to put its mainland listing on hold is widely seen as a sign that Chinese regulators have imposed strict rules discouraging companies that rely heavily on franchise business models from listing.

Alibaba’s China-focused online shopping platform Taobao is streamlining its refund process, in a move that mirrors rival Pinduoduo’s strategy for retaining customers.

The new rules for handling refund issues took effect on Tuesday, allowing the platform to use big data analysis of store quality and complaint frequency to handle returns and refunds directly when buyers make after-sales requests that meet certain conditions.

Why it matters: This update brings Taobao’s after-sales mechanism closer to that of rival Pinduoduo, with the company emphasizing a commitment to consumer rights and cutting the influence of merchants in the refund process. 

Details: Pinduoduo’s “Refund only” strategy has met with controversy in recent years. The approach, coupled with Pinduoduo’s consistent low-price strategy, has attracted a large number of price-sensitive consumers. Merchants on the other hand have come to find the platform’s rules too strict, generating widespread dissatisfaction.

• According to Taobao’s new rules, if a seller exceeds the agreed-upon delivery time or sends goods without the buyer’s consent, the system will allow the buyer to request a refund automatically. The platform also lets buyers apply for a refund if they refuse to sign for a delivery on arrival. Previously, refunds had to be processed via the seller.
• Taobao is providing a quick appeals channel for merchants however, permitting them to appeal refunds within a 30-day period.
• One merchant who sells on multiple platforms told local outlet Jiemian that shoppers have upped their expectations of e-commerce platforms since experiencing how simple it was to apply for a “refund only” on Pinduoduo, the domestic sibling of runaway e-commerce success Temu.

Context: In recent weeks, Alibaba executed an executive level overhaul at Taobao, its most-profitable Chinese e-commerce group. Alibaba CEO Eddie Wu tapped six young leaders to take charge of key operations at twin e-commerce sites Taobao and Tmall, after he took the reins of the business on Dec. 20.

• The flurry of adjustments follow publication of an employee memo by founder Jack Ma in which he wrote “I firmly believe Alibaba will change and reform.” 

Shares of Gaotu, a Chinese online education firm, slumped nearly 20% on Monday as a previous influx of livestreaming viewers returned to rival East Buy’s Douyin channel after a recent screenplay dispute at the latter, which had driven users to seek alternative platforms, came to an end.

Why it matters: The 58% surge in New York-listed Gaotu’s share price last week has now been halved with the previous surge seemingly an exception that does not accurately reflect the sustainable growth prospects of Gaotu’s e-commerce business at present.

Details: China’s Gaotu was once a provider of after-school tutoring courses, but transitioned to the live commerce sector a year ago, in a similar move to East Buy, which found viral success after blending online language lessons with e-commerce. Gaotu witnessed eightfold growth in followers on Douyin in the last two weeks, taking it to almost 2.5 million followers on the TikTok sibling platform.

• The East Buy exodus began as a protest over a controversy surrounding Dong Yuhui, the most influential host on the platform. His fans were dissatisfied with the company’s Douyin account operator attributing a Jilin province screenplay read by Dong during a livestream to the collaborative efforts of the team. Fans insisted that Dong was the sole author and should be accredited as such.
• In the following days, Dong failed to appear on East Buy’s livestreams, prompting a large number of fans to flood rival Gaotu’s platform as a way of expressing their dissatisfaction with East Buy’s treatment of their live commerce idol. One user even stated, “I will only go back if Dong continues to appear in East Buy’s livestreams.”
• However, the week-long infighting came to an end on Monday night when East Buy CEO Michael Yu announced his decision to promote Dong to the position of senior partner in the company while committing to the establishment of a separate studio for the top influencer. That evening there were wildly contrasting figures for the two rivals: East Buy’s livestream featuring Yu and Dong saw them sell goods worth RMB 1 billion and hit a peak of 3.8 million simultaneous viewers; at the same time, Gaotu’s livestream had fewer than 5,000 viewers.

Context: Gaotu’s current stock price is still nearly 97% lower than its peak in 2021, when the Chinese government introduced a policy known as “double reduction” that dealt an unprecedented blow to private for-profit educational companies, and prompted them to seek rapid transformation to stay afloat. East Buy, a subsidiary of New Oriental, found unexpected success with a livestream last June as a host, who was once a tutor, taught English and simultaneously sold products, gaining significant attention on the internet.

• In November 2022, Gaotu was warned by the New York Stock Exchange as its stock price remained below $1 for 30 consecutive trading days. A month later, the company initiated its first livestream on Douyin under the name Gaotu Jiapin, mainly selling agricultural products and snacks. Its revenues for the third quarter were down by nearly 60% compared to 2020.

Unitop Fitness, a Chinese fitness equipment maker, unveiled the U-trainer Plus in September, at a price of $649. Our team was given a fortnight to review the home gym. 

The U-trainer Plus enables users to exercise on their own schedule with real-time performance tracking and built-in workouts. It eliminates the need for gym memberships and, despite this meaning the lack of a supportive fitness community, the personalized nature of the smart equipment enhances individualized training. 

Assembly at home

The difficulty of assembling home fitness equipment can vary widely depending on the type of equipment, the manufacturer’s instructions, and your own level of experience and comfort with assembling items.

The U-trainer Plus arrives in two relatively large, heavy  boxes.

The entire assembly process, including unpacking, reading the instructions, watching the assembly video, and manually assembling the equipment, took four hours. Although the fitness equipment includes installation tools, the tester, with limited assembly experience, still found the process somewhat challenging. For added convenience, it is recommended to have two people to work on the assembly together, especially since some parts of the equipment are quite heavy.

It’s also worth noting that the equipment takes up a sizable space in the home. Here are some of its basic specifications:

Packaging size: 1,445 x 490 x 275mm
Folded: 702 x 992 x 2,105mm
Expanded: 1,450 x 992 x 2,105mm
Net weight (main parts): 47kg
Gross weight (including accessories): 58kg
Resistance level: 100 levels
Maximum resistance: 50kg on each side
Resistance range: 2-50kg
Maximum weight capacity: 110kg

Customized app for home workouts

The U-trainer Plus comes with an app called Unitop, which features built-in programs and the option to customize workouts according to individual fitness levels and goals.

Through the app, users can establish a Bluetooth connection between their equipment and their chosen device, enabling them to choose from various training programs and set up personalized training plans. 

Different combinations of exercises, repetition rates, and the resistance weight of the equipment are all customizable. Each training exercise in the app comes with instructional videos and detailed explanations, providing assistance for beginners and alleviating concerns about confusion during workouts.

The equipment includes a barbell rod, wrist straps, handles, deltoid ropes, and a waist belt. Users have the flexibility to choose to use the appropriate accessories based on their individual training goals. However, some functions in the app require paid membership, and the one-year membership fee is an additional expense not included with purchase of the equipment.

Motivational partner mode

The U-trainer Plus offers adjustable resistance on both sides, enabling users to exercise together with friends or family members. Although this function was not tested during our two week trial, it is an interesting option for home fitness. Typically, exercising with friends or family is more motivating than working out alone.

Dual electromagnetic motors

The U-trainer Plus is equipped with dual electromagnetic motors, ensuring a friction-free workout experience without any physical wear and tear. It allows independent adjustment for each side, with the motors supporting 100 levels of resistance weight increments, precisely adjustable at 0.5kg per level. This enables users to train with a maximum resistance weight of 50kg on each side, totaling 100kg.

Workout at home with ease

The U-trainer Plus suits individuals who are seeking privacy, convenience, and a focused exercise environment at home. It enables users to engage in personalized workouts without the distractions or potential discomfort associated with public gyms. 

The equipment set seamlessly transitions between different functions, serving as a cable machine, a rowing machine, or a boxing machine. This provides users with the opportunity to engage in a comprehensive, low-impact workout that effectively targets a wide range of muscle groups throughout the body.

While home workouts offer convenience and flexibility, they may lack the social element found in traditional gym settings, which can serve as a significant source of motivation for some individuals. 

Therefore, the potential impact and value for money of this fitness equipment varies completely based on an individual’s personality, as some people may lack the motivation to exercise at home. While it provides virtual coaching and tutorials, it may not be a substitute for in-person guidance from a certified fitness professional, especially for beginners who need more personalized instruction and support.

Conclusion

The choice between using smart fitness equipment at home or going to a traditional gym depends on individual preferences, lifestyle, and fitness goals. It is essential to weigh the advantages and disadvantages to determine the best fit for an individual’s needs.

But the U-trainer Plus is suitable for fitness enthusiasts with a basic level of exercise awareness who enjoy working out at home. Beginners or those who prefer the atmosphere of a gym should carefully consider their purchase.

Pros:

Convenient and flexible at home option
Individualized training to fit different fitness levels
Customized app with built-in programs
Motivational partner mode
Dual electromagnetic motors
Comprehensive workouts targeting all muscle groups

Cons:

Assembly may be challenging for one person
Extra charges for certain features in the app
Lack of social element compared with traditional gyms
Challenging for beginners who need in-person guidance

Chinese tech giant Alibaba is doubling down on artificial intelligence to spur the growth of its e-commerce division, after founder Jack Ma wrote an internal memo saying the era of AI e-commerce “has just begun.” The company’s domestic and international retail businesses are testing multiple AI-driven tools and are on a hiring spree for AI-related roles, according to local outlet LatePost.

Why it matters: Alibaba hopes that by integrating generative AI into its core e-commerce business, it will further boost sales in the highly lucrative sector and create new forms of customer experience to up business retention rates.

Details: Taobao and Tmall Group have channeled their AI focus into four key areas:  marketing platform Alimama, customer apps, merchant apps, and industry-specific apps. Before the reorganization led by Alibaba’s chief technology officer Wu Zeming, there were around 20 teams within the group exploring AI-related businesses, the report said.

• This year’s Singles Day shopping festival, which started in late October, was a testing ground for Alibaba-created AI shopping assistants, including Taobao Wenwen, a chatbot designed for consumer-facing interaction that relies on its pre-trained generative ability to provide users with shopping recommendations. 
• The firm also introduced at least ten free tools for merchants to assist in their marketing and merchandising efforts during the month-long bonanza. While Alibaba kept silent on sales achieved during the festival this year, it announced that the Wenwen chatbot engaged with over five million users, and the merchant tools were used over 1.5 billion times.
• Enabling businesses to achieve lower operation costs through generative AI solutions is seen as a commonality among Alibaba’s AI products. Earlier last month, in a pilot launch event of Aidge, a tool facilitating features from translation and marketing to localized content and design, vice president of Alibaba International Zhang Kaifu said that it is dedicated to “simplifying global operations for small and medium-sized enterprises.” 
• Zhang also leads AI initiatives within Alibaba International Digital Commerce Group, overseeing a team of more than 100, according to LatePost, with one-third engaged in training large language models.

Context: AI appears to be a top priority in Alibaba’s strategy since new management took over in September. In his first letter to all staff, CEO Eddie Wu announced “user first, AI-driven” as his vision for the 24-year-old company, a business that has recently been overshadowed by rivals. “We will realign our operations and refocus our business around these two core strategies,” said Wu.

• An employee posted a critical note on an Alibaba internal forum after Temu parent PDD closed in on  the company’s market valuation late last month, a move that prompted Jack Ma’s rare appearance with him calling on staff to provide more constructive comments and suggestions, especially innovative ideas to the group.

Chinese tech giant Tencent is planning to expand its short video and livestreaming e-commerce team as sales surge, according to a Monday report by LatePost, which said WeChat’s in-app shopping feature has achieved a total of RMB 100 billion ($13.9 billion) gross merchandise volume this year via its TikTok-like short video service.

Why it matters: The figure shows Tencent has increasingly drawn in users to spend more time shopping on Video Accounts, a service that launched in beta mode in January 2020.

• According to the company’s president Martin Lau, Tencent could gain a competitive advantage by attracting “a pretty significant high-income and affluent customer base” on WeChat, who may not typically make purchases on other short video platforms.

Details: WeChat Video Accounts, Tencent’s short video feature also known as Channels, has been seen as the “hope” of the company since founder and CEO Pony Ma highlighted it in an end-of-year meeting in 2022.

• As a latecomer to livestreaming e-commerce, Tencent is set to further develop the basics of online shopping, including WeChat payments, LatePost reported. During the company’s latest earnings call, Lau said the livestreaming e-commerce playbook was “quite clear” despite involving many steps. Tencent wants, “to build it in a systematic way, step by step,” Lau added.
• While Tencent’s e-commerce sales have reached an impressive RMB 100 billion, it has a long way to go before catching up with rivals Kuaishou and Douyin, as the former boasted sales of nearly RMB 800 billion worth of goods in the first three quarters this year, while TikTok’s sibling app Douyin is expected to see more than RMB 2 trillion in goods sales this year.
• Video Accounts brought RMB 3 billion in advertising revenue in the second quarter, Tencent said, adding that the figure for the subsequent three months showed “strong growth” over the previous quarter, although exact figures were not disclosed. Kuaishou generated RMB14.35 billion in advertising revenue in the same period.
• Ad load, which sits at less than 3% for Channels compared to rival platforms that regularly exceed 10%, serves as a growth driver that translates into more revenue, according to Tencent’s Chief Strategy Officer James Mitchell.

Context: WeChat, which started as an instant messaging service, now offers users a rich ecosystem of services via its mini-programs (in-app mini-apps) and Video Accounts. Tencent’s hope is that it can continue to offer the company more routes to profitability.

• Lau highlighted that several hundred million users interact with over one million mini-programs on WeChat, which facilitated over RMB 1.5 trillion in gross merchandise volume (GMV) between July and September this year. 
• In an indication of the Tencent platform’s importance, iPhone maker Apple opened an official retail store within WeChat this July.

Revolutionary Event Unveils Global Short Video Trends and Business Opportunities

FastMoss, a leading TikTok data analytics platform, is thrilled to announce the FastMoss Global Short Video Conference & Expo (FGVCon), a revolutionary two-day event set to take place from January 18th to January 19th, 2024, at the Shenzhen Convention and Exhibition Center.

FGVCon transcends borders and platforms, assembling industry leaders, top influencers, brands, sellers, agencies, and platform officials in the dynamic world of short-form video content. The conference not only highlights TikTok but also explores emerging opportunities on platforms such as Facebook Reels, YouTube Shorts, Amazon, Kwai, and more. Confirmed guests include Xiaobin LIU (VP & CMO of Miniso), Grace YANG (Founder & CEO of NextWave), Chris Pereira (Founder & CEO of iMPact), and renowned brands like Anker, F-Commerce, MeToo, among others. International guests from the US, Europe, Vietnam, Thailand, and more will converge in Shenzhen, China, to share their knowledge and secrets, collectively propelling the global short video and live streaming industry forward.

Top TikTok Influencers to Share Success Secrets at FGVCon

FGVCon marks the first Chinese conference of short video and live streaming industry to invite overseas top influencers and innovatively introduces China’s first “FGVCon”. The event features leading figures such as “Vietnam Viya,” top American TikTok influencers Jeremy Pugh and Janey, TikTok headliner Venny Albert (with 12.1 million followers), and Akash Ellahi (with 14.9 million followers), making their Chinese show.

In addition to confirmed influencers, the event will showcase other outstanding domestic and international talents from TikTok, YouTube Shorts, Facebook Reels and more.

First Collaboration and engagement with multiple Official platforms at once

FGVCon pioneers’ collaboration with multiple platforms, including TikTok, Facebook Reels, YouTube Shorts, Kwai, Shopee, Lazada, TEMU, Amazon, and more. Confirmed guests include Yuki Yuan (Google’s YouTube Shorts), Vivian (Shopee), Liu Na (Kwai for Business) and more. These platform representatives will delve into market trends and consumer demands in Southeast Asian countries such as the United Kingdom, the United States, Indonesia, and Thailand. More mystery guests and platform representatives are confirmed, with detailed information to be gradually revealed.

The FastMoss Global Short Video Conference & Expo (FGVCon) emerges as a beacon of innovation and collaboration in the dynamic realm of the short video and live streaming industry. Assembled at the Shenzhen Convention and Exhibition Center from January 18th to January 19th, 2024, FGVCon promises an immersive experience, offering a deeper understanding of market trends and consumer demands from around the world.

Food delivery giant Meituan has shown its ability to defend its moat advantage in local services amid a challenge from ByteDance-owned TikTok sibling Douyin, with the company achieving RMB 2 billion single-month livestreaming sales this October, up from the less than RMB 600 million recorded in July when it officially introduced its in-app livestream feature, local media outlet 36Kr cited multiple sources as saying in a Monday report.

Why it matters: Meituan, a newcomer to the livestreaming domain, is employing a high-subsidy strategy within livestream rooms to attract both customers and merchants. Despite the strong growth momentum indicated by sales figures, the company’s profit margin has seen a decline for two consecutive quarters.

Details: Livestreams conducted by Meituan itself are the main focus of the newly launched function, where hosts are sourced from external multi-channel network (MCN) companies and generate more than 70% of live gross merchandise volume (GMV), according to the 36Kr report. However, this balance is shifting as small- and medium-sized merchants flow in to sell vouchers via independent livestreams. 

• Around 30% to 40% of orders paid for on livestreams are ultimately verified at physical stores and converted into the shop’s sales, one source was cited as saying in the report. Another source, a Meituan service provider, claimed that the overall verification rate is about 60%, nearly double that of Douyin.
• Shen Quan Jie and Shen Qiang Shou are two major official livestream brands within Meituan’s food delivery segment, selling discounted takeout coupons, especially for well-known or chain restaurants. The former is a monthly promotional event occurring on the 18th of each month, while the latter livestreams for 12 hours every day, primarily targeting users in China’s first-tier cities.
• Meituan’s Hong Kong-traded shares have slumped over 50% this year, and the company’s stock experienced its largest single-day decline in over a year last Tuesday after executives warned of a slowdown in revenue growth for its core food delivery business in the fourth quarter.

Context: Meituan has increased its marketing expenses this year in an attempt to resist TikTok sister app Douyin’s push into the local life services sector, spending RMB 16.9 billion in the last quarter, a 62.5% increase from the first quarter. Meanwhile, the operating margin of its core local business has continued to decline over the last two quarters, dropping below 20% in the three months from July to September to 17.5%.

• Short video app Douyin first took a step into the local services space with food delivery trials two years ago. It has now expanded its reach to include everything from sightseeing tickets and leisure events to parent-child activities. Local media outlet LatePost previously reported that these services generated over RMB 100 billion in sales for Douyin in the first half of 2023.

Fast fashion giant Shein has confidentially filed for an IPO in the US, Reuters reported on Monday, citing two sources. The move puts to an end long-running speculation around the China-founded company’s intentions to go public.

Why it matters: A successful listing for the fast-fashion giant would help Shein expand its global reach while diversifying its sources of funding.

Details: Shein has hired Goldman Sachs, JPMorgan Chase, and Morgan Stanley as lead underwriters for the share offering and expects to go public sometime in 2024, according to Reuters.

• The company’s current valuation is uncertain. In a $2 billion funding round in May, Shein was valued at $66 billion, a third less than its $100 billion valuation from a funding round a year earlier.
• Now headquartered in Singapore, the retailer sells everything from skirts to sweaters, typically for around $10 a piece, in more than 150 countries. Shein has actively sought to diversify its supply chain, moving away from reliance on China. The company began manufacturing in Turkey and Brazil this year and is in the process of planning for a factory and warehouse in Mexico.
• Under ongoing regulatory scrutiny in the US, its largest market, Shein faces allegations related to design infringement and the use of forced labor in its factories.
• Shein did not respond to TechNode’s request for comment.

Context: In 2022, eleven years after its founding, Shein recorded $23 billion in revenue and $800 million in net income, according to the Wall Street Journal. A company executive reportedly told investors in July that it had achieved record profitability in the first half of 2023 thanks in large part to strong sales in the US.

• In a bid to further expand its international presence, Shein acquired a one-third stake in Forever 21’s parent company in August, followed by the purchase of fast fashion brand Missguided and all of its intellectual property in October.

The huge growth of Douyin (TikTok’s China sibling) has led to an increasing number of advertisers using the platform to launch their marketing campaigns.

However, although Douyin has more than 809 million users, advertisers have to take the profile of these users into account to successfully reach their target audience and launch effective campaigns.

Age distribution

According to official data released by Douyin, the age distribution of the ByteDance-developed app’s users is relatively wide, mainly focusing on the 18-35 age group. Within this group, the proportion of users aged 18-24 is the highest, accounting for 35%; the proportion of users aged 25-30 is 27%, and the proportion of users aged 31-35 is about 16%.

The data shows that TikTok’s China sibling is most popular among those born in the 1990s and the first decade of this century, often referred to in China as the ‘post-90s’ and ‘post-00s’ generations. The Post-00s and Post-90s have a longer average daily usage time and high user stickiness. Compared to the Post-90s, the Post-00s are more prominent as “digital natives”, with 173 hours of monthly per capita use of the internet, much more than the 159 hours of the overall population in China, and with a higher activity rate throughout the day than the overall user base, with 30.9% of the user base still active after midnight. Furthermore, some younger individuals only use Douyin when it comes to entertainment, rejecting rivals such as Xiaohongshu.

If your target audience is a young consumer group such as Generation Z or Millennials, Douyin could be a highly useful vehicle for your marketing.

Gender

The male-to-female ratio of Douyin users is about 4:6, which is a significant increase in the proportion of male users compared to the previous 3:7. But there are still more female active users. Beauty and other industries mainly targeting female users tend to put a lot of resources into marketing Douyin for this reason.

Geographical distribution

Douyin users are mainly concentrated in first and second-tier cities in China, such as Beijing, Shanghai, Guangzhou, and Shenzhen. Among them, Beijing, Shanghai, and Guangzhou have the highest proportion of users compared to other first and second-tier cities in China, with 7.9%, 6.7%, and 6.3% respectively.

Crowd classification

Douyin categorizes its users into eight strategic groups according to their city level, age, consumption power, life stage, and other indicators: Gen-Z, refined mothers, new white-collar workers, urban blue-collar workers, small-town youths, senior middle-class, urban silver-haired people, and middle-aged/old people in small towns.

Generation Z: Generation Z refers to the new generation of young people born into a world of online technology, mainly in third-tier cities and above. China’s Generation Z has been brought up in a world vastly different from that of their parents and grandparents and has a more confident culture, which allows them to pursue higher spiritual needs such as socialization, respect, and self fulfillment. China’s Gen-Z internet population is around 342 million.

Delicate Moms: Compared with the previous generation of mothers, new generations of mothers have unique values and self-consciousness. In addition to meeting their children’s developmental needs, they also pay attention to their children’s education at an early age. Living fast-paced urban lives, they are more enthusiastic about online shopping, attaching particular importance to the health and safety of products, and are also very inclined to buy high-quality milk powder and complementary food products originating from overseas. Their online consumption power is very strong, and in addition to buying just-demanding products on big FMCG platforms more frequently, they are also very concerned about new products with high value and convenience.

New white-collar: Mainly refers to the high-income group aged 25-35, living in first- and second-tier cities, with a young mindset, financial independence, and strong consumption ability. Different from the previous generation, new white collars are more willing to try new things, pay attention to product quality, have higher acceptance of new brands, and love to pay for self-improvement. They are the main force in the consumption of fitness and knowledge products.

Urban blue-collar: More than 50% of urban blue-collar workers are aged 31-40, and more than 70% of them have children. The consumption concept of this generation of blue-collar workers has changed drastically compared to their forebears. They pursue high-frequency and high-quality shopping experiences, pay attention to the quality of goods, and are willing to pay for a high-quality state of life, having a greater demand for non-rigid material goods such as sculpture ornaments, fine dining, and medical beauty and skincare.

Small-town youths: This group mainly resides in fourth-tier cities and is aged 24-40 years old. Small-town youths do not have a high consumption level, but are good at online shopping, keen on promotions, and focus on quality. Small-town youths prefer health care and pets, and they are incredibly fond of cost-effective goods.

Small-town middle-aged and elderly people: This mainly refers to middle-aged and elderly users living in fourth-tier cities; their consumption habits are more arbitrary, and often focus on cost-effectiveness. They attach importance to socializing with acquaintances and have high social needs.

Senior middle class: This group is focused on 35-50 year olds living in third-tier cities and above. The senior middle class has a high consumption level, focuses on quality experience, and pursues luxury.

Silver-haired people: The silver-haired people in urban areas have sufficient income such as a pension. They represent the “second spring of Internet consumption”. According to CNNIC data, those over 50 accounted for 26.3% of the total number of Internet users in Dec. 2020. These users are more inclined to new ways of spending their retirement, taking after the lifestyle of silver-haired influencers on China’s answer to TikTok, and are willing to boldly try new things. They are enthusiastic about novelty products and trying trendy tools, such as using live streaming to talk with young people.

Conclusion

The users of Douyin are mainly young women in first- and second-tier cities. The male user segment is growing fast, however, and the ratio of male and female users on the app is likely to become more balanced in the coming years. In addition, although the proportion of people under 35 years old accounts for nearly 75% of users, the middle-aged and older-aged group is still an indispensable part of the platform that can not be ignored. With a high consumption level, strong consumption ability, and increasing use of the Internet, these groups have great potential.

The wide array of categories and content found on China’s TikTok sibling means that it is important to have precise positioning and targeted content for any marketing strategy. But for those who get it right and who understand the platform’s vast user base, the pay-off could be enormous.

This article was provided to TechNode by Xiaoyan Chen, founder of RougeLink, an agency offering high-performance e-commerce tactics based on data-driven technologies and livestreaming.

iPhone maker Apple has reportedly asked China’s major app developers to refrain from using gyroscopic motion, a feature that tracks the motion of a user’s phone, for advertising, as it all too readily redirects users to third-party apps on detecting even the slightest shake of a device. 

Why it matters: Open-screen advertising serves as a monetization method for many apps, while gyroscopic ads can boost the click-through rate of the target app. Those employing the feature have found that both parties can gain commercially, despite it taking control away from the user and thus impacting the user experience.

Details: Deployment of the function, criticized by numerous users, escalated during November’s three-week-long Singles Day shopping festival that has just ended. E-commerce platforms extensively used redirect ads across various apps, including the most widely used video and music streaming platforms, as well as social media apps. These ads can be triggered by clicking on an ad page or moving the phone, redirecting the user’s attention to another app.

• A netizen on Weibo, a Twitter-like platform, jokingly wrote that the redirection speed was faster than if they had directly opened the app.
• On-device gyroscopes help to achieve the ad redirect feature, though gyroscopes were originally designed to provide “experiences based on real-time, motion-based information in apps and games,” according to Apple.
• Another form of advertising similarly concealed within social media during China’s largest online shopping event was activated by Weibo blog comments – – individuals would write related comments and attach seemingly relevant webpage links. Once users clicked, they would find their phones had already opened advertised shopping websites. It remains uncertain whether this type of promotional tactic is directly linked to e-commerce sites.
• According to local media outlet Yicai, Taobao, JD, Pinduoduo, and Douyin have not explicitly said they received a notification from Apple, and Apple has not responded to the rumors.

Context: In February, China’s State Administration for Market Regulation made it clear in a guideline that advertisements should be clearly labeled using a closing icon, and should not deceptively induce users to click on or browse any advertisement. The new measures were supposed to further refine the norms of online advertising in China.

Temu, the e-commerce platform celebrated for its cut-rate prices, has launched a legal offensive against fraudsters who masquerade as the company. These imposters lure customers into downloading bogus apps that infest devices with malware and pilfer personal data, according to lawsuits filed in the US in the past two weeks.

Boston-based Temu, operating under its legal name Whaleco, has filed suit against seven websites accused of deceptively prompting visitors to download a counterfeit app. The aim, the lawsuit claims, is to snatch personal details from Whaleco’s clients, slip malware onto their devices, or hack into them. This legal move, initiated on November 7 in a U.S. court, comes on the heels of Temu’s earlier legal action against twenty websites for trademark violation and orchestrating internet phishing scams to defraud consumers.

“Fraudsters are posing as Temu on fake apps and websites to scam consumers. This not only damages our reputation but also hurts consumers who were deceived into believing they were engaging with genuine Temu platforms,” said a Temu spokesman.” We will take swift legal action to defend our rights and shield our customers from such malicious and unlawful activities.” 

In the year since Temu launched in the US, it has soared in popularity, propelled in part by its “Shop Like A Billionaire” Super Bowl commercial. Now, the e-commerce contender has broadened its reach, serving customers in 48 countries, from the UK to Malaysia.

Sensor Tower data reveals that Temu broke into the global top 10 most downloaded apps list in the second quarter of 2023, surpassing both its rival Shein and the American titan Amazon in downloads. Further, a data.ai analysis reported by CNBC shows that Temu has outstripped Shein in Japan and South Korea, clinching the top spot in shopping app rankings over an extended stretch.

Wendy Chen, a GAM Investments senior investment analyst, points to Temu’s innovative “fully entrusted business model” as the engine of its meteoric rise. This model blends direct retail sales with a marketplace for third-party vendors, drawing on the strengths of both. Temu streamlines its operations by sourcing directly from manufacturers, who are tasked merely with shipping to Temu’s global warehouses. The company then takes the reins, overseeing customer acquisition, pricing, logistics, and customer service.

This strategy affords Temu the quality control, timely delivery, and customer satisfaction of a first-party model, while it still benefits from the extensive selection and scalability of a third-party model. By connecting factories directly with consumers, Temu not only slashes middlemen expenses but also sidesteps the hazards of overstocking, Chen explains.

According to a recent report by Chinese tech media outlet 36 Kr, the US market, the first destination Temu entered, currently contributes 60% of the platform’s overall sales. The same report stated that the platform’s third quarter sales surpassed $5 billion, and the extraordinary pace of growth may allow Temu to exceed its annual GMV target of $15 billion this year.

“We are in a cost-of-living crisis and people are looking for anything to save a bit of money,” Miya Knights, the publisher of Retail Technology magazine, told the Guardian. “Everyone likes a bargain and Temu ticks those boxes.”

To be sure, Temu’s popularity has come at a price, with a small group of scammers capitalizing on the company’s reputation to launch phishing schemes and install malware, according to its lawsuit. Critics have also accused Temu of intrusive data practices, allegations that Temu has sought to dispel by prominently listing the permissions that it seeks from users. 

In its latest lawsuit, Temu accuses websites such as Dltemuapp.com and temudl.net of mimicking Temu’s domain name and describes them as primarily designed to lure consumers into making purchases or to mislead unsuspecting consumers.

“Bogus websites like these serve as a platform for various cybercrimes. They could be used to extract sensitive and financial information from duped consumers. They could be used to install malware on people’s sites (and/or those of their employers) to steal information or install viruses and serve as leverage for large ransoms,” Temu said in its lawsuit.

“In any of these scenarios, the results would be devastating—and the harm irreparable–to (Temu) and the public alike,” according to the lawsuit.

Meanwhile, Temu has intensified efforts to warn consumers about fake Temu promotions and scams. The company has also advised users of the importance of downloading the official Temu app from the Apple Store and Google Play Store, which have stringent vetting controls.

Chinese kitchen appliances brand Hauswirt said on Monday that it had sent a legal letter to JD after the retailer lowered the price of one of Hauswirt’s ovens “without authorization” amid intense online battles over price in the run-up to Singles’ Day. Hauswirt claims the reduction led to a dent in the company’s profits.

Why it matters: Competition over low prices in a bid to attract consumers has intensified as China’s biggest shopping extravaganza kicks off, with this case suggesting an increasingly dysfunctional and imbalanced e-commerce ecosystem.

• While JD’s staff have claimed that the platform subsidized the oven in question to sell it below its normal price, Hangzhou-based Hauswirt has stated that they are the ones who actually incurred the loss. 

Details: Hauswirt’s home beginner oven normally retails for RMB 699 ($95.50), but this week consumers can get it on JD for RMB 319.50, a discount of more than 50%.

• Top livestreaming influencer Li Jiaqi was also caught up in the fiasco after a WeChat screenshot, believed to have been posted by a member of JD’s sales staff, showed he had received a legal letter from Hauswirt. 
• The poster said the appliance brand had filed a complaint against him due to the sale price of the oven on JD being lower than the price the controversial livestream star advertised during his broadcasts, thus breaching Hauswirt’s lowest-price agreement with Li.
• The oven was set to be marketed on Li’s Taobao Live livestream on Oct. 26, according to a teaser on his official WeChat account earlier today. The post did not reveal the item’s exact price.
• Local media outlet Jiemian cited Li Jiaqi’s agency MeiOne as saying they didn’t sign a so-called minimum price agreement with Hauswirt and that “pricing of livestreamed goods rests with the brand.” However, it is not known whether MeiOne will still require other brands they cooperate with to promise the lowest price for their products in return for exposure on Li’s livestreams, a practice they have reportedly pursued in the past.
• As the high-profile spat continued, Hauswirt commented with three demands on JD’s official Weibo social media account on Tuesday, asking the e-commerce giant to withdraw the sale of the oven at half price, requesting that it exclude the brand’s entire product line from JD’s regular coupon offers, and urging JD to conduct an “internal review” to “rectify any unreasonable behavior.”
• At time of writing, the oven is currently being sold at RMB 699 on JD. JD did not respond to TechNode’s requests for comment.

Context: The conflict over pricing control between e-commerce channels is growing more prominent in China’s latest online price war. On the one hand, online retailers are pursuing low prices amid a less-than-stellar consumer recovery, but on the other, this is adding pressure to merchants that have set up online stores on multiple platforms.

• During 2021’s Singles’ Day festival, some users found that the same L’Oréal face mask product they bought via the country’s hottest livestreamers, Li Jiaqi and Viya, was more expensive than the cosmetics brand’s own livestream days later, which led the duo to publicly accuse L’Oréal of failing to deliver on its promise to offer them the lowest prices.

Chinese e-commerce platforms are racing to give consumers attractive deals during this year’s Singles’ Day festival, though the country’s biggest online shopping bonanza has slowly lost its luster as the pushing of low prices has become a standard marketing strategy throughout the year for platforms facing challenges in reviving consumer sentiment.

Why it matters: Emerging retailers such as Douyin and Kuaishou, along with established rivals Alibaba and JD, are turning to direct discounts for shoppers as the 11.11 pre-sale period kicks off because they continue to count on the mega event to encourage consumers to open up their wallets and submit their data, especially in the face of China’s uneven economic recovery.

Details: The Singles’ Day festival is now in its 15th year after it was first co-opted by Alibaba in 2009, who turned an organic, low-key celebration of singledom into a major consumerist event.

• While “low prices” remains a common advertising term for retail platforms, JD has taken a different approach during this year’s Singles’ Day by skipping the pre-sales period. In the past, this has been the standard way for major Chinese online retailers to record enormous sales sums on November 11th itself and allows consumers to pay an advance deposit for products to secure discounts.
• Alibaba is betting big on its premium program 88VIP, providing members with sizable coupons worth a total of RMB 20 billion ($2.74 billion), as the group fills with loyal consumers with high spending ability. 
• “We have a desire to return to our original intention of making Singles’ Day a joyful event for consumers,” said Trudy Dai, chief executive of Taobao and Tmall Group. The well-established Chinese e-commerce platform is introducing various entertainment shows and activities, including live music and cross-talk performances during the weeks-long event, to “create a more immersive shopping experience.”
• JD is once again offering a discount of RMB 50 for every RMB 299 spent, whereas Tmall is providing a similar deal for every RMB 300 spent. Alibaba also said its Tmall and Taobao site will grant a 15% price reduction in addition to the standard discount coupons. E-commerce upstart Douyin, TikTok’s sibling platform, has also adopted a similar strategy, emphasizing its commitment to giving “real price discounts.”
• Kuaishou was the first mainstream site to begin sales for this year’s Singles’ Day festival, commencing pre-sales on Oct. 18. The short video platform had previously announced that it would invest RMB 2 billion in cash subsidies. Apple’s iPhone 15 Pro, for example, can be purchased for a final price of RMB 8,009 if shoppers pay an RMB 100 deposit.

Context: In the third quarter, China’s economic growth outpaced expectations, indicating that a series of recent policy measures are aiding the initial recovery of the world’s second-largest economy. Retail sales increased by 5.5% last month, beating expectations and also surpassing the 4.6% growth recorded in August.

The first installment of an annual digital summit for China-focused marketing, retail, and technology leaders is coming soon. DIGITAL+ SUMMIT 2023 is dedicated to fostering consumer centricity, implementing emerging technologies, and envisioning the future of retail. 

Main Themes of the Event

The Digital+ Summit 2023 will focus on three major themes: developing customer centricity, implementing emerging technologies, and foresighting the future of retail. 

Developing customer centricity: Track the evolution of Chinese consumers and craft seamless journeys from discovery to repeat purchase.

Implementing emerging technologies: Unleash the potential of AI, XR, and OMO for enhanced customer value in marketing and retail.

Foresighting the future of retail: Shape the retail horizon, navigate the future of social commerce, and prepare for what’s next.

The summit offers diverse elements, including keynote speeches, panel discussions, technology showcases, networking opportunities, and book signings by esteemed speakers and intellectuals.

Who Should Attend?

The DIGITAL+ SUMMIT 2023 is tailored for China-focused digital leaders, with a primary focus on B2C spaces and sessions directed at B2B cases too. 

This event is a must-attend if you are:

Brand marketing and commercial teams: This is your chance to explore topics relevant to marketing, retail, e-commerce, CRM performance, consumer insights, and digital strategy.

Tech giants and social media platform teams: connect with brands, and fellow experts, and participate in collaborative learning experiences.

Consultancy and agency leaders: gain valuable insights and networking opportunities to enhance your consultancy or agency services.

Learn – Play – Apply Format

We believe that we learn better when we are engaged. Our keynotes are short and dynamic, with plenty of opportunities for breaks, games, and showcases. We aim to ensure that you leave the summit feeling energized and empowered to make real changes.

What to Expect

Feel the inspiration: Immerse yourself in a dynamic digital community and dive into inspiration, creativity, excitement, and motivation.

Think with vision: Empower yourself with thought-provoking discussions, and cutting-edge insights and foster strategic visions of digital China.

Do with innovation: Equip yourself with practical tips, bold innovations, and forward-thinking solutions to create transformative outcomes right away.

Pre-Summit Online Sessions

We’re bringing a few pre-summit sessions right to your screens on Monday and Tuesday next week. Join these free online sessions on 16-17 October, hosted by top experts. Dive into the latest actionable insights on Chinese consumers, platforms, marketing, and sales. Online sessions are free of charge, delivered live via Zoom, and participation is limited to 100 registered guests. Sign up now to secure your spot.

Don’t miss this opportunity to engage with the best minds in digital marketing, retail, and technology. Sign up for the DIGITAL+ SUMMIT 2023 and the pre-summit sessions today at www.chinadigitalsummit.com/online. The future of digital is here – be a part of shaping it.

Alibaba is to boost its e-commerce business outside China with a $2 billion investment in its Turkish unit Trendyol, Reuters reported, quoting a statement from Trendyol on Monday. 

Why it matters: Alibaba’s decision to increase investment in Trendyol comes after the Turkish platform made an operating profit for the first time in the second quarter. The tech giant’s expansion into the Middle Eastern country, one that often serves as a bridge between Europe and Asia, will bolster its global business efforts.

Details: The financial commitment was made during a meeting between Michael Evans, president of Alibaba, and Turkish President Tayyip Erdogan. While details were not disclosed, the investment is expected to materialize “in the near future,” said Evans.

• Trendyol said in the announcement that the Chinese e-commerce giant intends to establish a data and logistics center in Ankara, the capital of Turkey, and an export operations center at Istanbul airport.
• Alibaba acquired major shares in Trendyol via a $728 million deal in 2018, and has invested a total of $1.4 billion in Turkey to date, according to Evans. Over the past five years, Trendyol, as the country’s largest e-commerce marketplace, saw its customers rise nearly threefold to 30 million. The platform boasts around 250,000 sellers, offering over 200 million items.
• Beyond its business focus on Turkey’s domestic market, the online marketplace made efforts to expand into Azerbaijan in May, a year after Trendyol’s entry into Germany. The platform is also gearing up for launches in the Netherlands, Luxembourg, and the UK soon, according to a report by Turkish media outlet Daily Sabah.

Context: In 2022, the size of the Turkish e-commerce market grew 110%, rising from 382 billion Lira in 2021 to 801 billion Lira last year, according to research conducted by the Turkish E-Commerce Association (ETİD). E-commerce accounted for a 16.5% share of the retail sector in 2022, in contrast to China’s more than 31%.

Social commerce is set to grow at an exponential rate over the next two years. Even while the growth of the social commerce sector has so far been slower elsewhere than in China, it is anticipated that from now until 2025, it will expand tremendously in North America, Europe, and Latin America.

This year, it’s anticipated that social commerce will generate global sales of more than $1 trillion. And when it comes to social commerce, China is the market that stands out. Social commerce has expanded rapidly in the country, with a 40.25% increase in market size between 2021 and 2023. Between 2021 and 2025, the size of China’s market is anticipated to increase at a rate of 17% per year. 

It’s critical for brands and businesses to keep ahead of these changes given the growth of social commerce. Alarice and ChatLabs have collaborated together to create the China Social Commerce Report 2023, which provides information on the technologies and strategies used in the sector. Here are some of the key strategies highlighted in the report.

1. Co-creating with consumers

Brands can engage users on social media platforms by allowing them to interact or co-create engaging content as part of an effective strategy for increasing product promotion and awareness. This technique not only creates a user community but also increases brand visibility and engagement.

Take, for example, the milk brand Yili. Yili asked consumers to participate in a packaging design contest aimed at football enthusiasts to increase engagement and sales during the 2022 World Cup. Customers who spent a particular amount on items were entered into a lucky draw as part of the promotion. 

As a result, visibility and sales increased significantly. The campaign received over 27.24 billion Weibo impressions and resulted in a 12.1% increase in sales, illustrating the potential of user participation and co-creation in brand promotion.

In light of this, fast-moving consumer goods brands can consider employing similar techniques by inviting consumers to co-create content during popular events, festivals, or marketing campaigns. This could involve a wide range of activities that tap into the creative potential of the consumer base.

2. Driving repurchases through professional services

In the competitive landscape of the consumer goods industry, brands can distinguish themselves and foster customer loyalty by offering specialized services aimed at driving secondary purchases. This strategy not only ensures customer satisfaction with their initial purchase but also encourages them to become repeat customers.

A case in point is Biostime, a brand that successfully implemented this strategy. Biostime offers a one-on-one inquiry service, providing consumers with personalized product recommendations based on their unique needs. Beyond product recommendations, the brand also prioritizes its consumers’ emotional support and mental health. 

Their unique offering, the “Mom Class,” is designed to provide emotional support to new mothers, further solidifying their bond with the brand. Furthermore, Biostime launched a campaign on Douyin focusing on ingredient safety, which attracted around 800,000 participants. These combined efforts led to impressive results, with monthly sales exceeding 4 billion RMB.

Given the success of Biostime, other brands can look at implementing a similar strategy by offering professional services post-purchase. These services can range from personalized product recommendations to educational classes and support groups. Brands can also launch campaigns to emphasize the unique selling points of their products, such as ingredient safety or ethical sourcing.

3. Collaboration with other brands

Brands may reach a bigger target audience in the ever-changing consumer products landscape by forming strategic partnerships with other popular brands and products. Such collaborations not only increase brand visibility but also give consumers a distinct value proposition.

The successful collaboration between Xiaomi and the video game King’s Glory exemplifies this method. Xiaomi took advantage of cross-promotion by providing exclusive access to a new test map in King’s Glory, which was confined to smartphones purchased from Xiaomi outlets. 

This endeavor piqued gamers’ curiosity, as did Xiaomi’s powerful hardware and processors. As a consequence, store traffic increased by 14%, and Xiaomi’s gaming community and App Store gained 2 million new followers.

Given the success of the Xiaomi-King’s Glory collaboration, marketers should think about forming similar collaborations with stores to expand their reach and engagement. They can provide exclusive material or experiences available only through their products or stores. 

Conclusion

It’s essential to remain ahead of new trends as we navigate the always-changing social commerce landscape and consider their effects on your company. In the present economy, being aware of these trends and taking appropriate action might mean the difference between keeping ahead or falling behind.

It’s crucial that businesses consider how to create shopping experiences that allow users to effortlessly switch between exploring, sharing, being entertained, researching, playing a game, recommending, and purchasing.  

To attract their audience, brands must provide enjoyable, interactive experiences that cover a range of activities, including purchasing. Developing original retail tactics and designing personalized, one-of-a-kind client journeys will be crucial. 

This article was provided to TechNode by Ashley Dudarenok, the founder of China-focused digital marketing agency Alarice and China digital consultancy ChoZan 超赞. For further insights, download a free copy of the China Social Commerce Report 2023 here.

TikTok has officially launched its e-commerce business, known as TikTok Shop, in the US following months of testing, according to a blog post from the company published on Tuesday. TikTok is making a big bet on monetizing its more than 150 million users in the country, even as it faces increased scrutiny from US authorities.

Why it matters: The largest market for the short video platform, the US also represents the greatest political risk for the Chinese-founded company. TikTok will also encounter stiff competition from larger e-commerce rivals such as Amazon and from Chinese counterparts such as Shein and PDD-owned Temu.

Details: The shopping feature now enables TikTok’s US users to directly complete transactions through in-app links within videos or live streamings, eliminating the need to jump to external websites.

• More than 200,000 merchants have already signed up to sell goods on TikTok Shop during a nearly one-year testing period, with brands such as L’Oréal, Benefit, and Olay either already on board or planning to join TikTok Shop, according to Chinese media outlet Jiemian.
• TikTok offers various features to support content creators, brands, and merchants in enhancing their sales experiences. One such feature allows sellers to collaborate with creators through commission-based partnerships, all within the TikTok ecosystem. TikTok said that more than 100,000 creators have already registered for the Affiliate Program.
• While data privacy remains one of TikTok’s biggest challenges in the US, the company emphasized in the blog post that US user data is protected and stored in the country and managed by the US Department of State (USDS). Payment information for users in the States is also managed by USDS, as TikTok is committed to providing “a safe and secure environment,” the post stated. 

Context: TikTok’s e-commerce push was first launched in Indonesia in 2021, and has since been made available in the UK and multiple countries in Southeast Asia. A previous Bloomberg report noted that TikTok plans to quadruple its e-commerce merchandise sales to $20 billion by the end of this year.

• More than half of US states have banned the use of TikTok on government-issued devices, as the country’s officials and lawmakers have continuously expressed their concerns over the ByteDance-owned app’s sharing of user data in recent years. A US House committee voted in March to give President Joe Biden the power to ban TikTok, but a Reuters report last month said the bill had stalled in Congress.

China’s top livestreaming influencer Li Jiaqi has angered part of his fanbase after losing his temper with a consumer who questioned a product’s high price during a recent live broadcast. Li asked the viewer of the sales pitch to question if they had worked hard enough to afford the item, rather than niggle about the cost. 

Why it matters: The social media uproar about Li’s remark comes a year after the influencer returned to the public eye following an unexplained three-month absence for livestreaming platforms. The incident also comes less than two months before China’s largest annual shopping extravaganza, Singles Day, where domestic and international brands do their utmost to leverage the huge following top influencers like Li enjoy, in order to expand sales.

Details: Li was forced to apologize twice as his remarks created a PR storm, as the popular celebrity lost nearly a million followers in a day on the Twitter-like social media site Weibo, even though this number represents less than 5% of his total fans on the platform.

• On Monday night, Li apologized during his livestream a few hours after issuing a written apology. He cried, acknowledging that his inappropriate remarks were “disrespectful” to others and that everyone had the right to express their opinions about products marketed on livestreams.
• The controversial eyebrow pencil from Chinese cosmetics brand Florasis was priced at RMB 79 ($11) during Li’s livestream that day. After seeing a comment saying “Florasis products are getting more expensive,” Li responded “How could that be expensive? Domestic brands are struggling.” A clip of the comments spread widely on Chinese social media.
• Established in early 2017, Florasis positions itself as a brand combining “Chinese trends” and “Eastern makeup,” and is a top brand promoted by Li Jiaqi in his online live room. In 2018, Li earned the nickname ‘Lipstick King’ for his performance testing various lipstick colors,  making him the most popular salesperson online during China’s live e-commerce boom.
• Li first promoted Florasis goods in March 2019, with the brand collaborating closely with him ever since. The cosmetic maker’s gross merchandise volume (GMV) increased 5.4 times between 2019 and 2021, reaching total sales of RMB 5.4 billion RMB in 2021.
• Top domestic cosmetics brands that frequently collaborate with Li, including Florasis and Perfect Diary, told local media outlet Caixin that Li’s contribution to their income was less than 5%. Florasis has yet to issue an official response to Li’s outburst.

Context: Chinese netizens’ dissatisfaction with Li is largely due to their belief that his comments made a mockery of low-income groups, as consumers are particularly sensitive to prices amid domestic economic sluggishness. His first apology was also widely viewed as insincere and failing to grasp the source of many users’ anger.

• Li earned RMB 1.855 billion ($2.5 billion) in 2021, according to a September 11 report by Chinese news outlet Shanghai Securities News.

Correction: An earlier version of the article miscalculated the income of Li Jiaqi which is RMB 1.855 billion rather than the RMB 18.553 billion as mentioned.

Social commerce is set to soar in 2023. The market is projected to exceed a staggering 1 trillion USD in global sales this year. A social commerce pioneer, China will continue to be a major driver of this growth. The country has witnessed a substantial expansion of its social commerce sector in recent years, with a 40.25% surge in market size from 2021 to 2023. 

While traditional e-commerce channels continue to command a significant 72% market share in China as of H1 2022, social commerce is quickly ascending, rising from a 14% market share in 2021 to 21% in H1 2022. This emergence of new sales avenues is changing the e-commerce landscape, prompting businesses to modify their approaches to remain competitive.

Given this growth, it’s crucial for businesses to stay ahead. Alarice and ChatLabs have partnered to produce the China Social Commerce Report 2023, detailing the sector’s technologies and strategies. This report can help brands apply lessons from China’s success to navigate the social commerce landscape effectively. Below are some of the key takeaways.

The 3 Social Commerce User Journeys

As of June 2023, China’s online population reached 1.079 billion, according to a statistical report released on August 29 by the China Internet Network Information Center (CNNIC). The figure represents an internet penetration rate of 76.4% and an increase of 11.09 million people compared to December 2022, according to the report. By June of this year, the number of instant messaging and online video users reached 1.047 billion and 1.044 billion, with penetration rates of 97.1% and 96.8%, respectively.

In light of these trends, content has emerged as a critical element in driving sales on social commerce platforms. Brands equipped with the right insights can craft engaging content and integrate seamless communication and transaction functionalities. Let’s explore the relevant social commerce user journeys that brands can learn from and implement in their strategies.

1. Enhancing user experience with shoppable content

Shoppable content is an approach that integrates purchasing opportunities directly into a brand’s digital content. This strategy transforms traditional browsing into an interactive shopping experience, making it seamless and engaging for users.

A prime example of effective shoppable content usage is the Douyin storefront of Guerlain, a luxury cosmetics brand. Upon entering the store, users interact with a host of dynamic features such as livestreams, membership deals, and engaging short videos with embedded product links. These elements are strategically woven into the user experience, transforming passive browsing into an active shopping journey.

Brands should test multiple social commerce platforms and prioritize those that demonstrate high growth potential and return on investment. Creating engaging and informative content that resonates with the identified target audience is also vital. This content, strategically embedded with shoppable elements and incentivizing Calls To Action (CTAs), can transform casual browsing into potential purchases. Moreover, enhancing user engagement and loyalty by offering special deals and memberships can further increase the likelihood of conversions. 

2. Engage with livestream shopping

Statista projects that by 2023, the livestreaming commerce market in China will expand to a staggering RMB 4.9 trillion (US$ 753 billion). To capitalize on this trend, brands need to learn how to effectively engage with customers during livestreams to drive both engagement and sales.

One brand that has effectively employed livestream shopping is Dior. Dior’s brand zone on Douyin begins with a livestream, ensuring that it is the first element that users engage with. During the livestream, users are just one to two clicks away from product pages, a list of showcased products, membership registration, and special offers. This setup ensures that the shopping experience is as seamless and engaging as possible.

Real-time interaction can significantly enhance the shopping experience, making it more personal and engaging for the viewers. After the livestream, it’s important to follow up with leads, offering them support and additional information about the products showcased. Responding to questions promptly and providing product promotions, limited-time discounts, and recommendations during the livestream can further stimulate customer interest and drive sales.

3. Personalize the shopping experience with shoppable chat

Shoppable Chat is a modern commerce strategy that integrates shopping capabilities directly into chat platforms. This approach, widely adopted in China, allows brands to provide personalised customer experiences while driving conversions.

Platforms like WeCom, WeChat, Weibo, and Douyin are critical tools for businesses in China, enabling them to engage with customers, increase sales, and offer personalized services based on a 360° customer view. Luxury brands such as Graff and Prada have made effective use of these platforms to enhance their customer engagement.

Prada, for instance, leverages its WeChat Mini Program to provide live customer support, offering personalized advice and recommendations. This includes features like checking stock in offline stores, making product recommendations based on the user’s current product of interest, and allowing users to purchase products directly through the WeChat Mini Program.

Brands should reduce reliance on third-party e-commerce platforms and prioritize platforms that allow them to own and control their data, such as WeChat and WeCom. Brands should ensure they connect users with sales agents based on the user’s location. This enables a more personalized and efficient service.

Conclusion

It’s important to stay on top of how social commerce evolves over time. In today’s market, being aware of and acting quickly on new trends can make the difference between being ahead and falling behind.

Companies need to design shopping experiences that make it easy to switch between different things like discovering, sharing, being entertained, doing research, playing games, getting suggestions, and finally buying.

To captivate their audience, brands should focus on creating engaging, interactive experiences that encompass a spectrum of activities, including purchasing. The development of innovative retail strategies and the design of personalized, unique customer journeys will be key.

This article was provided to TechNode by Ashley Dudarenok, the founder of China-focused digital marketing agency Alarice and China digital consultancy ChoZan 超赞. For further insights, download a free copy of the China Social Commerce Report 2023 here.

PDD-owned Temu made a quiet debut in the Philippines this past weekend, its first Southeast Asia destination, bringing the budget shopping app into head-to-head competition with Chinese counterparts Lazada and TikTok Shop.

Why it matters: Temu’s expansion into Southeast Asia is expected to ignite an already heated e-commerce sector in the region with its aggressive marketing strategies, even as major players already in place have secured enviable market shares.

Details: Since its launch in the US last September, Temu has reached consumers in 38 countries across six continents with its China-produced goods. 

• Aligned with its advertising slogan, “shop like a billionaire,” Temu has entered the Philippines with significant discounts and free shipping, and has priced most items on the local site between PhP 50 and PhP 1,500 (under $0.88 to $27).
• Boston-headquartered Temu works with different third-party logistics providers for local delivery. In the case of the Philippines, Chinese media outlet Jiemian reported that Indonesia-founded J&T Express would oversee its last-mile logistics.
• Similar to its main competitor Shein, Temu leverages China’s supply chain network to offer international customers ultra-low-cost products. 
• An earlier report by local media outlet 36Kr quoted several sources as noting that Temu’s overall loss rate stands at around 60%, in contrast to Shein’s profitability over four consecutive years.

Context: The comparatively lower e-commerce penetration rate in Southeast Asia makes the region highly attractive to Chinese e-commerce companies, especially as they face a slowdown in domestic growth.

• Lazada, an online shopping platform that received over $1.1 billion in investment from its parent company Alibaba this year, saw double-digit order growth in Southeast Asia in the quarter to June. Alibaba’s International Digital Commerce Group, to which the business belongs, experienced a 41% year-on-year revenue growth during this period, making it one of the Chinese tech giant’s best performing segments.
• TikTok plans to invest “billions of dollars” in Southeast Asia over the next few years,  the company’s CEO Shou Zi Chew said in June, as the ByteDance-owned short video app faced increased scrutiny in the US. Recent research by venture capital firm Momentum Works predicts that TikTok Shop will seize a 13.2% stake in the Southeast Asian e-commerce market this year, suggesting a narrowing gap with Lazada, which is projected to hold a 17.7% market share in the region in 2023.

Chinese e-commerce giant JD on Wednesday lowered its free shipping threshold by almost half in an announcement labeled an “important notice” on its official WeChat account, as the retailer makes a further push in its low-price strategy.

Why it matters: Providing faster and cheaper delivery has become a new battleground among China’s domestic e-commerce platforms, as they bid to lure users from their rivals.

• “From day one of our existence, our core competitiveness, the essence of our business, has been low prices,” said JD CEO Sandy Xu on the firm’s latest earnings call. She said JD adheres to this principle, and that cost efficiency and customer experience are at the heart of the company’s business philosophy.
• “We welcome users to compare prices across platforms before they place their orders, as JD is confident in its supply chain capabilities and the low-price and high-quality services we can provide,” Xu stated.

Details: JD cut its minimum order requirement for free shipping by nearly half from RMB 99 ($13.8) to RMB 59, its first lowering of the free shipping threshold in seven years.

• As part of the shipping policy adjustment, JD’s paid members, known as the JD Plus cohort, will now have unlimited free deliveries no matter how much they spend, compared to the previous limit of five free shipment coupons per month.
• While JD Logistics has enjoyed a reputation for efficiency for years, Alibaba-owned rival Cainiao is ramping up efforts to expand its nationwide logistics network. In July, Cainiao launched a half-day delivery service in Hangzhou, Shanghai, and six other major Chinese cities, initially in partnership with Tmall Supermarket.
• The upgraded model rolled out by Cainiao, entitled 1212, ensures delivery by 9 p.m. on the same day and by midnight the next day based on orders made by midnight and midday, respectively. The format is several hours faster than JD’s traditional 211 program, which guarantees same-day delivery for orders submitted before 11 a.m. and next-day delivery (before 3 p.m.) for orders placed before 11 p.m.

Context: JD saw its total revenue grow 7.6% to RMB 287.9 billion in the quarter that ended in June, mainly thanks to China’s second-largest shopping festival 618, which boosted multiple e-commerce platforms’ sales through month-long discounts. The company’s retail segment only gained 4.8% growth in the second quarter following negative year-on-year growth in the previous quarter, casting a cloud over China’s fragile retail recovery. Revenue for its logistics unit however has experienced continuous quarter growth of over 30% since this year.

China’s Instagram-like lifestyle platform Xiaohongshu has merged its e-commerce and livestreaming operations, establishing a new trading division in parallel with its community division, according to a report by local media outlet LatePost.

Why it matters: With the platform having met its milestone of 100 million daily active users earlier this year, Xiaohongshu has moved to solidify its previously vague strategy in e-commerce, aiming to diversify a revenue stream that has to date relied mainly on advertising.

Details: Xiaohongshu’s chief operating officer, widely known by the nickname Ke Nan, will assume leadership of the new department.

• While gross merchandise volume (GMV) or order volume are key metrics that help mainstream e-commerce platforms monitor business tendencies, LatePost revealed that Xiaohongshu prioritizes tracking daily purchasing user numbers.
• Promoting purchases through high-quality posts and livestreamed content seems to be “a more fitting growth model for Xiaohongshu’s e-commerce effort,” LatePost cited an internal employee as saying. The reference to “high-quality content” is based on the soft-sell techniques employed by actresses Dong Jie and Teresa Cheung, which bolstered the platform’s presence in the livestreamed shopping arena this year.
• A senior member of staff at a multi-channel network (MCN) agency, which manages livestreamers, told LatePost that Xiaohongshu places less emphasis on fan numbers when seeking hosts, but instead appreciates those with aesthetic sensibilities or professional capabilities in certain fields.
• The actress Dong Jie for example, engages with livestream viewers relatively gently, sharing her feelings and experiences when using or wearing showcased products in a calm manner compared to some other personalities in the livestreamed e-commerce sphere. Items for sale undergo pre-selection by her team to ensure alignment with Dong’s personal style. Most are designer garments valued at several thousand yuan. 

Context: While safeguarding its community content ecosystem remains a priority, Xiaohongshu has kept a quiet eye on the evolving e-commerce arena in recent years. Reports in March noted that the platform had elevated livestreaming operations to a standalone division, a move that centralized the oversight of livestreamed content and e-commerce activities.

• The number of brand merchants selling on Xiaohongshu more than doubled from March to May this year compared to a year earlier, according to tech media outlet 36Kr.

Alipay, a digital payment service operated by Alibaba-affiliated Ant Group, is taking steps to monetize its 1 billion-strong user base by doubling down on livestreamed e-commerce, a route taken by many other Chinese platforms with vast user pools.

The fintech giant also announced an updated international version of Alipay on Thursday that promised to make it easier for foreign visitors to China to use the digital payment service using Visa, Mastercard, and other major credit cards.

Why it matters: Labeled an “important strategic partner” by Alibaba, Ant Group is focused on preparing for a Hong Kong IPO. This puts pressure on the Jack Ma-founded business to accelerate commercialization with a more diversified business ecosystem.

Details: The twin updates, unveiled on Thursday at this year’s Alipay Partner Conference, are a key part of the company’s expansion into “digital connectivity,” a term that refers to providing merchants with product and service interfaces such as mini-programs within their digital operations.

• The “living channel” on the payment app’s homepage serves as a hub where merchants and influencers share short videos, lifestyle content, and engage in livestreaming. The live rooms that promote goods are mainly conducted by the brands themselves, adopting a similar style to Taobao Live. Viewers are directed to brands’ mini-apps once they click on a link located at the bottom right of the live page, enabling them to place an order within Alipay.
• Alipay’s livestreaming product manager, Zhu Qinmei, told the conference that the company believes the average transaction value per user in Alipay’s livestreaming rooms could surpass the industry average by two or three times. Alipay has also mentioned an approach for sellers to upload their products to a centralized “product pool,” where influencers can select specific items for promotion within their individual live rooms.
• Mini-programs, which are effectively apps within a bigger app such as WeChat and Alipay, are increasingly regarded as vital drivers of business growth in China. The number of active mini-programs on Alipay has surged by 119% in the past year, according to He Yongming, vice president of Ant, while the gross merchandise volume (GMV) generated by merchant mini-programs has risen by 79%. Alipay has not yet disclosed the scale of total sales. By comparison, WeChat mini-programs achieved a transaction volume in the tens of trillions of yuan in 2022, marking a year-on-year growth of over 40%.
• As for the second announcement of the day, Alipay has updated its international version as it looks to enhance user experience for foreign customers, by integrating frequently-used travel services, including hotel booking, air ticket booking, ride-hailing, public transport, and exchange rate checking.

Context: The Jack Ma-backed Ant Group has reportedly been undergoing significant restructuring ahead of its listing in Hong Kong. This may involve the separation of certain non-core operations of its finance-related business. The decision comes after Ant was hit with a nearly $1 billion fine in early July, in a signal by the Chinese authorities that it was concluding its crackdown on the firm in the wake of its abrupt abandoning of what was expected to be the world’s biggest IPO in late 2020.

Chinese e-commerce giant Alibaba reported a solid quarterly performance on Thursday, attributed to improvements across all of its operations. Notably, its logistics unit Cainiao and digital media arm both achieved profitability for the first time. Total revenue reached RMB 234.16 billion ($32.3 billion), marking a 14% year-on-year increase and a 12.5% rise from the previous quarter.

Why it matters: Alibaba has successfully returned to double-digit growth after a year of relatively stable performance. This achievement comes despite a number of China’s economic indicators suggesting a gloomier overall picture. 

• Revenue growth in the June quarter was primarily driven by Taobao and Tmall, Alibaba’s most profitable businesses, with a significant surge in both the volume and value of orders. China’s second-largest online shopping event, the month-long 618 festival, was also included in this period.

Details: The results of the quarter to June mark the conclusion of Daniel Zhang’s leadership, as he prepares to fully focus on leading the company’s cloud business starting in September. The cloud and computer division experienced the slowest revenue growth (of 4%) among Alibaba’s six independent businesses, while the firm’s international commerce division saw the most rapid expansion with a robust growth rate of 41%.

• Zhang, who is also the CEO of Alibaba Cloud, stated that the 4% growth rate was partly influenced by a “revenue decline from a top customer,” during an earnings call. Nevertheless, he said he believes that the opportunity for AI-driven growth has “just begun.” Alibaba is among the first batch of Chinese companies to launch its own large model and ChatGPT-like tool.
• Despite the robust demand for AI cloud services, the supply of GPUs in the Chinese market fell short, according to Zhang. He added that the cloud and computing unit “only partially met” the demand for AI-related services received.
• Alibaba’s overall net profit experienced a significant 51% year-on-year increase between April and June, while the cloud division more than doubled its profits during the same period.
• Cainiao, which has initiated the process of going public, posted a profit for the first time, making RMB 877 million. This comes after the unit recorded a RMB 185 million loss in the same period last year. The logistics arm’s expansion efforts, both internationally and domestically, contributed to quarterly revenues of RMB 23.2 billion, up 34% year-on-year.
• Alibaba’s digital media and entertainment division also posted its first-ever quarterly profit, spurred by a post-pandemic resurgence in offline shows and cinema screenings. Coupled with an increase in subscription revenue from the streaming site Youku, these incomes helped to boost the unit’s balance sheet.

Context: These are the first quarterly results from Alibaba since the Hangzhou-based powerhouse split its business into six divisions in March. Daniel Zhang will step down as CEO and chairman of the group on Sept. 10, to be succeeded by Eddie Wu and Joe Tsai, who will assume the positions of CEO and chairman, respectively.

TikTok is set to expand its online retail business to the US in early August, according to the Wall Street Journal, in a bid to replicate rivals Shein and Temu’s success in the world’s second-largest e-commerce market. The short video app was thought to be ready to launch the service earlier this year, but delayed the move in May amid concerns from merchants over geopolitical tensions, as previously reported by the WSJ.

Why it matters: The move indicates that TikTok is aiming to earn more revenue from its largest audience market, despite continued threats by American politicians over what they see as the firm’s links to the Chinese authorities. The short video operator has reportedly set a goal for its global e-commerce operation to increase its total sales more than fourfold this year to $20 billion.

Details: On a page called TikTok Shop Shopping Center, users can browse and purchase products, though the model differs slightly from its initial plan to establish a third-party sellers’ platform.

• TikTok will store and ship products for Chinese manufacturers and merchants, from clothing and electronics to kitchen utensils, while also being responsible for marketing, transactions, logistics, and after-sales services, according to the WSJ report.
• Under the so-called “full-service model,” which is currently used by Chinese cross-border e-commerce platforms such as Temu, the popular short-form video streaming platform would only pay Chinese suppliers once US-based clients have placed orders to avoid “inventory buildup.”
• TikTok’s first expansion of its e-commerce outside of Asia came in the UK in 2021, but selling products through live streaming or short videos – a popular approach in China – has not fully appealed to consumers in that country.

Context: The short video app, owned by Beijing-based ByteDance, is used by over 150 million users in the US. However, as TikTok steps up its presence in the country’s e-commerce market, it is facing increasingly strict regulatory scrutiny. The Biden administration in March demanded TikTok be sold or potentially face a national ban in its largest market.

• Last September, Temu launched in the US and quickly found success. But it has been in an intense public dispute with Shein, the low-profile fast-fashion giant established in China, in recent months. Temu sued Shein this month in a federal court, accusing it of violating antitrust laws. This came after Shein sued Temu last December, alleging that it had hired social media influencers to defame Shein.
• TikTok’s entry may escalate this competition further, as some of the professional buyers, warehouses, and order managers recruited by TikTok have been poached from these two competitors, according to the WSJ.

At least six Chinese tea chain companies are gearing up for IPOs, Bloomberg reported on Monday. Expanding at a rapid pace, China’s biggest bubble-tea chain Mixue is among them, with Zhejiang-based XSQ Tea, which has just a fraction of the former’s 28,000 stores, also looking to go public.

Why it matters: For these freshly made tea beverage companies, choosing to list in Hong Kong or the US may make their path to IPO easier while reducing the likelihood of regulatory scrutiny. Meanwhile, their concentrated entry into the capital market highlights the importance of raising funds for companies that rely heavily on investment to expand in scale, especially as China’s post-pandemic consumption recovery appears to be running out of steam.

Details: XSQ Tea, and new-style tea retailers GoodMe, Auntea Jenny, and ChaBaiDao each have more than 6,000 outlets, and are planning to be listed in Hong Kong, while Sichuan-based Chagee is preparing for a US IPO. Mixue is yet to decide on its listing location, Bloomberg reports.

• Last September, Mixue filed its prospectus to Shenzhen Stock Exchange, but the company seems to have been excluded from listing on China’s A-share market. The report cited Shen Meng from Beijing-based investment bank Chanson & Co., who mentioned that food and beverage chains, especially those that are “burning money” to scale up, were reportedly on the ban list.
• Chagee, the only company reported to be set on a US offering, has the largest international presence among the six firms. The six-year-old company operates over 70 stores in Malaysia, Thailand, and Singapore, accounting for nearly 4% of its total number of outlets.
• Aside from Mixue, the financing amounts for the companies are unlikely to exceed $500 million, according to Bloomberg.

Context: Under the banner of being the first tea drink firm of its kind to go public, Nayuki, a Chinese freshly made tea chain established by a married couple in 2015, made its Hong Kong listing debut two years ago. However, the company has not yet achieved profitability and is experiencing mounting losses, leading to a significant decline of about 70% in its stock price from its IPO level.

• Seeking expansion outside of China and embracing the franchise model are the two most common strategies employed by bubble tea chains to achieve further growth amidst increasingly intense competition. HeyTea, Nayuki’s top competitor, previously refused to open franchises but has now adopted an open approach to recruit partners in non-first-tier cities and multiple overseas cities. Similarly, Nayuki, concerned about its profitability, has recently chosen to put aside its reservations and attract franchisees.
• In China, the size of the new-style tea beverage market more than doubled in the five-year period from 2017 to 2022, with the total number of stores reaching nearly 500,000 across the country, data from China Chain-Store & Franchise Association showed. The market is expected to amount to RMB 145 billion in 2023.

China’s e-commerce giant JD on Thursday introduced its own large AI model ChatRhino during the JD Discovery tech summit. Positioned as a vertical AI model that offers industry-specific use cases, JD’s AI offering arrives a few months later than rivals Alibaba and Baidu.

Why it matters: JD is the latest Chinese tech major attempting to upgrade its offerings with AI and large models. The company said ChatRhino combines 70% generalized data and 30% native intelligent supply chain data, targeting a number of sectors including retail, finance, education, and government. 

• “Large models shouldn’t just be limited to toys for chatting, writing poetry, or painting,” Cao Peng, chair of JD’s technology committee and president of JD Cloud, said at the launch event.

Details: CEO Sandy Xu, who took office in May, emphasized at the summit that ChatRhino has shown “clear practical results” within JD. The company has already utilized the AI model to enhance customer service, facilitate code writing, and improve product recommendations, she added.

• JD plans to expand its large AI model (also known as large language model, LLM) capacities for commercial applications to corporate clients in early 2024.
• JD’s healthcare unit also unveiled a specialized model called Jingyi Qianxun based on ChatRhino on the same day, the name of which means asking doctors thousands of times in Chinese. The model, designed for the medical industry, is capable of “quickly adapting and learning from various healthcare scenarios,” which will serve as a technological foundation for remote medical services, according to the company’s description.
• The e-commerce giant also showcased its ambition to develop humanoid robots, which will be a key exploration direction for the JD Explore Academy. In a pre-recorded video presented at the launch event, a robotic arm seamlessly poured a glass of water for He Xiaodong, director of the Academy, in response to his prompt.
• He Xiaodong also stated that while JD has been making technological preparations in AI for several years, the introduction of their own large model was delayed as the company prefers to focus more on industry-focused, specialized models rather than a general-purpose model. 

Context: Beijing currently is home to approximately half of the more than 80 large models available in China, according to Jiang Guangzhi, the director of the Beijing Municipal Bureau of Economy and Information Technology, who delivered a speech at the Global Digital Economy Conference held in Beijing earlier this month.

• With the rising trend of large model development kicked off by OpenAI last November, Chinese authorities are actively encouraging innovation in generative artificial intelligence while also formulating detailed regulations to ensure that ChatGPT-style services operate under oversight.

Alibaba’s logistics arm, Cainiao, on Wednesday launched a new express delivery service that will put it in a position to compete directly with delivery companies such as JD Logistics and SF Express. The major move comes a week after Alibaba appointed Joe Tsai as the group’s chairman. Cainiao CEO, Wan Lin, unveiled the new service during Cainiao’s annual Global Smart Logistics Summit, promising that it will offer half-day, same-day, and next-day doorstep deliveries, along with other “high-quality” services.

Why it matters: Wan stated that the company was once “deeply conflicted” about whether to establish its own domestic logistics operations. However, as Cainiao has begun preparations for a listing in Hong Kong, it has become crucial for the firm to become sustainable and competitive in China’s crowded delivery industry.

• Cainiao is expected to pursue an independent IPO within the next 12 to 18 months, according to Alibaba’s latest financial results.

Details: The new service, named Cainiao Express, is an expansion of the express delivery previously provided exclusively to select Alibaba-owned businesses such as Tmall Supermarket, Freshippo, and Tmall Global; e-commerce merchants on Taobao regularly rely on third-party courier services.

• During the summit, Cainiao Express announced partnerships with Chinese dairy company Adopt A Cow, beer manufacturer Tsingtao Brewery, and Intime Retail.
• Joe Tsai, the chairman of Cainiao, and soon-to-be chairman of Alibaba in September, said in a pre-recorded video that Alibaba hopes to continue driving economic growth through online consumption, as it remains the most important force for economic development. Tsai also emphasized the crucial role of “efficient logistics operations.”
• Cainiao is also actively gearing up overseas expansion plans in collaboration with Alibaba’s global online platform AliExpress, saying they will launch a global delivery service this year that promises cross-border parcel deliveries within five working days.

Context: Building an independent express network and creating cost-effective express services requires heavy upfront costs, as well as higher operational costs. 

• JD’s logistics arm JD Logistics has not yet achieved profitability despite being known for prompt and trustworthy fulfillment. In 2022, it recorded a yearly loss of RMB 1.09 billion.

Chinese online retailer JD on Monday announced changes to its senior executive line-up, involving its logistic arm and healthcare unit, days after releasing ambitious growth targets at its 20th-anniversary celebration last week.

Hu Wei, former chief executive of JD Property, will succeed Yu Rui, who resigned for personal health reasons as CEO of JD Logistics, on June 26. Additionally, the chief financial officer of JD Health, the drug store operator, will assume the position of CEO for JD Property.

Why it matters: The top-level changes come at a time when JD experienced its lowest-ever pace of revenue growth. Just a month prior, the Beijing-based company made a surprise management reshuffle, with chief financial officer Sandy Xu replacing Xu Lei, who had served as CEO for only a year. 

• Executives now face challenges on multiple fronts in their pursuit of JD’s ambitious growth goal, which it has called “35711 Vision” and was announced on June 18.
• As part of the plan, JD plans to establish three enterprises with more than RMB 1 trillion ($140 billion) in revenue and RMB 70 billion in net profit over the next two decades.

Details: In 2022, JD achieved a milestone by surpassing the trillion-dollar revenue mark, with revenues totaling RMB 104.62 billion. The company also recorded a net income of RMB 10.4 billion thanks to strict cost-cutting measures, compared to a loss of RMB 1.04 billion a year prior.

• JD currently has two Hong Kong-listed affiliates, JD Health, which went public at the end of 2020, as well as JD Logistics, which was listed a year later. The drug store operator’s total revenue amounted to RMB 46.7 billion in 2022 while achieving a net profit of RMB 380 million. However, the logistics unit has not yet recorded a profit despite having nearly three times the revenue of JD Health.
• JD also has majority control of Dada group, the Nasdaq-listed delivery and retail company, which is also yet to turn a profit.
• JD’s property and industrial units are gearing up for Hong Kong listings, according to the e-commerce firm’s March filing. A previous Reuters report cited sources as saying the two firms are valued at $1 billion each. Under the company’s “35711 Vision,” JD intends to bring seven publicly listed companies with at least RMB 100 billion in market cap over the next 20 years.
• Meanwhile, Yan Xiaobing, former head of JD’s international business, is reportedly back at the company after leaving a year ago. Yan will lead a newly-created team that merges grocery chain 7Fresh and group-buy businesses into a unit called “innovative retail.”

Context: Alibaba, a major rival to JD, has conducted several rounds of structural and management changes this year. Earlier this month, Alibaba appointed Joseph Tsai as chairman and Eddie Wu as CEO, succeeding Daniel Zhang. Alibaba also announced in late March that it will split its operations into six standalone units, each managed by a different chief executive and able to pursue separate IPOs or external funding.

• Both JD and Alibaba, as China’s leading e-commerce firms, have seen increased top-level reshuffles and ongoing restructuring efforts in recent months as they aim to stay competitive amid a larger economic slowdown and increased competition.

Major Chinese e-commerce platforms have kept quiet on the gross merchandise volume (GMV) figures for the month-long 618 shopping festival, a key indicator of success in years past. JD said the event “exceeded expectations and set a new record,” while Alibaba’s e-commerce group said it saw users’ willingness to spend more time browsing on Taobao as their “greatest achievement” from this year’s festival. 

Why it matters: Third-party data provider Syntun said total sales during 618 from Tmall, JD, and Pinduoduo increased 5.4% from a year prior to RMB 614.3 billion ($85.6 billion), signaling that China’s consumption growth is on a slower pace than expected, as consumers spend their money more cautiously.

Details: The mid-year shopping festival is still a major event to observe changing consumer trends and tastes. According to various surveys, this year’s event shows that livestream shopping has become increasingly influential in consumers’ shopping decisions. 

• Data produced by Syntun shows that the cumulative sales generated from live commerce platforms including Douyin and Kuaishou reached RMB 184.4 billion during the 618 period, representing a 27.6% year-on-year increase. 
• According to a survey conducted by local media outlet Yicai involving approximately 400 respondents, nearly two-thirds stated that they primarily shopped on livestreams. 
• Alibaba’s Taobao saw its daily average number of views of short videos on the platform surge by 113% compared to the same period last year, while the number of active influencers grew by 200%.
• Low cost was another major theme emphasized by e-commerce platforms during this 618, as businesses offer discounts to boost sales. 
• A survey conducted by the media outlet Southern Metropolis Daily also revealed that consumers have varied ideas of what constitutes low cost. Close to 60% of respondents believe that it refers to products with ultimate cost-effectiveness, where the brand, quality, or after-sale services are superior despite the product having a comparable price. One-third of respondents consider it the lowest price for the same item across all platforms, while 11.5% perceive it as products priced at an absolute minimum, such as goods costing RMB 9.9.

Context: JD recorded an overall transaction volume of RMB 379.3 billion during last year’s 618 festival. However, its annual growth of 10.3% was a new low, slowing from the previous year’s 27.7% increase.

• Chinese retail sales grew by 12.7% year-on-year in May, according to data released by the National Bureau of Statistics, lower than the expected 13.6% and also lower than April’s 18.4%. Fu Linghui, a spokesperson for the bureau, stated that retail sales showed a “stable growth momentum,” and any growth rate decline was mainly due to starting at a higher base than the previous year.

China’s 618 shopping festival, the country’s mid-year online deals event, is coming to a close after a month-long campaign. This year’s 618 is the first major shopping event since China reopened in December, offering some insight into China’s current consumer sentiment. 

It’s also an interesting test for Chinese e-commerce giants Alibaba, JD, and Pinduoduo, all of whom have recently undergone management adjustments. Each company continues to face significant growth pressure in the face of fierce competition.

Alibaba, JD competing on lower prices with Pinduoduo

This year’s 618 festival encapsulates the escalating price war in China’s e-commerce industry. With the slowdown in economic growth, consumers are actively seeking cost-effective products. In response, multiple Chinese e-commerce platforms have followed Pinduoduo’s marketing strategy by offering higher discounts to attract buyers.

During the month-long mega promotion, Alibaba customers have received a discount of RMB 50 (about $7) for every RMB 300 spent across Tmall stores. In addition, Taobao has introduced an “RMB 10 billion subsidy” project, adopting a similar approach and bearing the same name as Pinduoduo’s signature campaign. Through this channel, products were directly sold at lower prices without the usually complicated coupon application.

JD, with former CFO Sandy Xu recently taking over as CEO, offered the most generous discounts compared to other platforms. Buyers have been able to get RMB 50 back for every RMB 299 spent. Prior to the festival, Trudy Dai, CEO of Alibaba’s newly independent Taobao Tmall Commerce Group, expressed the platforms’ commitment to making a “historical investment” in this year’s event, while JD announced its intention to undertake “industry-wide investment efforts” during the festival.

Pinduoduo, known for selling ultra-low prices goods, prominently displayed a slogan on its 618 promotion interface that roughly translates to “no need to compare with other platforms because we offer the lowest prices.” Pinduoduo has also been offering RMB 30 off for every RMB 200 spent.

“Encouraging consumption became the priority for the government, the market, and the e-commerce platforms in all aspects,” said Fabian Sinn, a managing partner at e-commerce marketing firm Genuine. “As a result, there were more subsidies and more affordable prices to attract consumers and stimulate the market’s economic recovery.”

Retail sales, as a key figure indicates consumer confidence, rose 12.7% in May, falling short of market expectations and down from 18.4% in April. The recovery in China’s consumption sector is not as strong as it appears.

The rise of Pinduoduo, which has steadily gained market share in an e-commerce industry once dominated by Taobao and JD, has combined with the emergence of live commerce platforms like Douyin and Kuaishou in recent years to have a significant impact on price-sensitive consumers. These consumers now consider the price differentials and after-sales services offered by various shopping outlets when making their purchasing decisions.

Copying from each other’s playbooks

In a heated competition, Chinese e-commerce platforms are copying strategies from each other. Rising content commerce platforms like Douyin and Kuaishou are copying from the majors, trying to offer more serious online shopping experiences like Taobao and JD on their apps, adding new dedicated shopping sections rather than directing people to shop while they are watching content like they used to. While majors like Alibaba and JD are trying to offer more video entertainment and content, making the shopping experience more casual in their apps. 

Douyin and Kuaishou, known for stimulating consumption via livestreaming and short videos, have focused on leveraging various promotional activities to drive sales through dedicated shopping channels called “marketplace,” where product listings can be displayed in columns. 

Wei Wenwen, president of Douyin’s e-commerce unit, recently highlighted at the TikTok sibling’s ecosystem conference that the GMV generated from the “marketplace” accounted for over 30% of its total sales in 2022.

Douyin and Kuaishou “have been steadily capturing more market share, despite offering similar products to other major platforms,” Jacob Cooke, CEO of WPIC, an e-commerce tech and marketing firm that helps foreign brands sell in China, told TechNode.

“People use these short-video apps for entertainment and knowledge acquisition,” added Cooke, “and the platforms have cleverly integrated e-commerce so that users are exposed to brands and products that relate to their interests, which has been a catalyst for impulse buying and consumer engagement.”

Mainstream shopping sites are adopting a content-driven approach as a defensive strategy to promote sales. The content-based browsing was repeatedly emphasized by Trudy Dai at the 618 Merchant Conference held on May 10. Dai promised that Taobao would provide a wide range of products, short videos, and livestreaming services to enhance user engagement.

Alibaba is investing heavily in its content ecosystem. The e-commerce giant announced at the Merchant Conference that over 50,000 new livestreaming hosts would make their debut during the annual mid-year discounts on Taobao and Tmall. 

Notably, on May 31, US tech giant Apple made its first foray into livestreaming on Tmall, an event that drew 1.28 million viewers. Football celebrity Messi also joined Taobao Live for nearly 20 minutes on June 14, as part of his Chinese trip schedule, which drew over 2.5 million viewers and even caused the stuttering of the livestream event when Messi came onto the scene.

JD Live is also leveraging top influencers to attract user transactions. Smartisan Technology founder Luo Yonghao, who previously had an exclusive partnership with Douyin, joined JD’s livestream on May 31 and helped sell goods for more than RMB 150 million.

Douyin is reportedly abandoning its goal of achieving RMB 100 billion ($14 billion) in total sales this year, as the business’ progress in the first half of 2023 has only reached one-tenth of the yearly target, falling extremely short of internal expectations.

Local media outlet LatePost first reported the news on June 10, citing a source close to the matter. While GMV is no longer the most important metric for the unit, the report said that exploring various ways to successfully run the food delivery business is now a more urgent priority for TikTok’s Chinese sibling.

Why it matters: Due to a lack of its own delivery logistic team, Douyin has relied on selling higher-priced set meal kits (which cut down the frequency of deliveries) and third-party delivery companies to offer its food delivery service. The approach is currently presenting challenges in scaling up the business.

Details: Starting in mid-2022, the short video platform has been testing food deliveries in Beijing, Shanghai, and Chengdu. Users in these three cities are able to order food for delivery within Douyin. But unlike market leaders Meituan and Alibaba’s Ele.me, restaurants selling goods on the Douyin platform need to use delivery riders from another service or deliver the food themselves, making the delivery cost run higher.

• Typically priced over RMB 100, meal kit takeaways are designed for several people to share and have longer delivery times compared to other platforms that prioritize individual sales and more timely delivery.
• In contrast to Meituan, which recorded a peak of 60 million in daily order volume for food deliveries last August, Douyin’s takeaway orders have experienced limited growth, with its average daily order volume from January to March reportedly remaining at around 10,000 to 20,000 units.

Context: Meituan and Ele.me now dominate the food delivery market in China, holding a more than 90% share of the market between them, highlighting the challenge for Douyin. Meituan has already begun a counteroffensive to maintain its leading position in the face of this new challenger.

• In March, Meituan introduced a marketing event called Shen Qiang Shou for merchants, which is currently being trialed in Shenzhen and Beijing. The promotional event allows users to purchase discounted coupons through Meituan’s own livestreaming or short-form videos, which can be redeemed for real goods within a specified timeframe.
• For consumers, Meituan conducts regular live commerce promotional events on the 18th of every month, with influential merchants selling discounted goods with the aim of stimulating demand. According to a Meituan statement, takeout vouchers worth RMB 86 million were sold on its first livestream shopping event, which lasted 11 hours on April 18.

Chinese short-video platform Kuaishou reported impressive growth in home appliance sales on the platform as China’s mid-year 618 shopping festival gets underway. Kuaishou saw single-day GMV of home appliances on June 1 top RMB 100 million ($14 million), a 42-fold increase compared to last year, data from the company showed.

Why it matters: Kuaishou is seeing results from the continued expansion e-commerce on the platform. In 2022, the Chinese short video platform generated over RMB 900 billion from its livestream commerce business. 

• Chinese content platforms, whether short video apps such as Douyin and Kuaishou or social content apps like Xiaohongshu, are increasingly looking at e-commerce as a way to commercialize their popularity. 

Details: In the first three days of June, the GMV growth rate of household appliances that have high unit prices on Kuaishou increased by nearly 500% from a year earlier, making it the category with the largest increase, according to data released by the firm.

• On June 1, 15 merchants selling home appliances saw their total sales exceed RMB 1 million. Chinese brands TCL, Haier, and Aucma were the top three brands in terms of sales volume.
• Taking the Haier 470L refrigerator as an example, users can purchase it for RMB 3,599 in Haier’s official store on Kuaishou. This price is consistent with the flagship Taobao store of the brand. But users can earn cashback of RMB 300 after they complete their order on Kuaishou. However, the same refrigerator is priced at RMB 3,099 on value-oriented platform Pinduoduo.
• In 2022, the repurchase rate of Kuaishou’s e-commerce business was basically stable at 70%, according to data compiled by Southwest Securities. Meanwhile, Kuaishou recorded over 100 million monthly active paying e-commerce users in the third quarter of 2022; it did not update these figures in its latest earnings report. 
• The Douyin rival launched the “Stream Initiative” program this January, which aims to help merchants identify their target customer base through KOL (influencer) distribution and accurately recommend merchants’ self-operated livestreams to potential clients.
• Since the first quarter of 2023, Kuaishou has started to charge commission revenue from influencer distribution.

Context: Categories with higher unit prices, such as home appliances and consumer electronics, are currently showing more growth on Chinese mainstream live-commerce platforms, although the timeframe of the statistics differs from platform to platform.

• TikTok sister app Douyin saw GMV generated from the home appliance industry increase 808% compared to the same period last year during this year’s 618 pre-sale period, which started from May 25 and lasted five days. Douyin saw seven home appliance brands surpass RMB 50 million in sales on the platform.

PDD Holdings, owner of Pinduoduo and Temu, recently reported a 58% yearly increase in revenue for the first quarter of 2023. The company attributed the better-than-expectation performance to online retail recovery in China.

10 Billion Ecosystem Initiative

Along with the announcement of quarterly earnings, PDD also unveiled its latest major program, “10 Billion Ecosystem Initiative,” marking the company’s third initiative worth RMB 10 billion ($1.4 billion) following the “10 Billion Subsidy” and “10 Billion Agriculture” initiatives. The primary objective of this plan is to allocate additional resources to high-quality sellers, aiming to enhance the overall service efficiency and quality of the platform’s merchants.

This move aligns with the comments made by Chen Lei, PDD’s co-CEO, during the earnings conference call. He emphasized the company has been steadily shifting its strategic focus from pursuing rapid growth to emphasizing the quality of growth.

“Under our long-term strategies, we are continuously strengthening our supply chain capabilities and expanding the supply of high-quality merchandise. We will further increase our support for quality sellers by launching our 10 Billion Ecosystem Initiative and further improve the quality of our service while continuing to optimize our platform ecosystem.” Chen said.

Started as a platform for selling agricultural products, PDD is known for its stable and efficient supply chain. The company continues to uphold its policy of zero commission on agricultural products. As a result, agricultural merchants spends about only one-third to one-half on Pinduoduo than on other platforms. In early April, the company appointed co-founder Zhao Jiazhen as co-CEO. Zhao, with extensive experience in supply chains, focuses more on supply chain management and domestic business operations, while Chen Lei leads global expansions.

The co-CEO lineup highlights the company’s commitment to advancing supply chain expansion and optimization. During the early days of the company, Zhao played a key role in overall operations and supply chain development in the agricultural business. In 2020, he successfully led the Duoduo Maicai team in pioneering the community group-buying business model in Jiangxi province.

According to various reports, under Zhao’s leadership, PDD’s specialized teams will progressively explore 100 high-quality industrial hubs across at least 10 provinces in China this year.

A mature and robust supply chain relies on diverse and high-quality sources of goods. Pinduoduo’s new major initiative seeks to uphold the company’s position as a crucial source of goods in the e-commerce industry. The company promises this program not only involves providing financial support of billions of dollars to high-quality merchants, brands, and small and medium-sized enterprises but also assisting these merchants in expanding into international markets.

Extra subsidy for 618

Ahead of this year’s mid-year 618 shopping festival, PDD launched its 10 billion yuan subsidy program on April 6th, specifically targeting home appliances and consumer electronics. In addition to the existing subsidy, they will invest another to provide extra 10 billion yuan in subsidies for a wide range of digital home appliances, including smartphones, tablets, refrigerators, air conditioners, and others.

Major domestic and international brands such as Apple, Huawei, Honor, Xiaomi, Midea, Haier, Sony, TCL, Nintendo, Dyson, and Vivo have already participated in the program.

PDD will also collaborate with brands like Midea, Haier, Xiaomi, Vivo, Asus, TCL, and Hisense to launch a series of factory-direct products. Combining subsidies with direct sales to provide better discounts and benefits to consumers.

By promoting the direct connection between popular factory products and consumers through subsidies and direct sales, this approach benefits both the supply and demand sides. This initiative aims to offer consumers competitive prices and boost the manufacturing sector’s recovery.

Using AI tools in content creation is increasingly an industry norm as the AI models behind the tools become more sophisticated. TechNode caught up with Ken Wang, founder and CEO of BOOLV, at the BEYOND Expo 2023 in mid-May. BOOLV is a Hong Kong-based SaaS startup that makes AI-powered tools to speed up content creation in marketing, catered to overseas e-commerce.

BOOLV, founded by Wang in 2021, serves new and growing e-commerce brands and platforms such as baby clothing retailer Patpat, fast fashion platform Cider, and clothing site Cozinen. Wang and his core team of technicians have previously worked at Tesla, Royal Bank of England, and ByteDance, and are adept in data handling, AI, and product management.

BOOLV has two key offerings: Video Maker, an AI tool that helps retailers make marketing clips, and Booltool, a marketing content platform that offers creation tools for copies, pictures, and videos.

Key quotes: “In the future, the majority of commercial videos will likely be generated using machine assistance (AI). Video will become the most common form of content consumption, but the accompanying challenge will be high video production costs. That’s why it is crucial to have a productivity tool to address this issue. Our company aims to assist global small and medium-sized enterprises in generating high-value videos in the most efficient manner possible.”

Below is a selected Q&A from the interview, which was conducted in Chinese, translated, condensed, and edited for clarity:

What is your company’s biggest competitive advantage?

Our understanding of short videos for e-commerce. The way we handle video clips in our product, such as video matting and background removal, is based on our own AI models. It has nothing to do with general large models.

We also help brands generate unique videos to get the best return on investment. For example, we have analyzed many video scripts to determine what tone suits specific advertising objectives and provided those suggestions as functions. We consider various factors, including transition effects and AI-generated content, such as virtual characters, to achieve the desired impact. We have developed countless scripts and some of the best-performing video formats in the market.

These offerings are not purely technical; it’s more about deconstructing videos and refining best practices for specific purposes. By sharing this knowledge with global users, we create value. This is the core of our competitiveness.

BOOLV’s products are focused on the e-commerce sector. Are you concerned that as large AI models evolve and costs decrease, tools like yours that target specific needs might be overshadowed or replaced by more generalized models?

We don’t worry about that. From a technological standpoint, the results may be similar. However, because we have done specific and targeted data training, our performance is expected to keep improving.

With some of the features, we directly use ChatGPT’s API without much adjustment. But that’s fine because we understand our users’ pain points and needs across e-commerce, and try to find application-oriented solutions. Whether we stack multiple models, use models we trained ourselves, or employ large-scale models, users ultimately care more about the end result.

Our product is all-in-one, and addresses issues throughout users’ workflow (when creating content for e-commerce). While some users could use a generalized model for some tasks, it wouldn’t suit everyone. We also offer competitive pricing for package solutions.

Are you concerned about bigger companies like Adobe and Microsoft incorporating AI into their existing tools? For example, Microsoft is turning its Office suite into Copilot. If major video creation tools like Adobe Premiere incorporated AI functions in the future, would that worry you?

We’re not really concerned about that because these bigger companies cater to a broader range of users, while we are highly focused on specific needs in e-commerce.

For example, Adobe probably wouldn’t invest in face-swapping because it’s not of generalized demand. Face swapping comes into play frequently in certain e-commerce scenarios. Let’s say I need five or six different kinds of models showing the same particular outfit. Or maybe I want to replace one model’s face with that of a person from a different ethnicity. These are highly specific and frequent requirements within the e-commerce field.  Users in other sectors may have no use of this.

And even if these larger companies decide to incorporate such features, they probably won’t be as good as what we offer. We have trained and optimized our models specifically for e-commerce, so we are not particularly worried about that aspect.

Kuaishou, China’s second-largest short video firm, has achieved a quarterly profit for the first time since its listing in early 2021, thanks to strong growth of its short video drama series, recovery ad revenue in China, growth in e-commerce revenues, and narrowed losses overseas. The company reported an adjusted net income of RMB 42 million ($6 million) in the January to March period, compared to a loss of RMB 3.722 billion a year earlier.

Why it matters: It is still uncertain whether Kuaishou can sustain its profitability going forward. The company’s first quarter profit was driven mostly by growth and recovery in the Chinese market, which generates 98% of the company’s revenue. Kuaishou has managed to narrow losses by 55% in its overseas revenue. 

Domestic business: Short soap opera-style video series are a key offering that sets Kuaishou apart from other short video platforms, both in its domestic and overseas operations. These short video series, catering to mobile video audiences, have attracted more advertisers for the company and become a growth driver. In the first quarter of 2023, revenue from advertising sponsorship of Kuaishou’s short video dramas increased by more than 300% year-over-year.

• Kuaishou launched a total of 55 short video dramas during the 2023 winter break period. Among them, a show called Donglan Snow accumulated 100 million viewers within a record-breaking 40 hours of its launch, according to the company’s earnings report.
• Beijing-based Kuaishou has been profitable for four consecutive quarters in its domestic business, with operating profit standing at RMB 963 million during the latest quarter. 
• Kuaishou’s advertising business generated revenue of RMB 13.1 billion, marking a 15.1% yearly increase. Online marketing services and livestream business accounted for nearly 90% of Kuaishou revenue in the quarter that ended in March, while the e-commerce sector is gradually providing a boost to the short video platform. 
• Kuaishou’s livestream business revenue grew 18.8% reaching RMB 9.32 billion, and the number of monthly paying livestream users increased by 6.4% to 60.1 million in the first quarter of 2023.
• With an increasing number of monthly active paying e-commerce users and a rising average order price, Kuaishou’s e-commerce business achieved total sales of RMB 2.25 trillion in the first quarter. This contributed to a yearly growth of over 50% in other services, including e-commerce, totaling RMB 2.834 billion.
• Cheng Yixiao, the founder and CEO of Kuaishou, also told an earnings call that the company’s large language model is in the “training phase” and is leveraging the firm’s “previous technical expertise in AIGC algorithms and LLMs.” Kuaishou has already established an LLM model research and development team to explore the application of AI technology in its products.

Overseas business: Kuaishou’s overseas operations are currently focused on Latin America, with the short-form video app Kwai running in countries such as Brazil, while it also operates the SnackVideo app in Indonesia. This quarter, Kuaishou’s revenue outside of China grew more than six times year-over-year to RMB 338 million. The firm’s overseas business has maintained an extremely high growth rate for nearly a year, recording a 1,328.5% increase in revenue growth in the second quarter of last year alone.

• However, its overseas business remains in the red, even as its operating loss narrowed by 55.42% year-on-year to RMB 823 million in the first quarter.
• The TikTok rival did not release the latest data on daily active users and user time spent in markets including Brazil and Indonesia, but said “both have improved.” As of last June, overseas daily active users spent an average of more than 60 minutes a day.
• Kuaishou has also launched a content model in Latin America called TeleKwai, which aims to provide distribution opportunities for short video pieces created by local producers and content creators, usually under two minutes in length.

Alibaba has approved a full spin-off of its cloud arm, with the unit set to become an independent publicly listed company. The Chinese tech giant has also approved moves by its logistic unit Cainiao and grocery brand Freshippo (Hema) to explore IPOs in the near future, according to an official announcement as part of its March quarter earnings release on Thursday.

The separation of Alibaba Cloud will be done through a stock dividend distribution to shareholders, the company said, adding that it foresees the process being completed within a year. Alibaba is targeting a public listing for Cainiao in 12 to 18 months, while Freshippo is due to be listed in the next six to 12 months. 

Why it matters: The plan to spin off the cloud computing unit into a separate entity and allow the listing of Cainiao and Freshippo follows Alibaba’s announcement in late March that it was splitting the company into six standalone units while maintaining central control. The e-commerce giant said the major reorganization was aimed at making its operations more nimble and effective as it faces heated competition and sluggish revenue growth.

Details: With the spin-off of its core units, Alibaba is transforming from operating multiple group businesses into “a holding company that focuses on capital management,” the company’s CEO Daniel Zhang stated on the Thursday earnings call. Alibaba also announced that it has established a capital management committee at the board level to “undertake a comprehensive capital management” of the overall firm.

• As one of Alibaba’s most important growth engines, Alibaba Cloud is expected to go public within 12 months. In the quarter ending on March 31, the cloud computing unit recorded its first-ever decline in revenue, with a year-on-year decrease of 2% to RMB 18.6 billion, accounting for 9% of the group’s total revenue. The unit is still the group’s second-largest after its core China commerce unit.
• Cainiao, Alibaba’s logistics arm, has not yet achieved profitability. It posted an adjusted EBITA loss of RMB 319 million in the first quarter, though this represented a narrowing of 65% compared to the same period last year.
• Freshippo, which operates a network of supermarkets across the country, has established “well-defined business models, and a clear path to profitability,” Alibaba said in its latest earnings report. 
• Alibaba’s board has also approved the Alibaba International Digital Commerce Group, which consists of Lazada, AliExpress, Trendyol, and others, to explore external financing.
• Each of Alibaba’s six major business groups is now independently managed by its own CEO and board of directors. Daniel Zhang does not appear on the board of directors’ list of the six groups other than at the cloud unit. Wang Jian, the founder of Alibaba Cloud, has returned as the chairman of that group. In addition, Alibaba founding member Joe Tsai has been approved as the chairman of the board of directors for Cainiao Group.

Context: Alibaba posted a modest 2% increase in overall revenue to hit RMB 208.2 billion ($30.12 billion) for the January to March period, which fell short of market expectations. The growth rate is the lowest that Alibaba has experienced since it went public in 2014.

• The China commerce division, the biggest contributor to Alibaba’s total revenue, saw its revenue decline 3% year-on-year to RMB 136.1 billion during the first quarter. The earnings report also noted a “mid-single-digit” yearly fall in the GMV of online physical goods on Taobao and Tmall.

With its peak daily order volume for food deliveries surpassing 60 million last year, Meituan continues to sit pretty at the top of the tree when it comes to China’s local life services sector. The app spans everything from movie tickets and restaurant bookings to medical appointments, and recorded a total of 677.9 million users making transactions in 2022.

Yet Meituan’s dominance is increasingly facing challenges. Major Chinese companies including social media platform Xiaohongshu and ByteDance-owned TikTok sibling Douyin have been making inroads into the local life services market as Covid restrictions have eased. By linking consumers with nearby service providers or merchants and encouraging them to make purchases digitally before going to have the experience offline, these newcomers are looking to such transactions as a way to monetize their huge user bases.

For the moment, Meituan claims to be unperturbed. Meituan CEO Wang Xing described Douyin’s expansion into food delivery as having “a limited impact” on the company during its Q1 earnings call. However, the delivery platform recently made takeout livestreaming a monthly event and has launched group-buy delivery services in what many see as a bid to stay competitive in the face of these new entrants.

The total size of the local life services market is expected to reach RMB 35 trillion in China by 2025, though its online penetration rate was only 12.7% in 2021, according to data from Chinese research firm iResearch and cited by Chinese media outlet 21jingji, meaning there’s still plenty to play for.

Here’s a short introduction to new players in this vibrant market.

Xiaohongshu

Experience-sharing lifestyle platform Xiaohongshu, the latest major entrant to this competitive sector, has over 260 million monthly active users. The platform has maintained a thriving user base and sense of community for years and serves as a lifestyle search engine for many of its users. Now, it is making one of the biggest moves in the local life sector.

Xiaohongshu is currently inviting caterers and service providers to test the sale of group-buying packages on its platform. Participating merchants can sign up without paying a deposit or commission to Xiaohongshu for revenue earned through the service, according to tech media outlet GeekPark. Meanwhile, the platform’s influencers are able to earn commission by posting information about retailers that offer group buy options.

If the Shanghai-based company can leverage its feed algorithms while encouraging users to complete transactions within the app, it may see Xiaohongshu emerge as a serious challenger to Meituan, while also accelerating the company’s monetization quest. In 2020, 80% of Xiaohongshu’s revenue was generated by ads, the Financial Times previously reported, citing research firm LeadLeo, but the company is increasingly looking to diversify its revenue streams.

READ MORE: Xiaohongshu bets on e-commerce livestreaming to accelerate monetization: report

Douyin

Douyin has made significant strides in expanding its presence in the local life market, with its services sector reportedly generating over RMB 77 billion ($11.1 billion) in total sales last year, while advertising revenue amounted to just RMB 8.3 billion.

Growth in the platform’s brightest business continues to be strong. Local media outlet 36Kr reported that the unit generated more than RMB 10 billion in GMV in every single month in the first quarter of this year.

The TikTok sibling app has expanded its offerings to include group-buy delivery, sightseeing tickets, hotel reservations, and manicures in recent months. In mid-2022, Douyin allowed short video viewers to order meals directly on the app through a mini-program operated by Alibaba’s food delivery service Ele.me. In March, the service was introduced to 15 new cities, expanding the service to a total of 18 locations in China.

These efforts reflect the fact that ByteDance, Douyin’s owner, is stepping up its push to monetize users on the widely popular platform.

The head of Douyin’s local life business, Zhu Shiyu, recently stated that life services was a vast market worth more than ten trillion yuan, and that only a small proportion of transactions were currently being conducted online.

Kuaishou

Kuaishou, another leading short video-sharing platform in China with 366 million daily active users, has been expanding its presence in the local life services space in an effort to also capture market share, although it currently has less of a presence than rivals Douyin and Meituan.

Kuaishou had been active in offering lifestyle services in Shanghai, Qingdao, and Harbin, with Hangzhou the next major city to see local services rolled out. Kuaishou aims to provide local life services for different cities through a replicable model developed through experimentation. The short video operator incentivizes local merchants to sign up for the service while supporting local influencers who are willing to promote shops on the app.

Xiaogu, head of Kuaishou’s local life business unit, noted that since it entered the Qingdao market on Feb. 10, it has added over 300 local businesses. Kuaishou reportedly recorded around RMB 5 million in local sales in the seaside city in its first month, and already saw some influencers generate around 200,000 yuan in a single month.

China’s service sector has made a promising start to its recovery from its Covid-induced doldrums as the country saw tourism and spending surpass pre-pandemic levels during the five-day Labor Day holiday that ended Wednesday.

Why it matters: About 274 million domestic trips were made during the holiday, the second longest holiday since Covid restrictions were lifted last December, China’s Ministry of Culture and Tourism announced on Wednesday. Figures recorded over the period signal the country is seeing a resurgence in offline services and long-haul travel.

Details: Chinese domestic travel revenue surged to RMB 148.1 billion ($20.3 billion) during the May holiday, but while this marked a 128.9% year-on-year increase, per capita spending has only recovered to 90% of 2019 levels, government data showed.

• China’s trains took around 120 million passengers around the country between April 27 and May 3, according to data released by China State Railway Group.
• First-tier cities including Beijing, Shanghai, and Hangzhou were the most popular destinations this holiday, while third- and fourth-tier cities also experienced an unusual influx of tourists. 
• For example, Zibo – a city in eastern China’s Shandong province famous for its affordable local barbecue – saw its hotel reservations up more than 20 times compared to the 2019 level, data from travel service provider Qunar showed, as cited by media outlet NBD. Hotel reservations in third- and fourth-tier cities in general increased by more than 150% compared to the same period in 2019. 
• Asian countries and regions were the main destinations for Chinese outbound tourists during the holiday. Reports from Tencent’s WeChat-affiliated payment platform Weixin Pay sent to TechNode showed Hong Kong, Macau, and Japan as having the largest increases in offline payments compared to 2019. Japan saw the highest increase in average daily transactions through Weixin Pay in-store, by 141%. In Hong Kong SAR and Macao SAR, the average daily spending amount with Weixin Pay in-store registered the biggest growth (of 137%), while the number of transactions increased by 118%.
• Alipay, China’s largest digital payment platform, also reported a surge in spending by Chinese consumers using the platform for travel-related purchases during the first three days of the holiday. Overall spending increased by 70% compared to the same period in 2019, Alipay said.

Context: The recent holiday was China’s first in three years in which large scale travel was unimpeded by the Covid pandemic or restrictions imposed to prevent the virus’ spread. The lengthy pandemic severely hampered the country’s spending and dampened travel enthusiasm nationwide.

Meituan delivery workers in Shanwei, a city in southern China’s Guangdong province, have entered a sixth day of strikes in protest at Meituan’s diminishing benefits and rewards, according to various Chinese media reports and Shanwei delivery workers’ posts on Chinese social media. 

To ensure regular services, Meituan has brought in workers from neighboring cities to Shanwei. The transferred drivers were offered a reward of RMB 10 ($1.45) per order with RMB 200 per day guaranteed, which is more than two times the pay of local drivers, according to screenshots shared on short video platform Douyin. 

A Douyin user called Tukushuhai commented in a video post on Tuesday that some riders from outside the city were unfamiliar with Shanwei’s road conditions, which resulted in delivery time overruns and user complaints.

Why it matters: Meituan’s problems with its workers comes at a time when other Chinese tech majors such as ByteDance and Alibaba are accelerating their moves into the life services sector. ByteDance began testing delivery services via TikTok sibling app Douyin in selected cities in the first quarter of this year. 

Details: A Meituan delivery worker in Shanwei who participated in the strike and preferred to remain anonymous told TechNode that the company had deleted “hundreds” of strikers’ work accounts, preventing them from logging into Meituan’s worker-specific app and therefore cutting off their income during the strike.

• According to a benefit document shared with TechNode by the Meituan worker, the delivery service used to offer a local worker subsidy for long-distance orders. For example, RMB 7 would be added onto a payment for any order between 3.6 kilometers and 4.5 kilometers (2.8 miles) away; a payment of up to RMB 13 was made for orders over  6.6 km away. The source said that Meituan had recently adjusted its benefits for local workers, so that only RMB 3.7 extra would be offered for trips of more than 5.0 kilometers, a third of the previous sum. 
• Moreover, workers can now be fined RMB 50 if they choose not to work on rainy days, with the fine “repeated every time the system monitors their offline status,” the source said.
• Shanwei saw heavy rainfall last week. The official Shanwei weather channel issued a precautionary notice asking residents to prepare for heavy rainfall from April 18 to April 21.

Context: According to Meituan’s earnings report, the company’s core local commerce unit (which includes food delivery, hotel and travel bookings, and in-store purchases) generated RMB 70.6 billion in delivery service income in 2022, while delivery-related costs reached RMB 80.19 billion, suggesting that the revenue generated from the delivery service was insufficient to cover delivery workers’ costs.

• Revenue from Meituan’s core local commerce sector consists of delivery services, commission, and online marketing, and is the main source of revenue for the company.
• Meituan has been subsidizing delivery workers’ wages with the money it earns from the service fees the platform charges merchants. In 2019, 80% of such income was used to pay rider salaries, according to an announcement made by the company in early 2020.
• Meituan lowered its rates for merchants in May 2022, following Chinese regulators’  request that delivery platforms reduce their service fees to help catering firms lower their operating costs during the pandemic. The Beijing-based firm said at the time that it was aiming for full transparency nationwide when charging commissions by the end of 2022.

Chinese food delivery and life services giant Meituan launched an enterprise edition on Thursday, offering a one-stop shop for companies to manage employees’ meal, work trip, and transport expenses. The service, mainly focused on dining options for corporate clients, plays on one of Meituan’s core strengths.

Why it matters: Meituan’s pivot to business clients brings the Beijing-based firm new areas for revenue growth as it faces greater competition from rivals in the local services sector, including ByteDance’s Douyin, which has been testing food delivery services in some Chinese cities with plans to expand nationwide.

Details: The new app evolved from Meituan Shangqitong, a platform initially designed for Meituan’s own employees, before being opened up to a broader user base from early 2021.

• As of March 2023, nearly 10,000 businesses across 20 industries had used the platform, including banking, new energy, software, and express delivery firms, according to a report by local media outlet 36Kr.
• Meituan said (in Chinese) the enterprise platform can save employees an average of 4.4 hours in filing for reimbursements, and improve finance-related efficiency by 90%.
• Wang Puzhong, senior vice president of Meituan, noted at the launch that the company aims to make business consumption “as easy as using Meituan [consumer app].”
• The enterprise edition team currently has hundreds of members, and is expanding rapidly, 36Kr reported in late March. Kang Kai, head of the unit, is also the general manager of Meituan’s enterprise business department, and will report to Wang Puzhong.

Context: In 2022, Meituan’s annual revenue stood at RMB 220 billion ($32.1 billion), with its core local businesses, which include food delivery and no-demand delivery service Meituan Instashopping, contributing over 70% of total revenue.

• Meituan plans to offer food delivery in Hong Kong later this year under a separate brand, as the Beijing-based company seeks growth beyond its domestic market.
• Ride-hailing platforms Didi and Amap also offer enterprise solutions to simplify the reimbursement process for business travel and rides hailed for business customers in China.

In 2022, the marketing goals of many brands focused on ensuring a more predictable growth. But to succeed in China’s changing digital landscape in 2023, investing in an overarching marketing strategy across all digital media and e-commerce platforms will not work. Instead, brands should focus on a few essential platforms and utilize new features on Chinese social media platforms. Marketers should “invest small and win big” for potential growth in uncertain times. 

Here are some highlights from the top social media platforms in China that may lead brands to the next stage this year from a recently released 650-page long 2023 China Mega Report by ChoZan.

Top 3 social media platforms with exciting new features to utilize in 2023

1. WeChat

WeChat’s ecosystem offers common functions like chat and payments, but its video section Channels and search engines can provide new ways for brands to enhance their digital journey. WeChat Channels usage surpassed Moments in 2022, while monthly active users of WeChat search reached 800 million with a 54% yearly increase in search volume. Brands can connect with consumers across digital touchpoints using WeChat’s function, building branding assets. A search for “red packets for CNY” can lead to various advertising and brand-owned channel sections. Jewelry brand CHOW TAI SENG has secured a single sales campaign hitting 5 million yuan revenue leveraging search function and live streaming. Brands must target secure events (like the Chinese New Year, Spring Festival, etc.) with large followings and utilize exciting WeChat tactics to form smoother digital journeys.

2. RED (Xiaohongshu)

RED (Xiaohongshu) is known for its authentic user-generated content, making it a great platform for word-of-mouth marketing. In 2023, RED updated its platform with a “video” section to create a more diverse community with more video content. The platform downplays sales and instead prioritizes creating a comfortable social atmosphere, making it unique compared to other sales-focused platforms.

Recently, Chinese actress Dong Jie’s livestream on RED delivered a sense of peaceful and soft-selling approach that differs from livestreams on other platforms. She has inspired many audiences to step back from the hustle and bustle of their life and slow down. According to RED official data, the viewers of her live streaming on Feb 24 exceeded 2.2 million and the cumulative GMV exceeded 30 million. 

By partnering with quality livestreamers and continuously delivering a unique brand vibe through stylish images and text, brands can further accumulate their digital assets and achieve long-tail effects. This kind of more immersive product seeding may turn more random customers into the brand’s loyal fans. 

Douyin

Douyin upgraded its “interest e-commerce” to “full-field interest e-commerce” in 2022, making refined management, creative livestream content, and beneficial partnerships with Douyin Shop vital in 2023. The platform’s traffic dividends are diminishing, with fewer users paying attention to random content. Consumers want unique, exciting, and convenient shopping experiences across various categories, taking the initiative to locate goods. In a fiercely competitive environment, brands must deliver high-quality livestream experiences to stand out.

A good example would be East Buy’s recent live streaming in the Greater Bay Area, which generated total sales of over 100 million yuan and more than 1.5 million overall transaction order volume. The brand was created by China’s education giant New Oriental and its success was due to its unique understanding of Chinese cultural experiences and audience’s emotional connections, offering a wide range of products including agricultural, food, and personal care.

Brands should continually explore creative ways to livestream on Douyin to impress customers. Leveraging Chinese cultural assets and aligning them with the brand can increase user stickiness and loyalty. Brands should also consider forming a closed loop by partnering with Douyin Shop.

Two niche Chinese social media platforms

Aside from the top three Chinese social media platforms, there are also a few niche platforms that brands can use in 2023.

Zhihu

For Zhihu, its approach prioritizes quality over quantity of content and is suitable for promoting high-cost goods like real estate, cars, education, and medical beauty that require informative and more in-depth content to guide consumers’ decision-making. Also, establishing a good content IP can help reach the target audience more precisely.  

Dewu

Dewu, a popular social media and e-commerce platform, began as a sneaker platform and evolved into an extensive marketplace. It attracted 7,000 brands, including major names like Michael Kors, Coach, and Adidas, who opened their stores on the app. Brands can utilize its various promotional tools like flash sales, group buying and coupons to attract consumer attention. 

Best Practices for Brands to Win in 2023 on Chinese Social Media Platforms

1. The emergence of WeChat Channels and search engine capabilities presents an unprecedented opportunity for brands to craft a more comprehensive and immersive digital journey for their customers. Brands should use these features for a more integrated customer experience, creating deeper connections with their audience.

2. The updated “video” section on RED offers brands a chance to create content that fosters community and emotional connection with customers, resulting in stronger brand loyalty and advocacy. Partnering with quality livestreamers and delivering unique brand vibes can create an immersive customer experience, turning customers into loyal fans.

3. Douyin’s upgrade to “full-field interest e-commerce” in 2022 highlights the importance of creative live-streaming content and beneficial partnerships. To stand out, brands must deliver high-quality live-streaming experiences that foster emotional connections with customers.

4. Craft compelling content that delivers consumer-centric information to drive engagement instead of being brand-centric. Collecting market data and analyzing consumer trends can aid in creating relevant content. Collaborating with KOLs/KOCs on platforms like RED and Douyin adds credibility via word of mouth and expands reach.

Tencent’s super app WeChat plans to share revenue with short video creators and launch a paid subscription service on its short video product WeChat Channels, the Shenzhen-based company announced on Tuesday night at a public event. Tencent also announced the launch of a new Quora-like question section in WeChat. 

Why it matters: Tencent is expanding its monetization efforts with regard to WeChat’s short video section, after seeing rapid growth in the channel but also facing direct competition from rivals Douyin and Kuaishou. This strategy aligns with CEO Pony Ma’s speech late last year in which he hailed short videos as “the hope of the company.”

Details: Zhang Xiaochao, leader of the WeChat Channel unit, spoke first at the event and shared that in the three years since its launch, the short video section of the super app has seen creators grow two times more active, while creators with more than 10,000 fans grew more than four times in 2022. Leaders from other WeChat units — WeChat Pay, WeChat mini-programs, office automation-focused WeCom, and WeChat search — also spoke at the event. 

• In 2022, the value of goods sold through livestreams on WeChat surged by 800% and creators who earned income through videos increased nearly three times, Zhang said.  
• Increasing earnings for content creators is a priority for WeChat Channel’s next phase of development. Zhang said WeChat will soon launch a paid subscription feature, which will allow creators to set up a paid content section where users can pay a monthly subscription fee. This will help creators quickly set up their own commercialization subscription system, Zhang added. 
• Additionally, creators will have the option to access Tencent’s advertising system, which can display content-related ads in the comment section. This incentive is part of Tencent’s aim to attract more influencers.
• WeChat is also planning to roll out a new question function called Wenyiwen (meaning “ask a question” in Chinese), similar to a Quora-style Q&A platform. The feature will aggregate high-quality answers to common questions. Tencent added that more than 800 million monthly active users utilize its search feature, which saw a 54% year-on-year growth in search volume in 2022.

Context: With just over 1.3 billion monthly active users, all-in-one messaging app WeChat primarily monetizes via livestreams, e-commerce, and advertising on its short video section Channels. 

• Total time users spent on WeChat Channels exceeded the time they spent on WeChat Moments (a Facebook-like timeline function) in the quarter ending Dec. 31, Tencent’s latest filing showed.
• Tencent conducted its first test of paid-to-watch livestreaming in January 2022, with users required to pay approximately RMB 10 ($1.45) to access a live feed of an NBA game. However, compared to rivals Kuaishou and Douyin, which have already furthered their attempts at paid content, Tencent is still lagging behind. 
• Kuaishou, for instance, has a separate “paid content” section on its app and recorded 59.6 million paid subscribers in the third quarter of 2022. Meanwhile, ByteDance-owned Douyin has operated a paid business model for watching short dramas since November 2021.

Any company looking to up its e-commerce game in China this year needs to adapt to the changing landscape. The industry structure has transformed, with new players like Douyin and Pinduoduo shifting towards mature e-commerce models and WeChat Mini Programs breaking e-commerce transaction volume records. COVID-19 and shifting consumer behavior caused online retail consumption to surge to 27% of total retail consumption in 2022, up 2.5% from the previous year.

The new “Big Five” (Alibaba, JD, Pinduoduo, Douyin, WeChat) competitive landscape emerged rapidly. Below are some insights from a 650-page 2023 China Mega Report by ChoZan about the changing e-commerce landscape in the country.

The new e-commerce landscape in China

China’s e-commerce landscape is rapidly evolving with the emergence of the new “Big Five” players – Taobao, JD.com, Douyin/Kuaishou, Pinduoduo, and WeChat. Each platform has its own unique characteristics and strategies to attract and retain customers.

1. Taobao, owned by Alibaba, has achieved full coverage of product categories, with a focus on clothing and beauty products. It has been introducing external anchors, including popular Douyin influencers, to boost live-streaming e-commerce sales. Taobao has also been expanding into industries with low penetration rates such as fresh products and automobiles while accelerating new product innovation.
2. JD.com, on the other hand, has returned to its low-price strategy, rushing into the “100 billion yuan subsidy” war, targeting Pinduoduo, with the aim of winning users with low prices. JD.com’s core categories remain home appliances and 3C products, but it has been increasing its investment in fashion and beauty categories.
3. Douyin/Kuaishou, both originally focused on live-streaming e-commerce, has now transformed into a comprehensive interest-based e-commerce platform with the addition of digital shelf e-commerce. Digital shelf e-commerce refers to the online merchandising and retailing of products in a way that replicates the experience of browsing physical store shelves. Douyin is more suitable for selling new and unique products such as clothing, underwear, and smart home appliances and is the main platform for brand promotion and new product launches.
4. Pinduoduo’s long-term strategy is focused on the agricultural sector, and the brand strategy is divided into two directions – attracting mature brands through investment and upgrading factories, and establishing their own brands through white-label or farm brands. The platform has achieved rapid growth through digital electronics and will focus on clothing and agricultural product categories in the future.
5. WeChat, owned by Tencent, has entered the high-quality content ecosystem competition in short video through Video Accounts, utilising social/private traffic to boost e-commerce. WeChat encourages high-quality, interesting, and useful video content, and connects advertising promotions with creator monetization needs. Its ecosystem of official accounts, mini programs, and enterprise WeChat can be integrated with video accounts, promoting repeat purchases. WeChat’s video live-streaming e-commerce primarily focuses on consumer goods such as clothing, food, and cosmetics, with an average order value exceeding 200 yuan.

Consumers plan to continue to spend more on the top five e-commerce platforms

KPMG’s 2022 year-end survey revealed that consumers intend to increase their spending on the Big Five platforms due to their expanded product options and enhanced shopping experiences. About 60% of consumers plan to boost their consumption on Douyin, while Pinduoduo ranks as the top choice for low-income groups.

Consumers’ willingness to spend is based on several sources. They are more rational spenders today, but purpose-driven marketing is indeed effective for them since consumers’ concern for their health and the environment is high. Additionally, convenience is another factor crucial for brands to connect with their target audience. On top of that, the changing social habits and increasingly in-depth services mean brands need to be flexible in social platforms and offerings to attract more consumers.

Top 5 ways brands can respond to the changing e-commerce landscape in China in 2023

1. Adopting an overall e-commerce strategy and repositioning flagship stores on Douyin and Pinduoduo

E-commerce platforms need to adopt a comprehensive layout and reposition their flagship stores on Douyin and Pinduoduo. Douyin is focusing on developing its digital shelf e-commerce, while Pinduoduo is leveraging its advantage in high-frequency consumer goods categories to become a comprehensive platform that meets diverse needs. For brands, as the digital shelf e-commerce landscape becomes evenly matched, Douyin/Pinduoduo flagship stores will play an equally important role as their Tmall/JD flagship stores.

2. Building a stronger cross-platform synergy and seizing the opportunity to enhance bargaining power with e-commerce platforms

As e-commerce platforms become increasingly mature, the overlap of their consumer groups will inevitably continue to increase, making it more difficult to expand user increment. However, it is a good opportunity for brands to increase their bargaining chip with e-commerce platforms in terms of traffic, product promotion, and consumer data transparency. Stronger cross-platform collaboration between brand and e-commerce platforms is worth exploring on both sides, especially in category differentiation, pricing, and promotion.

3. Reducing the reliance on livestream e-commerce influencers and strengthening content co-creation

The role of e-commerce live streaming, especially influencer live streaming, in “transactions” will be further weakened. Most influencers may find that selling standard or common products are losing their appeal to the public. Influencer live streaming will reach a critical crossroads, and influencers will need to attract consumers through better content. Currently, “selling-only” influencers who lack content will lose their competitiveness and gradually be phased out. Patterns may emerge where common goods are sold more through digital shelf e-commerce and influencers will focus on more niche products with strong digital content potential like trendy goods.

4. Developing innovative supply chain solutions

Innovative supply chain solutions such as direct sourcing and supply chain financing can help brands reduce costs and improve efficiency. Brands need to optimize their organizational structure, develop cross-platform e-commerce capabilities, accumulate universal key capabilities to support multi-platform development, and lay a foundation for other e-commerce models with future development potential, such as instant retail.

5. Improving consumer experience through data analytics and personalized marketing

Brands need to use data analytics and personalized marketing to improve the consumer experience. It can help brands better understand consumer behavior and preferences, and provide tailored products and services to meet their needs. With the convergence of platform models, the profit levels of brand flagship stores on various platforms are expected to gradually converge. In order to improve efficiency, brands need to optimize their organizational structure, develop cross-platform e-commerce capabilities, accumulate universal key capabilities to support multi-platform development, and lay a foundation for other e-commerce models with future development potential, such as instant retail.

Conclusion

To succeed in 2023, brands must adapt to emerging e-commerce platforms and changing trends. New players are continuing to emerge and grab a share of the existing market. Each platform emphasizes different aspects of marketing, including product pricing, content, and product categories. Brands need to understand these nuances and tailor their e-commerce strategies accordingly to effectively engage with their target consumers and drive sales.

Before establishing a presence on e-commerce platforms, it is important to understand the target consumer group and their profiles.

Xiaohongshu will turn its livestream shopping business into an independent unit, local media outlet LatePost reported on Mar. 10, as part of efforts to accelerate its monetization campaign. The head of the lifestyle app’s new department will also be in charge of the firm’s community ecology.

Why it matters: Xiaohongshu’s recent adjustment indicates a push for further monetization at a time when the country’s mainstream shopping platforms have seen live commerce thrive. The move follows the recent livestreaming e-commerce success of Chinese actress Dong Jie on the platform, which demonstrated to Xiaohongshu the possibility of diversifying its revenue growth path amid uncertainty over whether the company will file for an IPO.

Details: Xiaohongshu first tested its livestreaming e-commerce feature in mid-2019, officially launching it in 2020 at a time when China was experiencing a boom in livestream selling. However, the company was initially cautious about the emerging sector, with particular concerns about its impact on Xiaohongshu’s community ecology.

• Seen as China’s equivalent to Instagram, Xiaohongshu is now approaching 100 million daily active users, according to LatePost. The lifestyle-sharing platform attempts to position itself as a calm and high-quality community where users are able to share recommendations for food and sightseeing.
• Xiaohongshu’s livestreaming business hasn’t gained much attention over the past two years while Taobao, Douyin, and Kuaishou made major gains in the field courtesy of  breakthrough star hosts such as Li Jiaqi. But Xiaohongshu has won traction recently after Chinese actress Dong Jie delivered a less aggressive live shopping experience, helping the platform find a unique voice in the sector. 
• Xiaohongshu reportedly generates 80% of its revenue from advertising, primarily through ads designed to build brand awareness. LatePost reports that the firm is now weighing up whether to attempt to lure more brands to sell goods on the platform, as it looks to drive direct consumer purchases that can be completed without leaving the app.

Context: Live commerce is now a key driver of revenue growth for video platforms. Xiaohongshu, founded in 2013, was slower to monetize than its competitors Douyin and Kuaishou, only beginning the process cautiously in late 2019.

• In 2022, ByteDance generated RMB 330 billion in revenue from its advertising business in China, with more than RMB 120 billion coming from live commerce on TikTok sibling app Douyin, according to LatePost. Revenue from viewers rewarding hosts surpassed RMB 130 billion in the same year.
• Kuaishou recorded RMB 8.9 billion in revenue from its livestreaming business in the third quarter of 2022, accounting for 38.5% of the firm’s total quarterly revenue.
• In late 2021, Xiaohongshu was reportedly considering listing in Hong Kong after the startup suspended its initial plan for a US IPO. But the Chinese company told the Financial Times last November that it “has no IPO plans currently.”

Chinese social e-commerce app Xiaohongshu is gaining traction in the livestream shopping sector thanks to Chinese actress Dong Jie, who generated over RMB 30 million ($4.3 million) in sales in a livestream on Feb. 24, with many goods costing thousands of yuan per unit. 

Dong sold out of all products in six hours. Her performance, seen as less aggressive than those of her livestream shopping rivals, has garnered significant attention for Xiaohongshu, with some observers believing it may have finally found a way to differentiate itself from mainstream e-commerce platforms after quietly launching the livestream shopping feature in mid-2019.

Why it matters: Dong’s success could give Xiaohongshu’s livestream e-commerce business a significant boost, opening up a new revenue stream for the company. Many e-commerce platforms made their livestream shopping breakthrough through star hosts. For example, Alibaba-owned Taobao’s live commerce became a phenomenon after host Li Jiaqi gained mainstream attention; Kuaishou found success through star host Xin Ba.  

Details: Although Dong has so far only streamed twice, she sold more than RMB 50 million and RMB 30 million worth of products during the two sessions, according to Xiaohongshu. The celebrity attracted 2.2 million viewers to her latest livestream on Feb. 24. For comparison, Chinese tech celebrity Luo Yonghao attracted 48 million viewers and generated RMB 110 million from his debut on Taobao Live last October. 

• Selling high-end fashion items, Dong’s livestream style resonated well with Xiaohongshu’s user base, which comprises mainly urban women with greater purchasing power. As of November 2021, the platform has 200 million monthly active users, with 72% aged below 35 and living in major Chinese cities. The percentage of female users on Xiaohongshu was around 70% in 2022.
• Compared to livestreams on other Chinese platforms, Dong’s featured pricier goods, such as apparel, jewelry, and cosmetics, mostly priced at more than RMB 300, with some branded clothing items even going for as much as RMB 5,000. For example, one of the outfit combinations she tried on sold for nearly RMB 10,000.
• This is a much higher price point compared to rival platforms. Users on average spent about RMB 100 to RMB 300 per livestream on the three main platforms Taobao, Douyin, and Kuaishou in 2021, according to a report from the research arm of Ping An Securities. 
• “Dong Jie streams in a soft and quiet voice, and it’s the most comfortable livestream I’ve ever seen,” one viewer wrote on Xiaohongshu. Dong’s livestream was in keeping with the tone of her Xiaohongshu account, which she created in January 2021 and has used to share her personal outfits, skincare tips, and recipes over the course of nearly 150 posts. 
• In 2022, Xiaohongshu saw the number of live streamers on the platform grow 337% year-on-year, and the number of live shows increase by 214%, the Shanghai-based firm announced on March 6.

Context: Xiaohongshu’s income heavily depends on digital advertising, with 80% of its revenue in 2020 coming from ads, and the rest coming from e-commerce, according to figures from Chinese research firm LeadLeo cited by the Financial Times.

As China and its economy regain momentum after three years of strict Covid control policies, the country’s top lawmakers and political leaders are meeting in Beijing this week to discuss the country’s governance, economy, budget, and various key issues. The meeting is part of a week-long annual gathering known as the “two sessions,” or lianghui.

Increasing domestic demand is a top priority for the government in 2023. In 2022, China failed to reach the 5.5% GDP growth rate target it set last year (China grew 3% instead). For 2023, China has set an annual GDP growth target of 5% and hopes that its people will spend more to support the country’s economy. 

Much of this year’s growth plan is centered around stimulating consumer spending. Particularly in areas related to technology, the country is relying on people to make more big-ticket purchases like cars, and spend more on various shopping platforms, while building more network infrastructure this year. These include continuing to increase the steady growth of new energy vehicles and charging stations, supporting newer models of e-commerce, building 5G network infrastructure in smaller cities, and constructing national data centers in planned regions. 

Buy more EVs

China will continue to push the adoption of electric vehicles as part of its stimulus package to boost consumption and to “enhance its leadership position” in the new energy vehicle industry, policymakers said in this year’s annual government work report. It will also promote the wider use of battery swap technology and continue to support the battery industry.

The two sessions is also an opportunity for enterprise leaders (both private and state-owned) to present policy recommendations to the country’s top political and advisory bodies. 

Most proposals from leaders of domestic auto companies have echoed the government line. Feng Xingya, general manager of GAC, a manufacturing partner of Toyota and Honda in China, urged the government to roll out supportive policies to reduce the construction cost of battery swap facilities and push for a standard battery design among different manufacturers. CATL chairman Zeng Yuqun called for the establishment of a quality assessment framework to pave the way for the spread of lithium-ion batteries for grid energy storage.

Lei Jun, CEO of Xiaomi and also a delegate to China’s top legislative body the National People’s Congress (NPC), suggested that China issue data security standards for automobiles and promote data sharing among companies for intelligent connected vehicles. In addition, He Xiaopeng, CEO of Xpeng Motors, called for new legislation to clarify liability in traffic accidents involving autonomous driving cars. 

Shop more online 

Expanding consumption is key to China’s 5% economic growth this year, as the country tries to recover after stringent Covid-19 controls slowed economic growth. The country’s economic planner sees huge potential for e-commerce platforms as drivers of growth.

Strong export growth in the first half of 2022 has boosted China this year, with the country’s total trade of goods reaching a record high of RMB 42.07 trillion ($6 trillion). In particular, cross-border e-commerce exports grew by 11.7%, reaching RMB 1.55 trillion in 2022, reflecting the rise of overseas retail as a major component of China’s export trade. This year, the government pledged more support for cross-border e-commerce and overseas warehouse development in the annual report. 

For the domestic market, Chinese authorities vowed to guide the development of new models such as live commerce and on-demand retail, and lead the sector towards high-quality growth.

Wang Yinxiang, an NPC deligate from Cao county, a garment and coffin manufacturing hub in eastern Shandong province, found in her search that e-commerce in her rural county has helped increase the average lifespan of people in the region. The county is known for being a Taobao village (where at least 50 households own shops on Alibaba’s e-commerce platform Taobao).

Build more 5G, data centers, and other infrastructure 

This year, China will continue to upgrade to modern infrastructure systems such as 5G, data centers, and the Internet of Things. Specifically, China will focus on expanding internet networks in small- and medium-sized cities. The government aims to accelerate the development of 5G and broadband networks, and achieve greater integration of cloud networks. In addition, the country will continue the expansion of data centers and data hubs planned under the national data center project the “East-to-West Computing Capacity Diversion Project,” aiming to move more data processing from the country’s prosperous but land-scarce eastern regions to the country’s less-developed but sparse western regions.

In addition to networking and data infrastructure projects, the country also said in its work report that it plans to support the construction of smart highways, civilian space infrastructure, and a commercial space launch center on the southern island of Hainan. 

Voice recognition company iFlytek CEO Liu Qingfeng proposed that China should accelerate the construction of artificial intelligence models to enjoy the AI boom. Liu pointed out that while Chinese institutions and enterprises have published a series of large-scale models, the intelligence level of the large-scale models is still significantly lower than OpenAI’s ChatGPT. He asked China to accelerate the development of AI.

Duoduo Video, a vertical short video offering from Chinese e-commerce company Pinduoduo has reportedly recorded comparable watch time statistics to Tencent’s WeChat Channels, sparking a sudden uptick in attention from Chinese tech media. Local media outlet 36Kr said in a Wednesday report that the video section on Pinduoduo’s shopping app is seeing users spending about 30 minutes a day watching, a number that puts it roughly on a par with tech giant Tencent’s similar platform. 

Why it matters: Pinduoduo’s use of short vertical videos is another example of Chinese online retailers’ increasing competition with content platforms such as Kuaishou and ByteDance’s Douyin, as the latter two ramp up in-app shopping functions. Alibaba’s Taobao shopping app also has an embedded content section called Guangguang, using a combination of photos, articles, and videos to attract more users. 

Details: Pinduoduo added the short video section to its app in February 2022, according to a report from Chinese media outlet Jiemian. Pinduoduo incentivizes users to watch more videos by giving out cash rewards, which users can withdraw directly to other digital wallets.

• In a recent test, TechNode found Pinduoduo gives out significant cash rewards to newer users. Our reporter, a new user of the section, earned RMB 10 (about $1.5) after watching less than one minute of short videos. But the app only allowed the user to withdraw a small fraction of the earned reward (up to RMB 0.6) and encouraged them to log on more frequently to increase the withdrawal amount. 
• Duoduo Video is now led by a person who worked for Douyin before joining Pinduoduo in around 2021, the 36Kr report said. Pinduoduo is committed to investing in the business, not expecting commercial results in the short term, the report said, citing a source close to Pinduoduo.

Context: As China enters a relatively slower growth period, competition among the country’s top tech companies is heating up, with more cross-sector rivalry. For example, ByteDance’s Douyin, the equivalent of TikTok in China, has recently increased its investment in offering on-demand services, a core business offering of the life services giant Meituan. 

• Known for offering generous discounts and ultra-low prices, Pinduoduo saw great growth last year, with revenue up 65.1% year-on-year to RMB 35.5 million in the third quarter of 2022. But the company is facing more challenges from established online retailers such as JD and Alibaba. JD is set to launch a subsidy program worth billions of RMB and applicable to almost all items sold on its platform. Pinduoduo launched a subsidy program in 2019. 
• Taobao Deals, Taobao’s budget shopping platform, is set to form 50 offline service spots in industrial cities across China to help boost supply of quality products in nearly 900 categories, local media outlet 21Jingji reported on Feb. 27.

As internet companies in China transition to less heady development in light of stricter regulations, new approaches that are green, low-carbon, and equitable are in the driving seat. Agriculture, a key industry less sprinkled with tech stardust than others, is now accumulating resources from real estate, internet, and venture capital investors.

Online shopping company Pinduoduo is already heavily invested in agritech. In August 2021, it established a “10 Billion Agriculture Initiative” to support groundbreaking research in the industry. Alibaba and JD.com also have ambitious plans in agricultural technology and are increasingly involved in the agricultural industry chain. Douyin, TikTok’s Chinese sibling, encourages farmers across the country to livestream the sale of agricultural products.

Compared with other advanced economies, agriculture in China is mainly still a small farm business. There is plenty of room to improve agriculture’s grasp of marketization, technology, and economies of scale. But what is really behind the enthusiasm of China’s internet giants to enter the industry?

Policy orientated: rural revitalization

While many industries are approaching competitive saturation in China, farming is still a “blue ocean” open to innovation. Long returns on investment and low levels of centralization in the industry may put investors off, but agriculture is a promising industry that chimes with the country’s theme of “common prosperity,” as well as on national targets on carbon peaking and neutrality. With diverse players ranging from global companies to privately owned small businesses and self-employed workers, agriculture is suitable for broad participation.

In 2022, the Ministry of Agriculture and Rural Affairs proposed, in light of a campaign to promote rural revitalization, a focus on building a number of key industry chains and model counties that would showcase advanced production of staple foods and specialty goods. These are all part of the long-term plan for China to modernize its vast rural areas.

Professor Li Ganghua, a doctoral supervisor at Nanjing Agricultural University, has presided over and participated in many national-level projects. In his opinion, the country has two priorities in agriculture: food security and a clean ecology. Agriculture may well give long-term and slow returns, but each crop has its own characteristics. Rice, which is controlled by the state, is a universal crop with stable prices and yields. High-tech vegetable growing is a labor-intensive industry in which yields have increased several times over the past decade while prices have fluctuated widely, impacted by numerous factors.

Apart from aligning themselves with the Chinese government’s development goal, Chinese tech giants are also looking into agriculture for potential untapped growth. Gao Kangping, editor-in-chief of the agricultural service and news platform VCearth.com, believes that in addition to fulfilling social responsibilities, internet companies entering farming are motivated by technology spillover and market development. “Technology in major companies is relatively mature and digital technology is ready to help farm products and rural scenarios, both in hardware and services,” Gao says. “First- and second-tier markets are saturated, but rural market penetration remains low, and there is a lot of space for development. Getting into the industry early will likely bring benefits.”

Leveraging e-commerce to assist farmers

E-commerce promotional events are the mode most used by internet giants to support agricultural sales, and they’ve brought billions of consumers to participating farmers, driving prosperity.

E-commerce shopping festivals in June (6.18 festival) and November (Singles Day festival) support farmers and small enterprises in achieving multi-dimensional benefits. Last year’s Singles Day shopping festival saw JD.com launch a drive to promote 300,000 high-quality agricultural specialties from 2,000 localities and industrial zones across the country. Alibaba’s Tmall issued a “buying one more agricultural product” initiative, urging sellers to put an agricultural product on the shelf of every livestream. Pinduoduo directed online traffic to high-tech agricultural products, subsidizing some of them as part of its 10 Billion Agriculture Initiative.

Besides national shopping festivals, the platforms have also launched farming-specific events. September’s China Farmers Harvest Festival was the first such event established at the national level specifically for farmers. E-commerce companies now all have their own versions of promotional events to support farmers, such as JD.com’s Shopping Festival of Agricultural Specialties, Douyin’s Rich Field Harvest Season, Alibaba’s Hot Land Harvest Season, and Pinduoduo’s Golden Autumn Consumer Season (all our translations). This has enabled each to play to its core strengths, and help sell more farm products and grow the industry.

VCearth’s editor-in-chief Gao Kangping is optimistic that the strategy will work. “Creating festivals is how internet companies gather online traffic and marketing resources and use them efficiently. This is good for brands, platforms, and farmers.”

Medium-term strategies

As listed companies, China’s internet giants need to make money for their shareholders. Participating in agriculture is not only a question of social responsibilities but also one of returns. The capital markets will have serious doubts if long-term financial prospects are bleak.

In a recent conference call, a Credit Suisse analyst asked about the impact of the company’s agricultural development strategy on Pinduoduo’s financial statements and the latest developments of the 10 Billion Agricultural Initiative. Chairman and CEO Chen Lei told the bank that agriculture was part of the company’s long-term strategy, and although it was still in its infancy, “we already see a lot of areas to create value.” The company plans to improve product circulation efficiency through technology and help bring more agricultural research products to the market.

Internet giants have a medium-term strategy for the industry, editor Gao says. He explains that their logic and market plans are relatively certain for the next five to ten years, although the measures firms plan to take differ according to the product, service, and capabilities of each company. “In general, they follow their core industry and engage in a moderate extension of the industrial chain.”

Gao thinks internet companies have “three main advantages,” based on his interactions with Alibaba, Tencent, JD, Pinduoduo and other firms making agriculture moves. First, organizational management. As a talent-intensive industry, organization, goal achievement, and execution are much better than in traditional agricultural companies. Second, most internet companies have user numbers in the billions when combining their various products, as well as the technology to solve complex problems. With more understanding of traditional agriculture, these large companies will make for powerful players in the sector. Third, they have the resources — brands, traffic, channels, and capital — that can be leveraged to agriculture’s advantage when needed.

Pinduoduo is one of the most heavily invested and committed internet companies in the agricultural field. This is demonstrated by chairman and CEO Chen Lei’s focus when answering questions at finance meetings. He constantly reminds observers that agriculture is a major part of the platform’s long-term strategy. Some foreign investors already see Pinduoduo as an agriculture-tech enterprise. As for Alibaba and JD.com, their investment in agriculture is in the balance, along with social responsibility issues such as supporting the real economy and carbon neutrality.

Technology companies that get involved in agriculture tend to set up similar initiatives. They help with e-commerce, empower supply chains, engage in technological research and development, and carry out personnel training. As they delve deeper into the agricultural industry chain, they work more extensively with local governments, agricultural universities, and international food and agriculture organizations.

In addition, companies have distinctive projects based on their own business advantages, such as Pinduoduo’s new brand plan, Alibaba’s Red Soil Plan, Douyin’s Rich Domain Plan, and JD.com’s March to Rich Plan.

JD.com launched its March to Rich Plan in October 2020, with the aim of establishing a modernized circulation system with a smart supply chain, to encourage high-quality agricultural products and upgrade consumption habits. The plan vowed to drive RMB 1 trillion output value in rural areas in China in three years. As of August 2022, more than RMB 620 billion worth of goods were sold. Millions of farmers benefited as their income shot up. The plan even developed brands in cooperation with local authorities. For example, JD worked with the local government in Suqian in eastern China’s Jiangsu province to incubate the Suqian king crab brand, which was featured on the annual Spring Festival Gala TV show, becoming an overnight hit.

Known for its low prices, Pinduoduo is now also getting a name in agriculture. It reaches deep into the source of the agricultural supply chain, helping sell more agricultural products, while meeting consumer needs. Moreover, it has gotten investors interested. Pinduoduo launched its new brand plan in 2018 to help small companies meet demand via the platform at low cost. Pinduoduo also helped cultivate new brands in step with producers. The company has said it will carry on with this model, expanding to more regions, and incubating up to 500 brands across the agricultural supply chain.

In May 2021, Alibaba upgraded its poverty relief fund to the Red Soil Plan for revitalizing rural areas in terms of technology, industry, and talent. In its 2021 ESG Report, Chairman and CEO Daniel Zhang explained how Alibaba’s investment and exploration would help rural development. Talent development and capacity building were to be a core focus. Alibaba planned to station senior digital managers across the countryside, relieving “pain points” that restricted local development by linking local needs with company resources in a way that “reflects our in-depth thinking and full preparation for the complexity and long-term nature of rural revitalization.”

One expert from Wageningen University, who declined to use their name on the record, explained how they saw the role of agricultural talent in rural revitalization and how China differed from foreign agricultural economies. “When studying in the Netherlands, the most impressive thing to me was the number and quality of farmers. They came to study techniques to solve industrial problems related to their family’s greenhouse, for example.”

Digitizing farming

China’s internet giants are exploring ways to use the platform mindset to change traditional models and enter the upstream of the agricultural industry chain, participating in agricultural production and operations, quality control, and the supply chain. Professor Li Ganghua believes that companies entering the agricultural domain each have their own advantages. “The more assets a company has, the more willing it is to participate from production onwards, so that product quality can be better controlled.”

Organized by China Agricultural University and Pinduoduo, the Duoduo Smart Agriculture Competition has benefited from the guidance of the United Nations Food and Agriculture Organization (FAO). The competition gives young researchers a platform to showcase their talents and improve standardization and digitization in the agricultural process. Similarly, Tencent and Wageningen University launched an Autonomous Greenhouses International Challenge, in which teams use AI and Internet of Things (IoT) technology to plant cherry tomatoes remotely.

The unnamed Wageningen University expert focuses on crop growth models and greenhouse automation. They said “the interest of internet companies lies in digital agriculture or unmanned cultivation. Essentially, it is to use machines to farm, make and implement decisions. External companies can empower agricultural practitioners in training machine learning and big data analysis.”

Alibaba’s digital agriculture initiatives have focused on plant cultivation. In 2019, Alibaba integrated the agricultural units of Taobao, Tmall, Hema, Cainiao, and Alibaba Cloud to establish a Digital Agriculture Division. In 2020, it released a Digital Rural Operating System. According to the Alibaba 2022 ESG Report, together with the Chinese Academy of Agricultural Sciences Institute of Crop Sciences (ICS), Alibaba launched a 3T Smart Cultivation platform, digitizing the cultivation process.

Gao Kangping points to digital farming as the most advanced field for agricultural innovation, with smart cultivation and management having reached all parts of the process, giving rise to many applications and best practices. Data collection and processing were two pain points. The application of agricultural sensors and IoT applications remains low, so it is hard to collect systematic, high-quality data. The second area needing improvement is data application and business modeling. Digital agriculture has the most value when applied to reducing costs and increasing efficiency, but this is difficult to quantify, resulting in a lack of stable models and sustainable profitability.

On Monday, Shanghai-based online grocery company Dingdong Maicai reported its first quarterly GAAP profit, posting a figure of RMB 49.9 million ($7.3 million) for the fourth-quarter. The company’s revenue for this period was up 13.1% from last year, reaching RMB 6.2 billion.

Why it matters: The latest financial result shows that online grocers like Dingdong Maicai – which use front-end warehouses as their main operation model, something the industry has long viewed as costly and unprofitable – can still achieve profitability.

• In the October-December period of 2021, the company recorded a net loss of RMB 1.1 billion.

Details: Dingdong Maicai’s profit is largely thanks to increased revenue from its own-branded meal kits, as well as cost reductions. A company executive emphasized on the earnings call that the profitability is sustainable.

• The company’s total operating costs and expenses decreased by 5.6% year-on-year to RMB 6.16 billion during the fourth quarter, the financial report shows, with fulfillment expenses down 16.4% to RMB 1.5 billion, while sales and marketing expenses saw a significant decrease of 74.5% to RMB 91.1 million.
• Dingdong recorded a yearly revenue of RMB 24.22 billion in 2022, up 20.4% compared to the prior year, while its cash and cash equivalents and short-term investments also increased by 24.1% to RMB 6.49 billion.
• Dingdong Maicai achieved profitability in every month of the fourth quarter, according to the NYSE-listed firm’s chief scientific officer, Yu Le, who disclosed a GAAP net profit of RMB 10 million for November.

Context: Founded in 2017, Dingdong Maicai reported its first non-GAAP net profit of RMB 20.6 million in the second quarter of 2022.

• The company has created new revenue streams by developing its own branded ready-to-cook meal kits. It set up a meal kit unit last February, upgrading it to a primary-level department of the company.
• Shanghai has strategic importance to Dingdong Maicai. The city contributed 45.8% of Dingdong’s GMV in 2022, exceeding RMB 12 billion. Meanwhile, the executive team expects to generate revenue of over RMB 20 billion from the city alone in the long term. By comparison, the grocery platform undertook a mass withdrawal from smaller Chinese cities last year aimed at relieving profit pressure.
• In 2022, Alibaba’s supermarket chain Freshippo achieved profitability with its main grocery brand Hema Xiansheng for the first time, after seven years of investment.

ByteDance-owned video-sharing platform Douyin, China’s equivalent of TikTok, plans to offer its “group-buying delivery” service in more cities, but has no timeline for a national rollout, TechNode has learned.

Why it matters: The gradual entry into the food delivery sector of Douyin, the most popular short-form video app in China with nearly 700 million daily active users, poses a serious challenge in an industry which has been dominated for years by Meituan and Alibaba’s Ele.me.

• “We would consider expanding the [“group-buying” packages] feature to more cities in the future depending on the testing results, and there is no detailed timeline yet,” a spokesperson from Douyin’s life services unit told TechNode on Wednesday.

Details: In contrast to the food delivery services offered by its established competitors, Douyin’s “group-buying delivery” service enables merchants to promote and sell food packages that are generally for two or three people, via short videos or livestreams. Packages are then delivered to paying customers within a selected time frame.

• The feature was tested last December in three cities – Beijing, Shanghai, and Chengdu – before the launch of a self-registration service for local merchants in January.
• Merchants can use the third-party courier platforms that Douyin cooperates with, including SF Express’s SFTC, JD-backed Dada, and Shansong, or choose to deliver themselves.
• The group-buying packages fall under the short video platform’s local life services unit, which encompasses the food and restaurant, in-store business, and hotel and tourism segments. The emerging unit expects total sales to reach RMB 150 billion ($22.2 billion) in 2023, twice its actual GMV of RMB 77 billion in 2022, tech media outlet 36Kr reported earlier this year.
• Only merchants with physical stores can take up the feature in Douyin, which is available at a cost of 2.5%, and 5% to 10% in service fees to the platform and service providers respectively, local media outlet Jiemian reported on Tuesday. If the merchant uses a delivery service in cooperation with the platform, they have to pay about RMB 8 per order.

Context: China’s takeaway market has continued to grow in size in recent years, with Meituan dominating the industry to date. According to a report conducted by Zhiyan Consulting, Meituan took a 69% share of China’s food delivery market in 2020, while Ele.me accounted for 26%.

• Douyin tested a food delivery mini-program called “Xindong Waimai” in 2021, partnering with well-known brands such as HeyTea and KFC, but the platform was never officially launched.

Finding new revenue streams outside China became urgent for major Chinese online retailers as Covid control measures and a turbulent domestic regulatory environment hurt economic growth and consumer confidence in the country.

Shein, which started as a small cross-border wedding dress supplier, turned into a unicorn worth $100 billion by April 2022, demonstrating a successful path for other shopping platforms trying to sell outside of China. 

Chinese overseas-focused online shopping apps were a bright spot in a year otherwise characterized by high inflation and weak demand in the world’s major economies. 

Fast fashion giant Shein maintained strong growth despite sustainability, imitation, and labor rights controversies, while the more established Alibaba saw its turnover decline in Europe despite narrowed losses in Southeast Asia. Pinduoduo-backed Temu, seemingly out of nowhere in September, shot to the top of the US app downloading chart by the end of 2022. ByteDance-owned TikTok tried to navigate the same successful path as its sister app Douyin in e-commerce, but with less impressive results in the UK.

Here’s what you need to know about the overseas adventures of Shein, Temu, TikTok Shop, and Alibaba in 2022.

Shein

Shein was the most popular fast-fashion brand worldwide in 2022, according to research conducted by price comparison site money.co.uk, which shows that Shein experienced tremendous global growth over the year. The company reportedly surpassed its full-year 2021 sales of $15.7 billion just midway through 2022 and was expected to have made sales of $24 billion by the end of the year.

In April, Shein received a $100 billion valuation from General Atlantic, Tiger Global Management, and Sequoia Capital China, but as one person who declined to invest in Shein at a roughly 30% discount told Financial Times, the firm may well have been overvalued.

The company’s continued problems over environmental and sustainability issues overshadowed its initial preparations for a possible IPO in the US as soon as 2024, as investors increasingly bet on companies that are more responsible in those areas. Shein became increasingly vocal in its commitment to environmental, social, and governance efforts, planning to eliminate a quarter of emissions by 2030 and pledging $15 million to improve factory standards.

Every day, Shein posts thousands of new items for sale and relies on third-party suppliers in China for its low clothing prices. However, the company has faced controversies over appropriating designs from independent and emerging fashion designers. Shein or its Hong Kong-based parent company Zoetop Business Co., have been named in at least 50 federal lawsuits in the past three years, according to a June report by the Wall Street Journal.

In other moves, Shein opened pop-up stores in multiple major cities worldwide in 2022. Local media reported seeing long queues, Shein fans chasing particular items, and limited shopping time due to limited stock. But Shein said it “remains digital-first,” a Shein spokesperson told TechNode.

The buzz around Shein shows no signs of abating in 2023, and the company seems to be expanding its business model, reportedly exploring a marketplace platform that would enable other merchants to sell directly to customers, in a move to compete more directly with e-commerce giants like Amazon and Alibaba-owned AliExpress.

Temu

Less than four months after its launch, Temu, the cross-border e-commerce platform owned by Pinduoduo, has already shown strong appeal with its big discounts and generous coupons, and for most of the past two months, it has been the most downloaded app in the US. 

Temu’s sales growth rate cannot be underestimated. In October, its average daily sales generated more than $1.5 million, reportedly slightly below internal expectations. Temu reached a peak weekly GMV of over $40 million around Black Friday, with sales topping $10 million in the first week of November, according to data provider Sandalwood.

Temu came to the US with super-low prices when the country’s consumers were facing high inflation. Temu’s China-focused sister app, Pinduoduo, has long relied on low prices to quickly capture market share from established retailers like Alibaba and JD. The platform didn’t respond to TechNode’s question on whether its ultra-low prices were sustainable. While gaining fast popularity, Temu is also facing customer complaints about long delivery times, incorrect orders, and “unresponsive” customer services, according to a report by the Time magazine.

Pinduoduo debuted its 10 billion subsidy campaign – in which the company subsidizes high-volume items down to a competitive price compared to other platforms – during 2019’s June 18 online shopping festival, China’s second-largest annual e-commerce event. The initiative became Pinduoduo’s signature and a regular program after it proved to drive user growth.

This significant subsidy is recorded as “sales and marketing expenses” in its financial reports and has remained above RMB 10 billion per quarter since 2021, reaching RMB 14.05 billion, or 40% of total revenue, in the third quarter of 2022.

The marketing-for-growth strategy has resulted in continued user growth for Pinduoduo, with the company achieving an annual profit for the first time in 2021, six years after its founding.

TikTok Shop

In 2022, TikTok expanded its e-commerce business in Southeast Asia, initially finding success in the region, but facing setbacks in Europe.

According to a report by Chinese online media outlet LatePost, TikTok made more than $1 billion in total sales in the first half of 2022 — equivalent to more than half of the RMB 12 billion GMV goal the company set for its e-commerce business this year.

The sales growth achieved by TikTok was mainly driven by its Southeast Asian markets, especially Indonesia — the largest e-commerce market and economy in the region. TikTok Shop already had tens of thousands of sellers in the country, most of whom were micro, small, and medium-sized enterprises, by November 2022, said Desey Muharlina Bungsu, fashion and category lead of TikTok Shop Indonesia, at a TikTok Shop event in November.

The reception in the UK, its first market in the West, was quite the opposite. Different work cultures, as well as market conditions, exacerbated TikTok Shop’s woes. The Financial Times said TikTok Shop had “struggled to gain traction” in the country, reporting that influencers had dropped out of the scheme.

TikTok’s e-commerce business hit $200 million in monthly GMV in the Indonesian market, while only $24 million in the UK, LatePost reported.

Consumers were more receptive to live commerce in Southeast Asia, which helped TikTok find success in the region, with a survey conducted by market research firm Ipsos revealing that 71% of Indonesian consumers had accessed live commerce events, and 56% had made purchases during such events.

However, Shopee and Alibaba-owned Lazada still dominate most e-commerce markets across Southeast Asia. In Malaysia, Shopee holds 71% of the region’s overall e-commerce web traffic, followed by Lazada at 18% and PGMall at 9%, tech news site Tech Wire Asia said.

TikTok Shop made a quiet test debut in the US in November 2022. The short video platform’s ambitions to push e-commerce business in the US market appeared cautious and low-profile, with no officially confirmed full rollout, and only brands or merchants with an invitation code can sign up.

Meanwhile, it remains to be seen how well American consumers embrace the new shopping feature that enables merchants, brands, and influencers to showcase and sell products directly via in-feed videos.

Alibaba

The Chinese e-commerce giant’s overall performance in international commerce retail in 2022 was muted, with revenues in the first three quarters essentially flat compared to the same period a year earlier, up just 1.6% to RMB 31.15 billion.

According to details revealed in the company’s earnings report for the first three quarters of 2022, Trendy, Alibaba’s shopping platform in Turkey, recorded the most significant growth among all other international retail units, maintaining a growth rate of more than 40% in each of the three quarters. A precise order volume was not disclosed.

In the quarter ending September 2022, Southeast Asia-focused Lazada’s order growth posted its first year-over-year decline in orders in two years, which Alibaba said was largely affected by a lifting of Covid-19 restrictions that lured consumers back to offline channels. The platform saw exponential growth in the January to March period in 2021 as the initial Covid wave forced many people to shop online. Despite a slowdown in growth, Lazada managed to narrow the loss per order by 25% compared to last year.

Alibaba-owned AliExpress recently gained notable success in South Korea, with the app ranked first in terms of downloads in the shopping section in the country’s app store, according to Chinese media outlet The Economic Observer, citing mobile data analytics provider App Annie.

A person in charge of the platform’s Korean market told the media that AliExpress currently has nearly 3 million monthly active users, which covers around 10% of the country’s e-commerce users.

But the tech giant said it faces challenges in Europe amid supply chain and logistics issues resulting from the ongoing Russia-Ukraine conflict. Moreover, the EU’s removal of tax exemptions for cross-border packages under 22 euros also hurt AliExpress’s orders.

Although the Chinese e-commerce giant has been in Europe for more than a decade, AliExpress has captured only a small market share in the region, with 4% in Western Europe at 4% (compared to Amazon’s 20%) while holding 5% in Eastern Europe in 2021, according to Reuters.

Editor’s note: China is on holiday for the Lunar New Year, or Spring Festival, from Jan. 21 to Jan. 27. For the week, TechNode has prepared three yearly summary reports. They include a list of the most-read articles, an in-depth feature on the rising Chinese EV sector, and an analysis of the growth of China’s overseas shopping apps. 

In 2022, many Chinese tech companies struggled to keep growing amid slowing demand, drastic Covid control policy changes, and heightened geopolitical tensions. 

TechNode looked back on articles published in this tumultuous time and saw readers gravitate toward several topics: new Chinese consumer tech products, the rise of Douyin and Shein in e-commerce, the US’s chip sanctions on the entire Chinese semiconductor sector, and key moves from China’s tech giants. 

Below are the 10 articles read the most by TechNode readers in 2022: 

1- A guide teaching programmers “to live longer” goes viral on GitHub among Chinese tech workers

A Chinese-language guide on GitHub entitled “HowToLiveLonger” was trending within the Chinese tech community in late April. Despite its serious and scientific tone, the new “guide” appeared to be a pointed joke, taking aim at ongoing overwork practices in China’s tech industry and their impact on employees’ mental and physical well-being. Its popular reception in Chinese tech circles reflected the community’s mood. 

2- ByteDance acquires two new entertainment companies

Chinese tech unicorn ByteDance acquired cinema ticketing platform Yingtuobang and online comics service Yizhikan Comics to further ramp up its push into the entertainment market, Chinese media outlet Tech Planet reported in mid-January. 

With the new acquisitions, the Beijing-based TikTok developer further expanded the reach of its entertainment empire, which already consisted of short video apps, short- and long-form video platforms, news aggregation services, online novels, gaming, music streaming, idol management, and virtual idols.

3- Tencent reported to be cutting 20% of its workforce

Chinese tech giant Tencent reportedly planned to lay off around 20% of its staff in mid-March, joining a lengthy list of tech firms trimming their workforces since 2021. 

Deep-pocketed tech titans such as Tencent and Alibaba, which are generally less vulnerable to small market fluctuations, have largely maintained their headcount until recently. The two giants have not been immune to China’s ongoing economic downturn, regulatory curbs, and international trade tensions.

4- China’s NFT market: Who are the major players, and what makes them different?

In China, the NFT digital art market is bustling with new players and projects. That may come as a surprise for people familiar with China’s strict approach to cryptocurrency, with the country having fully banned crypto trading and mining in 2021. However, China has also embraced controlled versions of blockchain technology, such as the digital yuan, encouraging its growth in various sectors. So far, China has allowed NFTs but banned people from speculating and trading them. 

NFTs are viewed more as a derivative of blockchain technology rather than a tradable asset in China. Tech majors such as Alibaba, Tencent, and JD have built their own platforms where users can buy and collect NFTs but are prohibited from trading or reselling their purchases. Most Chinese tech giants don’t even use the term NFT, hoping to stay on regulators’ good side and avoid association with the global crypto market. Instead, they use the term “digital collectible.” 

5- The US’s moves to contain China’s semiconductor industry: a timeline from July

In early October, the US announced a new set of semiconductor export restrictions aimed at cutting China off from accessing certain high-end chips and further limiting the country’s ability to make advanced chips themselves. 

The US Department of Commerce’s Bureau of Industry and Security issued nine new rules, imposing export controls on advanced chips, transactions for supercomputer centers, and transactions involving certain entities on the Entity List. The rules also imposed new controls on certain semiconductor manufacturing equipment and on transactions for certain integrated circuit end uses. 

6- Chinese semiconductor firms bear heavy fallout of US chip sanctions

After the US issued one of the broadest export controls on semiconductor technology to China in a decade in October, China’s semiconductor industry saw its market value tumble. At least 13 China-listed semiconductor firms saw their market value decline more than 10% in less than a week, and five saw a more than 20% decline. 

Issued by the US commerce department, the comprehensive restriction bars companies from shipping advanced chips and chipmaking tools to China unless they obtain a special license. More specifically, the restrictions aim to cut off China’s access to and ability to make advanced chips under 16nm or 14nm, DRAM memory chips of 18nm or more advanced, and NAND flash memory chips of 128 layers or more. These technologies are essential to supercomputing and artificial intelligence. 

7- Gadget review | Oppo Watch 3 Pro: a high-end Android watch that lasts for days

Chinese phone maker Oppo released its new generation of smartwatches, the Watch 3 series, in August with a price tag of RMB 1,599 – RMB 2,099 ($228 – $300). The company first entered the watch market in 2020, updating its range annually since then.  

The latest series has a new look and offers more premium features such as long battery life, and an always-on feature supported by a LTPO OLED display. 

The version TechNode tested, the Watch 3 Pro, is currently only available in mainland China and Oppo has yet to reveal any plans regarding overseas markets, but there is an expectation that it will eventually be sold internationally. 

8- Gadget review | Xiaomi 12S Pro review: Flagship made for photographers and gamers

Xiaomi launched the 12S Pro in China in early July. The phone is the mid-range offering in Xiaomi’s new 12S lineup (including the 12S, 12S Pro, and 12S Ultra), which updates annually and targets a broad range of mid-end to high-end users. The series is also the first set of Xiaomi phones to use Leica lenses. TechNode got a hold of the 12S Pro and spent a week using and testing it. 

The phone is a solid choice as a primary daily device. The Leica-branded cameras can lure photography lovers, and the 12S Pro’s specs offer a quality entertainment experience. We would also recommend it to avid gamers and video watchers.

9- Douyin sees e-commerce sales more than triple in the past year

TikTok’s Chinese version Douyin announced in late May that its online sales had more than tripled for the year ending in April 2022, an impressive growth rate for the e-commerce up-and-comer when other majors were slowing down due to an economic downturn in China.

Chinese short-video platforms such as ByteDance-backed Douyin and Kuaishou are quickly eating into the market shares of e-commerce giants such as Alibaba, JD, and Pinduoduo, thanks to their widely popular social content.

10- How Shein became China’s ‘TikTok for e-commerce’

Shein was among hundreds of thousands of Chinese startups that tapped into the country’s emerging cross-border e-commerce industry when it was founded in 2008 in the eastern city of Nanjing. 

More than a decade later, it’s a Chinese fast fashion decacorn (a private technology company worth more than $10 billion) with a market cap of $100 billion. Only three other tech juggernauts — ByteDance, Alibaba’s Ant Group, and SpaceX — have surpassed that benchmark, according to Crunchbase’s private unicorn list.

Shein is a much lesser-known name than its local peers, such as Alibaba and JD. Its relative anonymity is largely due to its unusually low profile, typified by the lack of public information on its mysterious founder Xu Yangtian, also known as Chris Xu. However, Shein is a name that is increasingly difficult to ignore, as its extraordinary growth has people comparing it with big-name rivals like Amazon and Zara.

ByteDance-owned short-video platform Douyin, China’s equivalent to TikTok, has set RMB 150 billion ($22.2 billion) as its annual target for local life service sales in 2023, twice its actual gross merchandise volume (GMV) of RMB 77 billion in 2022, Chinese media outlet 36Kr reported on Jan. 15. Douyin’s local life services unit head told 36Kr that the figure of 77 billion for last year was inaccurate, but declined to give specific data. 

Why it matters: Climbing sales for local life services – encompassing food delivery, travel bookings, and other retail sales – point to the business becoming increasingly important for Douyin’s revenue growth in 2023 as the platform continues to take on established delivery and life services giant Meituan. ByteDance CEO Liang Rubo previously acknowledged that the company saw slower revenue growth than expected in 2022, while growth in daily active users for its products was also lower than the targets set early in the year.

Details: Douyin is confident of hitting the full-year 2023 sales goal of RMB 150 billion for its local life services unit, as internal estimates show the unit’s GMV ceiling to be between RMB 260 billion to RMB 280 billion, a source told 36Kr.

• The food and restaurant segment comprises half of Douyin’s life services sales target, with in-store business and hotel and tourism expected to bring in RMB 45 billion and RMB 30 billion, respectively.
• The business development team at Douyin’s local life services unit has shrunk from 3,000 to around 1,000 personnel as the video platform pushes more work to help merchants improve their operational capabilities onto third-party service providers, the report cited an unnamed source as saying. Douyin subsequently denied that this downsizing had taken place.
• The local life services division underwent a new round of organizational restructuring after ByteDance put former products and commercialization strategy leader Zhu Shiyu in charge of the unit last October. Notably, the business development team was resegmented by industry, instead of geographic region.
• Douyin’s widespread popularity is largely thanks to its addictive algorithms. A person close to the platform told media outlet Huxiu that each new Douyin user enriches the labeling process, and that this method is also now being applied to local life services. The unit divides users into three categories: people who purchased a certain product, people who searched for, followed or liked a certain product, and potential customers based on their age, work, and lifestyle.

Context: Douyin’s entry into local life services, which began in 2021, is seen as a big threat to industry giant Meituan, which brought in RMB 129 billion in revenue from core local commerce, including food delivery, in-store purchases, and hotels and travel in the first three quarters of 2022.

• Douyin still performs weakly in terms of the order completion rate of its group buy offerings, which at only 60% in 2022 is unchanged from 2021. Meituan’s rate, by comparison, is nearly 90%.
• Douyin users are seemingly still hesitant about the platform’s content-driven group buying feature, in which users purchase coupons prior to consumption via in-feed videos, the 36Kr report noted. Users can apply for a refund if they decide not to use the coupons, but take-up has still been slow compared to Meituan, where users usually buy coupons after completing in-store consumption.
• Some agents in Meituan’s low-tier markets have asked merchants to pick a side as competition hots up, encouraging them to cooperate with either Douyin or Meituan, according to 36Kr.
• In December, China’s three major express courier platforms – JD backed-Dada, SF Express’ SFTC, and Shansong – announced that they would begin providing same-city logistics services for Douyin’s local life services arm in a major expansion of ByteDance’s push in the sector.

Freshippo said it achieved profitability with its main grocery brand Hema Xiansheng for the first time in 2022, after seven years of investment, according to an internal letter to employees from Freshippo chief executive Hou Yi seen by local media outlet Jiemian. 

Why it matters: At a time when many other tech-funded grocery chains are still finding ways to break even, the Alibaba-owned chain’s news of partial profitability is a milestone in the ultra-competitive fresh grocery industry.

Details: Hou said that the company had realized “the profitability of Hema Xiansheng,” calling it “a big step for new retail” without revealing Freshippo’s current customers or sales figures. He added that Freshippo aims to serve one billion consumers and reach RMB 1 trillion ($145.2 billion) in sales nationwide in the next ten years.

• Freshippo will continue to expand in the new year Hou said, maintaining double-digit growth in store openings for Hema Xiansheng and its membership store Hema X. Its discount store Hema Outlets aims to complete “full coverage” of all suburban towns in Shanghai by the end of 2023. 
• Hema Neighborhood, the company’s local grocery pick-up business, will gradually shift from a direct to a franchise-based model.
• Hou also highlighted Freshippo’s focus on developing its own branded products in 2022, saying that Freshippo-owned brands already account for 35% of the goods it sells, and will soon exceed 50%. He said he sees those brands as a core strategy of differentiation for the chain. 
• Nevertheless, Hou has also pledged to continue bringing “the best products worldwide” to China, according to a report by local media outlet NBD on Dec. 17, following a European tour in which the executive looked to source beer, chocolate and cookies for the grocery chain.

Context: Freshippo was launched in 2015 as Alibaba looked to leverage its expansive logistics network and enter the fresh produce market. It runs on a model of using offline stores as warehousing, sorting, and distribution centers, in contrast to its competitors’ use of a front-end warehouse model, which often carries higher fulfillment costs. 

• Local life services giant Meituan, which operates an express delivery service for fresh groceries called Meituan Macai, adjusted its strategic focus to “retail plus technology” in 2021, but the new initiatives segment to which Meituan Maicai belongs continues to record huge losses. The segment lost RMB 22.6 billion in the first three quarters of 2022, and made a yearly loss of RMB 38.4 billion in 2021.
• Another Freshippo competitor, NYSE-listed Dingdong Maicai, achieved its first non-GAAP profit of RMB 20.6 million in the April-June period of 2022 but then reported a loss of RMB 345 million in the following quarter. The company’s ability to sustain profitability therefore remains in doubt.
• China’s Covid lockdowns helped drive sales growth for express grocery delivery retailers in 2022. According to a report conducted by consumer insights consultancy Kantar Worldpanel, express grocery sales improved 11.7% in the third quarter of 2022 compared to the same period in 2021, with the frequency of orders placed by users on integrated platforms including Meituan, Ele.me, and JD increasing significantly during this time.

China had a rough ride in 2022. 

Throughout the year, the economy was plagued by the frequent resurgence of Covid and the related containment measures that disrupted daily activities. In the first three quarters, China’s GDP grew by 4.8%, 0.4%, and 3.9% from last year, falling far short of its own 5.5% annual growth goal. 

The country’s tech industry was, of course, not immune to the overall sluggish economy. Chinese companies (many of which are in the tech sector) on the Hurun Global 500, a list that tracks the world’s most valuable companies, lost $2.9 trillion in 2022, more than half of their value from last year. 

The e-commerce and content sectors, in particular, saw the most damage as consumers and advertisers cut spending. Industry leader Alibaba reported a steep drop in revenue growth, while budget retailer Pinduoduo saw rapid growth as people became more sensitive to prices. Content giant Tencent also reported quarterly revenue declines, and advertising revenue dropped significantly. 

Meanwhile, green energy vehicle sales had been a rare growth point in China, and Chinese shopping platforms were rising rapidly in overseas markets despite challenges at home. 

It might be too early to tell whether the country is nearing a turning point. After three years of battling the highly mutable and transmissible Covid-19, the Chinese government suddenly relaxed its Covid control policies in early December, exiting from its previously strict measures in less than a week. Such drastic change has resulted in rapid Covid infections across China, triggering drug shortages and causing many people to stay home to recover. 

China’s earlier-than-expected reopening could bring an economic recovery in 2023. But the country might also need some time to learn to live with Covid after three years of strict controls.

Goldman Sachs expected China to reopen in the second quarter of 2023 in their annual China outlook report published in November and forecasted China’s GDP growth to “accelerate from 3.0% this year to 4.5% next year.” The first quarter after reopening might see negative growth, due to Covid case surges and people temporarily reducing travel, the report said. However, China might see accelerated growth once people adjust to the new reality, as experiences from other East Asian countries that have implemented strict Covid controls show. 

EVs drive automaker growth, BYD claims dominance

In a year of lackluster consumer confidence, new energy vehicles (NEVs, including plug-in hybrids and electric vehicles) have been a rare bright spot in China. The country’s car buyers showed a strong preference for NEVs over traditional gas cars. The share of NEVs in the new car sales reached 36.2% in November, growing from last year’s 22.5% and surpassing China’s goal of 25% by 2025, three years ahead of schedule. 

And no Chinese automaker had a better year than BYD. The local EV and battery maker climbed to a dominant position in the new energy vehicle segment. At the same time, China’s leading EV trio — Nio, Xpeng, and Li Auto — faced various problems and lost some of their shine.

BYD managed to capture market share from other strong rivals this year. In a year, BYD grew its share of NEV sales from 19.5% to 31%, while Wuling’s went down from 14.4% to 8%, and Tesla China went down from 10.7% to 7.9%. 

As of November, BYD more than doubled its sales from last year, selling more than 1.57 million NEVs this year in China, taking more than 31% of the market share, ranking first and way ahead of the trailing pack of automakers. Wuling, a state-owned mini EV maker, is second, selling more than 400,000, growing 7.1% from last year, and accounting for more than 8% of the market. Tesla’s China operation came in third, with more than 397,800 cars sold, a 59% annual growth, and a 7.9% market share. Li Auto, Xpeng, and Nio ranked 10th, 11th, and 12th, each taking less than 2.3% of the market, down about 1% from last year. 

Other local automakers, such as Geely, GAC’s Aion, Chery, Changan, and Hozon, also had a good year and grew their market share, though the speed and scale of BYD’s growth were unrivaled. Hozon made it into the top ten EV brands by sales for the first time this year, squeezing out the state-owned joint venture SAIC. Geely also saw impressive market share growth, rising from 2.7% last year to 5.3% this year. 

BYD has two main advantages: competitive pricing and an integrated supply chain. BYD’s popular models — BYD Song Plus and BYD Qin — have been frequent bestsellers in their categories in the last six months. Priced between RMB 150,000 and RMB 220,000 ($21,470 to $31,490), these models are known for affordability and fuel efficiency. Unlike many other automakers hit by supply chain crunch and price hikes of source materials, BYD was able to keep its competitive price as a major battery maker in its own right (and one that is reportedly set to supply its blade battery to Tesla). BYD is also expanding outside China, systematically entering Japan, Southeast Asia, and Western Europe, with more overseas pushes planned ahead. 

However, such impressive growth could slow in 2023. Multiple automakers in China gave conservative outlooks for the first half of 2023, citing the end of EV purchase subsidies at the end of 2022. Many brands also cut prices and gave out promotions to attract buyers to place orders before the end of 2022, boosting their year-end sales and capitalizing on the last subsidy run. These moves are likely to overdraft 2023’s sales in advance. 

Pinduoduo wins in China, competition heats up in overseas markets 

In the economic downturn, budget retailer Pinduoduo outrivaled established platforms like Alibaba and JD. In the third quarter, Pinduoduo reported 65% growth in revenue and a whopping 388% growth in operating profit, contrasting with Alibaba’s relatively flat growth of 3% in revenue and 68% in operating profit, and JD’s 11.4% growth in revenue and 276% in operating profit. Alibaba fared worse than JD, seeing a steep drop in revenue growth, with yearly growth hitting below 10% for the first three quarters of 2022, a major departure from the 20% or 30% plus growth rates it has been accustomed to in the past few years.

Although Pinduoduo’s vice president of finance, Liu Jun, said at a third-quarter earnings call that the company was “unlikely to maintain” that level of profitability, the temporary strong growth still showed the broad appeal of a well-run budget retailer during lean times. 

China’s year-end shopping festival Singles Day was also increasingly losing its appeal. Industry leaders Alibaba and JD didn’t release their overall sales data for the first time in a decade. Moreover, these established retailers were also facing serious threats from ByteDance’s Douyin as the short-video platform continues to see strong growth in live commerce. 

In contrast to the slow growth back home, outside of China, competition has been heating up for Chinese overseas retail platforms. In March, Shein, the Chinese online fashion platform known for its ultra-cheap prices, managed to expand its market share of fast fashion sales in the US to 40%, continue to widen its lead over H&M’s 27%, Zara’s 17%, Forever 21’s 9% and Fashion Nova’s 6%, a report from Bloomberg Second Measure said. Shein became the largest fast-fashion retailer in the US in the second quarter of 2021 and grew its US sales more than 5.6 times between March 2020 and March 2022. 

Seeing Shein’s success, Pinduoduo also launched an overseas retail platform Temu in September. The platform surpassed $1.5 million in average daily gross merchandise value (GMV) in its first month. Although the figure fell slightly short of internal expectations, the platform was spending heavily on ads to capture new customers, even becoming the most-downloaded shopping app in the US, surpassing Amazon, Walmart, and Shein. Nevertheless, it remains to be seen whether such growth is sustainable. 

A somber year for China’s semiconductor industry

Since Chinese tech giants ZTE and Huawei began to be hit by US sanctions five years ago, the Chinese tech industry has wondered about the evolution of US sanctions. This fall, the multi-year effort hit a new level. 

In October, the US announced a sweeping set of restrictions on semiconductor exports to China, aiming to cut China off from accessing high-end chips and the tools to make them. Instead of putting individual companies on blacklists, the new restrictions took aim at the entire Chinese semiconductor sector and related industries. 

In particular, the Biden administration is trying to limit China’s ability to make advanced chips under 16nm or 14nm, DRAM memory chips of at least 18nm, and NAND flash memory chips of 128 layers or more. Meanwhile, the US is also pursuing chipmaking toolmakers in the Netherlands (ASML) and Japan (Tokyo Electron), pressuring them to stop selling China the tools to make high-end chips. There aren’t many ways around these curbs. Unless advanced chipmaking technology changes or undergoes a fundamental evolution, China’s dream of making its own advanced chips in the next few years might be limited. 

Content platforms see ad revenue winter 

The content and entertainment sectors have seen significant blows in the past year, not just in China, but also worldwide. According to the Hurun Global 500 list, media and entertainment companies suffered the most significant drop in value in 2022, followed by retail, software, and services, while the biggest gainers were in energy and insurance. 

Major content platforms in China saw dwindling advertising dollars as companies cut marketing budgets to weather the economic downturn. Worse, whatever budget was left was increasingly going directly to e-commerce platforms such as Pinduodou and JD rather than content platforms like Tencent, Baidu, and Weibo. 

Content giant Tencent saw yearly revenue decline by 3% and 2% in the second and third quarters, with advertising revenue down almost 18% in the second quarter. In late December, Tencent’s CEO Pony Ma said in an internal speech that the company could cut Tencent News, the company’s signature news website established in 2003, if the site can’t break even by itself. 

Search engine giant Baidu also saw revenue decline by 5% in the second quarter, and a flat 1.9% growth in the third. Microblogging site Weibo saw heavy losses too, reporting 22% and 25% revenue declines in the second and the third quarter. 

Gaming companies in China saw a few signs of easing conditions. In April, China began issuing gaming licenses again after an eight-month freeze. But heavy regulation on the sector in 2021 has continued to have ripple effects, and video game companies were projected to see a 2.5% annual revenue decline in 2022. Many smaller studios had to lay off staff or even shut down their companies while waiting for their new games to be approved by the authorities. The worst might be over, but the pain is still being felt throughout the industry. 

Related reporting from TechNode

Auto 

• BYD makes expansion moves in Southeast Asia and Europe

• Meet the Chinese carmakers racing to get a larger share of the global markets

E-commerce

• How Shein became China’s ‘TikTok for e-commerce’

• Shein surpasses Amazon in downloads for the first time in the US

Semiconductors

• The US’s moves to contain China’s semiconductor industry: a timeline from July

• Chinese semiconductor firms bear heavy fallout of US chip sanction

Content

• China resumes issuing new gaming licenses after 8-month freeze

• Tencent’s overseas gaming revenue helps lead Q3 recovery

A week after Tencent’s co-founder Pony Ma emphasized that short video is key to the tech giant’s future, the company’s short video service WeChat Channels announced that it is set to charge e-commerce merchants a 1% to 5% commission fee in the coming year, according to a report by local media outlet Tech Planet.

Why it matters: Tencent’s rebounding profit growth in the July-September period after four consecutive quarters of decline is a sign of the company’s gains from its ongoing cost-cutting measures, but finding new revenue streams remains a priority. With 800 million monthly active users, WeChat Channels (a TikTok-like short video platform within the messaging app) provides a clear monetization opportunity.

• Tencent recorded its first-ever quarterly revenue decline of 3% year-on-year in the second quarter of 2022 and a 2% decline in the following quarter. Weak online advertising revenue was the main factor dragging down the company’s growth.

Details: The total value of live commerce sales generated from WeChat’s short video platform is between RMB 40 billion to RMB 50 billion ($57.5 billion to $71.9 billion), a service provider close to the unit told Tech Planet. 

• The report said Tencent’s short video platform will charge different service fees based on different categories, with the highest rate of 5% applying to personal care, underwear, sports and outdoors, baby and maternity, and home and kitchen.
• Tencent is offering new merchants preferential policies, with the commission reduced to 1% for transactions of RMB 1 million or less during the first 30 days.
• TikTok’s sister app Douyin has been charging 1% to 10% for technical services fees since February 2020, while rival Kuaishou requires merchants to pay 5% of the actual transaction value of an order.

Context: Tencent has seen users’ total time spent on WeChat Channels exceed 80% of the time spent on WeChat Moments (the app’s friend feed). The total number of viewers of video on the platform increased by 200% compared to the same period last year, the firm’s President Martin Lau said on the company’s second-quarter earnings call.

• WeChat’s video unit set up a live-commerce team last July, with its daily transaction value reportedly reaching RMB 100 million for the first time in September.
• In addition to the emerging role of the e-commerce business, video account ads are also being regarded as a major way for Tencent to expand its revenue. Lau said he expected quarterly revenue from in-feed ads to surpass RMB 1 billion in the fourth quarter.
• WeChat has launched a variety of advertising formats for businesses, including WeChat Moment ads on users’ friend feeds, official account ads, mini-program ads, video account ads, and search ads, with two to five options in each format.

Richard Liu, founder of Chinese online retailer JD, is set to become more involved in the daily management of the company in 2023, according to local media outlet Huxiu, whose report cited an unnamed source.  

In a recorded company meeting, the firm’s former CEO told staff that the company should refocus on the low-price strategy that helped it rise to prominence, while expressing frustration over executives’ tendencies to exaggerate their own performances. Many staff were surprised by Liu’s direct tone, the report noted, adding that he used phrases such as “feeling cheated by some mid-level leaders.”

Why it matters: JD is facing intense competition from cut-price e-commerce platform Pinduoduo and the growth of social e-commerce at companies such as short video giants Douyin and Kuaishou. JD’s yearly revenue growth rate has slowed from 20% in the first quarter of 2022 to 3% and 5% in the second and third quarters of the year, a significant drop from last year’s 36% annual growth rate. 

• Although Liu stepped down as JD’s CEO in April this year, he has seemingly retained plenty of control, launching a series of drastic actions in recent months, including giving more benefits to grassroots staff, cutting senior executives’ salaries, and making major personnel adjustments. 

Details: In his nearly 90-minute speech, Liu criticized what he claimed was the company’s currently out-of-focus strategy and overall organizational inefficiency, according to Huxiu’s report.

• Liu pointed out that competitive pricing is the key strategy of JD and that the company should focus more on how its products are being priced.
• Some of JD’s business teams have already removed the “per customer transaction” target from employees’ key performance indicator, a move in line with Liu’s emphasis on the value of “low price”. Previously, pursuing higher unit prices was a key goal for these teams.
• Liu also expressed frustration with how some top management figures had allegedly dressed up results with PowerPoint slides and new terminology. “Then you find out they’re liars,” Liu said, highlighting that the company’s results had fallen far short of its goals.
• The billionaire founder reportedly asked management executives to “return all strategies to cost, efficiency and experience.”

Context: Liu’s emphasis on a low-price strategy quickly gave JD a foothold in China’s booming e-commerce market in the company’s early days, but it was also the main reason behind the company’s persistent loss-making. The Beijing-based e-commerce giant didn’t achieve an overall full-year profit until 2019.

• Richard Liu began to distance himself from his JD management role in late 2019 after facing sexual misconduct charges in the US. The case was settled in October, after he reached an undisclosed agreement with his accuser. 

As China rapidly dismantles its Covid zero measures that have gone on for almost three years, consumers are feeling a number of major impacts. Notably, fever-reducing drugs and rapid antigen test kits are in short supply through both online and offline channels, especially in major Chinese cities. Backlogs in courier services, delays in food delivery, and even the accumulation of trash in neighborhoods are now also being witnessed in Beijing, one of the first batches of cities seeing wide infection, and a growing number of other cities.  

Last week, Chinese authorities began loosening the country’s stringent Covid-19 policies, which have helped keep infections low since the initial pandemic outbreak but have also led to reduced individual movement and shocks to the economy. In the latest sign of change, China’s National Health Commission announced on Wednesday that it will no longer count asymptomatic cases, saying accurate data is now impossible to capture given the reduction in mass testing. 

While some analysts are hopeful the shift in policy will help revive China’s economy and remove some of the recent supply chain disruptions in the country, consumers in major urban centers are experiencing a particularly bumpy period of adjustment.

Rush for fever drugs 

Drugs used to significantly reduce fevers, including Ibuprofen and Tylenol – as well as canned peaches and lemon-related foods that are rich in Vitamin C – are currently out of stock on online shopping platforms such as Taobao and JD.

The shortages have led consumers to explore creative ways to buy these essentials for the ongoing Covid-19 winter wave.

Early this week, some users on social e-commerce platform Xiaohongshu went viral for sharing a little-known method for buying fever and cold drugs from pharmacies in remote areas at the original price.  

One Xiaohongshu user claimed that people could easily get Ibuprofen when modifying their location on life services platform Meituan to counties in the southwest of China in provinces such as Yunnan, Sichuan, and Guangxi. They could then ask couriers to pick up the goods from the pharmacy and mail them to their home location, albeit with a delivery wait of two or three days.

While such a move allows people thousands of miles away to get the fever drugs that are now scarce in many Chinese cities, it has led to a succession of stock-runs in more remote areas.

Users were unable to search for content related to purchasing drugs in other places in Xiaohongshu from Tuesday afternoon, according to the Chinese media outlet Jiemian.  

Strict nationwide controls have been imposed on individuals buying antipyretic, cough, antiviral drugs and antibiotics since the beginning of the Covid pandemic, with authorities focusing on finding infected persons as early as possible. Anyone looking to purchase these medicines has been required since early 2020 to register their personal details with the pharmacy selling them. 

In January in Beijing, for example, new rules required purchasers of such drugs to undergo a nucleic acid test within 72 hours or receive a risk alert preventing them from entering public places.

Such curbs have dissuaded many from buying these drugs in the last two years, but with Covid infections now surging across the country, demand for the products has suddenly sky-rocketed.

Saya, who lives in Shanghai, told TechNode that a friend of hers working in Hong Kong has recently started to help people on the mainland who can’t buy over-the-counter drugs – including antigen test kits and cold medicine – from local pharmacies. The friend then packages the medicine up and sends the goods by courier to the buyers, who can expect to receive them in as little as two weeks for a shipping fee of around HK$ 200 ($26).

Meanwhile, Hong Kong newspaper Ming Pao reported early this week as saying the panic buying among mainlanders has already affected the city, with local pharmacies also running low on fever-reducing drugs.

According to The Paper, Meituan’s medicine channel has launched a “city-wide drug search” feature in Beijing, Shanghai, and six other cities with soaring demand.

Delivery services under pressure

China’s sudden reopening has also presented on-demand delivery and courier service providers with multiple new challenges. 

In addition to the rush to buy fever-related drugs, consumers across the country have turned to online delivery services for daily necessities, with few willing to visit high-density locations such as supermarkets and shopping malls. In addition to this sudden uptick in demand, employees responsible for sorting and distribution at courier firms are themselves testing positive for Covid, causing staffing shortages.

As of Dec. 11, more than 400 distribution points nationwide were still closed, according to an official statement from the State Post Bureau.

More than 1,000 couriers temporarily mobilized by e-commerce giant JD arrived in Beijing on Wednesday, aiming to help ease delivery issues in the city. The company says hundreds more will follow this week.

Several Beijing residents told TechNode that they can still order take-out on Meituan and Alibaba’s Ele.me as usual, but that the delivery time is longer than before. – Some said that food deliveries that used to take an average of 40 minutes to receive now have a wait time of at least 90 minutes.

In an attempt to stabilize its services in Beijing, Meituan is reportedly hiring part-time couriers. Meanwhile, the food delivery has said it is providing couriers with antigen test kits, ibuprofen, and VC effervescent tablets in 23 cities.

For Alibaba-owned supermarket chain Freshippo, half of the clerical staff in Beijing have been reassigned to support positions like packing, with some store employees working part-time as delivery riders, local media outlet China Times reported on Tuesday.

As much of the world grapples with slow growth and high inflation in 2022, Hurun Research Institute’s annual Global 500 list shows the damage that has been inflicted upon the world’s top companies in the past year. 

The top 500 companies lost $11 trillion — a 19% drop in valuation from 2021 and equivalent to all of the value they created last year. Energy companies enjoyed strong growth, while retail and e-commerce were the hardest hit. Companies from four countries accounted for 80% of the loss: US firms lost $5 trillion, Chinese firms $2.9 trillion, and German and Japanese businesses lost $600 billion each. 

Overall, 35 Chinese companies made the list in 2022, 12 fewer than the previous year. Sixteen companies dropped out of the list, including some notable leaders in their sectors such as short video platform Kuaishou, pharmaceutical company WuXi Biologics, electric vehicle maker Nio, ride-hailing giant Didi, and video content platform Bilibili. 

Four Chinese companies made onto the list for the first time. They are: Shein, Webank, JD Technology, and Tongwei.

Here’s what you need to know about the four new entrants: 

1. Shein

Ranking: #355

Fast fashion retailer Shein broke into the Hurun Global 500 list for the first time with a valuation of $40 billion, ranking at number 355.

Formed by Chinese entrepreneur Chris Xu in 2008 as an online wedding dresses platform, the business expanded to women’s fashion and took on the brand name Shein four years later. Today, it has become one of the biggest names in fast fashion.

The e-commerce site was valued at approximately $15 billion in 2020, according to figures from PitchBook Data Inc. cited in the Wall Street Journal; the US newspaper also stated that Shein’s valuation has risen nearly sevenfold in two years, hitting $100 billion this April. Shein’s total sales are expected to grow by 50% to $30 billion in 2022, the Wall Street Journal cited a source close to the company as saying in early November.

Various factors contributed to Shein’s rapid rise: low prices, a constant flow of new products per day, and popularity among TikTok users.

Shein is able to maintain lower prices than rivals Zara and H&M as it sells most of its products directly to consumers. The firm produces 700 to 1,000 new products in small batches per day, with mass production carried out only when an item sees high sales volume.

The fast fashion platform has received 7.5 billion views on TikTok with the hashtag #Sheinhaul, well ahead of the 4.2 billion views for #Zarahaul.

2. WeBank

Ranking: #433

As the first private internet bank in China, WeBank has been valued at $33 billion according to the Hurun Global 500 list.

Co-founded by Tencent in 2014, WeBank has attracted a significant number of users in a short period of time, relying on the tech giant’s messaging super apps WeChat and QQ. The digital bank posted more than 320 million active users by the end of 2021.

Weilidai and Weiyedai are the two main services the Shenzhen-based firm profits from; the former targets micro loans to individuals and the latter provides loans to small businesses. WeBank also offers auto loans.

According to Webank’s 2021 annual report, it achieved a revenue of RMB 26.99 billion that year, with net interest income accounting for 66.6% of total revenue. The internet bank recorded a net profit of RMB 6.88 billion in 2021, up 38.9% year-on-year; for comparison, Alibaba-backed MYBank posted RMB 2.09 billion net profit in 2021.

3. JD Technology

Ranking: #483

As the fintech arm of e-commerce retailer JD, JD Technology was reorganized in January 2021 on the basis of the former JD Digits, JD Cloud, and artificial intelligence units. The company mainly provides digital solutions to financial institutions and enterprises as well as local governments.

JD Digits filed for IPO on Shanghai’s Star Market in September 2020, with a valuation of up to RMB 200 billion. However, the firm later withdrew its IPO application in the middle of the process after Ant Group’s abruptly terminated IPO brought regulatory uncertainty to the country’s fintech sector.

The main source of revenue for JD Digits is its financial businesses. According to the prospectus filed by the firm at the time, it recorded a total revenue of RMB 10.33 billion in the first half of 2020, of which the revenue of two credit products – JD Jintiao and JD Baitiao – was RMB 2.64 billion and RMB 1.79 billion respectively, accounting for a combined 43% of the total revenue.

Reuters reported last month that the JD fintech unit is seeking Chinese regulatory approval for a new attempt at a Hong Kong listing as soon as the end of this year, adding that the size of the IPO is likely to be smaller than the previously suggested $2 billion.

4. Tongwei Co. Ltd

Ranking: #483

Based in the southwestern Chinese province of Sichuan, Tongwei is mainly engaged in the production and sale of agricultural feed. The company is also the world’s largest polysilicon supplier.

In the first three quarters of 2022, Tongwei achieved a net profit of RMB 21.73 billion, 1.65 times that of the last full year. The figures saw Tongwei better LONGi Green Energy Technology, the leader in the solar photovoltaic industry. LONGi posted RMB 10.98 billion in net profit in the January to September period, compared with a net profit of RMB 9.09 billion for the full year of 2021.

Tongwei attributed its rapid growth in the past two years to the continued strong market demand for high-purity crystalline silicon products, which has driven up market prices significantly.

The price of silicon materials has increased by 315% in the past three years, from RMB 73/kg in early 2020 to RMB 303/kg in the third quarter of 2022, according to Chinese financial and stock information provider Eastmoney.

Meanwhile, the company’s solar cell unit – which makes the core component for photovoltaic power generation – saw significant year-on-year growth in production and sales, enabling it to maintain strong market competitiveness.

Chinese bubble tea chain Naixue (formerly known as Nayuki) has acquired a 43.64% stake in rival Lelecha for RMB 525 million ($75 million), becoming the largest shareholder in the company, Shenzhen-based Naixue announced on Monday.

Why it matters: Together with HeyTea, Lelecha is one of Naixue’s direct competitors with similar brand positioning – and the move is a sign of consolidation in the new-style tea industry against the backdrop of a macroeconomic slowdown and consumers tightening their spending. 

Details: Naixue’s acquisition of a 43.64% stake in Lelecha will make it the company’s largest shareholder, though a statement from Naixue made it clear that Lelecha will continue to operate independently. Naixue’s equity acquisition price values Lelecha at around RMB 1.2 billion ($171.5 million), a 30% cut from the RMB 1.71 billion valuations reached by the company during its latest financing round in July 2020.

• The consolidation comes after both companies have been affected by Covid resurgence and related control measures this year in China. Naixue posted revenue of RMB 2.05 billion in January to June period, down 3.8% from the last year, while it saw operating profit plunge 49.2% to RMB 196 million during the same period. The firm’s share value has fallen more than 55% since its debut last June.
• Chinese media 36Kr reported that Lelecha was breaking even before the Covid-19 outbreak, but Naixue’s announcement on Monday showed that during the pandemic, Lelecha losses after tax totaled RMB 20.6 million and RMB 18.2 million in 2020 and 2021, respectively.
• The acquisition announcement also disclosed that Lelecha has separate plans to list in the US or Hong Kong in the next five years.
• Naixue recently changed its name from the Japanese-sounding Nayuki to its Chinese pinyin, joining a trend of mainland Chinese companies who once imitated Japanese counterparts in “de-Japanifying” its brand. 
• To find new growth points, Naixue made an unexpected move this July by introducing Naixue coin and virtual stock linked to its actual stock price, allowing consumers to enjoy bubble tea while making investments. The company also launched ready-to-drink products earlier this year, following a similar move by rival HeyTea.

Context: China’s new-style tea market has boomed in recent years, with the overall market size expected to reach RMB 200 billion by 2030, up from RMB 77.29 billion in 2020, according to iiMedia Research.

• Chinese tech media outlet Linexian Insight cited data from consulting firm CIC and ranked HeyTea as the country’s most popular high-end new-style tea brand in 2020, comprising 27.7% of the market, followed by Naixue with a market share of 18.9%.
• The major competitors in the market continue to eye expansion as a path to growth. Naixue operates a total of 973 stores nationwide, a number that will rise to more than 1,000 by the end of the year. HeyTea, which previously adhered to a direct sales model, recently announced it would begin to welcome franchises. Meanwhile, Lelecha is expected to expand its current 140 stores to 158 before the Spring Festival in late January.
• HeyTea and Naixue, which position themselves as high-end brands, reduced 16% to 23% of their average beverage prices at the beginning of 2022 as they looked to attract a broader consumer group.

Tencent-backed Tims China, the Chinese venture from coffee giant Tim Hortons, saw its revenue increase 67.9% to RMB 182.1 million ($25.5 million) for the third quarter of 2022, while its net loss widened by 72.4% from last year to RMB 195 million, according to the firm’s first financial report since listing on the Nasdaq following a SPAC merger in September. 

Why it matters: The nearly 70% revenue growth in the third quarter shows the Chinese arm of Canadian coffee shop Tim Hortons’ aggressive expansion plan has already translated into sales figures, with the company’s adjusted store earnings margin seeing an increase of 4.1%. However, it remains to be seen whether Tims China can maintain the momentum.

Details: Tim Hortons has a total of 486 stores in China as of September, covering 27 major cities. Tims China opened 46 new stores between June and September, on average opening one store every two days.

• The company’s operating expenses grew significantly with the increase in the number of stores nationwide. Company-operated store costs and expenses increased by 36.3% to RMB 299.9 million in the third quarter, while its marketing expenses saw a 70.5% increase to RMB 24.9 million, with the figure accounting for 8.1% of total revenue.
• Covid resurgence and strict control policies in China continue to hit retail sales in the country. Tims China reported reduced operating hours and temporary store closures in the quarter. The financial report pointed out that the firm temporarily closed an average of approximately 23 stores per day during the period, though this was better than the 138 stores closed per day during the previous quarter.
• Lockdowns have also led retailers in China to become more flexible with their sales channels. Tims China’s home-delivery orders recorded an increase of 111.1% compared to the same period last year as consumers’ reliance on delivery services soared.

Context: According to Chinese market research firm iiMedia Research, the market size of China’s coffee industry is expected to maintain a 27.2% annual rise in growth to reach RMB 10,000 billion by 2025. The huge growth potential of the Chinese coffee market has led major domestic and international coffee brands to regard the world’s second-largest economy as a significant growth frontier. 

• Tim Hortons’ competitors in China are also expanding in a yet-to-be-fully penetrated coffee market. Starbucks opened its 6,000th store in the country this September, and local coffee brands backed by domestic venture capital including Luckin, Seesaw, and Manner Coffee have all witnessed huge growth in the past few years.
• As it continues to expand its number of stores, Tims China is also actively partnering with local grocery retailers to leverage their influence to create new avenues of revenue growth. For example, the coffee shop operator plans to bring bottled coffee drinks to Alibaba’s Freshippo consumers in China starting this December, following similar moves by Starbucks and Costa, whose bottled drinks are available in convenience stores and supermarkets in most major Chinese cities.
• Statistics from market research company Statista show that Starbucks Coffee held the largest share of the freshly ground coffee market in China at 36.4% in 2020, followed by Luckin Coffee and Costa with 6.8% and 2.3% respectively. Tim Hortons held just 0.5% at the time.

ByteDance-owned Douyin has achieved its yearly target set for local life service ahead of schedule, reaching RMB 50 billion ($6.98 billion) GMV in October, Chinese media outlet 36Kr reported, citing several unnamed sources.

Why it matters: The short video app, which has more than 600 million daily active users, introduced functions like ordering food and tickets, and booking travels directly into it. These moves put the content giant in direct competition with Meituan and Ele.me — two established local service players.

Details: Douyin’s local life unit has now provided a variety of daily services, including buying food ordering recommendations and sightseeing tickets, and booking hotels, parent-child activities, and sports and fitness events. Users can complete those purchases in the video app. 

• The 36Kr report said short videos contributed nearly 50% to the platform’s fast-growing life services sales, while live-streaming and search contributed 35% and 18% to the total GMV growth, respectively.
• A direct link to purchases can appear in the bottom left corner of a related short video. For example, a user watching a video of a plate of steamed fish might see a link to a nearby restaurant serving the same or a similar dish. Those links can nudge users to place orders without leaving the current app.
• Douyin is also reportedly piloting food delivery and group buying delivery services in the southwestern Chinese city of Chengdu soon. But merchants still need to contact couriers themselves for delivery if they currently get takeout orders in the city.

Context: The popular short video platform is being used by merchants as a new way to get a broader range of consumers, while Douyin is also expecting to accelerate the monetization process from the local lifestyle unit, which has huge development potential.

• The overall market size of China’s internet local life service industry has reached RMB 2.6 trillion, growing 15.1% from a year earlier, according to a report conducted by consulting firm Qianzhan, with the figure expected to reach RMB 4 trillion by 2025. 
• The line between content platforms and retail platforms is increasingly blurring, for example, Meituan also tested a short video function this May. 
• Moreover, established players are seeking partnerships in the hope of defending their advantages. Meituan and Kuaishou reached “strategic cooperation” last December after rival Douyin set up the life service as the company’s core business. In August this year, Douyin and Ele.me also announced cooperation, though it has not yet been implemented.

Correction: an earlier version of this article miscalculated the US dollar amount of the GMV.

E-commerce giants Alibaba and JD kept silent on their Singles Day sales totals this year, the first time they chose not to publicize the data from their gross merchandise volume (GMV) performance. Alibaba said the results were “in line with last year’s GMV performance,” while rival JD claimed its growth rate exceeded the industry average.

Why it matters: The decision of Alibaba and JD, the two main participators in the year-end shopping festival, to not disclose their sales totals is in stark contrast to previous years when both have been quick to trumpet the amount of money brought in. The move comes against the recent backdrop of the Chinese authorities’ reining in of tech companies and could also indicate an underwhelming performance after years of rocketing growth. 

Details: Although the two major players failed to publicly confirm their sales totals, Chinese media outlet Yicai cited statistics from Xingyun Data on Nov. 13 showing that overall sales across all platforms during this year’s Singles Day hit RMB 1.1 trillion ($157.1 billion), up 13.7% year-on-year. 

• Sales from China’s top e-commerce platforms, including Alibaba’s Tmall, JD, and Pinduoduo, increased just 2.9% to RMB 934 billion, Xingyun Data reported.
• The total value generated by the live e-commerce arms of short video platforms Douyin and Kuaishou was RMB 181.4 billion, an increase of 146.1% over the same period last year, according to Xingyun.
• Douyin’s e-commerce arm has declined to release specific GMV figures since it began participating in Singles Day in 2019, instead offering alternative statistics. According to the data provided by Douyin on Nov. 12, the cumulative hours of live e-commerce on the platform during this year’s event increased by 50% to 38.21 million hours compared to last year, with 7,667 live rooms seeing sales surpass the RMB 1 million mark this year.
• Alibaba said in its press release that they saw strong growth this year in categories including sports and outdoors, pet products, collectible toys, and jewelry. 
• Sales of consumer electronics and home appliances also grew across the major e-commerce platforms this year. Mobile phones and home appliances were generally the categories to break RMB 100 million first on multiple platforms, though this is due to the high unit price.
• “A combination of economic and regulatory factors are leading the platform companies to emphasize customer loyalty and sustainability instead of GMV,” Jacob Cooke, CEO of e-commerce marketing firm WPIC, told TechNode. He added that the platforms are also hesitant to celebrate their GMV numbers amid the government’s common prosperity and anti-monopoly drives. Cooke’s company frequently helps foreign brands to sell on Chinese platforms.

Context: Over the past two years, China’s tech companies have been dealing with weak consumption, especially after many local governments imposed strict Covid control measures earlier this year. Data from China’s National Bureau of Statistics showed that the total retail sales of consumer goods were only up 0.7% year-on-year from January to September.

• Logistics is limited in many areas amid rising Covid cases, which has also affected consumers’ shopping enthusiasm to some extent.
• In 2021, Alibaba recorded its slowest-ever growth since the company appropriated Singles Day and turned it into a consumerist festival, with sales increasing 8.5% from 2020 to RMB 540.3 million. Earlier this year, JD also saw the slowest expansion in its GMV total for its 618 shopping festival since it first disclosed figures for the event in 2017.

In the run-up to this year’s Singles Day shopping festival, a number of high-profile livestream stars moved freely between different major platforms like Taobao and Douyin, highlighting newfound cross-platform freedom in China’s online retail sector.

Why it matters: This trend shows Chinese livestream retail sector is being more open amid increased antitrust pressure from regulators. Previously, there was a tacit agreement within the industry that top livestreamers were bound to certain platforms. The loosening provides new opportunities for e-commerce stars, platforms, and for brands.

Details:  Livestreamers being able to sell products across different platforms helps them avoid overdependence on a single platform and also means that they can gain support from other platforms in driving traffic, shorten the time needed to monetize their livestreams, according to a research report by Zhao Lingyi, chief analyst of retail e-commerce at securities firm Shenwan Hongyuan, and cited in Chinese media outlet Chinese Securities Journal on Monday. Livestreamers earn commissions on the products they promote and can also convert virtual gifts from their fans into cash. 

• Ahead of this year’s Singles Day shopping festival, some top livestream stars who used to stream exclusively on Douyin (the Chinese version of TikTok) joined Taobao Live. They include Chinese entrepreneur Luo Yonghao, New Oriental Education’s founder Yu Minhong, and Taiwanese singer and fitness trainer Will Liu (or Liu Genghong). For example, Luo Yonghao alternated with different stand-up comedians from the same company to do a series of e-commerce livestreams on both Douyin and Taobao’s platforms during this period.
• Alibaba said in a Nov. 7 press release that top stars and celebrities joining Taobao Live is “a strong testimonial of its unparalleled commerce infrastructure and holistic solutions for ecosystem partners.”

Context: The livestream e-commerce industry has grown rapidly since the beginning of the Covid-19 pandemic. According to a report released by consulting firm iResearch in 2021, the total revenue of China’s live e-commerce industry will hit RMB 1.2 trillion ($166 billion) by the end of 2022, with the figure expected to increase to RMB 4.9 trillion in 2023.

• Though running businesses on multiple platforms enables merchants to potentially reach bigger audiences, it has also raised concerns over the homogenization of content on e-commerce platforms.
• Alibaba’s Taobao platform has promised more support and cash incentives for influencers and new hosts, and the company says new hosts are a major growth driver, with the pre-sale value generated by this group growing by 684% year-on-year for this year’s Singles Day festival. 
• Chinese regulators have tightened tax scrutiny of e-commerce stars since last year, with top e-commerce influencers Viya and Cherie halting livestreaming after being fined for tax evasion. 
• Since early 2021, Chinese regulators have looked more closely at tech majors’ merger deals and imposed fines on various deals and unfair competition practices. And one of the notable punishments was Alibaba getting fined RMB 12.8 billion in April 2021 over antitrust practices including “forced exclusivity.”

Chinese local service platform Meituan initiated a new round of layoffs involving core business units after cutting up to 20% of staff in April this year, Chinese media outlet LatePost reported on Thursday.

Why it matters: Meituan faces high losses in its group buying business, leading it to continue laying off staff in related units. Meanwhile, the company also significantly reduced its campus hiring starting in September, with the actual number of hires less than half of the 5,000 planned. Chinese internet companies often replace higher-paid employees with cheaper ones to reduce operating costs.

Details: The redundancies mainly affected people from the Beijing-based company’s group buying unit called “Meituan Select,” according to LatePost’s report. 

• This round of adjustment also involves Meituan Select’s management level. Hua Fang, who is responsible for products on the platform, has notably been on a long leave recently. Hua’s position was taken over by Zhang Peng, who previously led the company’s search and recommendation efforts.
• The group-buy unit has been unable to achieve profitability while losses continue to expand. The operating loss of Meituan’s new initiatives reached 48% in the April-June period. Meituan Select was rebranded to next-day delivery supermarket business in October.
• Laid-off employees will be compensated based on their number of years of service to the company plus one month’s salary.
• Meituan is also saving money on employee-related benefits. For example, the report said that some department leaders recently recommended that their subordinates leave work earlier to reduce commuting costs. (The company reimburses taxi fares after 9:30 p.m.) 

Context: After the massive layoffs in April, Meituan’s marketing expenses in the second quarter decreased by RMB 1.86 billion yuan, down 17.1% year-on-year.

• Meituan’s 2021 annual report shows that employee benefits expenses became the second-largest expense, followed by food delivery-related costs, totaling RMB 34.77 billion ($4.8 billion) in 2021, an increase of 61.4% year-over-year. The increase in the number of employees also led to a jump in sales and marketing expenses, research and development expenses, and general and administrative expenses, which rose 46.4%, 41.0%, and 24.8%, respectively, compared to the previous year.

Singles Day, China’s biggest year-end shopping event, kicked off its pre-sale period across platforms on Monday. Sales data from e-commerce giant JD, a platform known for consumer electronic offerings, showed sizable growth in consumer electronic sales.

Why it matters: Although JD’s sales data showed growth, the data still suggests some cause for cautious optimism as the platform only revealed the percentage change in sales – not the exact number of units sold. This year’s Singles Day comes amid a backdrop of a global slowdown in consumer electronics due to weak demand, especially for smartphones and PCs. Brands are hoping that the mega e-commerce event can offset some of the losses in recent months. 

Details: Within the first second of Monday’s shopping event, smartphone sales from Apple, Xiaomi, Honor, and iQOO hit RMB 100 million ($13.76 million) cumulatively on JD, according to data from the platform. Oppo, Vivo, Samsung, OnePlus, Motorola, and Meizu saw 100% growth in sales in the first ten minutes compared with the same period last year. Foldable phones also had a 400% yearly growth in sales within the first ten minutes of the promotion. High-end gaming laptops equipped with a display with over 2k resolution and ultra-light laptops saw smaller 70% yearly growth in sales within the first ten minutes.

• These figures include both pre-booked purchases and real-time ones. 
• Meanwhile, sales of XR glasses were up eight times over the same period last year. 
• Nvidia’s newly released RTX 40 series graphics cards made by original equipment manufacturers (OEMs) sold out in the first three seconds on JD. The cards are built with new Ada Lovelace Architecture, which Nvidia says is two times better than the last generation on a range of critical specs.
• Other devices like compact printers and portable power generators also witnessed significant growth, rising 165% and 2,000% year-on-year, respectively.
• Home appliances from all brands achieved RMB 1 billion in sales within the first ten minutes of the sales event, a 40% year-on-year growth on JD. Midea, Haier, TCL, LittleSwan, Gree, Hisense, Rongsheng, and Sony all saw a 50% yearly growth in sales.

Context: Major e-commerce giants Alibaba and JD have started their yearly Singles Day shopping event with a major promotion of RMB 50 discounts for every RMB 300 spent.

• For last year’s Singles Day, JD and Alibaba’s Tmall accounted for 92.15% of the total GMV generated, according to BBC, quoting the e-commerce data platform Dianshubao.
• Last year, on the first day of Singles Day pre-sales, the high-end smartphone sales of Xiaomi, iQOO, Oppo, Honor, Huawei, and Vivo were four times those made during the same period in 2020, according to a report by Huaan Securities.

On Monday, Chinese online retailers kicked off the annual November 11 Singles Day shopping festival. The festival, originated by e-commerce giant Alibaba in 2009, has long been a major retail event across the industry. This year, amid a slowing economy, weakening consumer demand, and growing competition from short-video platforms, established retailers are shifting their focus away from chasing high growth in gross merchandise volume (GMV). 

For this year’s Singles Day festival, new e-commerce giants Douyin, Kuaishou, and Pinduoduo are increasing their rivalry with stalwarts Alibaba and JD. The crowded market has given merchants and consumers more choices, while the latter is more concerned about better deals in a year when budgets might be tight. Chinese livestream hosts are also diversifying their appearances as platforms cultivate new stars following the fallout from scandals affecting several top hosts. Moreover, Chinese tech giants are keeping a lower-than-usual profile as they continue to navigate pressure from both China’s tech crackdown and the capital markets. 

Deep discounts amid a competitive market

As China’s largest e-commerce shopping festival, Singles Day is popular with consumers because of its perceived discounts. The major platforms continue to offer straightforward price cuts and faster home-delivery services this year, with the most obvious being that they’re offering the deepest discounts.

“It’s worth for platforms to offer discounts be up as high as possible as Singles Day is always a big headline event for them over massive GMV figures,” said Jacob Cooke, co-founder and CEO of e-commerce and technology consultancy WPIC.

Among some of the main developments for this year’s Singles Day:

• Alibaba buyers get an RMB 50 ($6.8) discount for every RMB 300 spent across its stores, the deepest discount in recent years, compared to an RMB 30 discount for every RMB 200 spent last year.
• JD has launched a promotion on all categories with customers able to get RMB 50 back for every RMB 299 spent.
• Douyin has launched a deposit pre-sale period this year, an initiative introduced by Alibaba in 2018, where buyers can pay a deposit to reserve products ahead of the event, with the transaction completed once the final payment is made on the day itself. Meanwhile, the platform is also offering RMB 30 off for every RMB 50 spent for the first time.

Douyin’s growing presence during Singles Day

While ByteDance’s Douyin is still dwarfed in terms of sales by e-commerce giant Alibaba, its fast growth has made it a notable rival. The platform only took three years to achieve a gross merchandise value of one trillion yuan, a figure which took Taobao 14 years to achieve, albeit in different economic circumstances.

Chinese consumers are increasingly shopping across platforms. In a Singles Day survey by consultancy Bain & Company, 69% of the 3,000 surveyed customers said they planned to shop across three or more platforms, up from 56% in 2021. Some 37% plan to use five or more platforms on this year’s event, the survey found.

Statistics from the e-commerce database Dianshubao showed two leading platforms — JD and Alibaba’s Tmall — accounted for 92.15% of the total GMV generated on Singles Day in 2021. But Cooke said Douyin could grab a significant market share this year. “The platform has proven over the last while that they have been gaining in certain big categories like fashion,” he added

This year, Douyin is targeting an annual GMV of RMB 1.7 trillion according to local media outlet 36Kr, an increase of RMB 1 trillion from 2021.

The TikTok sister app, which has nearly 700 million daily active users, initially drew “new traffic” to its e-commerce business mainly through merchandise from third-party platforms such as Taobao and JD. In October 2020, it stopped directing buyers to other platforms to complete their purchases and accelerated its e-commerce push through in-app features instead. 

Douyin’s growing presence makes it more attractive for brands, and many are planning to invest more in their Douyin presence. Japanese clothing brand Uniqlo has turned to the platform to reach more consumers amid slowing demand in September, offering users a new, direct way to buy Uniqlo merchandise through the app.

Wenjing Liu, a managing partner at e-commerce marketing firm Genuine, said her clients have adjusted their sales strategies this year, hoping to use sales channels like Douyin to increase Singles Day revenue.

“This year, the split will be 70% to 75% on Tmall and 25% to 30% on Douyin, compared to last year when we had 5% to 10% on Douyin and 90% to 95% on Tmall,” she predicts.

Douyin also added shopping to ByteDance news aggregation app Jinri Toutiao ahead of this Singles Day, allowing users to shop within the widely popular news aggregator.

Top livestreamers return to Taobao

After disappearing for three months from June 3, livestream e-commerce superstar Li Jiaqi made a surprise return on Sept. 20. Li and another top livestreamer Viya together generated nearly RMB 20 billion in sales in 2021. This year has been challenging for top livestreamers — in addition to Li’s disappearance, Viya stopped livestreaming after being fined for tax evasion; another top e-commerce influencer, Cherie, also halted her popular livestreams in similar circumstances. They have yet to return.

An Alibaba employee told TechNode that Li Jiaqi’s return had helped bring back a sense of confidence to livestream e-commerce on its platforms and boosted the active stocking of beauty merchants. Li’s team has even created a new TV show to tell customers how they can bargain on prices with big brands.

In addition, more celebrities, influencers, and company executives are entering e-commerce livestream rooms and diversifying their appearances on multiple platforms. 

Ahead of this Singles Day, Taobao poached former Douyin livestreamers including Luo Yonghao, Yu Minhong, and Hong Kong actress Cecilia Cheung. A source who is familiar with the matter previously told local media outlet China Star Market that Taobao had purposefully contacted MCN agencies of stars who have long had alliances with Douyin and Kuaishou ahead of this year’s Singles Day.

In response to why Douyin’s top livestreamers chose Taobao over Douyin, Chui Xue, president of Taobao and Tmall’s industry development and operation center, told Jiemian that it is the norm for merchants to run their businesses on multiple platforms.

The future of Singles Day

Last year, online retailers reported a gross merchandise value of RMB 540 billion, with Alibaba reporting 8.45% yearly growth, its slowest in nine years. 

618, a mid-year shopping festival started by JD, is seen as an essential indicator for sales predictions for Singles Day. This year, the cumulative amount of orders placed on the platform increased by 10.3% to RMB 379.3 billion, the slowest growth rate since the e-commerce giant first disclosed data from the 618 events in 2017.

Two years ago, Chinese consumer spending recovered quickly from the first outbreak of Covid-19. However, it has taken a greater hit this year as pandemic control measures continue and the larger economy slows. In addition to weak demand and sluggish growth, Chinese tech giants have been treading carefully after Chinese policymakers tightened regulations on the sector. Last year, e-commerce giants have tacitly chose to downplay their GMV figures, intentionally keeping a low profile.

Such trends are continuing this year. Taobao has obscured the number of viewers on its livestreams for the first time, with more than 10 million people showing up as simply “10 million +”. Some users who hadn’t updated to the latest version of the app said they could still see more than 460 million people watching Li Jiaqi’s livestream return on Oct. 24, but those with the newest update merely saw “10 million +”. Li’s management company subsequently sent lawyer’s letters to a media outlet it saw as spreading “unverified” data after it reported enormous GMV figures for the sales event. 

From Wenjing Liu’s perspective, Singles Day will still hold a big piece of the yearly revenue, but “other events, channels, and sales strategies are developing fast, and that is where the real growth potential for brands lies”.

While Cooke said Singles Day is still going to be the largest shopping festival day in the world “for a very long time,” adding that he’s never even seen a sense of “going down”.

Pinduoduo’s overseas e-commerce platform Temu has surpassed $1.5 million in average daily gross merchandise value (GMV) after its launching in September, Chinese media outlet 36Kr reported on Thursday. Although the figure fell slightly short of internal expectations, the company remains confident of catching up with or even overtaking rival Shein in the next five years, the report said.

Why it matters: Temu’s goal of reaching total sales of $30 billion in five years highlights its ambition to challenge Chinese overseas fashion retailer Shein. Shein took 14 years to achieve the sales number. 

Details: Temu aims to reach $300-500 million in GMV by year-end, according to 36Kr, citing sources familiar with the matter. The company is also targeting total value of products sold in $3 billion in 2023.

• There are currently around 30,000 merchants on Temu, with 300,000 to 400,000 items being sold in 24 top-level categories. The report cited a Temu employee as saying that the platform is accelerating its attempts to attract more merchants and expanding into more items.
• According to SensorTower, Temu ranked first for downloads in the shopping section of Apple’s App Store in the US on Oct. 17, followed by Amazon Shopping, Shein, Walmart and Fetch Rewards. It currently ranks fifth in the US Apple App Store.
• Instagram and Facebook are Temu’s main customer acquisition channels, with 36Kr reporting that the two platforms both account for 30% of Temu’s traffic. Shein’s cost of customer acquisition on Facebook was around $35 in the first half of 2022, while Temu’s cost was 30% to 40% higher, 36Kr stated.

Context: Pinduoduo’s Temu is regarded as a competitor to Shein, which created a successful business model by selling fast fashion clothing at ultra-low prices through a flexible supply chain. 

• Temu offered substantial discounts to attract new users upon its launch, including 30% off on customers’ first three purchases, free shipping, and even a 40% discount for both people if someone shares a link with a friend. These initiatives have resulted in Temu’s current average loss per order hitting $30, making it difficult to achieve a profit in the short term.
• Temu is also investing heavily in marketing. With an advertising budget of RMB 1 billion ($140 million) in September, Temu’s returns are modest when measured by its average daily GMV. The company has reportedly earmarked more than RMB 7 billion to help push the Temu brand next year.
• While Shein achieved half of its $30 billion annual sales target in the first half of the year, the company’s net profit margin for the period was slightly lower than last year’s 6%. For reference, Uniqlo’s parent company Fast Retailing Co posted a net profit margin of 12.37% in the fiscal year 2022, similar to Zara owner Inditex Group’s figure of 12.1% in the February-July period this year.

Chinese video platform Bilibili has expanded its livestream shopping ahead of Singles Day after launching a shopping zone in the live streaming section on Oct.14, local media outlet Tech Planet reported on Monday.

Why it matters: As Bilibili aims to become profitable by 2024, expanding in livestream shopping aligns with the company’s overall strategy to pursue commercialization. The Shanghai-based company has tested several features associated with the business since last year. Timing the expansion ahead of Singles Day, reflects the company’s desire to use the annual shopping festival to bring a jolt of excitement to its live shopping business.

Details: Bilibili livestream rooms currently offer products from its self-operated stores, as well as from third-party platforms such as Alibaba’s Taobao and JD, a similar strategy that Douyin and Kuaishou applied to their e-commerce business in the early stages to save on supply chain expenses.

• The company’s live e-commerce belongs to the live sector, rather than falling under the e-commerce business structure.
• Bilibili started testing a shopping cart feature in its livestream pages last December in selected live rooms, letting users add items into a shopping cart embedded in livestreams. The feature has now expanded to most live rooms.
• The youth-focused video site is converting content creators into real-time livestreamer through a rewards plan, with the company offering an RMB 50 ($6.9) reward to content creators for the first time they begin live commerce.
• Many of the livestream content has little to do with items recommended in the shopping cart. For example, a content creator started a livestream on “the dream of the red chamber,” while recommended goods in the livestream interface vary from snacks to home supplies and skincare products.

Context: Bilibili’s revenue is mainly composed of value-added services, advertising, games, and e-commerce. E-commerce revenue accounted for 12.2% of the total revenue in the second quarter of this year, up 4% from last year.

• Bilibili has experienced two consecutive quarterly revenue declines in 2022. The company’s net losses have widened in the past two years, with a loss of RMB 6.8 billion last year, an increase of 119% from the year before. In the first half of 2022, the company has already logged RMB 4.3 billion in losses. 
• According to AdChina, e-commerce sales from livestreaming in China are expected to skyrocket to RMB 624 billion by 2023, showing that live commerce still has huge room for growth in the country.

With less than two months to go until 2023, the wildly short video platform TikTok is reportedly setting a goal of reaching more than 1.05 billion daily active users (DAUs) worldwide by year-end. The platform will have to add more than 200 million DAU to achieve this goal.

A TikTok spokesperson told Chinese media outlet LatePost that the company hopes TikTok to be as dominant in the international market as its Chinese version Douyin in China. Douyin’s market penetration rate in its home market is 54%, while TikTok is less than 20% globally.  

After acquiring Musical.ly in the year of its launch in 2017, TikTok exploded in popularity and became the fastest-growing social app. But despite the rapid growth, TikTok hasn’t earned revenue that matches the size of its user base. ByteDance CEO Liang Rubo acknowledged and said last month that TikTok’s monetization has fallen short of expectations.

Unlike Douyin’s unmatched competitive edge in short video and retail in the Chinese market, TikTok faces heated competition from global giants like Google and Meta. In 2021, the platform raked in nearly $4 billion in revenue, mostly from advertising, while Meta’s Instagram, which has 500+ million daily users, made an estimated $47.6 billion in revenue in 2021.

Why it matters: TikTok has amassed over 1 billion monthly active users in just under five years – faster than Facebook, Instagram, and Youtube to achieve this milestone. But from a monetization perspective, TikTok still pales in comparison to these tech giants.

TikTok almost relied on Douyin to provide technical support at the beginning of its attempt at monetization in 2020, hoping to replicate Douyin’s model in its home market for the international market. However, such reliance has slowed TikTok’s monetization since its product requests often get prioritized after Douyin’s. 

Fierce competition from Google and Meta

Similar to social media competitors like Meta, advertising is a key revenue driver for TikTok.

The company officially launched advertising on TikTok in 2020, but due to an initial lack of independent tech support, coupled with strong global competitors, monetizing progressed slower than expected.

According to LatePost, TikTok’s reliance on Douyin’s tech support caused many of its product demands prioritized after Douyin. It wasn’t until 2021 that TikTok started to build its own advertising and support system.

A TikTok monetization staffer told LatePost that the platform has reached users on a scale comparable to Google and Facebook in major markets, but is unable to provide the same level of precision in customer acquisition. This is partly due to Google apps’ and Android phones’ wide reach, which allows Google to better portray its users, thus helping advertisers target their audience more precisely.

Facing TikTok’s sudden rise, Meta has been betting on its TikTok clone Reels since its launch in 2021. Meta CEO Mark Zuckerberg noted that ad monetization for Reels is progressing faster than expected, crossing the $1 billion annual revenue run rate in the April-June period.

Bringing e-commerce to Brazil

TikTok’s e-commerce business recently planned to move up its timeline of entering the Brazil market, shifting from the second half of 2023 to the first half, LatePost reported.

The report added that Huang Yuanjian, former head of internationalization products at ride-hailing giant Didi Global, will be in charge of marketing operations for TikTok e-commerce in Brazil.

The platform will also face competition in Brazil. Bloomberg data refers to MercadoLibre and Lojas Americans holding 48% of Brazil’s e-commerce market share as of 2021, with other e-commerce platforms having a smaller share. Alibaba, for example, has only a 3.2% market share in the country. In addition, TikTok rival Kuaishou also said last month that it has identified Brazil as a priority region for monetization.

ByteDance-owned Douyin e-commerce is testing a new budget retail offering, selling selected products under RMB 9.9 ($1.38) to attract buyers, Chinese media outlet TechPlanet reported on Tuesday.

Why it matters: The new budget section signals Douyin’s ambition in getting a larger share of lower-tier markets. A heated area that is also being pursued by other major e-commerce giants like Alibaba’s Taobao and JD, while Pinduoduo, known for its extremely low pricing, is currently the leader of this segment.

Details: The new budget section is accessible via a button on the home page of the mall channel in Douyin’s lite version app (our translation) to some users. The report said that the firm’s e-commerce platform has invested heavily in the project. 

• According to a statement released by Douyin recently, this special deals channel aims to provide a consumption scenario that meets users’ high cost-effectiveness needs along with improving user retention.
• Douyin requires participating merchants to have an order volume of no less than 1,500 in the past 30 days.
• The channel is divided into various zones, all items are priced under RMB 9.9 zone, with a zone priced even under RMB 4.9. The channel covers categories from household, clothing, shoes and bags, food and beverage, to digital accessories. Some products can be purchased for merely RMB 1.9 (less than half a cent), including shipping.

Context: As the market in first- and second-tier cities gets increasingly saturated, lower-tier markets have become a growth area for e-commerce platforms to tap into potential consumer power, but making the transition is not easy.

• Alibaba’s budget shopping platform Taobao Deals is the company’s main force in this market, and it reached 300 million annual buyers in March. However, the app is facing difficulties in trying to increase its market share as Alibaba is unlikely to commit the same scale of resources to the platform’s growth as it has in the past.
• JD’s Jingxi also focused its business on lower-tier cities, but Richard Liu, the firm’s chairman and CEO, acknowledged Jingxi’s failure in July of this year, and the business group was broken up after only about two years of operation. Chinese media outlet 36Kr previously reported that two of JD’s executives advocated abandoning the lower-tier markets to focus on intra-city retail, while Liu still wanted to continue.

Chinese short video platform Kuaishou has undertaken an organizational restructuring in recent weeks after setting up a new management committee in early August.

Why it matters: Kuaishou’s latest reshuffle, one of a number of organizational adjustments the company has made over the past year, reflects the firm’s emphasis on e-commerce and local life services as major avenues for new growth.

Details: CEO Cheng Yixiao will lead Kuaishou’s e-commerce unit from mid-September, in a sign of this sector’s growing importance within the company. The Douyin rival has also upgraded its local life services unit, carving it out as an independent business department and placing it under the leadership of Xiao Gu, Kuaishou’s senior vice president and former head of the e-commerce sector.

• The internal adjustment will also see Kuaishou increase the operating budget for local life services, according to Chinese media outlet LatePost, with the newly established department set to build its own sales team and actively approach more service providers as it looks to compete with Douyin.
• Kuaishou’s e-commerce GMV reached RMB 680 billion ($97 billion) in 2021. Caixin previously reported that the company set a 2022 GMV target of RMB 900 billion, but reached just RMB 366.3 billion in the first half of this year.
• Overseas business is also now a priority for Kuaishou, after the company created a new department for international commercialization in March. Local media outlet Jiemian reported last week that the department has divided overseas markets into three tiers, with the top tier occupied by Brazil and Indonesia, countries where Kuaishou has the largest daily active user numbers outside of China.

Context: Advertising revenue generated by its e-commerce business has allowed Kuaishou to grow its income despite a sluggish macro environment in which most Chinese internet companies have seen a sharp decline in advertising.

• As China’s economy slows, Kuaishou is also focusing on commercialization and attracting local advertisers in Latin America, Southeast Asia, and the Middle East, largely avoiding European and American markets where TikTok is dominant.

As Chinese fast-fashion platform Shein continues to see rising sales in the US, the company plans to build three large distribution centers in the country, which could reduce shipping times to its customers by three or four days, The Wall Street Journal reported on Thursday.

Why it matters: The plan to build more large-scale distribution centers in America highlights the importance of the US market to Shein, as well as the firm’s phenomenal growth in the region. A flexible supply chain has been a key factor in Shein’s success to date, and the brand needs shipping services to keep pace with its soaring sales. The expansion will also allow Shein to retain and build up its competitive advantage as it faces more competition. 

• While rivals such as Asos, Boohoo, and OhPolly offer next-day delivery services, Shein’s consumers have to wait at least a week for their orders to be delivered.

READ MORE: How Shein became China’s ‘TikTok for e-commerce’

Details: Shein is planning to open a new 1.8 million square foot distribution center in southern California by the spring of 2023, along with a third distribution center being planned in the Northeast, according to a report by The Wall Street Journal.

• This new facility would join Shein’s current distribution center, located in Whitestown, Indiana, where the company plans to expand its space from 1 million square feet to 1.5 million square feet, the US media outlet reported. 
• The company released a study on Thursday on its economic impact in Whitestown, predicting that its newly expanded warehouse would generate $175 million annually for the Indianapolis economy and create more than 1,000 jobs by the end of 2022 when Shein hopes the facility will be fully operational. 
• The Wall Street Journal also cited George Chiao, Shein’s US operation president, as saying that the company is planning a hiring spree in the country over the next few years. Shein currently has more than 400 employees in the United States, 25 times the number it employed in 2019.

Context: Known for its ultra-low prices and fashionable clothing and accessories, Shein’s focus on the overseas e-commerce market has seen it become one of the hottest retail companies in the world, but it is also now facing unprecedented competition. 

• Shein has completed seven rounds of funding since 2013. In its Series F funding in April, the company reportedly raised $1 billion to $2 billion at a valuation of $100 billion.
• Shanghai-based Pinduoduo officially launched its e-commerce platform Temu in the US earlier this month, with a model that appears to closely follow the Shein approach with low prices and discounts of up to 30%.

Correction: an earlier version of this article misspelled George Chiao.

Alibaba’s budget shopping app Taobao Deals has adjusted its key business metric twice in less than six months, Chinese media outlet LatePost reported on Tuesday. In April, the app elevated gross merchandise value (GMV) as its most important metric and pivoted away from focusing on user growth after reaching 300 million annual buyers. Two months later, it changed again to focus more on the monthly active users (MAU) instead.

Why it matters: Taobao Deals is facing a challenging situation as it competes for growth. The platform reached over 300 million users this year. But with Alibaba Group unlikely to commit the same scale of resources to the growth of the platform as it has in the past, the standalone app will need to find new ways to expand its market share and achieve profitability amid pressure from strong competitors, such as Pinduoduo.

• Taobao Deals uses the consumer-to-manufacturer (C2M) business model that connects manufacturers directly with customers to help lower costs, the same business model that fuelled the rise of Pinduoduo. Soft-launched in 2018, Taobao Deals is Alibaba’s effort to reach users in less affluent regions and compete with the growing reach of Pinduoduo. 

Details: The significant shift in the key metric means Taobao Deals focuses more on increasing user retention and activity than user growth. LatePost reported that the department responsible for user growth has also been reduced.

• Daniel Zhang, CEO of Alibaba, said in the first quarter earnings call that the huge quarterly investment (in the tens of billions of yuan) in Taobao Deals has brought Alibaba about 60 million new users in the past year.
• More than 70% of the app’s external budget has been spent on new user growth in the past two years. However, the proportion dropped by around 30% to 40% this year, seriously slowing user growth.
• Taobao Deals’ single-quarter new user growth shrunk during the January to March period, from the previous 30 million to 40 million range to just over  20 million. The company has yet to disclose its user figures publicly for the second natural quarter.

Context: In less than two years, Taobao Deals has achieved annual growth of more than 200 million active buyers — an impressive result for a mature company like Alibaba. All of the other Alibaba’s e-commerce sites have been seeing annual active consumer (AAC) growth of less than 20 million every quarter since the first quarter of 2019. 

• Taobao Deals occupies only a fraction of the market share compared to the dominant incumbent Pinduoduo. Pinduoduo’s annual active buyers reached 900 million in the second quarter this year, nearly three times the growth of Taobao Deals.
• There is a 70% to 80% overlap between the user base of Taobao Deals and Pinduoduo, and with Alibaba simultaneously trying to reduce costs and increase efficiency, Taobao Deals can face more difficulties in trying to increase its market share.

Chinese tech majors Tencent and ByteDance were the top-grossing publishers in global mobile app stores for the first half of 2022, according to a report by business insight firm Sensor Tower.

The global mobile app market is highly centralized, with 91% of revenue coming from the top 1% of publishers. Over the years, such centralization has been shrinking; the market share of the top 1% has hit its lowest point since 2019.

Why it matters: Tencent and ByteDance have dominated the global mobile markets for years with their trending game titles and the internationally phenomenal video app TikTok. The two majors have invested heavily outside of China, launching new services and acquiring studios in recent years.

• Despite the highly centralized nature of this market, top players are losing shares and creating more space for newcomers.

Details: By analyzing 900,000 publishers on the Apple App Store and Google Play, Sensor Tower found that the top 1% of publishers accounted for 79% of all downloads and 91% of revenue on the two platforms in the first half of 2022. The remaining 99% shared 21% of the market.

• Tencent was the top-grossing publisher in game and non-game categories, earning about $3.3 billion in the first half of 2022. The figure is almost 153% larger than ByteDance, which came second on the chart with $1.3 billion in revenue.
• Tencent was also the most profitable gaming app publisher in the same period, generating over $2.6 billion, thanks to its popular titles like Honor of Kings and PUBG Mobile​​. Tencent accounted for around 10% of revenue from all top game publishers.
• In the gaming category,106,000 publishers introduced new titles in the first half of 2022. While the top 1% of gaming publishers took over 79% of the market globally with 22 billion downloads.
• In non-game apps, ByteDance’s TikTok remains the global app bestseller and most downloaded in the first half of 2022, helping to boost the company’s revenue growth. 
• In August, TikTok and Douyin, two short video apps owned by ByteDance, pulled in more than $306 million from the global Apple App Store and Google Play, contributing to the first-place ranking in the global mobile non-game revenue list, a figure 1.8 times that of the same period last year.

Context: Revenue from mobile apps saw a 2.2% decrease semi-annually (in Chinese) in the first half of 2021, a total of $65 billion less than in the second half of 2021. It is the first fall in revenue since 2019, according to Sensor Tower.

• The fall was mainly due to a revenue decrease from mobile games, which hit $41.3 billion in the first six months of 2022. The US, Japan, and China are the top three markets for mobile games, with the former two seeing over 8% less revenue compared to the second half of 2021.
• Tencent has been ambitious this year, making major moves in the overseas gaming market. The firm announced new progress with its partner Ubisoft, which just doubled its holding shares in new mobile titles. It also invested in notable publisher and developer FromSoftware, and acquired Sybo, maker of popular game title Subway Surfers.
• TikTok also has great expansion plans in the overseas market, with a particular focus on e-commerce business. Since it launched TikTok e-commerce in Indonesia in February 2021, it has expanded local and cross-border business in Thailand, Vietnam, Malaysia, the Philippines, and Singapore. TikTok also cooperated with e-commerce giant Shopify last August, allowing users from the US and Britain to buy goods directly through the app.

Chinese e-commerce company Pinduoduo reported RMB 31.44 billion ($4.69 billion) in revenue in second-quarter earnings, a 36% growth from last year, and far exceeded the expected average of $4.1 billion, compiled by Yahoo Finance. 

The Nasdaq-listed company also saw an impressive 268% growth in its quarterly net income, bringing in RMB 8.9 billion.

Why it matters: The company attributed its good performance to “consumption recovery” in recent months as China refrained from extended and widespread lockdowns. During the earnings call, Pinduoduo said revenue growth came from increases in online marketing services and transaction services and that the growth in profitability is due to a few “short-term” and “one-off” external factors that may not repeat in the future. 

• Known for offering bargaining prices, Pinduoduo has managed to report better-than-expected earnings this quarter compared to its rivals, reflecting a more careful consumer spending sentiment in the current economic environment.

Details: Pinduoduo’s almost three-fold increase in net income in the second quarter is mainly due to the improvement of gross margin and some short-term factors. “So, for the past quarter alone, our profitability was mainly attributable to several external factors, mostly short-term or one-off in nature,” said Vice President Liu Jun.

• Meanwhile, Pinduoduo’s total operating expenses as a percentage of revenue decreased to 47% this quarter, down from 57% in the same period last year. Liu Jun pointed out that many short-term factors, such as project delays and lower business activities, caused such a decrease. “So it is unlikely to continue,” he said.
• It was reported previously that Pinduoduo plans to launch a cross-border e-commerce platform in September, which will first target the United States. “Overseas business is one of the opportunities that we see, we believe that it is a direction that is worth trying out for us,” Lei Chen, chairman and CEO of Pinduoduo, said in the earnings call, adding that the company will not simply repeat what others have done in this field.
• The company’s merchandise sales continued to contract, decreasing 97% from RMB 1.96 billion to RMB 50.7 million. The contraction of the merchandise business, which requires the company to shoulder most of the cost, has improved its gross margin.
• Shares of Pinduoduo surged after the company posted strong results, rising nearly 15% by the stock’s close.

Context: Compared to the two leading Chinese e-commerce giants, Pinduoduo handled the pandemic resurgence relatively well. Alibaba and JD recorded flat revenue and 5.4% growth year-on-year, respectively, in the second quarter, and both had their slowest growth rates in history.

• The Shanghai-based Pinduoduo was one of the few e-commerce companies that managed to continue offering its services during Shanghai’s Covid lockdown from March to June. Its community group-buy service Kuaituantuan played a vital role for Shanghai residents in solving lockdown food shortages. 

Meituan is planning to merge its e-commerce business units and the group buying unit known as Meituan Select, Chinese media outlet Caijing reported on Wednesday.

Why it matters: Facing fierce competition in its core business, Meituan is combining two relatively weaker and similar units to concentrate on new growth points. In April, Meituan Select suspended operations in four loss-making western Chinese provinces and Beijing as the community group-buy sector continues to consolidate. 

Details: Meituan Select and Meituan’s e-commerce unit both started operations in 2020. The two units are fighting an uphill battle to compete with more established players — Select competes with Pinduoduo, while the e-commerce unit faces giants like Alibaba and JD. The two businesses share some supply chains, the report said, and the merger could result in better collaboration.

• Meituan’s e-commerce offering is relatively weak compared to the company’s core life services and food delivery offerings. The unit brings in a small number of users, orders, and merchants, and hasn’t made much of a splash in the industry, according to Caijing’s report, citing several unnamed Meituan employees.
• Since 2021, Meituan has been expanding into “new initiatives,” including the group-buy unit Meituan Select, but so far the new units have been losing money. According to the company’s 2021 financial report, its aggregated operating profit of RMB 20.3 billion ($ 3.0 billion) from core businesses like food delivery and in-store, hotel and travel segments was completely offset by a loss of RMB 38.4 billion from these new initiatives.
• The company declined to comment when reached by TechNode on Friday.

Context: Meituan faces heated competition in its core business of offering on-demand life services. Moreover, Meituan’s food delivery business –one of its main income sources, accounting for more than half of total revenue – has a low operating margin, less than one-sixth the size of its in-store, hotel and travel business. 

• In local life services, ByteDance’s Douyin has teamed up with Alibaba’s Ele.me to explore more scenarios, according to a statement released last Thursday. ByteDance has high hopes for its local life services, reportedly setting an annual target of RMB 50 billion for the business this year.

Pindudouo is reportedly planning to launch a cross-border platform designed to connect Chinese and overseas suppliers with global customers as the Chinese e-commerce giant expands its approach to take on rival Shein.

Why it matters: The move highlights a growing trend of Chinese technology companies considering going global, partly accelerated by China’s regulatory crackdown on the tech sector as well as intense competition and weakening consumption in the domestic market.

Details: Pinduoduo is currently seeking sellers for its new cross-border online marketplace, which the company aims to make available first in the US in September, Chinese media outlet LatePost reported on Wednesday, citing people familiar with the matter.

• The online retailer is offering registration and referral fee waivers for small and medium-sized merchants in a bid to attract them to sell on its platform, the report said. It is also providing various fulfillment services such as picking products, packing orders, and arranging shipments once the goods are transported to its warehouses in China.
• Aiming to differentiate itself from Shein, which primarily focuses on fast fashion, beauty, and lifestyle products, Pinduoduo’s new platform will be more of a general marketplace for low-priced household products and other daily necessities, where the company has experience and a competitive advantage.
• Pinduoduo has set up a team of 80 employees in the southern city of Panyu, where Shein is headquartered, and chief operating officer Gu Pingping is leading the project, according to the report.
• Pinduoduo did not respond to TechNode’s request for comment on Thursday. 

Context: Shein’s success selling clothing products at super-cheap prices has prompted more Chinese tech firms to follow its model, while existing major players are ratcheting up efforts to maintain their lead in the market.

• Alibaba was considering the expansion of its Southeast Asian arm, Lazada, into the European market to boost overseas growth, Reuters reported in April.
• JD.com partnered with Canadian e-commerce company Shopify in January to allow Chinese merchants to sell products to consumers on the latter’s platform, TechCrunch reported.
• TikTok parent company Bytedance launched a standalone shopping app called “Fanno” late last year in several European countries, including France, Germany, and Britain, SCMP reported.
• Driven by interest in its summer sales, Shein became the most downloaded e-commerce app in the US with 6.8 million downloads during the second quarter of 2022, surpassing those of Amazon for the first time.
• Pinduoduo’s active buyer accounts increased 10% to 868.7 million last year, lower than analysts’ expectations of 883.3 million, according to a Bloomberg report.

Chinese cross-border e-commerce platform Shein surpassed Amazon in app downloads on US mobile platforms for the first time in the second quarter of 2022, with 6.8 million downloads during the period, according to an August 7 Sensor Tower report. 

Why it matters: While it still lags largely behind Amazon in monthly active users, Shein has gained popularity in the US with ultra-cheap pricing and a vast selection of fast fashion. 

• Shein has disrupted the market by offering about 600,000 products for sale at any given time, with pricing on average being around $20. The company employs an extremely short turn-around time and flexible production plan, typically only needing a week to deliver a product from design to shipping. It only asks its suppliers to increase production if the item sells well. 

Details: Shein saw a 13% quarter-over-quarter growth in downloads while Amazon had a 7% fall compared to the first quarter this year, according to Sensor Tower. 

• Amazon’s average monthly active users (MAUs) were triple that of Shein in the second quarter of 2022, yet Shein is narrowing the gap in the US. In the second quarter of 2020, Amazon had nearly ten times more MAUs than Shein’s; for the same period last year, Amazon had four times the number of MAUs. 
• Shein has seen consistent quarterly growth in the last three years regarding downloads. Its average number of active installs in the US had more than quadrupled last quarter compared to the second quarter of 2019. 
• Shein tends to see a spike in app downloads in the second quarter as more users shop during summer sales. 

Context: This is the third time that Shein has surpassed Amazon’s installations worldwide, but a first for the US market. Founded in 2008 in the eastern city of Nanjing, Shein began as a cross-border retail company and has slowly risen to the top of the field by focusing solely on overseas markets and offering extremely low-priced fast-fashion items.

• The US is Shein’s biggest market by app installation. There were a little more than 74 million downloads in the US in the second quarter of 2022, meaning US consumers accounted for 14% of Shein’s worldwide downloads, the Sensor Tower report said. Brazil is Shein’s second biggest market and has seen the most installs of the e-commerce app from a single country every quarter since the last quarter of 2020.

READ MORE: How Shein became China’s ‘TikTok for e-commerce’

Chinese online grocery company MissFresh (Meiri Youxian) has stopped offering on-demand grocery deliveries, a signature business offering, and has begun to lay off the majority of its staff, according to multiple reports from Chinese media. 

The company told Chinese media outlet Caixin that its decision to “temporarily suspend” its on-demand grocery delivery service is to “ensure the maximization of profitability.” The company will continue to offer second-day delivery services, “intelligent fresh market business” (the digitizing of local wet markets), and retail cloud services. MissFresh also told Caixin some of its staff are facing “adjustments” due to “business adjustments.”

Why it matters: MissFresh’s significant downsize shows the difficulty of continuing to raise funds to support its loss-making business and may pose more questions for other grocers operating on a similar cash-burning model. 

• MissFresh went public on the Nasdaq in June 2021, becoming the first Chinese online grocer to do so. The company’s core grocery delivery business relies on the “distributed mini warehouses” (DMW) model, in which products are picked from warehouses close to people’s neighborhoods, ensuring fast delivery. But the model also requires heavy upfront investment in warehouses and inventories. The model has long been viewed by skeptics as a challenging one to achieve profitability with. MissFresh’s rivals Dingdong Maicai and Meituan Maicai also use the model. 

Cutting on-demand services: On Thursday, MissFresh closed its on-demand grocery delivery business, a core offering that promises fast delivery as quickly as 30 minutes. MissFresh’s app now only supports second-day delivery or even longer for most of the items. 

• Founded in 2014, MissFresh began to test the DMW model in 2015 and remained the leader in such offerings until 2020, when rival Dingdong Maicai surpassed it. 

Massive layoff: Chinese media outlet Jiemian reported on Thursday that MissFresh had begun a massive round of layoffs. The company’s human resources department told employees that it was the last day of their employment via online meetings, according to audio recordings shared with Jiemian. The company’s HR managers cited difficulty with financing as the main reason for the layoff. 

• Caixin’s Thursday report confirmed Jiemian’s, saying that the company organized a meeting and told employees that most of them would be suspended without pay. The company will only keep a small amount of staff to complete follow-up work, such as administration, finance, and HR tasks. 
• MissFresh first began rounds of layoffs last August, with each round affecting more staff than the previous round. This year, the company cut a third of the workforce from 1,500 to about 900 and moved its offices to the outskirts of Beijing to save money, Caixin reported. 
• Some of MissFresh’s staff haven’t received any pay since June, Jiemian reported. The outlet’s reporters visited MissFresh’s office in Beijing on Thursday afternoon and found some employees were packing to leave, and a few suppliers were there hoping to collect overdue payments. 
• According to a July 14 filing to the Securities and Exchange Commission (SEC), MissFresh is set to receive RMB 200 million ($29.63 million) in equity investment from Shanxi Donghui, a Chinese multi-conglomerate in the metal and energy sector. But the company’s HR officer said the company has yet to receive the investment and is facing financial difficulties, according to the Jiemian report. 

Context: On June 25, 2021, MissFresh raised $273 million in a Nasdaq IPO after pricing its shares at $13. The company’s shares dropped 26% on the first day and closed at $9.6. On July 29, the company’s stock price was below $0.14, losing more than 98% of its value.

• In the third quarter of 2021, the company reported $329.3 million in revenue, a 47.2% yearly increase, while its net loss widened 58% to $151.1 million. The company has yet to release its fourth-quarter and yearly earnings for 2021. 
• Before it went public, MissFresh had 12 rounds of funding and raised a total of $1.7 billion. It was funded by 24 investors, including well-known firms such as Tencent, Tiger Global Management, and ICBC International. 
• Chinese internet companies, especially those in the content, e-commerce, and retail sector, have embarked on multiple rounds of layoffs since late last year, thanks to the ongoing economic downturn, weak consumption, and the country’s long-term goal of pursuing more hard tech. 

Note: This article was first published on TechNode China (in Chinese).

On July 17, Luo Min, CEO of Chinese online credit company Qudian, went viral with a Douyin livestream selling “ready-to-eat” packaged dishes. For 15 hours, he remained at the top of Douyin’s e-commerce livestream ranking and managed to attract 95.87 million visitors, sell 9.56 million products, and gain 3.97 million new followers, all in just one day. While that’s quite a coup, the company spent an estimated RMB 200 million ($29.6 million), about 9% of its cash reserve, on the livestream. 

Before this blockbuster livestream, Qudian was best known as an online microlender, giving out cash loans and various other loans to users. In April, the company announced it would begin to make “ready-to-eat” dishes, a new trend that has taken off since the outbreak of the pandemic, as people stuck at home are eager to cook quality meals in less time. 

While the transition from online lending to packaged food may seem jarring, Qudian has been looking for ways to boost its lackluster stock price since China’s crackdown on micro-online lending in 2017. 

At the end of May 2022, Qudian received a delisting warning from the New York Stock Exchange for the second time. Earlier the same month, Qudian had just completed the remediation of the delisting warning issued by the NYSE in February, bringing its stock price back above $1, making the company re-eligible for the NYSE’s continued listing conditions. Since Qudian went public in New York in 2017, institutional shareholders have reduced their holdings and withdrawn one after another. As the founder of the company, Luo Min is responsible for rescuing the company amidst pressure from the capital markets, which was the fundamental reason for the company to bet big on livestream. 

The strategy largely worked. Since Luo Min began to test the waters on Douyin’s livestream in mid-June, Qudian’s stock price has risen steadily, maintaining its price just above $1 in the past month. A day after its successful livestream, Qudian stock increased by 40% and closed at $1.67. As the market closed on July 21, Qudian’s market cap was $345 million, growing almost 70% since the beginning of June.

Giving out pickled fish for a penny 

The results of Luo’s July 17 livestream were astonishing; the number of viewers from 7:00 a.m. to the following day at 2:00 a.m. was a total of 95.87 million. Luo gained 3.97 million followers on that day alone, while data shows that the 19-hour livestream generated 9.56 million transactions, with cumulative sales of RMB 250 million ($36.9 million). The largest sales driver during the livestream was the company’s spicy boiled fish dish. Priced at RMB 59.9, the dish sold over 1 million units and brought in RMB 75.073 million in sales. In addition, sales of the remaining 9 dish options, such as pickled fish, spicy boiled meat slices, and beer duck, all exceeded RMB 10 million in sales each.

According to Douyin users who watched Luo Min’s livestream, he was quick and direct when offering promotional products to the audience, eliminating unnecessary rounds of pre-sales and waiting time. This reflects the key to the success of Luo Min’s livestream strategy – offering massive deals.

For example, one promotional deal saw the company sell 100,000 units of pickled fish for just RMB 0.01 during the July 17 livestream. If the cost of each unit is RMB 25, these sales accounted for a loss of nearly RMB 2.5 million. However, that wasn’t the highest cost of Qudian’s deal-packed livestream. Reports show that promotion and advertising cost upwards of several hundreds of million yuan. The company also gave away 1,500 iPhone 13s, and paid for celebrities like Jia Nailiang and Fu Shouer to endorse the livestream. In total, it is estimated that Luo Min invested about RMB 200 million in this livestream.

With such a high cash burn by the company as it continues to operate at a loss, it’s hard not to be worried about Qudian. Fortunately, financial reports show that as of the end of the first quarter of 2022, Qudian still had RMB 2.2 billion in cash.

Another major aspect of the success of Qudian’s livestream were Luo Min’s marketing skills. He captured the audience with catchy headlines like, “Join my livestream, I will invite you to eat pickled fish for a penny” and “I’ll give you 25 hours in a day”. He proved to be energetic and high-spirited, wooing the audience with his generosity and charm. The Qudian founder built up his livestream experience over the course of a month, before the company spent big on the promotional livestream on July 17. 

Luo Min streamed for the first time on Douyin on June 15, selling a selection of 10 pre-prepared meal packages with prices ranging from RMB 19.9 to RMB 49.9. The turnout was decent, with a total viewership of 20,000 and 170,000 new followers.

In the aftermath of Luo Min’s success, some are worried that Qudian’s high spending will permanently raise the bar for the entire livestream industry, leaving creators who have little to no access to capital without a chance of competing.

However, Qudian may well be a unique case. Unlike other livestreamers who earn commission by selling products from other merchants, Luo Min is drawing attention to his own company’s products, with the ultimate goal of boost the confidence of Qudian’s investors and raising its stock price, rather than competing with other livestreamers. Even if there is competition, it’s limited to the pre-prepared meals market.

For instance, while Qudian has had success livestreaming, it’s not only focused on the online market, it’s also expanding its offline operations. The company announced plans to support 100,000 users to open their own franchise stores and expects to open 10,000 new franchises this year and reach 200,000 stores by 2024.

READ MORE: Move over, celebrity livestreamers: Here come the small-scale presenters

History of Qudian and Luo Min

Luo Min is no stranger to being ridiculed for his failures in launching new businesses. His entrepreneurial journey is characterized by repeated battles and failures, both before and after Qudian’s IPO.

In 2017, Qudian, an online credit platform established for more than 3 years, went public on the New York Stock Exchange. It raised $900 million and was the largest IPO of a Chinese company that year, setting off a wave of new IPOs in the United States. Before Qudian, Luo Min had tried and failed to launch startups in various internet sectors, such as campus social networks, group buying, online education, automobile group buying, social network sites, and food delivery apps. Only Qudian realized Luo Min’s dream of going to the United States to ring the bell, making him the CEO of a public traded company. 

Nevertheless, Qudian’s history of issuing loans to college students who have no stable income has tarnished its brand. Even though Qudian exited the sector before authorities banned the practice in colleges, Qudian has continued to face doubts from investors. 

In 2017, when asked if the company was goading young people to borrow money from their families in order to pay back the loans, Luo Min responded by saying that “anything that is overdue and not paid back is bad debt and will be written off, and treated as welfare.” The response was not only greatly criticized for exposing his ignorance regarding his own business model (such as the confusion between overdue loans and bad debts, and the lack of a post-loan collection process), but also attracted criticism from the industry, leading to a class-action lawsuit from American investors. As the value of Qudian’s stock price continued to fall, the company also faced a series of accusations such as pre-IPO financing fraud, excessive reliance on third-party credit evaluation systems, and leaking user data.

At the end of February, Qudian lost its securities fraud case, paying $8.5 million in settlements to several plaintiffs under a U.S. court order. During the four years that the lawsuit went on, all four new businesses that Luo Min created for Qudian have failed. They are the car rental business Dabai Auto, the high-end housekeeping project Weipujia, the luxury e-commerce platform Wanlimu, and the K12 education project Quxue.

As a result of stricter policies within the cash loan industry in China, the profitability of Qudian’s core business continued to decline, going from achieving high net profits to making a loss. In the first quarter of 2020, Qudian posted a loss for the first time, and after a short turnaround, it continued to lose money in the third quarter of 2021. In the first quarter of this year, Qudian had revenue of RMB 220 million and losses of RMB 140 million.

In April, Qudian once again announced a change in strategy, entering the pre-prepared meals industry, and said it may terminate its credit business due to market conditions. Qudian invited Chinese TV star Jia Nailiang to serve as the brand ambassador for its products and the company’s WeChat Mini-Program now offers 14 dishes from three major cuisines: Sichuanese, Hunanese, and Cantonese. Luo Min said the company has developed over 100 products, but are not in a rush to launch them just yet.

Pre-prepared meals is an emerging field in the food industry with a low barrier to entry. The increasing popularity of this market is in line with Luo Min’s entrepreneurial style to act quickly and capitalize on new opportunities.

Although many people criticize “ready-to-eat” meals as seasoning packets and a consumption downgrade, it is undeniable that it has begun to take shape in the pandemic era, and has met the long-term needs of many consumers — it saves time and energy for migrant workers who commute more than two hours to work. These meals are seen as a healthy, affordable option when compared to ordering takeout and reduce human contact, making them fit for pandemic control measures. They also fit the bills for consumers as they navigate an economic downturn and cut back on eating out. 

This market is still in the early stages of its development, with the market share of large companies still less than 1%. Most of the market players are small and medium-sized enterprises and this demographic breakdown is exactly what Qudian needs in order to exert a greater influence and capture a larger share.

Summary

It is nothing new to see notable Chinese CEOs livestreaming. As early as 2016, Xiaomi’s Lei Jun held a press conference via livestream, attracting millions of viewers. At that time, live broadcasts mainly relied on entertainment content and entrepreneurs regarded livestreams as a marketing gimmick to increase exposure, with few expectations of making any direct income.

However, in early 2020, the pandemic hit the economy hard, especially the service industry. At the time, Ctrip, the leading domestic online travel platform that was supposed to see rising sales during the Spring Festival holiday season, issued a refund of RMB 1.2 billion to its customers. Although it was able to retain its reputation, it also faced enormous financial pressure.

Driven by a sense of crisis, Ctrip CEO Liang Jianzhang took to livestreaming. With the aim of leading the company out of crisis, Liang Jianzhang pivoted from his persona as a scholarly businessman and emerged on Douyin as he portrayed different characters from Chinese culture, including Tang Bohu, Qin Shihuang, Confucius, Guan Gong, and Cao Cao, playing  Rock and Roll music, using Kuai Ban, and doing the seaweed dance.

Through weekly livestreams at 8:00 p.m. on Wednesday nights, Liang Jianzhang created an attractive personal IP with his ever-changing style and charming personality. By focusing his marketing tactics around the theme of “Luxury Hotel Experience Pre-Sales”, Liang successfully revived Ctrip and generated RMB 1.4 billion in revenue, selling an average of 8 hotel experience packages per second on his livestream.

Analysts believe that the growing trend of livestreaming CEOs is an attempt by entrepreneurs to test traffic via online channels and a marketing tool to increase the company’s exposure revenue even when a company’s core business is in crisis. However, this is only a short-term strategy, not a long-term solution.

Brand management expert Wu Daiqi said that for livestream platforms, traffic naturally gravitates towards entrepreneurs, celebrities, or influencers who have are already famous. If these people use low prices to attract consumers, it helps to gain even greater exposure. Livestreams propped up by heavy investments will inevitably affect small and medium-sized businesses on the platform, however, in the long run, livestream platforms will ultimately have to determine the effectiveness of a livestream based on conversion rate, reputation, and sales revenue.

On June 29, TechNode CEO Lu Gang interviewed Shen Chengang, CEO and co-founder of Meetsocial Group, a cross-border marketing firm, about his insights on marketing Chinese firms to overseas audiences. This interview is part of an ongoing series by TechNode China focusing on Chinese companies doing business outside their home country. 

Founded in 2013, Meetsocial Group has helped many notable Chinese companies with overseas digital marketing solutions. Its most notable clients include Chinese tech firms like Alibaba, Tencent, ByteDance, NetEase, Trip.com Group, Anker, Shein, and Xiaomi. The annual marketing budget under the firm’s management was estimated to exceed $4.5 billion in 2021, according to its official website. Since its inception, the company has provided digital marketing solutions, including software as a service (SaaS), for more than 8,000 companies.

Here are some highlights from the interview, which have been condensed and edited for clarity: 

If a Chinese company wants to go abroad, which market should they enter first, Northern America, Southeast Asia, or others?

Companies need to do in-depth research on their target users to increase the probability of successful marketing overseas.

Makeup products, for instance, will find it challenging to compete in European and American markets because customers have different skin tones than in Asian markets. Thus, domestic makeup brands should prioritize entering Southeast Asian markets due to the similarities with their customer base.

For other products like apps and games, you need to find a suitable market based on your products’ features and content. Or make a new product to cater to your target market. 

What has changed in marketing Chinese firms to global users over the years?

Compared to 10 years ago, our entire infrastructure for helping companies to go overseas has drastically improved, with better delivery, payment, and customer service systems, and those areas are still improving. This progress has made overseas markets more open to Chinese firms and pushed the construction of our infrastructure to the next step.

One key improvement is the development of China’s manufacturing industry, which has found ways to produce quality products at a competitive price. Chinese-made products have become known for their cost-effectiveness, which has helped to better incorporate Chinese companies into the global market. 

Can you share examples of how your firm has helped Chinese companies market overseas?

Two typical cases are our clients, Shein and Anker. Shein is a cross-border platform for fast fashion, while Anker focuses on accessory products for computers and consumer electronics.

Consumer electronics products generally have more value than fashion products. Thanks to the advantage that Chinese brands have when it comes to manufacturing and high standardization in the industry, they are more cost-effective, and such products have an easier time entering overseas markets.

There are fewer opportunities for companies that focus on low-margin products, like Shein. On the contrary, brands that focus more on a specific area, like Anker, are still promising in overseas markets. 

What does Meetsocial Group do differently to help clients find success in a new market?

First, we pay attention to our clients’ needs and invest in related fields. We mainly focus on the e-commerce, gaming, and app sectors. In these industries, we pay attention to marketing needs, the needs of our target consumer base, and other factors.

We have also set up many local offices overseas to help companies to optimize. For example, our teams work closely with local media, learning and meeting the needs of different advertisers overseas.

We have local offices in Singapore, Japan, India, and Dubai, where our local colleagues can offer advice on local marketing strategies to better connect with the market in that region.

On Wednesday, China’s media regulators released a new regulation to tighten scrutiny on livestream hosts’ behaviors. 

Why it matters: The rules require online streamers to adhere to a set of similar standards applied to the country’s tightly regulated traditional media hosts, a sign of further tightening the fast-growing and lucrative industry. 

• Livestreaming e-commerce and entertainment have become part of Chinese people’s online shopping routine. Recently, education companies New Oriental have been able to utilize livestreaming to make a major comeback after China’s new rules on private tutoring cut off the bulk of its income.

Details: The new rules are jointly released by China’s National Radio and Television Administration and the Ministry of Culture and Tourism. It consists of 18 guidelines for livestream hosts.

• The guidelines emphasized that livestream hosts must uphold correct political values and social values, create and promote more “positive” stories and maintain a “wholesome” taste. In addition, it advised hosts to self-regulate and avoid content that only focuses on viewing traffics, has morbid aesthetics, caters to fandom culture, or promotes money worship. 
• Livestream hosts in professional fields like law, medical health, education, and finance must obtain relevant qualifications and approvals from the streaming platform. Tencent’s WeChat told the Chinese media outlet The Paper (in Chinese) late Wednesday that it will draft punishment measures for people who disobey these new rules.
• The rules also mention that streaming platforms should take responsibility for their implementation, giving positive encouragement to rule-followers and punishing those who break the rules. Users who severely violate the new rules will be put on a blacklist and will receive a permanent streaming ban.
• The rules also apply to virtual hosts and the human vocalists behind virtual hosts.

Context: Since earlier last year, China has been pushing to further regulate the livestream industry. In late last year, several top livestream hosts stopped their streams due to inappropriate or illegal behavior.

• One of the country’s top e-commerce streamers, Viya, was banned for tax evasion in 2021 and was fined RMB 1.3 billion ($270 million). Before she was banned, her livestreaming generated RMB 8.3 billion in sales on the first day of the Singles’ Day shopping holiday in 2021.
• China’s 315 Gala this year, an annual event highlighting consumer rights abuses, spotlighted fraudulent promotions and scams in the livestream industry.

China’s e-commerce platforms brought in RMB 695.9 billion ($104 billion) in sales during this year’s 618 shopping festival, an increase of 20.3% over last year’s number, the slowest growth rate since 2020, according to data compiled from the Chinese market analytics firm Syntun. 

Why it matters: China’s consumer confidence is at a new low as major cities emerge from harsh lockdowns implemented to prevent the spread of Covid-19, with some Chinese cities still facing the unpredictability of on-and-off partial lockdowns. Against this backdrop, the country’s e-commerce platforms used the shopping festival to help retailers recover some of their lost sales over the past few months. 

Details: JD reported RMB 379.3 billion in sales, which is a yearly increase of 10.3%, but significantly lower than the yearly growth rate of 27.7% in 2021. However, the e-commerce major’s on-demand retail platform JD Daojia hit some critical milestones, recording a 77% growth in sales revenue and with the number of users growing four-fold. Overall, this year’s 618 deals are simpler and heftier than previous years, in the hopes of luring more customers during the nationwide economic downturn. 

• JD’s on-demand retail platform JD Daojia and JD Shop Now saw significant growth. On June 18, the last day of the shopping event, total sales on the platforms grew by 77% from last year, bringing in RMB 600 million in single-day transaction volume. Sales of home appliances saw a ten-fold growth on the platforms, while sales of cosmetic goods and sports goods grew three-fold. 
• The growth of JD’s on-demand services is due to its partnership with offline retailers. JD’s Shop Now service worked with more than 150,000 offline stores across China. Those platforms also accepted shopping coupons released by local governments in Changsha, Yantai, Yibin, Zhongshan, Taiyuan, and Zhengzhou. Such pairings helped people get better deals, and helped governments stimulate an economy hurt by the pandemic resurgence. 
• ByteDance’s short video platform Douyin, a robust e-commerce platform, said in its 618 report that consumers in Shanghai showed the strongest buying power during the period, while people in Chongqing, Beijing, Chengdu, and Guangzhou trailed. Gen-Z has become the primary buying group, with their purchases increasing by 164% from last year. 
• Chinese smartphone maker Xiaomi reported that it brought in RMB 18.7 billion in sales during the shopping festival. The brand was also the top-selling Android system smartphones across most major Chinese online retailers during 618. 

Context: Launched in 2010, 618 is China’s second-most important shopping event after Alibaba’s Single’s Day shopping event on November 11. In the past decade, the event has evolved from a rival event created by JD to a key mid-year shopping promotion for all e-commerce majors. 

READ MORE: Will China’s 618 shopping event lose its appeal?

First launched in 2010 by China’s e-commerce giant JD, the 618 shopping event has evolved into a major mid-year shopping event that has driven online consumer spending over the decade. However, consumers are becoming more cautious during a pandemic-hit economic downturn and growing tired of more frequent shopping events stimulation over the past decade.

The event was originally created as a competition for the Alibaba-backed Singles’ Day shopping event (on November 11). Both events chose dates carefully. 618 is a nod to JD’s founding date of June 18, while Singles’ Day is an unofficial day that the Chinese internet uses to take jabs at people who are not in a relationship. 

Similar to Singles’ Day, the 618 shopping festival has grown out of its founding platform and become a promotional event across all major Chinese e-commerce platforms. The event is also considered a barometer for consumer spending capacity and new shopping trends in China.

2022 might be the toughest 618 

For those who are taking a close look at the country’s second-largest shopping extravaganza, this year’s edition of 618 might seem like 2020 all over again, yet if anything the situation is even more austere. Lots of local media outlets have dubbed this year’s edition of 618 as the “toughest” in history. 

When the pandemic first spread across China two years ago in early 2020, the 618 festival that year largely delivered, thanks to government stimulus and the country ending large-scale lockdown two months ahead of the event. It achieved much-needed big sales numbers and signaled a gradual return to economic normalcy at the time. However, the circumstances for this year put the success of the shopping bonanza in some doubt.

In both years, China was just coming out of lockdowns which had taken a toll on the country’s faltering economy and led to subdued consumer sentiment. But the timing is different. In 2020, Covid-19 broke out in January and most pandemic-related lockdowns were removed in early April. By the time 618 arrived in June, the state had already stepped in to boost consumption by launching a series of digital subsidy programs over April and May. On top of that, the two-month gap allowed more time for manufacturing and logistics companies to recover from the lockdowns ahead of the shopping festival. 

This year, however, there’s less time for the market – either consumer sentiment, merchants, or logistics companies – to react since the months-long lockdowns to control new Covid-19 outbreaks in cities like Beijing and Shanghai were only lifted on June 1, just as many retailers were gearing up for the 618 shopping festival with pre-promotion and early deals. Moreover, recent trends make it obvious that Chinese consumers will be even more cautious in 2022 than they were near the start of the pandemic.

For example, as a working mom with two primary school kids in Beijing, Liu Chunying didn’t pay much attention to this year’s 618 promotion until later as she was busy living under a partial lockdown. She used to rely on the festival’s deals to stock up on as much as 70% of her purchases. This year, she only started making a shopping list after Beijing lifted most of the lockdowns in June. Liu added that she will only buy necessities and refrain from impulse buys this year. 

In terms of size, the 618 festival achieved a gross merchandise value (GMV) of RMB 578.5 billion ($89.6 billion) across all platforms in the eighteen days from June 1 to June 18 in 2021, according to data from Syntun. The figure is second only to the GMV of Singles’ Day in terms of shopping festivals in China. The 2021 GMV for 618 represented a yearly growth of 26.5%, but also a slowing from the 43.8% surge recorded in 2020 and driven by pent-up post-lockdown consumption.

Although post-Covid consumption proved to be an effective driver for 618 sales in 2020, market watchers aren’t optimistic about a repeat this year. Data and analytics company GlobalData projects that China’s retail channel will lose steam in 2022 after a stellar run in 2020 and 2021. The downward trend will have a spillover effect into 2023 with the home retail category bearing the brunt of consumer fiscal austerity, the firm said.

Covid-19 prevention measures are major headwinds, according to Bobby Verghese, a consumer analyst at GlobalData. “The stringent Omicron lockdowns in Beijing and Shanghai had a debilitating impact on consumer livelihoods and the economy. Bereft of workers, factories and businesses came to a standstill. With people confined to their homes, the customer footfall in physical retail stores waned, while online retailers were unable to make deliveries due to supply chain disruptions,” he said in a press release sent to TechNode.

Promotion deals in the pandemic era

China’s top online sellers such as JD, Alibaba, Pinduoduo, Douyin, and Kuaishou, have launched a series of efforts to revive consumption for 618 since mid-May. The enhanced promotion efforts come as e-commerce giants such as Alibaba, JD, and Pinduoduo have recorded historically-low revenue growth in the first quarter of this year, as the companies have been hit by both Covid lockdowns and tighter reins from regulators since last year.

JD, Alibaba, and Pinduoduo are offering an immediate RMB 50 ($7.50) discount for every purchase of around RMB 300 across their platforms. This is the largest discount in recent years compared with the more standard RMB 20 to RMB 30 discount on RMB 200 orders.

They have also rolled out merchant support plans, from offering immediate payment transfers for merchants joining 618 promotions to ensuring liquidity to cut service fees to lower costs. The moves are also in line with the state’s call for platform companies to assist struggling small- and medium-sized businesses.

Alibaba’s Taobao marketplace has launched a “metaverse mall” for this year’s 618 to create a virtual shopping venue for customers, tapping into the rising metaverse boom.

Are shopping holidays losing their shine?

618 and Singles’ Day are far from the only shopping carnivals in China. To draw customers and drive sales, e-commerce platforms have established a list of festivals that span all year round. Chinese consumers are increasingly overwhelmed by a dazzling array of shopping festivals celebrating nearly every major holiday, from Spring Festival to Children’s Day.

Even Singles’ Day experienced a lackluster year in 2021. Although still recording new highs in GMV, the shopping bonanza posted the slowest growth in its history: just 9%, compared with up to three-digit growth in its heyday. 

After more than a decade of development focused on big promotional activities and skyrocketing sales numbers, the market is adapting to a new definition of “success” for such festivals, focusing on achieving brand awareness and turning those drawn in by short-term promotional campaigns into long-term loyal customers. Against this backdrop, this year’s 618 may see considerably slower growth than usual for reasons other than just disruptive Covid lockdowns.

Ever since China abruptly cut off the bulk of income for most private education companies last summer, the businesses have had to make some difficult decisions. For New Oriental, once the leader of the sector, it meant letting go of most of its tutors for the K-9 grades and setting up a new livestreaming e-commerce unit to make up for some of the lost income. 

Until this month, New Oriental’s new live e-commerce initiative had been lackluster at best. Daily sales hovered around less than RMB 1 million ($150,000) in the past six months, according to data from livestreaming tracking platform Huitun. But suddenly, New Oriental’s fortunes are looking up. It all changed after the firm’s hosts, all former tutors, started to teach English while selling goods over their livestreams. 

On June 10, during a session selling bags of rice, the host pulled out a small whiteboard and asked the audience whether they thought the price of RMB 80 was fair. She then wrote three English phrases — “bargain,” “cost-effective,” and “unforgettable” — on the whiteboard and began teaching an unexpected course on how to use these phrases in real life. This unique style of selling has quickly made New Oriental’s livestreaming sessions a sensation on the Chinese internet. 

Why it matters: China’s blooming livestream e-commerce sector has become increasingly crowded as thousands of Chinese celebrities and online personalities flock to commercialize their followers or cash in on online fame. Only those with relatively unique selling points or characters are able to stand out and attract buyers’ attention.

• New Oriental is among several tutoring companies pivoting to new business ventures after China’s crackdown on the private tutoring industry last July. Edtech giant Zuoyebang has looked into developing a printer business, while tutoring unicorn Yuanfudao tried to invest in an outdoor down jacket business last year.

READ MORE: Edtech will survive China’s crackdown, but it won’t be the same

Details: Livestreaming session and video clips of Oriental Select, New Oriental’s livestream ecommerce arm, went viral across Chinese social platforms over the weekend after hosts started to offer short, free English teaching sessions during the live shopping sessions.

• Oriental Select’s account on Douyin, the platform where the brand livestreams, has gained more than 1.6 million followers in three days since June 10. An 18-hour-long livestream held on June 11 recorded RMB 19.9 million in sales, a jump from the RMB 4.5 million New Oriental’s founder Yu Minhong achieved on his December debut.
• Instead of the hard-sell advertising style used by most Chinese e-commerce livestreamers, hosts at Oriental Select, all former teachers at New Oriental, display a laidback attitude when selling through the livestreams. 
• When promoting a corn product on a livestream session held on Monday, former English teacher Dong Yuhui said he hoped the corn would remind the buyers of their “good-old days” as a child when they were “young and carefree.” He then took out a board and wrote down the expressions in English.
• On Monday, New Oriental’s share price increased by more than 16% in Hong Kong after the company’s livestreams began to take off over the weekend.  

Context: Battered by China’s private tutoring clampdown, the country’s edtech majors such as New Oriental, Gaotu, and TAL all stopped providing after-school tutoring services targeting students up to K-9, a major source of their revenue, in the mainland Chinese market in the second half of 2021. Shares of the three companies plunged roughly 100% since the regulatory measures were announced in July.

Note: This article was first published on TechNode China (in Chinese).

Hillhouse Capital is a top investment institution whose investment moves are often regarded as trendsetting when related to US-listed Chinese firms. This year, the firm’s latest investment disclosure showed its new position: heavily selling Chinese EV trio Nio, Xpeng, and Li Auto, reorienting several bets in e-commerce, and keeping investments in biotechnology with some adjustments. 

The detailed investment moves can be found in a report filed by HHLR Advisors, the fund management arm of Hillhouse. HHLR Advisors filed its first-quarter 13F form on May 16, a quarterly report required to be filed by institutional investment managers overseeing at least $100 million in assets. It discloses their holdings and acts and is something of a cheat sheet for investors assessing their own positions. 

In the first quarter, HHLR held 64 stocks in the US stock market, 13 fewer than the previous quarter. Hillhouse sold holdings of 17 well-known companies (including Airbnb, Amazon, and Coinbase) from their portfolio, adding four Chinese companies. The total holdings of the institution were $4.8 billion, down 26% from the previous month.

Half of Hillhouse Capital’s top 10 stocks are from US-listed Chinese firms: Beigene, JD.com, Legend Biotech, Vipshop, and iQiyi. Among the 64 stocks held by Hillhouse Capital in the first quarter of this year, 24 were Chinese firms, accounting for about 38% of the total amount.

Hillhouse Capital has reduced its holdings of Legend Biotech, ZTO Express, Li Auto, Mogu, and Huazhu Hotels Group since the first quarter of this year and cleared its holdings of Boss Zhipin, as well as Nio, Pinduoduo, and Xpeng. 

The institution has also increased its holdings in Vipshop, JD.com, Ke Holdings, and Acm Research. Didi, Full Truck Alliance, Futu Holdings, and a number of EV firms were added to Hillhouse Capital’s portfolio in the first quarter. Its holdings in Sohu, Uxin, Yatsen Holding, and another 11 Chinese companies remain unchanged.

Hillhouse invested in Didi, Full Truck Alliance, and Ke Holdings before they went public, so, the invested shares of these companies, which were previously private investments, were converted into American Depositary Shares (ADS). Hillhouse Capital participated in Didi’s Series D+, two strategic rounds with Full Truck Alliance, and Ke Holdings’ Series D, according to enterprise database Qichacha. 

Selling EV holdings 

Hillhouse heavily sold off its holdings of China’s electric vehicle trio Nio, Xpeng, and Li Auto. Hillhouse sold all of its shares in Nio and Xpeng, only retained part of its shares in Li Auto, and reduced its holdings by more than half to 2.51 million shares compared to the fourth quarter of 2021. 

In addition to Hillhouse Capital, Susquehanna International Group, The Goldman Sachs Group, and a number of other investment institutions also reduced their holdings (in Chinese) of the three EV makers’ stocks in the first quarter. Meanwhile, BlackRock, UBS, and other institutions that increased holdings in the trio saw their market positions shrink, with their books showing losses. 

The increased amount of selling and the shrinking values are partly due to the EV companies’ stock performance. In the first quarter of this year, the stock prices of Nio, Xpeng, and Li Auto fell by 33%, 45%, and 19%, respectively.

The trio is trading at a much lower price than their respective all-time highs, despite achieving fast growth, as they face a possible delisting from the US market and show no signs of turning a profit any time soon. 

Last year, shipments from Nio, Xpeng, and Li Auto increased (in Chinese) by 109.1%, 263%, and 177.4%, respectively. Annual revenue increased by 122.3%, 259.1%, and 185.6% respectively, compared to 2020. The cash flow and gross margins of the three companies also saw improvement in 2021, according to their financial results.

In the first quarter of this year, Nio delivered 25,769 new vehicles (in Chinese), a growth of 28.5% year-on-year. Xpeng sold 34,561 vehicles, 59.1% more than the same period last year. Li Auto delivered 31,716 vehicles, a yearly increase of 152.1%. Xpeng’s revenue grew 159% compared to the first quarter of last year to RMB 7.5 billion ($1.1 billion); its net loss was RMB 1.7 billion, a year-on-year increase of 116%. During the same period this year, Li Auto made RMB 9.6 billion in revenue (168% growth), while its net loss reduced by 97% to RMB 10.9 million.

This March, the three firms were added to a provisional list for possible delisting from the US stock markets by the Securities and Exchange Commission (SEC). In response to this, both Li Auto and Xpeng listed in Hong Kong late last year, while Nio moved a little slower but was ultimately listed in Hong Kong in March by way of introduction. Nio also debuted in the Singapore stock market, becoming the first automaker to list on three different stock markets.

Shi Jinman, Sealand Securities’ chief analyst, focusing on the auto industry, told TechNode that traditional automakers are profit-oriented, whereas newcomers often operate on losses to chase growth. Shi added that the three automakers referenced above can not compete with bigger traditional companies for now, but nonetheless offer some promise in a demanding market.

READ MORE: Drive I/O | Nio, Xpeng, and Li Auto face more challenges after a mixed 2021

Reorienting in e-commerce sector

Another major adjustment in Hillhouse Capital’s holdings came in the e-commerce sector, making a variety of different decisions for its holdings in  Pinduoduo, Mogu, JD.com, and Vipshop.

Data shows that HHLR started to build positions in Pinduoduo in 2018 when its stock price was at a low level of $16. At the end of 2020, Hillhouse Capital held over 10 million shares in the firm, making it the investment institution’s largest position at the time. In 2021, the number of active buyers on Pinduoduo surpassed those of Alibaba for three consecutive quarters, and its stock price rocketed to over $212 in the first quarter of 2021. Alibaba overtook Pinduoduo again in the fourth quarter of 2021, and Hillhouse Capital responded fast, reducing its holdings by about 91.8% in the younger firm. At this point, Hillhouse Capital had made about 10 times its initial investment in Pinduoduo. Now, as Pinduoduo’s rapid growth has slowed, its stock price has also fallen back to around $40, and Hillhouse Capital has made a clean exit.

By contrast, Mogu has proven to be a flop for the investment firm. Mogu started as a shopping guide provider but missed the social e-commerce trend started by Xiaohongshu and hasn’t been able to make a pivot to other more successful verticles. Although it had a short-lived revival thanks to livestream e-commerce, the firm’s stock price now hovers below $5. Hillhouse Capital pushed for the merger of Mogu and Meilishuo, but after Mogu went public in 2018, its market value fell by 60% within the six-month lockup period, showing a steep decline. Mogu’s current market value is just RMB 19.1 million, with Hillhouse Capital losing 99% of its investment. Hillhouse Capital has gone from Mogu’s largest shareholder to its third-largest, reducing its holdings by more than 91% in the first quarter. However, it is yet to complete a full exit.

In the third quarter of 2020, Hillhouse Capital took a position in JD.com when the firm’s strategy to focus more on China’s lower-tier cities paid off, with the number of annual active buyers increasing by more than 100 million (in Chinese) for two consecutive years. Yet, Hillhouse reduced its holdings in the firm in the following three quarters, before once again increasing its holdings by nearly 30% in the third quarter of 2021. JD’s number of active buyers continued to grow to 570 million in the fourth quarter of 2021, according to JD’s annual report. In the first quarter of this year, that number grew to 580.5 million, and Hillhouse’s latest position in JD.com is nearly double what it was in the fourth quarter of 2021.

Hillhouse Capital has simultaneously built its position in Alibaba and Vipshop since the first quarter of 2021 and followed the same strategy in the following two quarters. In the fourth quarter of 2021, Hillhouse sold 24,560 shares in Vipshop and cleared its holdings in Alibaba. According to its financial report, Vipshop performed poorly in the fourth quarter of 2021, with revenue of RMB 34.1 billion, a 5% year-on-year fall. Its net profit was RMB 1.4 billion, falling 41.7% compared to the same quarter last year. The firm had 49.3 million active users, losing 3.7 million users in 2021.

In the first quarter of this year, Vipshop’s revenue, profit, and user numbers continued to fall. Still, Hillhouse Capital’s holdings in Vipshop more than doubled from the fourth quarter of last year, making the firm one of Hillhouse Capital’s top 10 holdings for the first time.

JD and Vipshop represent Hillhouse Capital’s second and seventh largest positions, at $488 million and $199 million.

Li Chengdong, an indepent analyst focusing on e-commerce in China, wrote in an analysis published on NetEase News that Vipshop now has a mature operation model along with loyal users and notable suppliers. The firm has built barriers to competition in its sector and built a unique advantage, which explains Hillhouse Capital’s expanded bet on Vipshop. 

Waiting for a biotech boom 

Biotech has been Hillhouse Capital’s most outstanding bet and also one of the most important categories that the institution holds. In the last two years, biotech-related stocks have represented 40% of Hillhouse Capital’s holdings, with the market cap of biotech companies at one point becoming the top category, surpassing that of tech companies.

The pandemic has made biotech stocks hot trades for the past two years. Nowadays, biotech firms have gradually cooled and entered a more serious and competitive phase. Compared with the fourth quarter of last year, Hillhouse Capital’s positions in BridgeBioPharma, CytekBiosciences, GossamerBio, InstilBio, and MereoBiopharma have remained unchanged. However, the market caps on their positions have decreased by 23% to 39%.

Hillhouse Capital has also begun to adjust its holdings in medical tech firms, clearing its positions in Prometheus Bio, Rallybio, Regenxbio, and more, and reducing its holdings in Chinese firm Legend Biotech from 11.805 million shares to 6.9 million shares. Following this adjustment, Legend Biotech fell from the third-largest holding of Hillhouse Capital to the fifth-largest. 

Hillhouse’s shares in the other two Chinese biomedical stocks, Beigene and I-Mab, remained unchanged, with their market caps ranking first and 11th among Hillhouse Capital’s holdings, respectively. In total, Hillhouse Capital owns more than 10% of the three biotech companies (Legend Biotech, Beigene, and I-Mab), according to Shanghai-based financial data firm Wind. 

Founded in 2011, Beigene is one of the four leading drug developers invested by Hillhouse Capital that researches PD-1 cancer drugs. Hillhouse Capital’s investment has covered the whole life cycle of Beigene. According to Qichacha, Hillhouse participated in Beigene’s Series A, Series B, and two private placement rounds after the firm’s US and Hong Kong IPOs.

In December 2021, Beigene succeeded in listing in China, thus becoming the only innovative drug company listed on three different stock markets. From participating in the $74.5 million Series A financing in 2014 to participating in the $2.1 billion private placement in 2020, Hillhouse Capital has bet more than RMB 8 billion on Beigene.

The research and development of innovative drugs generally come with heavy a upfront investment, a long development cycle, and high risk. Financial results show that Beigene has been in the red for seven years since its listing in the US.

In the first quarter of 2022, Beigene’s revenue was RMB 1.9 billion, a 50% yearly decrease. Its net loss fell almost tenfold to RMB 2.9 billion compared to the same quarter last year. In the first quarter, sales of Beigene products increased by 146% yearly. Among them, global sales of Zebutinib, a medicine used to treat cancer, hit $104.3 million, a 372% growth compared to the first quarter of 2021.

Hillhouse Capital held a position of 5.5 million shares in Beigene on the US market until the first quarter of this year. As of May 25, the stock price of Beigene was $123. Given the market valuation of $103 billion disclosed in the F13 document, Hillhouse Capital has suffered a loss of about $360 million due to its position in Beigene.

As of May 25, Hillhouse Capital’s holdings in Legend Biotech represent a surplus of $18.7 million, and its holdings in I-Mab a loss of $40.9 million.

Conclusion

As many US-listed Chinese stocks trade at a lower price, Hillhouse Capital has bucked the trend to increase its holdings in such firms, demonstrating its optimistic view of China-related assets. Yet the gradual disappearance of traditional Chinese tech giants such as Alibaba in its top 20 positions shows the institution’s appetite for higher growth assets. Hillhouse’s continuous adjustments of certain stocks also reflect the significant changes in the structure of the Chinese e-commerce industry over the years.

Hillhouse Capital is noted for its precision and high return on investment, but no investment firm is entirely infallible. The firm’s track record is impressive, and its dealings potentially offer some valuable insight into oncoming market trends, but ordinary investors should always be wary of blindly following any institution when it comes to playing the stock market. 

TikTok’s Chinese version Douyin announced on Tuesday that its online sales more than tripled for the year ending in April, an impressive growth rate for the e-commerce upcomer when other majors are slowing down due to an economic downturn in China.

Why it matters: Chinese short video platforms like ByteDance-backed Douyin and Kuaishou are quickly taking away the market shares of e-commerce giants like Alibaba, JD, and Pinduoduo, thanks to their widely popular social content.

• Douyin chose to announce sales numbers and growth plans on the eve of China’s 618 shopping festival to build momentum for the mid-year spending frenzy, a local media outlet in Chengdu reported.

READ MORE: 618 is not just about e-commerce platforms anymore

Details: Douyin’s gross merchandise value (GMV) surged 320% year-on-year in the year ending in April as the company sold more than 10 billion products, president of Douyin E-commerce Wei Wenwen said (in Chinese) at a Douyin e-commerce conference on Tuesday.

• At the online meeting, Douyin rebranded the concept of “interest e-commerce” as “full-field interest e-commerce” after rolling out the idea last April. The company hopes to highlight its ability to attract consumers through multiple channels such as short videos, livestreaming, its search function, and more, said Wei at the conference.
• The firm didn’t give a specific GMV figure, but people with knowledge of the matter told Caixin that Douyin achieved more than RMB 800 billion GMV in 2021 and is expected to bring in between RMB 1 trillion and RMB 1.2 trillion this year. However, the company said the figure is “inaccurate” in response to Caixin. 
• Douyin E-commerce, which became a stand-alone business unit only two years ago, achieved fast growth by tapping into Douyin’s 600 million daily active users. Douyin generates more than 200 million short videos and holds 9 million livestream sessions per month in a bid to convert user attention to sales. 
• Douyin’s Wei said she believes plenty of opportunity remains in the sector and that the platform aims to take more than 50% of the industry’s growth market in the future.

Context: Although still holding the lion’s share of the market, Alibaba, JD, and Pinduoduo are recording decelerated growth as they face macroeconomic headwinds, regulatory challenges, and pandemic control measures.

• Alibaba’s global consumer-facing businesses generated RMB 8.3 trillion in GMV for the year ending in March, remaining relatively flat compared to the RMB 8.1 trillion recorded a year ago. In 2021, Pinduoduo’s GMV increased 46% year-on-year to RMB 2.4 trillion, while JD’s GMV grew 26.2% year-on-year for the same period. Kuaishou’s GMV increased 78.4% year-on-year to RMB 680 billion in 2021.
• Douyin’s e-commerce sales dwarfed its global sibling TikTok, which reportedly achieved nearly RMB 6 billion GMV in 2021.

Shein was among hundreds of thousands of Chinese startups that tapped into the country’s emerging cross-border e-commerce industry when it was founded in 2008 in the eastern city of Nanjing. 

More than a decade later, it’s a Chinese fast fashion decacorn (a private technology company worth more than $10 billion) with a market cap of $100 billion. Only three other tech juggernauts — ByteDance, Alibaba’s Ant Group, and SpaceX — have surpassed that benchmark, according to Crunchbase’s private unicorn list.

Shein is a much lesser-known name than its local peers like Alibaba and JD. Its relative anonymity is largely due to its unusually low profile, typified by the lack of public information on its mysterious founder Xu Yangtian, also known as Chris Xu. However, Shein is a name that is increasingly difficult to ignore, as its extraordinary growth has more people comparing it with big-name rivals like Amazon and Zara.

A list of impressive numbers backs up the hype about Shein. In May 2021, Shein overtook Amazon as the most downloaded shopping app in the US, a position it has largely maintained ever since, according to App Annie. The company’s revenue totaled $16 billion in 2021 after expanding at breakneck three-digit growth rates over the past few years. The rising firm is also a venture capitalist’s darling: Shein has received a combined $2.1 billion in funding from reputable investors, including Tiger Global Management, Sequoia Capital, and IDG Capital, since its establishment.

Such incredible growth (and hype) led internet analyst Matthew Brennan to label Shein the “TikTok for e-commerce.” While the comparison points to how the two Chinese companies are achieving a phenomenal rise globally, it’s also important to understand the underlying lessons of their explosive growth — and how they have combined Chinese and western business models to create a new type of online giant.

Where did Shein come from?

Shein is an online fast-fashion company based in China and sells globally, from clothes to accessories to shoes at super-cheap prices. Started as a platform targeting female shoppers, the site now expanded to offer an increasing selection for kids and men.

Unlike Chinese peers focusing on the domestic market, Shein is engaged only in overseas e-commerce markets, which was a less competitive vertical when it was founded ten years ago. 

Its main operation and manufacturing centers are still based out of China, but the company sells to more than 150 countries in nearly every major market in the world, from Europe and North America to Latin America and Southeast Asia. However, its presence in the Chinese market is nearly zero – out of choice.

Why Shein?

The company’s success could be attributed to a range of factors, from its affordable fashion positioning to viral online marketing strategies on social platforms like Instagram.

Offering a diversity of products to consumers quickly and affordably is a common playbook for fast fashion brands to achieve success. Shein has taken that practice to a whole new level.

• Huge diversity for ultra-cheap prices: Shein’s products are astonishingly cheap, generally below $20, making products from rivals such as Zara, ASOS, H&M, and Boohoo appear relatively expensive. In addition, the platform offers around 600,000 products for sale at any one time. Another area where it outmaneuvered its rivals is with a shorter lead time, from design to shipping, of a typical five to seven days. The firm actually aims for a much shorter three-day turnaround, from design to production, according to a Reuters report. Compare that with around three weeks for a garment from Zara and Shein’s appeal begins to become clear.
• Flexible production: Shein works with more than 6,000 suppliers, many of whom are small businesses that make Shein-branded products in small batches. The company will increase production if the products become popular and cut short other items if they’re less popular based on real-time consumer feedback. The model is not unlike the consumer to manufacturer (C2M) model that’s been picked up by many Chinese e-commerce giants such as Alibaba, Pinduoduo, and JD. It connects manufacturers and consumers to produce tailored products at lower prices through the application of AI-powered data analytics.
• Platform independence: Shein’s rise comes at a time when many Chinese sellers relied on bigger platforms such as Amazon to sell products to overseas users. Being its own platform, Shein is able to use AI algorithms for supply chain and manufacturing upgrades, rather than relying on platform companies like Amazon for customer acquisition, which also gives away control of user data. Recently, Amazon’s year-long removal of Chinese sellers from its platform since early 2021 has also made Shein’s independent model more appealing. 
• KOL marketing: The brand first gained popularity among young customers, especially teenagers, by running online marketing campaigns on social media platforms such as Instagram and TikTok through cooperation with KOLs or influencers. The strategy is similar to TikTok’s approach of matching content creators with users. KOL marketing also lies behind the success of a series of Chinese online-first, or online-only, brands like cosmetics seller Perfect Diary.
• Addictive shopping experience: For Shein consumers, the shopping experience can become super addictive when offered the chance to choose from a vast number of products, especially knowing that one doesn’t have to worry about their budget. The app also boosts engagement with a range of fun features. For example, users who check the Shein app daily receive points, which can be converted into coupons when making purchases. 

Controversies

Shein’s meteoric rise has also attracted scrutiny from the public. Many questioned the ethics of its ultra-low prices, accused the company of lacking transparency, and raised concerns about its treatment of workers, such as low pay, poor safety conditions, and the use of underage workers.

More than 80% of nearly 700 suppliers audited in 2021 had at least one major risk factor, according to a sustainability and social responsibility report the company released in 2021 under public pressure. The report shows that just 12% of the company’s suppliers were able to claim zero violations from a list that included items such as forced labor and serious environmental pollution. The company said that it had threatened violators with closure if the situation was not remedied immediately.

An investigative report conducted by Chinese media outlet Sixth Tone found that staff at one of Shein’s subcontractors often work 15-hour shifts in order to meet deadlines, although the company said it was committed to “upholding high labor standards.”

The firm’s other controversies include selling a pendant necklace with a swastika sign and repeated allegations of copyright infringement (in Chinese).

What’s next?

With deep roots in China, Shein seems to be distancing itself from its home country as geopolitical tensions and regulatory scrutiny over China-related tech companies increase. 

The company has made a Singapore entity its parent firm and is aggressively expanding its presence in the city-state, Reuters reported in February. The story added that Chris Xu, Shein’s founder and CEO, has become a permanent resident of Singapore, although the company’s spokesperson later denied this claim. 

Xu’s reported application for Singaporean residence comes amid talks that the company is preparing for an IPO. This is reminiscent of a similar move by Haidilao founder Zhang Yong, who gained Singaporean citizenship before the hotpot chain went public in 2018. Zhang topped the city state’s rich list in 2019.

Shein is facing a few headwinds. The firm was among the first batch of 59 tech companies, including TikTok and WeChat, to be banned in India, as the relationship between the world’s fastest-growing economies turned sour in 2020 after a border conflict.

The company also sees intensified competition, even as it continues to grow. At least 10 Chinese fast-fashion companies, such as Cider, Urbanic, and ChicV, are chasing global consumers, while tech giants such as Alibaba and ByteDance are also digging into the sector with Shein-like platforms.

The past decade was certainly Shein’s heyday of development. However, the company’s growth has shown signs of slowing as its sales increased 60% year-on-year in 2021, a much slower rate than its 250% jump in 2020. The company is likely to face more challenges as it attempts to sustain its high-speed growth – and live up to its $100 billion valuation.

Chinese online retailer JD posted mixed results for the first quarter of this year on Tuesday. The company beat market expectations on revenue but recorded its slowest revenue growth as a public company as net losses widened for the quarter.

Why it matters: JD, along with rivals including Alibaba, faces several headwinds, from Covid-19 lockdowns in many Chinese cities to sluggish retail consumption to a weak macroeconomic outlook.

• The revenue growth rates of major Chinese e-commerce tech giants have been hitting new lows since late last year. JD rivals Alibaba and Pinduoduo, which have yet to release their first-quarter results, recorded their slowest revenue growth for the fourth quarter of last year.
• These companies are adjusting their operational structures and product lines to adapt to a challenging economic environment.

Details: JD’s total revenue increased 18% year-on-year to RMB 239.7 billion ($37.8 billion) for the first quarter of this year, beating the $35.6 billion high-end estimation compiled by Yahoo Finance. However, this is its slowest growth since JD went public on the US market in 2014.

• In the first quarter, total revenue for the company’s core retail business increased 17% year-on-year to RMB 217.5 billion, while the company’s second-largest business segment, JD Logistics, climbed by 22% to RMB 27.4 billion compared with the same period last year.
• The company’s net loss for the reporting period was RMB 3 billion compared to a net income of RMB 3.6 billion one year ago. These increased costs and expenses related to investment in infrastructure, research and development, as well as order fulfillment and employee benefits, which were hiked up by recent lockdowns in Chinese cities.
• “Since the start of 2022, we have seen many challenges arise in our external environment, including the Covid resurgence, supply chain disruptions, and weak consumer sentiment, among others,” JD’s chief executive officer Xu Lei said in the company’s earnings call, held on Tuesday.
• Recent omicron outbreaks in China have a much more significant impact on the supply chain than in 2021 because of higher contagion rates, Xu pointed out. While the Covid-19 outbreak in 2020 brought “some positive effect” to the internet and e-commerce sectors by accelerating the online migration of users, the ongoing outbreak has “hit both online and offline enterprises heavily.”  

Context: On Tuesday, China’s top political advisory body held a consultation session to promote the digital economy. Vice Premier Liu He emphasized support for the platform economy and the list of digital companies overseas.

• China’s online retail sales increased 6.6% in the first quarter of this year, the slowest growth rate since June 2020, according to data from China’s National Bureau of Statistics. On the bright side, more consumers have chosen to buy goods online over the past two years. The online retail sales for physical goods accounted for 23.8% of total retail consumer goods sales in the four months ending April, up from 18.6% for the same period in 2019.

Alibaba’s workplace collaboration app DingTalk has been at the center of layoff discussions on Chinese social media this week. Some people indicated the platform faces a massive 30% job cut, while others suggested a standard organizational adjustment that affects less than 10% of the staff.

Why it matters: Chinese tech companies have seen rounds of layoffs over the past few months. The downsizing conversation of one of Alibaba’s major business lines is another sign of stress within the Chinese tech community. 

• Alibaba and Tencent currently lead the country’s workplace app market with DingTalk and WeCom.

Details: Talks of DingTalk’s layoff started circulating on Chinese social media on Thursday. The workplace app will reportedly cut less than 10% of its employees this year, according to a widely circulated comment posted on China’s LinkedIn-like platform Maimai. The user, who identified himself as an Alibaba employee, said on the platform that the cut will be 10% of the staff (in Chinese), rather than 30% previously circulated on the platform (in Chinese), which would have been the largest layoff for an individual Alibaba unit this year.

• A 10% cut is considered within the normal range of an organizational adjustment for DingTalk, according to Chinese media outlet 36Kr (in Chinese), citing unnamed DingTalk staff. The 36kr source said DingTalk removes around 4% to 10% of low-performing employees annually. This year’s headcount change is looking to be similar to previous years after DingTalk removed 6% of low-performing employees and some people left voluntarily in 2021, the source added.
• DingTalk announced a series of strategic changes in March as the company prioritizes its transition to a platform-as-a-service (PaaS) business. DingTalk will focus on developing key features in core collaboration and productivity functions, such as file-sharing, project management, and video call. Meanwhile, the platform will leave other tasks to third-party developers and partners, such as hardware and industry applications.
• The company didn’t respond to TechNode’s inquiries on the matter when contacted on Friday morning.

Context: Chinese productivity apps are hoping to commercialize their services after investing heavily into the market’s pandemic-driven boom since 2020.

• DingTalk launched paid versions in March, while ByteDance reportedly aims to accelerate the commercialization of its workplace communication app Lark, aiming for a global revenue goal of RMB 6 billion ($940 million) by 2026.

Once focused on Chinese tech companies, venture-capital funds are pouring money into new noodle chain brands that sprung up in the country. Even tech giants like Tencent, the social and gaming behemoth, and an active investor, are doubling their bets on the sector. The capital inflow and media attention on a very specific food and beverage vertical highly resembles China’s coffee craze four years ago – and has many observers referencing the spectacular rise of Luckin Coffee.

Chinese-style noodle chain restaurants first became tech investor darlings in 2021 when the industry faced tightened regulation while the country’s consumers became increasingly willing to spend more on quality products and experiences. There were twelve noodle chain investment deals in the first half of that year, with a combined total of RMB 1 billion injected into the emerging area. The market scale of Chinese noodle restaurants is expected to be worth RMB 346 billion ($52 billion) by 2022, according to Chinese data analytics firm iiMedia Research.

So will China’s noodle chain market see the emergence of the “next Luckin”? Or, more importantly, will the market craze maintain its momentum?

Blurring boundaries between tech and consumption brands

Before its spectacular, highly controversial downfall after a financial fraud scandal, Luckin helped grow the popularity of coffee culture in a majority tea-drinking nation and fostered the growth of a trillion-dollar market in China. 

Coffee chains are not tech businesses, but Luckin borrowed a playbook from tech companies by building its ordering and delivery services around mobile apps while adopting online-first marketing and branding strategies typical of internet companies. It’s perhaps no surprise that Luckin adopted an internet-based approach to the coffee business, given the company shares the same founding team of car-sharing platform CAR, Inc. But it was nevertheless a fresh approach when Luckin first rose to stardom in 2018.

Luckin is still trying to recover from the aftermath of a shocking RMB 2.2 billion accounting fraud scandal. Still, the company’s approach to entering a traditional industry with heavy discounts and an online-first marketing strategy has been picked up by many companies and viewed by numerous investors as a proven business model.

This model has been partially tested in China’s milk tea industry, which has seen the rise of bubble tea giants like HeyTea and Nayuki attracting funds from tech majors. Tencent has invested in HeyTea and Canadian coffee chain Tim Hortons, while ByteDance has backed Shanghai-based coffee chain Manner.

Venture capital attention has since been turned to a slew of verticals in food and beverage. Hotpot brands (for example, Lanxiong Hotpot), Chinese pastry chains (such as Bao Shifu), and packed stewed snacks (including Tencent-backed Shining Taste) are also getting investor attention. But for many investors, noodles, one of China’s favorite staple foods, is the next break-out vertical to win over.

The race to be Luckin for noodles

Luckin’s approach has prevailed in China’s noodle market over the past year. Armed with funding, a host of noodle brands have targeted rapid offline expansion combined with online marketing campaigns to quickly capture market share. Here are a few rising players in China’s new noodle chain brands.

• Hefu Noodles: A top player in the field, this decade-old brand of Beijing-style noodles operates more than 380 stores across China as of February. It has so far secured six funding rounds totaling RMB 1.6 billion. The company’s most recent Series E booked RMB 800 million in July 2021 from investors, including CMC Capital, Tencent, ZWC Partners, and Longfor Capital. With a market valuation of RMB 7 billion, the company is gearing up for an overseas IPO this year.
• Chen Xianggui: This Lanzhou-style noodle chain restaurant has received more than $300 million in funding since its establishment in 2020. Investors include Source Code Capital, an investor in ByteDance and Meituan, and Huaxing Growth Capital, the tech and entertainment-focused venture capital arm of financial institution China Renaissance. The company’s valuation reached nearly RMB 1 billion, with the most recent RMB 200 million funds secured last November.
• Majiyong: Tencent invested in the operating body of Majiyong, an upstart beef noodle brand, in late January. Last May, the Shanghai-based food chain received an angel round from renowned tech investors, including Sequoia Capital, Gaorong Capital, and K2 Venture Capital, at a valuation of RMB 1 billion ($160 million).
• Yujian Noodles: The valuation of the Chongqing-style noodle chain reached RMB 3 billion after receiving RMB 100 million in funding in September last year. Investors include Country Garden Venture Capital, the investment arm of property developer Country Garden, and restaurant chain Xijiade. 

Noodles 2.0: standardize noodle-making 

Chinese have been cooking and eating noodles for thousands of years, creating many varieties and styles of noodle dishes, making the category a rich, busy place for competition. While traditional Chinese noodle joints have shabby storefronts and affordable pricing, the new noodle chains have chic dining settings and are often located in malls and business areas, offering a Chinese-style fast food alternative for urbanites. 

Such stores are usually accessible through various online food delivery platforms and offer streamlined membership services embedded in popular social media apps such as WeChat. The noodle newcomers also charge higher prices with better service and chic settings. For example, a typical bowl of tomato and beef noodles at Hefu Noodle costs RMB 38, much higher than similar items sold at below RMB 20 in traditional shops.

On top of that, the new breed of noodle chains save on operating costs by standardizing and streamlining food production at “central kitchens,” which are back-end facilities that pre-prepare frozen packages of noodle toppings for the restaurants. This model saves chains on the cost of hiring professional chefs for in-store cooking while making better use of storefront spaces for diners.

Will the Luckin recipe work?

For investors, capital flows to where it could make the biggest profit. Tech venture capitalists are shifting attention to new consumer consumption brands when China continues to clamp down on the tech sector. Combining that with a growing base of comfortable Chinese consumers looking for better dining and life experiences, investors see the food industry as a new, safer sector to chase potentially mouthwatering returns. 

There’s no doubt that capital support is an indispensable element in developing an emerging industry, but it’s not the only or even the most important factor for a successful business. Luckin’s ousted founder and chairman Lu Zhengyao (Charles Lu) was among the first to launch a new Chongqing-style noodle shop (called Quxiaomian) last year in an attempt to duplicate Luckin’s success. But the brand received a lukewarm reception from diners and was soon forced to downsize operations.

An excessive inflow of hot money can also harm the long-term development of a market. From subsidy-fueled market grabbing wars to skyrocketing valuations, China’s tech market has seen multiple “bubbles” burst over the past two decades. The latest case was the community group-buy industry, where even top players collapsed after the venture craze ebbed last year.

In addition, the noodle market is facing obstacles before it can really take off. As with any offline business in China at the moment, noodle chains are dealing with dropping foot traffic as China fights a new wave of Covid-19 outbreaks with strict lockdown measures, which seem unlikely to end any time soon. The new noodle chains are not only competing with their peers but also with traditional noodle stores, which better cater to the taste of more price-sensitive users and sometimes hold a rustic charm and human touch that the newcomers can’t replicate. 

However, with the inflow of capital and market attention, the new noodle chains are a sector worth following.

On Tuesday, Meituan suspended the Beijing operations of Meituan Select as the Chinese food delivery and local life service giant joins local peers in scaling back community group buying businesses.

Why it matters: Meituan and Pinduoduo led China’s community group-buy craze that took off two years ago. Meituan Select’s withdrawal from Beijing has raised market speculations about the company’s further retreat from the cooling market. 

• The company halted the service despite a recent surge in consumer demand for grocery products, driven by panic buying in the city after finding new coronavirus outbreaks.
• The news came two weeks after a major layoff in Meituan, which reportedly hit grocery delivery services Meituan Select and Meituan Maicai, as well as enterprise-facing food distribution arm Kuailv, the worst.

READ MORE: The Big Sell | Will Shanghai lockdown change the game for community group buying?

Details: Meituan stopped receiving orders for Meituan Select, a community group buying service that offers next-day grocery pickup services, in Beijing from Tuesday. The company has removed Meituan Select from the homepage of its main app and its WeChat mini program, local media outlet Caixin reported.

• Amid a market downturn, Meituan Select planned to shut down operations in loss-making cities a few months ago, according to Caixin’s report, which cited an unnamed employee at the company. Beijing was one of Meituan Select’s loss-making cities due to high delivery and order fulfillment costs and low margins.
• Although Meituan has taken a step back from the community group buying services, the Beijing-based company has joined grocery peers as it has beefed up its support for on-demand grocery delivery service Meituan Maicai to cope with the recent Covid-19 outbreak in Beijing.
• The company declined to comment on the matter when contacted by TechNode on Wednesday morning.

Context: China’s grocery delivery craze is losing momentum as the industry sees withering investment. After witnessing the collapse of a group of smaller players, deep-pocketed companies like Meituan, Didi, and Alibaba are retreating from the market after struggling to find a commercialization path.

• Meituan recorded a net loss of RMB 23.5 billion ($3.6 billion) in 2021,  compared with a net profit of RMB 4.7 billion in 2020. The company’s operating loss from new initiatives such as Meituan Select expanded to RMB 38.4 billion in 2021 from RMB 10.9 billion in 2020.
• Community group buying teams at various Chinese tech giants are among the worst affected by the ongoing layoffs in Chinese tech companies.

Major Chinese online grocery platforms are increasing their product supplies in Beijing as residents rush to stock up on food and daily supplies after the capital city announced a surge of local Covid cases. 

Beijing health authority said on April 24 that the city found a local Covid outbreak has spread for a week, with more than 40 local cases since April 22, prompting locals to worry about facing lockdowns and supply shortages like Shanghai. 

Why it matters: Having learned from what happened in Shanghai, China’s online grocers respond quickly to a surge in demand in Beijing. However, pressure on operation and supply chains remain as potential omicron outbreaks expand to other cities in the country. 

Details: Chinese online grocers like Meituan, Dingdong Maicai, and JD increased their stock and extended operation times as Beijing residents rushed to online platforms and offline supermarkets to stock up on daily supplies,  such as food and toilet paper.

• On Monday, Meituan’s grocery arm Meituan Maicai will increase product supplies three to five times and raise its sorting workforce by 70%. On top of that, the company said the service would begin receiving and delivering orders around the clock starting April 24.
• Alibaba’s Freshippo and JD’s 7Fresh plan to double or triple their stock, while Dingdong Maicai will increase its stock of staple goods by 150%, local media outlet GeekPark reported.
• On April 24, Dingdong Maicai saw a 50% growth in daily orders in Beijing. The platform said it plans to increase supplies to Beijing by 1.5 times and has set up a dedicated group to ensure deliveries in Beijing. 
• Offline supermarket chains Carrefour and Wumart expect to triple their usual stock.

Context: Beijing has reported a sudden spike in locally confirmed infections since April 22, with 42 Covid-19 cases reported over the past three days.

• Shanghai residents have had difficulties buying food supplies online since ongoing Covid-19 prevention measures immobilized more than 25 million people in the city over the past month.
• Online grocery platforms have served as a lifeline for residents in Shanghai since a city-wide lockdown began in late March. However, surging orders quickly overloaded the city’s online grocery operations.

READ MORE: The Big Sell | Will Shanghai lockdown change the game for community group buying?

Pinduoduo is seeking offline retailers to join its platform as the e-commerce titan tries to expand into on-demand retail businesses, local media outlet Beijing Business Today reported on Monday.

Why it matters: As a latecomer to the game, Pinduoduo enters a crowded sector that already includes established incumbents such as Meituan, Ele.me, and JD Daojia.

• Shanghai’s Covid outbreak since March has prompted companies to rethink the importance of last-mile delivery capabilities, which is a weak point for Pinduoduo and is plaguing many major online grocers to deliver on time during the outbreak. At the usual time, on-demand retailers offer 30-minute or one-hour delivery as a standard service, but such promises became unsustainable during lockdowns.

READ MORE: The Big Sell | Will Shanghai lockdown change the game for community group buying?

Details: Pinduoduo is recruiting local offline retailers, front-end warehouse operators, wholesalers, and couriers in China’s first-tier cities of Shanghai, Beijing, and Shenzhen.

• For starters, the platform will focus on fruits, especially more perishable ones like watermelon and durian, a poster obtained by Beijing Business Daily reads. On-demand retail for more product categories such as gifts, flowers, and cakes is also being tested, the report added.
• Pinduoduo expects potential fruit retail partners to have the delivery capabilities to fulfill intra-city orders they receive through the e-commerce app within 24 hours. The delivery timeline is currently expanded to 48 hours during the pilot period.
• In other words, the platform will not take care of delivery for offline retailers like its rivals Meituan and Ele.me. Pinduoduo will only serve as a central platform for the retailing partners to access users. Pinduoduo claimed to have 868.7 million annual active users in 2021.
• Pinduoduo assured retailers in the poster that the delivery won’t be challenging to handle because they will divide the market into small delivery areas to the level of city districts and counties to make the business feasible for retailers.
• Pinduoduo didn’t respond to TechNode inquiries on the matter when contacted Wednesday afternoon.

Context: Pinduoduo has been adopting an asset-light approach to e-commerce since its establishment in 2015. While pushing to help more farmers access a wider market, the company has gradually moved to invest in logistics, warehouses, and other infrastructure since 2020.

• In February, Pinduoduo tested a pickup service to receive and send parcels on users’ behalf through partnerships with major couriers to expand its delivery capabilities. But the service was soon suspended because the firm hadn’t filed for a license to run a delivery business in China.
• The market scale of China’s on-demand retail market is expected to reach RMB 900 billion ($140 billion) by 2024, data from research agency iResearch shows.
• Nearly all of the major e-commerce companies have tapped into the market. The annual transacting users on Meituan’s on-demand retail service Instashoping reached around 230 million in 2021. Last year, JD launched a one-hour delivery service in partnership with Dada Group, the company behind JD Daojia and backed by JD and Walmart. Alibaba operates a range of services in the sector from Tmall Supermarket to Ele.me and Taoxianda. And in January, ByteDances’s Douyin piloted a logistics service called Yinzunda.

In locked-down Shanghai, Zhang Chen was standing by her community gate, waiting to pick up apples to be delivered to her apartment compound. She reveled in her luck at striking the apple deal because fruit had become a rare treat in the metropolis locked down since late March in response to a new Covid-19 outbreak. The city authorities prioritize delivering essential foods like rice and vegetables to the city’s 25 million residents. 

A neighbor who bought 15 kilograms of apples through a community group’s bulk buy last week was willing to split the order with her, saving Zhang days of waiting in this challenging time. 

Some Shanghainese have been locked in their homes since early March, when the city was only doing partial lockdowns. Shanghai began a two-stage city-wide lockdown on March 28 and promised to reopen by April 5, which never happened. The lockdown has been extended, and as of the time of writing, most of the city is still under lockdown. The unexpected long locking period has left many residents unprepared and scrambling to find food and supplies.  

At 10 in the evening, the little square in front of Zhang’s community gate was crowded with other people like her, either collecting their deliveries or waiting for their food to arrive. Meanwhile, more residents were clinging to their phones at home, waiting for their group buying heads to tip them off the arrival of their purchases. Delivery times have become unpredictable as truck drivers are asked to show negative Covid test results certificates to deliver goods across the city.

Zhang’s phone rang. Her neighbor called to confirm her identity because they were only connected on WeChat and had never met before. It turned out the neighbor was a casually-dressed woman standing right next to her. After collecting a big box of apples, the pair split the apples by counting out half for each because no one had a scale. Neither woman cared about who got slightly more weight in these unprecedented conditions. 

“I already bought some apples last week. But they disappear so quickly because I have a big family to support. My parents are under lockdown with us to take care of the kids,” Zhang said.

For millions stuck in Shanghai like Zhang, purchasing daily necessities has become a hassle over the month as they have been forced to stay home. During the lockdowns, reliable delivery platforms have become lifelines for people living in the financial hub, China’s second-largest city with a 25 million population. 

As other online grocery delivery services struggle to keep up with the city’s spiking online orders, community group buying has revived, thanks to its flexibility. But analysts say that a regional resurgence of the service won’t turn the tide for the cooling sector.

It’s a ‘last-mile’ problem

Shanghai’s current food shortage problem is more about how to deliver food to residents rather than a lack of national food reserves, according to the city authorities. 

Shanghai’s deputy mayor Chen Tong said at an April 7 press conference that the city had sufficient food reserves to feed locked-in residents for the foreseeable future.  Chen pointed out that the current problem lies in the lack of last-mile delivery forces, the couriers who complete the last leg of a delivery process. 

“The battle against the epidemic has affected the quality of life for Shanghai residents. There are cases when food supplies can’t be delivered to residents’ homes. We are trying our best to address the problem,” he said.

As part of the municipality’s pandemic fighting initiative, all major grocery delivery companies, like Meituan, Alibaba’s Freshippo, and Dingdong Maicai, are attempting to keep up with the rocketing online demand across categories from vegetables and rice to fruits. 

Different business models, different solutions

China’s decade-old grocery delivery industry consists of players operating under various business models. For example, self-operated platforms like Dingdong Maicai and huge grocery retailer marketplaces such as JD Daojia and Meituan.

The various business models mean the platforms are confronting locked-down circumstances differently.

The sudden surge in orders soon overloaded nearly all mainstream grocery delivery platforms, including Alibaba’s Freshippo and Ele.me, Meituan, Dingdong Maicai, JD, and MissFresh.

These services usually rely on powerful teams for a promised 30-minute delivery for individual customers, but operations have become strained this time when the labor shortage is a critical issue.

Many users of services like Dingdong set their alarm clocks for early morning to scramble for the limited number of orders couriers can deliver that day. For example, Zhang Menglin, a mother of a six-year-old, tried for a few days only to find the websites and apps repeatedly crashed due to soaring demand. After an experience similar to Zhang’s, TehNode reporter Ward Zhou resorted to using an app that repeatedly clicks the “buy” button, thus upping his chances of placing an order.

Instead of giving away hefty cash donations for disaster alleviation, Chinese tech majors have resorted to a more practical approach to address Shanghai’s delivery labor shortage: providing more hands. 

Grocery platforms and supermarket chains, including Ele.me, JD, Dingdong Maicai, and Yonghui pledged in early April to move more than 6,000 staff to the Shanghai by April 11 while also leveraging autonomous delivery vehicles, according to a rough count by local media outlet Awtmt. 

Of the total, the Alibaba-affiliated services Ele.me, RT-Mart, Freshippo, and Cainiao account for a combined 3,000 workers, mainly filling delivery and sorting positions. 

Meituan launched urgent deliveries and vowed to move at least 1,000 delivery workers to the city after its vice president Mao Fanglie made a rare public appearance at Shanghai’s April 7 government briefing. 

Pinduoduo, WeChat benefit from community group-buying surge 

In normal times, community group-buying platforms operate by selling products in bulk through group heads, typically stay-at-home mothers or local store owners who collect orders from residents in nearby housing compounds. The platform’s couriers drop off products at community stores or the compounds’ gates for consumers to pick up overnight. 

This model has emerged as a more reliable food source for millions of people in Shanghai, compared with the above-mentioned platforms catering to individuals. On the one hand, the models’ bulk sale approach allows grocery apps to make the best use of their available delivery forces. On the other hand, customers are much more tolerant of the less predictable delivery times. 

“I have given up on grocery delivery apps like Dingdong after multiple failed tries and depend solely on community groups buying my food now,” said Wang Jia, a 40-year-old Shanghainese. 

After being locked down for three weeks in Shanghai, the reporter of this article tried to order bread from JD on April 9. Instead of its standard same-day delivery, the retailer’s app showed the bread would arrive in two weeks. In frustration, the reporter turned to her neighborhood’s group buying head, which delivered two loaves of bread in two days. She was thrilled and grateful to get bread for her six-year-old daughter’s breakfast sandwich. 

Besides the veteran group heads already in the business before the outbreak, novices are becoming group-buying leaders, both to meet their own needs and to help neighbors. 

Given that most group heads communicate and promote their products through various WeChat groups, WeChat-based mini-programs gained popularity among group-buying participants.  They are Pinduoduo’s community group buying service Kuaituantuan, Tencent’s e-commerce feature Weidian, and WeChat Jielong.

Platforms like Freshippo and Carrefour have moved to a wholesale model too, requiring a minimum price or number of orders to support delivery. That’s similar to the community group buying model, except that unpaid volunteers, who are locked-down residents themselves,  are functioning in the group heads’ intermediary role. E-commerce platform Pinduoduo also rolled out wholesale services in the city, encouraging individuals to resell the goods to their neighbors.

A comeback for community group buying?

The inflow of venture capital and internet giants plays a bigger role than real consumer demands in driving the rise and fall of the community group-buying industry.

—Zhang Yi, consulting CEO and chief analyst at iiMedia Research

However, looking beyond its current boom in Shanghai, the dust had already settled for China’s grocery community group-buying vertical after a crazy ride in the past two years. High regulatory fines and cash-burning battles put the sector on the brakes. As the market tide ebbs, the once red-hot sector has become an area where tech giants have enacted deep headcount counts amid industry-wide layoffs. 

Covid-driven demand will become an opportunity for the broader online grocery shopping industry, and the trend will live on after this wave of epidemics subsides. But it won’t be a game-changer for the failing community group-buying vertical, according to Echo Gong, a Shanghai-based analyst with global research agency Coresight. 

Data from market intelligence agency Emarket shows that online food and vegetable sales reached an annual growth rate of 61.4% in 2020 when the coronavirus hit China the hardest. The growth rate slowed down to 24.6% in 2021, but the sector nonetheless was still growing. “Shanghai’s epidemic will reinforce the use of online grocery shopping for certain groups, such as the elderly who didn’t use the platforms before,” Gong told TechNode.

But it’s a different case for the community group-buy vertical. “Most of the group leaders who initiated group-buy are motivated to help each other during difficult times. Most of the parties engaged in the group-buys now, either group heads, volunteers, vegetable suppliers, or catering services providers, are not profit-driven. After the pandemic, it will be difficult to keep them motivated without incentives,” she said.

Long-term drivers: VC, tech giants

“The inflow of venture capital and internet giants plays a bigger role than real consumer demands in driving the rise and fall of the community group-buying industry,” said Zhang Yi, consulting CEO and chief analyst at iiMedia Research, echoing Gong’s opinion. 

Shanghai’s Covid outbreak highlighted the importance of last-mile delivery capabilities. Zhang said he’s bullish on companies with mature inter-city delivery forces like Meituan and JD, as well as Freshippo, all of which have strong offline presences.

“At the end of the day, the industry threshold and winning factor for a platform is the ability to ship products to customers in an efficient and timely manner,” said Zhang.

After China’s ride-hailing giant Didi was put under a cybersecurity review by the Chinese authorities last July, the country’s internet sector quickly entered a period of painful adjustments. Companies began closing unprofitable units and cutting staff wherever they could. Layoffs have since become so widespread that some Chinese tech majors have been attempting to soften the blow by telling fired employees that they have “graduated,” but it has become increasingly difficult to put a positive spin on such moves, as China’s consumer-facing tech companies go through a significant upheaval. 

Since July 2021, major Chinese tech companies have laid off at least 72,779 employees, TechNode research has found. After compiling news reports, company statements, and other sources from the past nine months, TechNode found 27 instances where major Chinese tech companies were reported to be making significant layoffs, with at least 10 such instances affecting more than 30% of employees at their respective companies. Some firms dismissed entire departments almost overnight.

After combing through the statistics, it is clear that layoffs have become a regular occurrence at Chinese tech companies. In the past nine months, there has been an average of two rounds of layoffs per month. Moreover, in the same period, ByteDance has had five separate rounds of staff reductions alone, making it the top cutter among the major tech companies in the country.

China’s “great layoff” first hit the edtech sector, prompted by a surprise national regulation barring all private curriculum tutoring, which took effect in July. It then hit less profitable units in the e-commerce sector, and most recently, it spread to Meituan, Alibaba, and Tencent, powerful leaders of their own sectors that had previously proven largely immune to the effects of any regulatory changes or downturns. 

Education, e-commerce, and the content and entertainment industry are the three sectors to bear the main brunt of this wave of layoffs. But just how far-reaching have the cuts been?

Cloud services, social platforms, and more

In March, Tencent, a major cloud service provider in China, started a 20% layoff of its team in the sector, affecting an estimated 12,000 employees. ​​The firm’s Cloud & Smart Industries Business and Platform and Content Group took the biggest hit.

Twitter-like microblogging service Weibo, one of the biggest social platforms in China, laid off at least 200 employees and introduced a stricter performance review standard in February 2022. Weibo has declined to describe the moves as a layoff, saying they were “structural adjustments.”

ByteDance also cut numbers at its customer service unit in October 2021, removing somewhere between 30% and 70% of the team due to what it termed “business adjustments.” 

Didi, which is still going through a national cybersecurity review that launched nine months ago and is looking to delist from the US stock market, reportedly cut 20% of its employees in February. 

Content and entertainment

The content and entertainment industry is another area where players large and small have been handing their employees grim news. Since last July, four major companies in the sector have undergone six rounds of dismissals and restructuring. 

ByteDance laid off at least 179 employees in two rounds last year, one of which was mainly focused on its gaming development business, Ohayoo. The company said that recently-hired college graduates would be reassigned to other vacancies as part of the round. The TikTok parent company followed this with another round of layoffs on October 20, aimed primarily at its commercialization and gaming businesses.

TikTok’s major rival in China, Kuaishou, started to lay off staff at the end of 2021, first in its commercialization team and then across multiple sectors. The company reportedly removed somewhere between 10% and 30% of its employees.

iQiyi, a Netflix-like streaming platform backed by Baidu, was reported to have cut between 20% and 40% of employees in December 2021. The company promised to compensate these unlucky employees, offering them bonuses based on how long they had worked at the firm.

While it’s undoubtedly been impacted by the overall economic downturn, the content and entertainment sector has also been hit by regulatory scrutiny, with crackdowns targeting celebrity culture and related idol content as well as the gaming sector. Pop Idol-like shows on platforms such as iQiyi have been banned and China put a pause on issuing new gaming licenses last year, essentially stopping companies from releasing new games. In addition, China has introduced strict controls targeting teenage players, limiting their playing time and payment for games. In response, Chinese gaming companies have shut down numerous development projects and turned to overseas markets, with their China workforces naturally being affected. 

E-commerce

E-commerce, a longtime booming sector in China, has also seen contractions. From July 2021 to March of this year, at least 11 major tech companies in the industry have downsized their workforces, according to TechNode statistics. 

Most recently, Meituan began on April 8 with an up to 20% cut across its business lines, including its core food delivery and hotel booking businesses.

Chinese e-commerce giant Alibaba has been through two rounds of layoffs in the first quarter of 2022 alone. The first round was in January this year, when it cut headcounts at its food delivery platform Ele.me and local shop review business Koubei. Two months later, Alibaba’s layoff expanded to the entire local service sector, with 30% of its employees losing their jobs.

Tencent also announced that it was making 30% of the staff at its e-commerce platform Mogujie redundant in late 2021, blaming the unit’s poor market performance. 

Community group buy, a subsector that caught on during the height of the first wave of the coronavirus pandemic in 2020, has seen deep cuts as part of the ongoing layoffs. The cash-burning sector quickly cooled down after the State Administration for Market Regulation (SAMR) demanded companies stop price dumping and other unfair competition practices in December 2020.  

Smaller players in this subsector have been hit hard, with one example being Tongcheng Life, which filed for bankruptcy last July. Those backed by bigger companies have also been forced to make adjustments to remain competitive. Didi’s Chengxin Youxuan cut about a third of its staff, while Alibaba-backed Nice Tuan stopped operating in several cities. 

Fast forward to late March, and JD was reportedly planning company-wide cuts of between 10% and 30%. Its community group buy unit Jingxi is thought to see the deepest cuts.

Other tech companies offering local services, such as apartment rental platform Ke.com and farm-to-table grocery startup Meicai, have followed suit. Ke.com cut its entire development team in October 2021, while Meicai laid off nearly half of its workforce around September 2021.

Dian, a Chinese startup offering rental charge packages for phones, was reported to have laid off 40% of its employees on March 1. According to Chinese financial media Lanjing, the company dismissed at least 2,000 employees. However, the company denied the news, saying it was merely making “adjustments in employee structure.” 

In addition, popular milk tea brand HeyTea, which makes heavy use of e-commerce and online promotions to support its business, was reported to have cut its workforce by 30% in February this year.

Education

After China’s new regulation on education agencies took effect in July 2021, there were at least five rounds of layoffs in tech companies focusing on education. More than 5,400 people lost their jobs.

Companies in the sector saw their stock prices crash after July 24. Within a day, Gaotu fell by 54%, New Oriental by 63%, and TAL Education saw more than 70% wiped off its share price.

Gaotu was reported to have laid off more than 10,000 employees in early August 2021. Another education giant New Oriental reportedly dismissed over 40,000 employees in mid-September. It wasn’t just the leading names in the industry who were hit, however,  Acadsoc, a Chinese company offering courses by foreign teachers, laid off 90% of its workforce on July 29, 2021.

Chinese tech unicorn ByteDance was also forced to make cuts. The company went through a series of downsizings in its education sector, with a first round in early August followed by a second round in December, shedding more than 1,000 employees. 

Looking ahead

On April 8, China’s internet regulator, the Cyberspace Administration of China (CAC), confirmed in a statement that 12 major Chinese tech companies (Tencent, Alibaba, Ant Group, ByteDance, Meituan, Pinduoduo, Kuaishou, Baidu, JD, NetEase, Weibo, and Bilibili) have laid off 216,800 staff from last July to March. However, CAC said “the number of employees in internet companies has remained stable,” disputing the layoff trend, adding that these companies have also hired about 295,900 new employees during the period. 

As painful as these adjustments have been to date, it seems unlikely that Chinese tech majors are in the clear just yet. Regulatory scrutiny will continue (perhaps in a more predictable fashion as the government prioritizes economic growth), rising geopolitical concerns mean that firms listed on US exchanges, in particular, will come under pressure, and China’s ongoing attempts to pursue a ‘zero Covid’ policy may mean further disruption for businesses. 

Since early March, China has extended lockdowns in the key growth city of Shanghai and introduced new control measures across the country to adhere to its zero Covid policy amid a resurgence in the number of coronavirus cases. As China’s economy takes a hit, the country’s tech sector is likely to come under more pressure. China’s State Council executive meeting on April 6 also acknowledged the challenge ahead, admitting that the country’s economy faces “complexity and uncertainties” that have exceeded expectations, and that “the recent Covid-19 outbreak in China has increased difficulties for market entities, and increased new downward pressure on the economy.”

There are some glimmers of hope, however. Although Didi’s investigation put a pause on Chinese tech companies seeking overseas listings, there appear to be moves to help Chinese businesses raise money more easily on foreign stock markets. Chinese Vice Premier Liu He said in a mid-March meeting that “China continues to support companies seeking to go public overseas,” offering the first major positive signal on the issue in nine months. Moreover, China’s securities regulator has proposed changes to long-standing rules in an attempt to avoid US-listed Chinese companies being delisted by American regulators.  

Nevertheless, the big picture remains unpredictable for China’s tech powerhouses. After years of unbridled growth, it’s clear that the industry has been through a turbulent period of late. Whether the widespread “adjustments” made across multiple sectors will be enough to stave off further disruption remains to be seen.

Meituan is in the midst of job cuts that will affect nearly every business unit at the food delivery and life services giant, Chinese local media Caixin reported on April 9. Meanwhile, the company is hiring simultaneously for new positions created by “business adjustment,” the story said.

Why it matters: Meituan becomes the latest Chinese tech major to begin large-scale layoffs. Facing the twin headwinds of a cooling economy and regulatory pressures, Chinese tech giants are replacing higher-income veteran employees with cheaper and less-experienced new hands to lower operation costs.

Details: Meituan’s layoff will affect all sectors, including the company’s core food delivery and hotel booking businesses, the report says. Grocery delivery services Meituan Select and Meituan Maicai and enterprise-facing food distribution arm Kuailv face the deepest cuts of up to 20%, Caixin reported, citing unnamed sources with knowledge of the matter.

• Meituan’s current round of layoffs started on April 8. The company aimed to do it in “low-profile and quick,” Meituan’s employee told the Chinese media outlet. Laid-off workers’ lost access to the company’s internal communication tool within hours of their termination, the report cited an unnamed employee. The layoff is expected to last until the end of this month.
• Meanwhile, the company has posted nearly 700 job openings since April 8, mainly for positions in Meituan Select, Meituan Maicai, Instashopping, and its autonomous vehicle delivery department. Since March, the company has posted more than 2,000 positions, equal to the total number of new positions opened at the firm in the past three years.
• The Cyberspace Administration of China (CAC) recently talked to 12  major tech names, including Tencent, Alibaba, Meituan, Pinduoduo, and JD, about workforce levels in response to recent layoff news. Between July 2021 and mid-March this year, 216,800 workers left the 12 companies, while 295,900 new staff joined, representing a net increase of 79,100, the regulator said. Tech majors told the regulator that their staffing is “generally stable” considering the relatively high employee turnover in the tech sector. 
• Meituan has recorded a net increase of 17,000 employees since July last year and has pledged to recruit more fresh graduates this year, according to the CAC’s statement.

Context: Amid increasing tech layoffs, Chinese internet majors created a euphemism for firing workers. Companies such as JD and Bilibili now congratulate employees on losing their jobs by sharing cheery notes titled “graduation notice” from human resources departments, prompting widespread complaints on Chinese social media platforms. 

• Meituan’s expenditure on staffing increased 61.4% year-on-year to RMB 34.8 billion ($5.5 billion) in 2021, representing the company’s second-highest cost after delivery fleet expenses.

Alibaba is testing Taibang, a new fashion and social shopping app similar to Xiaohongshu, as the Chinese e-commerce titan tries to consolidate its dominance in China’s e-commerce market.

Why it matters: Alibaba joined a slew of local peers such as Meituan and ByteDance in following Xiaohongshu’s zhongcao (meaning sowing grass) strategy, a business model that drives sales through reviews on social media platforms. 

• Competition in China’s e-commerce sector is reaching new heights with the entry of deep-pocketed players like Meituan and ByteDance.

READ MORE: The Big Sell | Meituan expands in e-commerce, rivaling Alibaba and JD

Details: Taibang, a wordplay on “super great attitude” in Chinese, is a fashion and social commerce platform targeting China’s Gen-Z, a more culturally confident generation that was born and raised during China’s economic boom. 

• With the slogan “created in China with attitude,” Taibang brings together a wide range of Chinese designer brands while helping customers to understand their brand stories. In addition, the app encourages users to communicate and share their fashion and life attitudes in an attempt to create a dynamic community.
• The app is available for download on Chinese app stores and is currently being tested by users on an invite-only basis.
• Alibaba also expanded investment into rural e-commerce with the launch of Fengyun and diversified its operation model by rolling out Maoxiang in February.

Context: China’s Gen-Zers, those born between 1996 and 2010, have become the new engine of China’s consumption growth. Alibaba is trying to tap into the young demographic that favors traditional culture and has a need for individual expression. 

• This is not Alibaba’s first experiment with a “sowing grass” model. The company launched a “Zhongcao” marketing campaign on its Taobao marketplace ahead of last year’s “Singles Day” shopping festival.
• ByteDance’s Xiaohongshu clone Lemon8 has reportedly reached one million downloads in Japan after two years of operations.
• Meituan launched its Xiaohongshu-like pilot shopping review feature Guangguang, initially tested as Zhenxiang, in March.

TikTok’s Chinese rival Kuaishou posted better-than-expected financials for the fourth quarter of last year, but the company’s shares dropped more than 6% as regulators signaled a tightened scrutiny of livestreaming e-commerce.

Why it matters: Kuaishou’s share drop reflects market concerns over further potential regulatory measures aimed at the livestreaming industry. The Chinese government has already stopped some of the top livestreaming celebrities, such as Viya and Cherie, from livestreaming and removed their public social media profiles due to their tax evasion behaviors.

READ MORE: The Big Sell | Tamed livestreamers and Tencent stake cuts 

Details: Kuaishou’s revenue increased by 35.0% in a year to RMB 24.4 billion ($3.8 billion) in the fourth quarter of 2021, exceeding the high end of forecasts ($3.76 billion) compiled by Yahoo Finance. The company’s total revenues for 2021 grew by 37.9% year on year to RMB 81.1 billion.

• However, the company’s shares dropped 6.24% today on the Hong Kong stock exchange despite opening high this morning after its Tuesday earnings report. A commentary posted by China’s state-backed China Taxation News may have triggered a change in market sentiment, according to local media. The state tax media called for stricter taxation policies for livestreamers.
• Analysts remain bullish on the long-term prospects of the company. Thomas Chong, analyst of investment bank Jefferies, said he expects “market share gains to continue in online marketing and e-commerce GMV with solid user growth trends and rising engagement” in the first quarter of 2022. 
• The company’s annual report also revealed a major change in its revenue structure. Online marketing services overtook livestreaming to become the firm’s largest revenue source in 2021. Kuaishou’s online marketing services recorded RMB 42.7 billion of revenue last year, a 95.2% yearly increase. That’s 52.6% of the company’s total revenue, up from 37.2% a year earlier. Meanwhile, livestreaming revenue decreased by 6.7% in a year to RMB 31 billion in 2021. Its share of the company’s total revenue dropped to 38.2% in 2021 from 56.5% in 2020.
• E-commerce is another revenue driver for the company. Revenue for the company’s other services, mainly e-commerce, doubled to RMB7.4 billion in 2021. The company attributes the growth to “optimizing supply, content, services, technology and user experience.”
• The company’s globalization initiative, a move to compete with ByteDance on the international market, started to show “positive effects” in the fourth quarter after boosting operational efficiency and implementing more disciplined budget plans. The company said it saw increased daily active users, user time spent, and retention rates in the overseas market without further details.
• Kuaishou’s average monthly active users hit 578.0 million in the fourth quarter of 2021, growing 21.5% in a year.

Context: After a high-profile IPO in March 2021, Kuaishou has been fighting an uphill battle amid fierce domestic competition from TikTok sister app Douyin. The Beijing-based company recently underwent massive layoffs alongside other Chinese tech majors downsizing in the economic downturn. 

• Kuaishou made its overseas business a priority in March by creating a new department for international commercialization.

Additional contributions by Ward Zhou

From food delivery to travel booking, Meituan earned itself the title of the “Amazon of services” in China by providing a wide range of services that touch nearly every aspect of Chinese people’s lives. Now, the giant service app is expanding to Amazon-like territory, selling physical goods, a sector that will put it in competition with local retail giants like Alibaba, JD, and Pinduoduo.

Operated under a platform model, Meituan already has a footing in physical goods e-commerce: It’s among the most popular choices for on-demand or next-day delivery of fresh produce and groceries. Yet that is a small fraction of China’s trillion-dollar online retail market. Starting by selling food and beverages, the company now aims to become a comprehensive e-commerce platform, selling not only daily services (food deliveries) and groceries, but also tangible goods like consumer electronics, cosmetics, and clothing.

Alibaba, JD, and Pinduoduo, the three largest e-commerce platforms in China, still dominate China’s online retail market. But the space is no longer a three-horse race after the entry of a slew of rivals such as short-video apps Douyin and Kuaishou. Meituan wants to take a bite of the physical goods e-commerce pie too. 

Meituan, a relative latecomer, has quite ambitious plans, based on some aggressive moves over the past month. In early March, the company rolled out direct sales services for physical goods. Meituan’s pilot shopping review feature, initially tested as Zhenxiang, was rebranded as Guangguang and formally launched this month with additional social and entertainment elements. On top of that, the everything app also dipped its toe into the hot cross-border shopping sector by integrating a global retailing section into the e-commerce channel of its main app. 

Taking a leaf out of rivals’ playbooks

Meituan’s earliest foray into e-commerce dates back to 2013, but it closed that business three years later to focus on food delivery. The company revived efforts in late 2020 by setting up a new marketplace, Tuanhaohuo, and then moved on to update the platform to a full-fledged business unit and rename it Meituan E-commerce (our translation) in 2021.

Facing a sophisticated market, Meituan is taking a leaf out of the playbooks of rivals like Alibaba, JD, and Pinduoduo by adopting market-proven models and features. While discussions on the ethics of copying business models and features continue, it’s still common for Chinese internet firms to “borrow” ideas from each other. 

Meituan is known for beating rivals with better executions. After all, Wang Xing, Meituan’s CEO and the master of “copy to China,” started Meituan in 2011 as a clone of the then high-flying Groupon and beat more than 100 other Groupon copycats, becoming the sector’s leader. 

Meituan vs JD: In mid-March, Meituan rolled out a new e-commerce service under the direct sales model to sell products directly to customers in a model similar to JD.com. Through a Beijing-based subsidiary, Meituan launched many “self-operated stores” on its e-commerce platform, selling beverages and snacks for starters, such as the Chinese energy brand Eastroc Beverage, rice and meat seller CR NG Fung, and snack brand Xiaowanxiong. Under the model, Meituan functions as the main operating body for controlling product quality, sourcing, and delivery. Although Meituan’s popular Instashopping service offers on-demand service for non-food deliveries, it is operated through cooperation with third-party offline merchants. Meituan’s direct sales model previously only applied to its grocery group-buy unit Meituan Maicai. Meituan followed Alibaba to become the second Chinese tech major to embrace the direct sales model for physical product e-commerce this year.

Meituan vs Alibaba: Meituan renamed and relaunched its shopping review feature Zhenxiang as Guangguang (“shopping around” in English) to tap into the content-driven e-commerce trend. It’s no coincidence that the new name is the same as Taobao’s Guangguang, a content channel where merchants, influencers, and consumers publish short blog posts to recommend products. Meituan intentionally made its new feature a namesake of Taobao’s Guangguang in the hopes of picking up some of the clouts of its rival, local media reported. Taobao’s Guangguang now claims more than 200 million monthly active users after launching in 2020. 

All e-commerce giants are trying to emulate the Zhongcao model, a marketing strategy first popularized by Instagram-like Xiaohongshu. The term zhongcao (“planting grass”) refers to the idea that favorable and comprehensive reviews of a product can sow the mental seeds that nudge consumers to buy it. 

Meituan intends to increase traffic and improve conversion and repurchase rates with the new review feature, said Esme Pau, senior director at Tonghai Securities. 

Cross-border e-commerce: Meituan this month unveiled a global shopping channel to tap cross-border commerce, a popular vertical that gained momentum during the coronavirus pandemic. The channel sells items sourced from Australia, Japan, the US, and other countries to Chinese shoppers. The most popular categories are skincare products, baby products, apparel, and vitamins. The state considers such platforms part of its efforts to boost exports and imports. 

Meituan is a serious e-commerce contender

E-commerce is too big a pie for any tech company to ignore in China. Meituan, with its vision as a platform company, won’t stop with just a small fraction of the market.

Meituan’s accelerated e-commerce drive aligns with the strategic shift announced last October, when the company upgraded its strategy from “food plus platform” to “retail plus technology” searching for new growth points. 

Meituan CEO Wang Xing sees the direction of e-commerce moving from an “everything store” to “everything now.” On an earnings call for the Hong Kong-listed company’s third-quarter performance of 2021, Wang said, “retail will be our focus and remain the main area where we will do our fundamental capabilities in the future. So please understand ‘retail’ in a broader sense as to sell goods or services to end customers.” 

Analysts told TechNode that they are quite bullish about Meituan’s e-commerce prospects. The company has the right toolkit to push into retail e-commerce, including its existing on-demand delivery network, platform capabilities, user base, and merchant relationships, according to Michael Norris, research and strategy manager at marketing and sales firm AgencyChina. “Going forward, one of the keys will be to build user habits to shop from Meituan in more contexts,” he said.

It’s not a decision propelled by recent market developments. Meituan’s push into wider e-commerce through Instashopping predates China’s regulatory pressure on things like mandatory lowered fees for core food delivery businesses, Norris added.

Zhuang Shuai, founder of Beijing-based consulting firm Bailian, predicts Meituan’s e-commerce business could achieve an annual gross merchandise volume of around RMB 1 trillion ($160 billion) soon. Norris estimated that the goal would be attainable within the next three years. The estimated volume is around the same size as the e-commerce volume from ByteDance’s Douyin.

Zhuang notes that the company is also leveraging its e-commerce business to attract more delivery orders to best use its logistics capacity. Food delivery alone can’t satisfy Meituan’s delivery capacity because of the low-traffic hours between meals. 

During a March 25 earnings call, Meituan managers stressed that they would prioritize allocating resources to the e-commerce business. “The rationale for expanding retail goods e-commerce was to bring value to retailers and customers while increasing job opportunities for [Meituan’s] delivery couriers,” said Pau.

Bad timing for e-commerce?

Meituan is entering a crowded market where incumbents are reeling from slowing growth. In 2021, Alibaba and Pinduoduo reported the slowest revenue growth since their respective IPOs in 2014 and 2018. JD also posted its weakest revenue growth in six quarters. The sluggish revenue growth for the major players comes against a dip across the overall market. Data from China’s National Bureau of Statistics shows that online spending on physical goods, including food, clothing, and cosmetics grew by just 12% year-on-year in 2021. The slowest pace since recording such data started in 2015.

“We believe the timing is good,” said Tonghai analyst Pau. Meituan, like all other Chinese internet players, will need to diversify its revenue stream to be sustainable long-term, she said, referring to tightened regulatory pressures on its core businesses in food delivery, in-store coupons, hotels, and dining. 

Meituan is thus fighting an uphill battle but is nonetheless making an important strategic move, according to Zhuang, the Bailian founder. “The food delivery market has reached its ceiling, but e-commerce is a much larger market with no foreseeable ceiling,” he said. Despite the slowdown, e-commerce is still growing and companies providing good products and services to customers will always stand out from the crowd, he believes. 

Meituan’s advantage in e-commerce, or any other new endeavor, lies in its ability to aggregate all kinds of services and products into a one-stop super app ecosystem, Zhuang said. The company still relies heavily on its more popular food delivery and travel services to attract users. E-commerce is only a supplement function on the main app, for now.

Chinese online retailer JD is expanding its layoffs, cutting people in nearly every business unit, including its core retail businesses, local media outlet Jiemian reported on March 27.

Why it matters: JD’s layoffs will be worse than the market initially expected. China’s months-long tech layoff, which started late last year, shows no sign of ending. Big-name behemoths like Alibaba and Tencent began broader layoffs earlier this month.

READ MORE: INSIGHTS | Chinese tech giants are still slashing headcounts

Details: In addition to laying off people in its community group-buy unit Jingxi, JD is expanding the recently-launched layoffs to its core businesses, including JD Retail, JD Technology, JD Logistics, and JD’s international business department, Jiemian reported, citing several employees at the company.

• JD plans to cut between 10% to 30% of the jobs, with cut rates varying by the departments, according to a widely-circulated internal spreadsheet revealed by local media. 
• For example, JD Retail will face a 10% to 30% layoff in technology, business development, and platform operation positions, while the firm’s international business unit will be cut by 10% to 15%. 
• The company’s community group buy service Jingxi remains the worst-hit unit. Some of the unit’s regional teams will let go of the entire team, such as the teams in Guangdong, Jiangxi, and Sichuan provinces.
• The Jiemian report said that there are few opportunities for internal transfers since the layoff affects the whole company.
• The company declined to comment on the layoff news when contacted this Monday.

Context: On March 11, JD posted a RMB 5.2 billion ($0.8 billion) net loss for the fourth quarter of last year and reported its weakest revenue growth in six quarters.

• Slowed economic growth, fierce competition, and trade tensions are weighing down the revenue growth of China’s e-commerce giants. Alibaba and Pinduoduo recorded their slowest quarterly revenue growth in the fourth quarter of 2021 since their respective IPOs in 2014 and 2018.
• In December, Tencent weakened its ties to JD by distributing around $16.4 billion worth of shares in the online retailer to its shareholders as interim dividends. Both companies said their partnerships won’t be affected, although Tencent’s shareholding in JD will be reduced from 17% to 2.3%.

JD becomes the latest Chinese tech majors to begin wide-scale layoffs. Jingxi, the e-commerce giant’s bargain commerce and community group buy business unit, is seeing a cut of 10% to 15%, Chinese media outlet 36Kr reported Tuesday, citing unnamed sources familiar with the matter.

Why it matters: JD’s layoff reflects the ongoing economic downturn in China and a waning interest in the country’s community group buy sector. 

• Jingxi was JD’s effort to get into the bargain commerce market that has traditionally been dominated by Pinduoduo. After the success of Pinduoduo, major e-commerce players  Alibaba, Meituan and JD have launched their own competing products. 
• Launched on Jan. 1, 2021, JD’s Jingxi Pinpin failed to compete with other rivals. In 4, the platform had just 8 million daily orders, only one-fifth of Pinduoduo’s Duoduo Maicai. 

Details: JD’s layoff will affect at least 400 to 600 staff in the Jingxin unit, according to sources quoted by 36Kr. Jingxi employs about 4,000 staff.

• Jingxi consists four main teams: Jingxi focuses on bargain deals, Jingxi Pinpin on community group buy, Jingxida on logistics, and Xintonglu on enterprise businesses.  The reported layoff is mainly focused on Jingxi Pinpin. JD’s other core business units, like customer electronics and retail e-commerce, are largely safe from the cuts.
• JD’s 2021 financial reports noted that losses from new businesses, including Jingxi, expanded by 160% quarterly to RMB 3.2 million ($505,921) in Q4 of 2021.

Context: JD joins a growing list of Chinese tech giants cutting staff to stay competitive in an economic slowdown. Since late last year, Alibaba, Baidu, ByteDance, Kuaishou, and Tencent have all begun to lay off people. 

• Alibaba has started to make major cuts in its local food and grocery delivery business this year. 
• Last week, Tencent was reported to be cutting 20% of its workforce. 
• Baidu has also begun a series of layoffs, with the first round beginning in last December, affecting employees in the company’s gaming, streaming, education, and mobile environment sectors. In January, Baidu further downsized 10-15%, Chinese media reported.

Chinese e-commerce titan Alibaba is planning for a major layoff in which key business focuses like food and grocery delivery will bear the brunt of the cuts, Chinese media outlet 36Kr reported on Thursday night.

Why it matters: Alibaba’s layoff comes after the company recorded its slowest revenue growth in 2021 since it went public on the New York exchange in 2014. The company’s financials partly reflect China’s weakened local consumption and intensified regulatory crackdown. 

• Alibaba and Tencent, two of the most powerful tech giants in China, are the latest to join China’s tech job cuts which has hit nearly every major firm.
• Like its peers, Alibaba’s primary target for the layoff is to scale back loss-making teams and downsize areas with high regulatory risks, such as online grocery and food delivery services.

Details: Alibaba is mainly shedding jobs in its location-based customer business unit, which consists of food delivery services such as Ele.me and coupon and deal service Koubei, 36Kr reported, citing unnamed sources with knowledge of the matter. Alibaba is planning layoffs that could cut more than 15% of its workforce, about 39,000 staff, Reuters reported on Wednesday.

• Core business teams, including e-commerce teams in Taobao and related businesses, Alibaba Cloud, and Cainiao Logistics, will not be affected by the cuts.
• Ele.me, which is facing fierce competition from Meituan, had started laying off people in January this year, the report said. The unit aims to cut between 15% to 20% of its workforce, mainly targeting positions in offline business development, regional marketing, and operation. 
• Downsizing efforts are also happening in other local consumer services. For example, since last year, Koubei has downsized its operation to focus on first-and second-tier cities. Mapping service Amap and online travel unit Fliggy also began small-scale layoffs this year, according to the report.
• Alibaba’s local customer service recorded an adjusted loss of RMB 5 billion ($783 million) on RMB 12 billion revenue in the quarter ended December 2021.
• Freshippo, an online and offline grocery business that demands heavy operation, recorded a layoff of around 20% in market operation positions and may consider further salary cuts; the report cited several Freshippo employees. 
• In addition, Alibaba’s grocery group-buy business Taocaicai is also shedding around 20% of headcount as the sector cools off.

Context: Taking notice of the gloomy economic outlook, China’s State Council sent a reassuring signal to the broader market in a Wednesday meeting, promising support for the platform economy, introducing market-friendly policies, and rolling out “predictable” regulations.

• The profitability prospects of food delivery businesses dimmed as Beijing called for major platforms like Meituan and Ele.me to reduce fees for small businesses suffering during the ongoing coronavirus outbreaks.

Livestreaming fraud, forced app downloads, intrusive ads, and privacy violations were among the malicious online practices exposed during this year’s “3.15 Gala” national TV broadcast.

Unlike previous March 15 shows, yesterday’s Consumers Rights Day celebration didn’t single out Apple, Alibaba, Baidu, or any other high-profile companies or brands for reprimands. The offenders this year were little-known small fry. 

This gala’s subdued tone reflects Beijing’s desire to stimulate consumer spending and economic growth, even as the country struggles with a rising wave of COVID-19 outbreaks and geopolitical pressures. 

China’s 2021 GDP growth took a notable hit in the latter half of the year. Averaging out at 8.1%, growth tumbled from 18% in the first quarter to 4% in the fourth quarter. In between, regulators began a broad crackdown that eliminated or crippled internet industries, including crypto mining, private education, and online games.   

READ MORE: INSIGHTS | Making sense of China’s big tech crackdown

Undercover in livestreaming e-commerce 

In its 31st annual outing, the two-hour program spotlighted some obscure companies engaging in a dark side of e-commerce livestreaming, a sector that’s under intensified scrutiny by the state.

One segment showed how undercover CCTV reporters discovered a Guangdong livestreamer’s false claims of owning jade and emerald factories with the aim of grossly inflating prices and selling counterfeit jewelry and Buddha images. The Guangdong agency, Yongdexiang, was shown selling jade Buddha images for RMB 198 ($31) while telling customers the items had been purchased for double that amount. In fact, Yongdexiang had bought them for RMB 88 each. Livestreamers’ selling price could sometimes be as high as five to ten times their original purchase price.

A livestreaming agency in Yunnan province called Shilipai set up a dramatic price bargaining scene between livestreamers and fake jade ornament manufacturers. The purpose was to convince viewers they were being offered the best deal. Other scenes featured artificial backdrops in the livestream that resembled a Myanmar gemstone showroom. Customers thought they were buying jade directly from the Southeast Asian country famed for its high-quality jade. In fact, the livestreams were being staged from studios in office buildings in Kunming.

Smartwatch and smartphone snoops

The gala also showed companies grossly misusing people’s personal information. A Zhengzhou-based company called Lvqian was exposed for building a business around stealing users’ phone numbers and selling them to call centers. The company was able to steal the phone numbers by getting a device’s media access control address, a common network address also known as the MAC number. MAC numbers’ unique identifications are assigned to devices for internet access. 

Some smartwatches made for kids were also revealed to have little privacy protection because they use outdated Android operating systems (OS). As a result, they enable hackers to collect detailed user information without permission. Without timely security patches, an outdated OS can even enable eavesdroppers to surveil users. Devices with an outdated Android OS are common in China since Google services were blocked in China in 2010.  

Malware and Wi-Fi trickery

A few software companies that trick users into downloading malicious software to mobile and desktop devices were also exposed in the TV consumers gala. Malware that displays low-quality ads in forced pop-ups may be a mere annoyance, but some types can steal users’ privacy information or trick users into downloading even more harmful programs. This year’s “3.15 Gala” finally shone light on abuses consumers have been complaining about for the better part of a decade. 

An app called “Free Wi-Fi Unlocker” tricks users looking for ways to access password-protected Wi-Fi systems. Once they download the app, it forcibly installs ads on their devices. Baizhu, a small software company founded in 2012, was exposed for building the so-called speed downloader options on various sites and app stores, tricking people into downloading malicious apps and intrusive ads. 

After the TV exposé, Free Wi-Fi Unlocker is now inaccessible across all app stores. Baizhu emptied its social accounts after the gala and local authorities are reportedly looking into the company. 

Following Consumers Day, China’s Ministry of Industry and Information Technology said in a March 16 statement that the agency will finally start thorough investigations of companies involved in leaking personal information or forcing malicious software onto users’ devices, citing the Personal Information Protection Law, Cybersecurity Law, Telecommunication Regulations, among other regulations. 

JD Logistics, a Hong Kong-listed logistics arm of the e-commerce giant JD, has entered an agreement to buy a 67% stake in courier rival Deppon Logistics Co., Ltd. for RMB 9 billion ($1.4 billion).

Why it matters: After a fierce price war, China’s express and logistics industry is undergoing a market consolidation whereby small players have begun merging with giant competitors. 

• The deal is the latest move by JD in building its logistics infrastructure network, a foundational service for China’s e-commerce market, through external acquisition and investment. The e-commerce titan has backed many other logistics and delivery companies such as China Logistics Property Holdings Co., Kuayue Express, and Dada Nexus.
• Through investments, JD is tapping into different verticals in the logistic and supply chain businesses. Deppon provides “differentiated services” and “the overlap is not much” to JD Logistics’ core business, according to Thomas Chong, analyst at investment bank Jefferies. Deppon focuses on large items, freight transportation, and manufacturing customers. JD Logistic’s other subsidiaries, Kuayue focuses on air freight and enterprise clients, while Dada Nexus focuses on-demand inter-city grocery and parcel delivery to individual consumers.

READ MORE: The Big Sell | Is China’s courier price war reaching a tipping point?

Details: JD Logistics’ investment in Deppon will be achieved through acquiring a 99.99% equity in Ningbo Meishan Baoshui Area Deppon Investment Holding Company Limited, an investment vehicle that holds a 66.5% stake in Shanghai-listed Deppon Logistics, JD Logistics announced in a March 13 filing to the Hong Kong stock exchange.

• Upon the completion of the deal, Deppon’s financial results will be consolidated into JD Logistics’ as a subsidiary business, according to the statement.
• Deppon’s brand will be maintained for independent operation, thus providing a favorable career path for the team, local media Lieyun reported, citing an internal speech made by Yu Rui, CEO of JD Logistics. The comment resolves previous rumors about JD’s plan to merge Deppon’s business and dissolve its team.
• Since Deppon is listed on the Shanghai stock exchange, JD Logistics will make a mandatory general offer for all Deppon shares at a price of RMB 13 per share. The transactions are subject to regulatory approvals and other closing conditions.

Context: JD Logistics’s revenue increased 43% year-on-year to RMB 105 billion in the fourth quarter of last year, according to the company’s 2021 financial results, its first annual earnings released to the public since it went public last May.

• Though still loss-making, JD Logistics’ revenue from non-JD customers exceeded half of the total revenue for the first time in 2021, hitting 56.5%. The logistic company has long hoped to  rely less on business from its parent company.
• Deppon is a logistics company known for its large parcel deliveries. It provides a wide range of solutions, including small and large parcels deliveries, full truck load transportation, and warehousing management in China.

Chinese food delivery giant Meituan has reduced commission fees for merchants to help alleviate the operational pressures they face following the pandemic prevention measures enacted in the past two years.

Why it matters: Meituan, which counts on food delivery as its main source of revenue, made the move less than two weeks after Chinese regulators suggested in a guideline that food delivery platforms cut fees for restaurants suffering from the coronavirus outbreak.

• Meituan’s shares plunged 15% on Feb. 18 when the new guideline was issued. But a commentary from the state media Economic Daily said the market was “overreacting” (in Chinese). The guideline aimed to drive consumption and recovery after Covid rather than crack down on platforms, the commentary said. Investment bank Jefferies maintained its “buy” rating for Meituan after the release of the guidance.
• Meituan’s commission cut may well trigger similar moves from rivals such as Alibaba-backed platform Ele.me.

Details: Meituan rolled out six supportive measures both to lower the costs and increase revenue for merchants operating on its platform, according to a Tuesday statement.

• The company will cut half of its technological commissions, capping them at RMB 1 ($0.16) per order, for restaurant owners from pandemic-hit areas who suffer a daily sales drop of more than 30%. The policy will be effective as soon as a region is placed in full or partial lockdown and will end once the lockdowns are lifted.
• More than one million merchants facing operation difficulties will be eligible for a commission rate of less than 5% by the end of this year, lower than the average 12% commission usually charged. 
• The company added that it aimed to bring more transparency to its commission structure this year. Last May, it changed its previous flat fee policy to a flexible one that’s based on various factors such as order price and delivery distance. 
• In addition, Meituan is offering customized operational services to 100,000 merchants, helping them to improve storefront designs, develop food delivery menus, and launch marketing strategies. It will also provide free hardware, such as order printers and scanners, to merchants facing operational difficulties.

Context: Chinese food delivery platforms, such as Meituan and Ele.me, have been criticized for charging small merchants excessive rates over the past few years.

• Meituan still faces regulatory risks after receiving a $534 million antitrust fine last October.

READ MORE: There are no food delivery winners

Meituan faces a profit squeeze as Chinese regulators order platforms to cut fees to help small businesses. Chinese e-commerce giant Alibaba is exploring rival JD.com’s direct sales model, one that Alibaba’s billionaire founder and former chief executive Jack Ma predicted would become “a tragedy in the future” in 2015. China’s Craiglist, 58.com, came under public scrutiny for recommending fake jobs to a user who was later trafficked to Cambodia as a “blood slave”. Kuaishou planned to block links to Alibaba and JD.com while building its own e-commerce business. Tencent closed social group-buy mini-program Xiao’e Pinpin, while ByteDance pulled the plug on a Shein-like fashion site just three months after its launch.

Meituan faces regulatory headwinds

News: Chinese on-demand delivery platforms, led by Meituan and Ele.me, are facing regulatory headwinds for monetizing the services they provide. Fourteen Chinese authorities, including the National Development and Reform Commission, issued a new guideline that requires goods delivery platforms to cut fees for restaurants. The guideline involves supporting policies for various service industries from catering and restaurants, to retail, tourist travel, and transportation. It’s designed to lower the operation costs for merchants who have been hit by pandemic prevention measures, according to a statement announced Feb. 18. Shares of Chinese life services app Meituan fell more than 15% on the news.

Insights: Reduced service fees will impact the financial performance of local life services giants like Meituan, for which food delivery accounted for more than half of its revenue in the third quarter of 2021. Chinese food delivery platforms, such as Meituan and Alibaba-backed Ele.me, have been criticized for charging excessive commissions from small merchants over the past few years. In one of the biggest merchant push-backs at the peak of the Covid-19 outbreak in April 2020, the Guangdong Restaurant Association accused Meituan of exploiting merchants by charging excessive commission rates that “most of the restaurants can’t endure.” In China, food delivery platforms charge commissions based on merchants’ size. Some small restaurants have to pay up to 18% to 20%, higher than the 10% to 15% commission rate proposed by the All-China Federation of Industry and Commerce in 2021.

News Link: TechNode

Cat filling in a dog’s shoe

News: Alibaba launched a new e-commerce service called Maoxiang under the direct sales model within its business-to-consumer marketplace Tmall on Feb. 18. The model would give the e-commerce giant more control over product quality, sourcing, and delivery in a manner similar to rival JD.com. The platform, which will be focused on consumer electronics products in the beginning stage, is in discussions with consumer electronics brands, including smartphone maker Realme, to join the platform, local media outlet LatePost reported. An Alibaba executive told local media outlet Guancha that Maoxiang won’t replace Tmall’s branding.

Insights: China’s top two e-commerce sites, Alibaba and JD.com, started with very different business models. Alibaba counts marketing services and commissions from third-party merchants as revenue sources, while JD earns a mark-up by selling products that it holds. The question of which model is better has been a long-running talking point. Alibaba’s “platform” model can yield higher margins than JD’s asset-heavy direct retail approach, which has to cover various extra costs, from warehousing to delivery. However, JD’s direct sales model offers better services with more quality control and strong logistics.

However, the distinction in the business model between the two companies has increasingly blurred. For example, JD expanded to adopt Alibaba’s platform model as early as 2017, while Alibaba runs a grocery store chain called Freshippo, which uses the direct retail model. But this is the first time that Alibaba has added a direct retail business to its core e-commerce marketplace Tmall.

With its model highly reliant on online user traffic, Alibaba is trying out new models to stave off the challenge of short video apps like Douyin, Kuaishou, and social commerce apps like Pinduoduo and Xiaohongshu. Moreover, tapping into a model that offers better products and services aligns with China’s consumption upgrading trend.

The new initiative is a major business shift led by Turdy Dai, the newly-assigned head of Alibaba’s Chinese e-commerce business. Dai reshuffled the back-end operations of Taobao and Tmall to bring the two pillar businesses together. 

News Link: TechNode (story 1, story 2)

58.com under fire amid job scam accusations

News: Chinese web-based classified site 58.com has come under fire after a Chinese national accused the site of hosting fraudulent job advertisements, which led him to fall victim to a human trafficking gang in Cambodia. The victim, surnamed Li, found a nightclub security guard position on 58.com last May. He then traveled to Guangxi province for an interview but was smuggled into Cambodia by a criminal gang and forced to work various telemarketing fraud schemes. Since September, his captors began repeatedly extracting blood from him, putting his life in danger. Police rescued Li with the help of local organizations. 58.com said in a Feb. 17 response that it would cooperate with the police investigation, although it had “not yet established” whether the fraudulent job ad had appeared on its platform.

Insights: As China’s Craiglist counterpart, 58.com provides classified ads for a diverse range of categories, such as recruitment, real estate, and second-hand goods and cars. Once a tech major in China, the company has lost momentum over the past few years after gaining a controversial reputation for being involved in many criminal lawsuits. This current scandal brings 58.com’s business ethics to public attention again. Other Chinese tech companies have also faced criticism for providing space to fraudulent or misleading advertisements, as long as they bring in revenue. In 2017, Li Wenxing, 23, was found drowned months after being recruited online by a pyramid scheme posing as a software company via Boss Zhipin, a direct hiring site. Apart from online recruitment, misleading health and medical information online is another area that has drawn public ire, most prominently in the case of Baidu’s “Wei Zexi Incident”.

News Link: Reuters

Kuaishou to block external links to Taobao and JD

News: On Feb. 22, Chinese short video app Kuaishou announced a plan to block external links to Taobao and JD.com, beginning in March. Taobao product links will be barred from displaying within the video app, while JD links will be blocked from showing in the shopping cart during livestreaming sessions, but will still be accessible through shopping charts in short videos and on information pages. The company has attributed the forthcoming changes to “agreement adjustments” without providing further details. 

Insights: Short video apps and e-commerce platforms have historically worked closely together within the trend of content-driven e-commerce. Video apps boast traffic and content, while e-commerce sites have brands and supply chains. As short video sites, notably Kuaishou and Douyin, build up their own e-commerce businesses, they want to keep users within their own ecosystem instead of sending buyers to other platforms to make purchases. Kuaishou reportedly achieved a gross merchandise value of RMB 680 billion ($108 billion) in 2021 and plans to achieve between RMB 900 billion to RMB 970 billion GMV in 2022.

News Link: TechNode

Business scale-back of tech majors

News: Tencent will shut down its social group-buy mini-program Xiao’e Pinpin, a feature that was expected to rival Pinduoduo when it was launched in 2020. Dmonstudio, a Shein-link fashion shopping website reportedly owned by ByteDance, is set to shut down three months after its launch. The lack of user interest is the most likely reason for the closure, according to local media. Meanwhile, JD Finance, the financial arm of JD, has stopped providing specialized services for college students, while ByteDance sold the operating body of online brokerage service Dolphin Securities to ChinaLin Securities.

Insights: Chinese tech majors are downsizing amid weakening consumer spending, intensified competition, and tightening regulations. China’s six major tech firms, collectively known as BATTMD (Baidu, Alibaba, Tencent, ByteDance, Meituan, and Didi), have closed or scaled back more than 20 projects since 2021, according to a rough count by local media outlet Geek Park. Edtech, fintech, and businesses that affect the benefits of small merchants and the daily life of regular people, such as grocery delivery, are facing business adjustments due to tightened regulations.

News Link: Guancha, TechNode, SCMP

Chinese tech giant Alibaba is launching a new online platform running a direct sales model, similar to rival JD’s, Chinese local media LatePost reported on Wednesday. The new platform, called Maoxiang (our translation), will first focus on consumer electronics. 

Why it matters: Alibaba is trying out different models to boost business growth amid weakening consumer spending, intensifying competition, and tightening regulations. 

Details: Alibaba plans to rebrand its business-to-consumer (B2C) marketplace Tmall app to Maoxiang, LatePost reported, citing unnamed sources. Alibaba’s B2C retail group led the project and launched it at the end of last year.

• Maoxiang will adopt a direct retail model. The online platform can sell branded merchandise directly to consumers, having more control over sourcing, quality, storage, delivery, and after-sales.
• For starters, the platform will focus on selling consumer electronics products, big-ticket items that JD also focused on during its early days.
• Alibaba is in discussions with several consumer electronics brands, including smartphone maker Realme, to join the platform. 
• SF Express and Danniao Logistics are possible couriers for the service to ensure next-day doorstep delivery, the report added.
• Alibaba didn’t respond to TechNode’s inquiry when contacted on Thursday.

Context: Alibaba and JD, two of the largest e-commerce platforms in China, rose to prominence by adopting different business models. Alibaba operates under a “platform” model, where it derives revenues from online marketing services and commissions from third-party merchants selling on its marketplaces. Meanwhile, JD runs more like an online supermarket and earns mark-up by selling products it holds. 

• JD expanded to adopt Alibaba’s “platform” model as early as 2017 by introducing retailers, small merchants, and individuals to its business.
• In January, Alibaba’s domestic e-commerce business launched a major organizational reshuffle to connect the back-end operations of the company’s two core e-commerce marketplaces Taobao and Tmall.

Meituan is testing Zhenxiang, a shopping review feature similar to the one used by lifestyle community platform Xiaohongshu, as the Chinese food delivery and local services giant aims to boost its e-commerce business.

Why it matters: Meituan, known as the “Amazon of services” in China, is testing the feature for its physical goods e-commerce service, while fending off competition from rivals like ByteDance and Alipay in the area of local lifestyle business.

READ MORE: ByteDance is trying to take a bite of Meituan’s cake

Details: Zhenxiang, a shopping review community, is being tested among a group of users, most of whom have already used its e-commerce service Tuanhaohuo.

• The feature is now displayed in the most prominent part of Meituan’s e-commerce interface for pilot users. It was launched in December but was initially only accessible through less conspicuous entry points.
• Zhenxiang allows users to post product evaluations and tips in the form of notes, photos, and short videos for other potential buyers’ reference. Users can also rate products with a five star system, from “bad shopping experience” to “highly recommended.”
• A Meituan spokeswoman confirmed that the company is working on the pilot project, adding that it’s just one of its usual range of experiments aimed at testing new features.
• By integrating the product review feature into the app, Meituan could drive its e-commerce sales under the Zhongcao model, a marketing strategy that was first popularized by Xiaohongshu, local media Lu Lu Finance explained.
• The term Zhongcao (“planting grass”) refers to the idea that favorable and comprehensive reviews of a product can sow the seeds of an urge to buy in consumers. The actual action of purchase is referred to as Bacao (“pulling up grass”) in Chinese. 

Context: Content has emerged as the driver of Chinese e-commerce over the past three years. Chinese tech platforms like Taobao, short video apps Douyin and Kuaishou, and China’s Quora-like site Zhihu have also leveraged the Zhongcao model to boost e-commerce growth.

• Meituan has begun testing an expansion into the sale of physical goods online, entering into partnerships with consumer electronics companies, cosmetics brands, garment brands, and physical bookstores in order to diversify the physical product offerings on the platform.

China’s Singles Day, the world’s largest online shopping holiday, smashed sales records in November 2021—but one sales figure in particular stood out.

“Lipstick King” Li Jiaqi and “Livestream Queen” Viya, China’s two most famous livestreaming stars, sold a total of $3 billion (RMB 19 billion) worth of goods in their separate livestreaming sessions on Oct. 20, the first day of the 20-day shopping festival.

The two were dubbed the “winners” of Singles Day 2021, their record-setting sales reflecting the booming popularity of e-commerce livestreaming in China. The sales and marketing format rapidly embraced by consumers and brands, and are now an essential part of the country’s retail landscape.

But Li’s and Viya’s opening salvos on Singles Day also highlighted a less commendable feature of China’s livestreaming industry: It has been dominated by a small number of celebrity livestream hosts.

That is now set to change. Within two months of Singles Day 2021, the livestreaming world was flipped on its head when Viya, whose real name is Huang Wei, was fined more than $200 million for tax evasion in late December. Her livestreaming and social media channels, which had over 100 million followers, have been shut down ever since. 

The dethroning of Viya came shortly after similar penalties were handed out to singer Cherie, the third most popular livestreamer on Alibaba’s Taobao Live, as well as to Lin Shanshan, another high-profile livestreamer.

The crackdown on these star influencers has cast uncertainty over one of China’s most dynamic sectors, with some commentators describing the industry as “fragile.”

I have a different take.

Over-reliance on enormously powerful celebrity livestreamers was not a sustainable model for brands or platforms. Furthermore, recent regulatory moves will incentivize brands to work with smaller-scale presenters and build their own livestream teams. As a result, the livestream market will fragment as newcomers face lower barriers to entry and smaller-scale operations see growing demand for their services.

10% of all e-commerce sales

Over the past few years, Chinese livestreaming experienced rapid growth and achieved enormous scale. These two features are crucial starting points for analysis.

To put this growth in perspective, across all of 2017—the year after Alibaba kickstarted the livestreaming e-commerce revolution by launching Taobao Live—livestreaming in China generated roughly $3 billion in gross merchandise value (GMV).

Fast forward four years, and Li and Viya moved the equivalent GMV on Taobao Live in a single day.

Last year, annual GMV for livestreaming exceeded $300 billion, representing more than 10% of all e-commerce sales in China. Total livestreaming GMV is expected to reach over $400 billion in 2022, according to McKinsey. These figures make China the world’s largest e-commerce livestreaming market by far. The United States, by comparison, saw $11 billion in livestream sales in 2021.

The growth of livestreaming has been accompanied by the emergence of a robust industry of studios and agencies employing on-screen presenters and their support staff. By some estimates, several million people are employed by this industry.

Too much star power

However, an outsized portion of livestreaming revenue has been earned by a few star livestreamers and their teams, with many smaller operations squeezed as a result. In 2021, Li’s and Viya’s Taobao Live channels alone accounted for roughly one-fifth of all livestreaming sales across China’s e-commerce platforms.

Kuaishou’s and Douyin’s livestream ecosystems are also highly concentrated, with GMV numbers falling off dramatically after sales by the top handful of stars.

Concentration of this space has happened due to a confluence of factors from brands, consumers, and the top-tier livestreamers.

Since livestreaming stars can facilitate instant brand exposure and conversions with millions of shoppers, they have strong negotiating power to charge brands sky-high prices. They usually earn a 20% commission on all direct sales, on top of a service fee. They also have the leverage to insist that brand partners offer huge discounts to their viewers. That’s often the lowest possible price on any online or offline channel.

When these trusted star livestreamers claim that they are offering the lowest guaranteed price for a given product, that fuels traffic for their shows. This further increases their bargaining power with brands and raises the barriers to entry for smaller livestream operations who cannot demand such exorbitant discounts.

Unmasking L’Oreal 

This dynamic came into sharp focus shortly after Singles Day, when Viya and the androgynous Li publicly criticized French cosmetics giant L’Oréal. On their record-breaking first day of the shopping festival, Li and Viya both held promotions for a L’Oréal mask product, claiming to offer the lowest price of the year. Days later, consumers became angry when they discovered that the same product was available at lower price on a different livestream produced directly by L’Oréal.

In response, Li and Viya released separate statements explaining that L’Oréal had promised them the lowest price. Facing a loss of credibility with their fans, Li and Viya demanded that L’Oréal refund the price difference to consumers who purchased from their shows, since they did so under the impression of a best-price offer. Given the power of these stars, the firm ultimately obliged.

The most immediate impact of the penalties on three of China’s top livestreamers—and the pressure that other top livestreamers are likely feeling as a result—has been a weakening of their market power over brands. That has created more space for smaller-scale livestream operations.

Many brands have viewed livestreaming primarily as a tool to generate large sales volume in a short period of time. However, high-profile livestreaming engagements have become so expensive, and such steep discounts must be offered, that the entire profit margin is often eroded.

Niche seller edge

With China cracking down on the misconduct of public figures more broadly, there are risks for brands that rely too heavily on endorsements from celebrities, including star livestreamers.

At WPIC Marketing + Technologies, we have been working with our brand partners to use livestreaming in a more precise and creative way for years. One cost-effective tactic is to partner with smaller-scale livestreamers. These pitch people are often KOLs (key opinion leaders) or KOCs (key opinion consumers) in a specific category—such as baby care or nutrition—and have a dedicated following of consumers interested in that category. Additionally, repeat livestream placements inside of a particular space enable brands to build up exposure and stickiness among target consumers. A star livestreamer might help a brand reach more viewers overall, yet not be particularly effective for sales.

Another benefit of working with niche KOLs or KOCs is that they are highly familiar with products in the category. They thus can make more authoritative recommendations and cultivate trust from viewers. In contrast, star livestreamers like Li and Viya promote all sorts of products, ranging from makeup to food to a literal rocket launch service.

A second tactic is to self-produce regular livestreams that are broadcast on a brand’s flagship stores. Self-produced livestreams allow brands to directly gather information on viewers, who can then be re-targeted with other advertisements. They also offer brands more control over content. Product placements on star livestreaming shows are often only minutes long. 

300 million buyers and growing

On the other hand, if they produce the livestream themselves, brands can stream product demonstrations for hours. Moreover, search algorithms on the platforms reward flagship stores that generate livestream content, so brands that make their own livestreams are more likely to be discovered by users.

On the consumer side, perhaps some of livestreaming’s recent growth can be attributed to pandemic restrictions in early 2020, but the format has proven to have staying power. According to eMarketer, over 300 million Chinese people purchased goods from a livestream session in 2021, up 30% from the year prior. And this was in a year when most people in China were not subject to social distancing policies. 

For consumers, the benefits of livestreaming are numerous. Livestreaming sessions transform the purchase of any consumer product into a fun, interactive, and sometimes even educational experience. Perhaps most importantly, livestreaming is a highly efficient method of shopping. It empowers consumers to purchase a high-quality product at a reasonable price in a short span of time.

Regardless of audience size, livestreamers must cultivate trust among their followers to make sales, so they typically vet the quality of the products they promote. People buying from a trusted livestreamer feel confident that they are getting a great product at a competitive price.

In other words, even as the livestreamer market is shaken up, consumers will continue to enjoy the benefits of livestreaming.

Onto a sustainable path

While commentators have debated the motivations behind the crackdown on top-tier livestreamers, in my view, one clear outcome is that it sets the industry on a path of sustainable growth.

The old model, in which top-tier livestreamers wielded enormous power, was too expensive for most brands and prevented newcomers from succeeding. In the future, brands will continue to rely on livestreaming as as a sales and marketing channel, but will increasingly work with smaller-scale livestreamers and produce their own livestreaming content.

Ultimately, the livestreaming market will become more competitive and consumers will continue to enjoy the benefits. 

JD Technology, the financial technology arm of Chinese online retailer JD.com, is preparing an IPO that could raise between $1 billion and $2 billion in Hong Kong this year, IFR reported Monday.

Why it matters: JD Technology’s expected listing is one of a number of long-awaited IPOs from Chinese vertical giants, including bike rental app Hello Inc. and podcast platform Ximalaya. The latter two suspended IPO procedures last year after the Didi cybersecurity review put a halt to the overseas listings of Chinese tech giants.

• JD Technology’s possible IPO comes after the company withdrew from a planned Shanghai STAR Market IPO in April 2021 amid antitrust regulations in China’s fintech sector, which led to the halting of Ant Group’s proposed dual Hong Kong and Shanghai IPO.
• JD Technology’s Hong Kong IPO plans could set an example for other IPO candidates as authorities set up clearer regulations for Chinese companies seeking to go public outside the mainland market.

Details: The JD affiliate is discussing the listing with investment banks including Bank of America, CITIC Securities, and Haitong International, according to financial information provider Hithink Royal Flush Information.

• The company declined to comment on the news when contacted Tuesday morning.
• JD Technology’s revenue grew from RMB 9.1 billion ($1.4 billion) to RMB 18.2 billion between 2017 and 2019, according to the company’s prospectus filed with the Shanghai STAR market in 2020.

Context: In 2013, JD spun off its financial technology services to form an independent fintech unit JD Finance, which operates a series of loan businesses and provides AI and blockchain-based financial services. JD Finance was renamed JD Digits in 2018 and then changed its name again in 2021 to JD Technology, as it diversified its business line to include cloud, artificial intelligence, and IoT offerings. 

• Last year, JD sold JD Cloud and its artificial intelligence business to JD Digits for a combined valuation of $2.4 billion, before the financial unit changed its name.
• In January, the Cyberspace Administration of China required companies that control data of more than 1 million users to undergo a cybersecurity review before they seek overseas listings. It’s currently unclear whether this new requirement applies to Hong Kong listings that are not deemed to be related to issues of national security.

Youzan, one of China’s largest e-commerce service companies, is reportedly planning to lay off 1,500 people, or nearly 30% of its employees. The company is the latest Chinese tech firm to cut workers as Beijing enters the second year of tightening regulations. 

Why it matters: Youzan, which develops software helping merchants to sell products on various Chinese online platforms, has faced substantial challenges as one of its major clients, social video giant Kuaishou, is developing its own software services as it aims to rake more profit from the booming livestream retail sector.

• The contribution from marketers on Kuaishou has fallen by half from its highest level when it accounted for 20% of Youzan’s gross merchandise volume (GMV) in the first half of 2021, according to its interim financial report released in August.

Details: Earlier this month, Hong Kong-listed Youzan kicked off a wave of layoffs in departments involving research and development (R&D), Chinese media Sina Tech reported Thursday, citing people with knowledge of the matter.

• More job cuts will be conducted among various departments this year, as the people estimated that more than 1,500 employees would be forced to leave the company. Hangzhou-headquartered Youzan had 4,358 employees as of Sept. 30.
• The company recently parted ways with Chen Jinhui, a former executive at Baidu’s takeaway service who joined the company as a vice president of sales channels in mid-2017.
• Youzan did not immediately respond to TechNode’s request for comment.

Context: Multiple Chinese big tech companies, including Bytedance, Baidu, and Kuaishou, have been carrying out layoffs and lowering their growth targets amid a slowing economy and a tightened regulatory environment.

• Youzan reported a 10% year-on-year decrease in revenue to RMB 1.17 billion (around $185 million) for the first three quarters of 2021, while its losses nearly doubled from RMB 340 million in the same period of 2020.

Read more: INSIGHTS│The TechNode community reviews China tech 2021

Chinese online retailer JD and Canadian e-commerce platform Shopify have entered a strategic partnership to help global brands sell in the Chinese market and Chinese merchants looking to sell overseas.

Why it matters: Expanding beyond home markets, especially in the competitive e-commerce sector, is a daunting task even for tech majors like JD and Shopify. With lessons learned from Amazon’s withdrawal from China and JD’s own setbacks in overseas expansion, Shopify is teaming up with a local partner, saving costly tasks such as initial user acquisition, infrastructure construction, and providing insights to the local market.

• JD, which already has a solid presence in the Southeast Asian market, is advancing its global expansion. The tie-up with Shopify comes shortly after JD opened its first brick-and-mortar store in Europe last week.
• The deal will compete with other major players in China’s cross-border e-commerce sector, such as Alibaba’s Kaola.

Details: Under the partnership, JD will allow Shopify merchants to list their products on the company’s cross-border e-commerce platform JD Worldwide, giving them access to more than 550 million active buyers in China, according to a Tuesday statement from the company.

• JD will support expedited onboarding and help Shopify merchants sell their products within three to four weeks, a much shorter process than the previous 12-month time frame. The company will achieve this through technical means, including intelligent translation and smart price conversion.
• JD also opened up its end-to-end fulfillment capabilities to Shopify merchants by leveraging the company’s logistic power, including China-US cargo flights, US warehouses, more than 1,300 warehouses, and more than 200,000 couriers in China.
• Additionally, JD will support selected Chinese brands to set up their direct-to-consumer channels through Shopify, helping Chinese brands and merchants reach consumers in Western markets.
• Aaron Brown, Vice President of Shopify, refers to the partnership as “a major step” in solving cross-border commerce for merchants. “The future of commerce is commerce everywhere—and that starts by removing barriers to entry to one of the most important e-commerce markets in the world,” Brown said in the JD announcement.

Context: To spur foreign trade growth, Beijing has been promoting the construction of cross-border e-commerce pilot zones since last year. China’s cross-border e-commerce imports and exports reached RMB 1.98 trillion ($311.7 billion) in 2021, up 15% year on year, according to data from China’s General Administration of Customs.

Chinese short video platform Kuaishou has opened its e-commerce store to local merchants managing online-to-offline services, including everything from food delivery to hospitality.

Why it matters: Continuing its recent focus on e-commerce, the Beijing-based company is expanding into the competitive local services market, which already includes fierce rivals such as Meituan, ByteDance’s Douyin, and Alibaba’s Alipay.

• Kuaishou’s move to extend its homegrown services business comes on the heels of a December partnership with Meituan. Under the deal, Kuaishou users have gained access to Meituan’s services through a Meituan mini-program within the short video app.
• The short video app has begun venturing into e-commerce, along with livestreaming and gaming, to commercialize its user base.

READ MORE: ByteDance is trying to take a bite of Meituan’s cake

Details: In addition to physical products, merchants can now sell various services through Kuaishou’s online store Kwai Shop, according to a Tuesday statement from the company.

• Merchants offering 15 categories of services, including food and drink, hospitality, healthcare, entertainment, film, and transportation ticketing, can apply to set up their own stores on the platform from Jan. 15.
• With their own Kuaishou store, merchants can manage their service listings to drive transactions and potentially convert online customer attention into offline service sales.
• To attract merchants, the platform is offering incentives to business operators. Kuaishou has pledged to encourage new store registrations with a promotion plan that offers individual stores up to RMB 1,000 ($158) and viewership from 50,000 customers.
• American chain KFC, hotpot chain Haidilao, Meituan’s hotel booking service, and healthcare clinic chain iKang are among the earliest brands to launch their stores on the platform.
• “The growth of the traditional in-store group-buying business model is slowing down, and merchants are in urgent need of new service models to attract users and to promote purchasing frequency,” Zhu Yunbo, head of Kuaishou’s local life service unit, said in a statement shared with TechNode on Tuesday. 

Context: Kuaishou, China’s second-largest short video-sharing app, reportedly laid off up to 30% of its workforce in December as Chinese tech giants weather a market downturn.

• Rival ByteDance has been increasing investments in the online services market over the past year with the most recent move being the acquisition of cinema ticketing platform Yingtuobang this week.

Chinese regulators extended the clampdown on top-earning influencers in the past month by tightening scrutiny over e-commerce sales stars such as “livestreaming queen” Viya and “lipstick king” Li Jiaqi, along with “the godmother of WeChat commerce” Zhang Ting. Tencent shed large stakes in both online retailer JD and Singapore’s SEA, owner of Shopee—possibly in response to mounting pressure from antitrust regulators. Job cuts among Chinese tech giants extended from video app Kuaishou and fashion e-commerce site Mogu. Inc., to online grocer Dingdong Maicai and fresh produce service Meicai. Cross-border e-commerce titan Globalegrow and online luxury seller Secoo fell from grace. And Alibaba overhauled its domestic e-commerce business.

1. Viya and other top e-commerce influencers tamed

News: Taxation authorities in Huangzhou municipality in Zhejiang province imposed a RMB 1.34 billion ($210 million) fine on China’s top livestreamer Viya for tax evasion on Dec. 20. Viya’s social media accounts on all mainstream platforms such as Weibo, Douyin, and Taobao Live, where she had more than 120 million fans, were erased from public view overnight. Four days later, Li Jiaqi, another top livestreamer and a sales rival of Viya, was summoned by Zhejiang Consumers Council for questioning over various unregulated practices. Meanwhile, on Dec. 23, the Market Regulation and Monitoring Administration of Yuhua District in northern China’s Shijiazhuang city opened a pyramid scheme investigation into Ting’s Secret, an online cosmetics brand founded by Taiwanese celebrity couple Zhang Ting and Lin Ruiyang.

Insights: The recent fines of and investigations into top celebrities and livestreamers signal that Chinese authorities are expanding their crackdown on the illicit e-commerce practices of individual influencers, who increasingly wield as much power as platforms. Similar to the $2.8 billion fine imposed on Alibaba for antitrust violations last April, punishment of the most prominent figures is regarded as a warning for everyone in related fields to fall into line. In the wake of Viya’s fine, more than 1,000 livestreamers stepped forward to pay back taxes. The crackdown on top influencers may offer growth opportunities to hosts with small and medium-sized followings, given that the demand for brands to sell and consumers to purchase products through livestreaming is still growing. Also, tighter reins on high-income individuals come at a time when Beijing is beefing up its “common prosperity” initiative to redistribute wealth in the country.

News links: CNN, Global Times, TechNode

2. Tencent slashes shares in JD and Shopee-owner SEA

News: Tencent plans to reduce its shareholding in online retailer JD from 17% to 2.3% by selling interim dividends to shareholders, making it no longer JD’s top shareholder. Both Tencent and JD said their business partnerships wouldn’t be affected by the shareholding change. On Jan. 5, Tencent further unloaded 14.5 million shares in Singapore SEA, owner of Southeast Asian online retailer Shopee, for $3 billion. The Chinese tech giant dropped its stake in SEA from 21.3% to 18.7% and plans to further cut its voting stake in the company to less than 10%.

Insights: Tencent’s share sale drummed up expectations that the firm and other tech peers may shed holdings in their portfolio companies as Beijing takes a closer look at the extensive reach they have on China’s internet. Since Tencent has been one of the most active Chinese investors over the past few decades both inside and outside China, its portfolio now includes vertical giants such as JD, Pinduoduo, Bilibili, Meituan, and Didi. A Tencent tie-up has been an invaluable endorsement for startups, bringing them easy accessibility to various services under the Tencent umbrella from the likes of WeChat to hit games. 

So what’s at stake in the share reductions? They raise concerns that existing partnerships will change. Tencent said in its statement about the JD share distribution that it invests in companies to “help fund the development and expansion [of their portfolios]” and exits the investment when the company is “consistently capable of self-financing their future initiatives.” 

In the case of SEA, Tencent may have been merely seeking financial returns, according to sources from Chinese media outlet Caixin. Nonetheless, cutting ties with Tencent would help SEA, long regarded in Southeast Asia as a Tencent agent outside China, to ease regulatory risks it faces in foreign markets, a Caixin source said. 

Tencent might further reduce its shares in other Chinese tech companies, but the shareholding change won’t affect their strategic partnerships, Aron Li, an analyst at Tiger Brokers, told TechNode. Regardless, share prices of JD, Pinduoduo, and Bilibili dipped on the news. Similarly, the resignation of Alibaba CEO Daniel Zhang from the board of Weibo is being interpreted as a signal that Alibaba is cutting its ties with the Twitter-like super app.

News link: TechNode, Reuters 

3. Layoff rumors shake e-commerce unicorns

News: On Dec. 22, Tencent-backed fashion commerce site Mogu Inc., more widely known as Mogujie, was reported to be laying off more than 30% of its staff, mainly from the company’s tech department. This was followed in early January by reports that Kuaishou had launched a new round of layoffs, with 10%-15% of positions in the e-commerce team losing their jobs. Adding to the wave of reported layoffs was news of job cuts in the fresh produce and grocery industry. Last week, Chinese restaurant produce supplier Meicai cut another 40% of its staff after halving its workforce in September last year,while Dongdong Maicai was reportedly planning a sweeping layoff as well. The latter denied the news, saying that any personnel moves were simply a “normal adjustment” within the company.

Insights: Job cuts have mounted in China’s tech sector over the past few months after a tumultuous year in which Chinese regulators rolled out a series of measures to rein in the industry. E-commerce platforms have not been exempt from such scrutiny. Although they sell different product lines, both Mogu and Kuaishou have bet on livestream e-commerce to drive revenue. Regulatory headwinds for live commerce make that a difficult task, especially for smaller players who also face rivalry from incumbents like Alibaba-backed Taobao Live and ByteDance’s Douyin. Layoffs at Dingdong Maicai and Meicai underline the further cooling of China’s online grocery craze which last year witnessed a slew of casualties such as Tongcheng Life and Shixianghui. Even the once deep-pocketed players like US-listed Dingdong and Meicai are feeling the chills of market consolidations.

News Link: TechNode (Story 1, Story 2, Story 3, Story 4) 

4. Collapse of Chinese vertical e-commerce giants Globalegrow and Secoon 

News: Cross-border e-commerce giant Globalegrow is entering clearance procedures after filing for bankruptcy in June 2021. Valued at RMB 40 billion in 2017, the company racked up more than RMB 3.3 billion in debts as of 2020. Separately, Chinese online luxury retailer Secoo filed on Jan. 5 for bankruptcy and restructuring in Beijing No.1 Intermediate Court, data from China’s corporate intelligence site Tianyancha showed. However the company subsequently denied the bankruptcy reports to local media and revoked its bankruptcy application on January 6. Shares of the Nasdaq-listed company are trading at $0.38 per share with a market cap of $27 million. That’s more than 96% from an all-time cap high of $770 million in 2018.

Insight: While some are still struggling to stay afloat, an increasing number of former heavyweights in the e-commerce sector are falling from grace. Both Globalegrow and Secoon are among the early bellwethers. With more than a decade of history, the pair had led the country’s cross-border e-commerce and luxury e-commerce sectors, respectively. Globalegrow’s asset-heavy approach in running cross-border business with substantial product inventory and lots of locations and warehouses collapsed during the pandemic. The company reported around RMB 3 billion in losses in 2020, whereas it recorded an RMB 710 million net profit in 2017. In contrast, Secoo has faced a years-long decline even though it has outlived many of its early-stage competitors. Jing Daily attributes the fallout to over-diversification, an issue that has led to the failure of many former tech giants including Leshi.

News link: Jiemian (in Chinese), NetEase Tech (in Chinese)

5. Alibaba restructures back-end operations of Taobao, Tmall

News: Alibaba announced on Jan. 7 a major organizational reshuffle aiming at connecting the back-end operations of its core retail marketplaces Taobao and Tmall. Led by the company’s head for domestic business Turdy Dai, three operation centers were set up to focus on platform strategies, user expansion, and development for merchants.

Insights: Alibaba is further integrating its C2C online marketplace Taobao and B2C platform Tmall as the company seeks to realign its two cornerstone services to create more synergies. As consumer growth is reaching a ceiling in China, Alibaba is hoping the move will reinforce its commitment to enterprise-facing services. In addition to aiming to improve consumer experience, the change is intended to offer a streamlined path to convert small and medium-sized individual merchants on Taobao into enterprise clients on Tmall. The aim is to assist the development of these smaller sellers while keeping them within the Alibaba ecosystem. Breaking barriers between the two services should also cut costs and improve organizational efficiency within the company. Tmall, formerly known as Taobao Mall, was spun off from Taobao in 2011 to address different user demands.

News link: TechNode

Chinese tech giant Alibaba announced a major organizational reshuffle on Thursday with the goal of further integrating its core domestic e-commerce businesses.

Why it matters: This is the first organizational reshuffle since Trudy Dai, a founding member of Alibaba, was named last December as head of the tech giant’s China Digital Commerce unit. The unit manages the company’s domestic commerce platforms such as Taobao, Tmall, Alimama, Taocaicai, and Taobao Deals, as well as its B2C retail business.

• The adjustment comes as Alibaba faces headwinds on multiple fronts from increasing competition, a regulatory crackdown, and a slowing economy.

Details: While maintaining the dual-branding strategy for Taobao and Tmall, the company will set up three new business centers to connect the back-end operations of the two e-commerce platforms and related services under the business unit, according to a Thursday internal letter which was made public by local media.

• One center, focused on improving user experience, is to be helmed by Yu Feng (whose internal company nickname is Xuande), the former head of Taobao Live. 
• The second, dedicated to product operations and development, aims to better serve merchants on Taobao and Tmall. This center will be overseen by Yang Guang (nickname: Chuixue), a former member of the management team at Taobao and Tmall. 
• The third is focused on upgrading platform operation mechanics and digitizing merchant operating systems. It will be run by Wang Mingqiang (nickname: Sihan), current president of AliExpress and former head of Taobao search.
• Adjustments are also being made to the company’s content generation business, with new heads named for livestreaming and social shopping services.
• Alibaba Group Chief Technology Officer Cheng Li (nickname: Lusu) and Chief Risk Officer/Chief Customer Officer Zheng Junfang (nickname: Shitai) will fill the same roles for the domestic e-commerce business unit. That unit includes Taobao, Tmall, and Alimama.
• The changes aim to “upgrade user experience, improve client values,” and “encourage innovation,” according to the internal letter. All the new appointments will report directly to Dai.

Context: Alibaba announced in December that it had created two new units: one for its domestic e-commerce businesses and the other for international e-commerce businesses. Trudy Dai will lead the domestic unit, and Jiang Fan will head the global one.

• Alibaba’s retail marketplaces served 953 million annual active consumers in China as of Sept. 30, 2021, according to figures from the company.
• Alibaba experienced a tumultuous year in 2021. The company was hit with a $2.8 billion fine for antitrust violations.

A Chinese market regulator has started a pyramid scheme investigation into Ting’s Secret, an online cosmetics brand founded by Taiwanese celebrity couple Zhang Ting and Lin Ruiyang, continuing China’s crackdown on e-commerce related malpractices.

Why it matters: Zhang and Lin are the latest celebrity influencers to get caught up in the broad crackdown that first targeted e-commerce giants but is now extending to illicit practices of individual influencers, who increasingly wield as much power as platforms.

• China’s recent e-commerce influencer crackdown has affected top livestreamers including Viya, Zhu Chenhui (also known as Cherie), and Lin Shanshan.
• Chinese social e-commerce sites that adopt a decentralized network of members to sell products are under increased scrutiny from Chinese authorities wary of potential pyramid schemes and tax evasion.

Details: The Market Regulation and Monitoring Administration of Yuhua District in Shijiazhuang said that it had launched an investigation in June into Shanghai Dowell Trading, the operator of Ting’s Secret, in a Dec. 23 letter quoted by local media The Economic Observer.

• The regulator has frozen company assets worth RMB 600 million ($94 million). The move was in response to reports (in Chinese) by a non-governmental anti-scam organization on Dowell’s alleged use of pyramid schemes.
• Shanghai Dowell Trading said in a Wednesday response that “it is a legally operating company” and “welcomes authorities to help check their risks.” “The company is operating normally and will cooperate with relevant departments,” the statement said.
• Shanghai Dowell Trading has the three characteristic features of a pyramid scheme, Li Xu, the founder of the anti-scam organization, told The Economic Observer. Li highlighted the multi-layered management structure and that members must pay a fee or purchase products to join and that their income depends upon the number of members they recruit.

Context: Founded by the Taiwanese actor couple in 1996, Shanghai Dowell Trading sells cosmetics and skincare products, mainly through online channels. It promotes its business through social messaging tools like WeChat and livestreaming platforms such as Taobao Live and Douyin.

• Shanghai Dowell Trading was once an acclaimed taxpayer in Shanghai’s Qingpu District, contributing RMB 2.1 billion in 2018 alone. In addition to TV actors Zhang and Lin, the company also has had several celebrity shareholders and endorsers, including actresses Lin Chiling and Tao Hong.
• Over the past few years, Chinese regulators have hit social e-commerce companies with a series of fines, including Peanut Diary and Nasdaq-listed Yunji for their use of pyramid schemes.
• China’s livestreaming boom has drawn in numerous celebrities—such as actors and singers—seeking to monetize their fanbases. The current round of crackdowns is part of Chinese authorities’ push to remind the public that the internet is not outside the law.

Livestream e-commerce is proving to be a trend with staying power, rather than a flash-in-the-pan phenomenon driven by pandemic-crazed online consumption.

E-commerce sales achieved through livestreaming represented more than 10% of China’s total online retail sales in 2020, according to data from iResearch. The research agency forecasts that the proportion will reach 24.3% by 2023. 

E-commerce giants, such as Alibaba and JD.com, as well as short video sites, notably Douyin and Kuaishou, have tapped into the livestream boom to boost their online commerce businesses.

For now, e-commerce platforms still rule the livestreaming roost, but Douyin and Kuaishou are catching up quickly as Chinese users’ experience and shopping preferences evolve. Experts we talked to said short video apps pose a threat to Alibaba’s dominance in live e-commerce.

READ MORE: How e-commerce and livestreaming became frenemies

Same service, different operating rationales

From a user’s perspective, e-commerce and short video apps offer very similar livestream shopping experiences. However, the operational models of these two types of platforms mean they approach live e-commerce differently.

Users on e-commerce platforms like Taobao and JD open these apps with clear shopping intentions. Therefore, the livestream sales performance of stores on Alibaba’s Tmall depends on the traffic to the store or brand itself, an employee from a business process outsourcing company in the livestream industry told TechNode. 

“If the store (brand) is well-recognized and has its own user base, the sales will be high, and vice versa,” he explained, asking to stay anonymous because his employer did not give him the permission to speak.

Meanwhile, the primary goal of livestreaming on Douyin is always to drive sales—not platform branding or customer relations—said the same source. “Most Douyin users haven’t established the habit of shopping on the short video platform. It’s highly probable that they are diverted to the livestreaming session for potential impulse buys while browsing some funny video clips.” 

It’s thus not surprising that Taobao’s traffic is more stable while traffic from Douyin and Kuaishou tends to be sporadic and unpredictable. The difference in platforms leads to different demands on livestreamers and support teams. Tmall store livestreamers tend to adopt a lean approach. One livestreamer can run a session after becoming familiar with prices and basic product information.

In contrast, Douyin’s livestreamers, whose primary goal is to retain audience attention and convert that attention into sales, usually need about three support staff to run a session. The extra staff perform tasks such as uploading the product links and changing prices, he explained.

Douyin versus Kuaishou

As for the livestream battle within the short video arena, Douyin has the upper hand over Kuaishou so far. Douyin aims to reach RMB 1 trillion ($160 billion) in gross merchandise value (GMV) on its platform this year. Meanwhile, Kuaishou expects to achieve a GMV of RMB 650 billion this year. That’s a downsized adjustment from the beginning of the year, when it set a GMV target of between RMB 750 billion and RMB 800 billion. 

“Kuaishou’s commercialization started earlier by building e-commerce based on social trust and connecting directly to the starting point of the supply chain,” said Xin Youzhi, a top livestreamer widely known as Xin Ba. He has 95.6 million followers on Kuaishou. 

To compare Kuaishou and Douyin, the livestreamer sales star explained that Kuaishou has a strong bond with users, who have dubbed themselves lao tie, or “buddies” in English, a term of endearment for the fans of livestream hosts. First gaining popularity among users in China’s lower-tier cities, the Tencent-backed firm is often described as the less sophisticated rival of ByteDance-owned Douyin. 

Merchants on Kuaishou were among the first to adopt the C2M (consumer-to-manufacturer) model, under which they directly give user feedback to upstream supply chain manufacturers. They thus can significantly reduce the marginal and intermediate costs and enable customers to buy more affordable products.

Meanwhile, Douyin has more social media features than Kuaishou. But the two video platforms are learning from each other to strengthen their e-commerce ecosystems, said Xin.

Short video as e-commerce challengers

E-commerce platforms are still far ahead in livestream e-commerce revenues. Taobao Live achieved a GMV of more than RMB 500 billion in the 2021 fiscal year ended March 2021. Douyin’s livestream GMV was RMB 100 million in 2020, according to a comparable fiscal calculation standard adopted by Alibaba. Douyin boasted a livestream GMV of RMB 500 billion in 2020, of which RMB 100 million was achieved through Douyin stores, according to a report by Forward Research Institute.

Compared with e-commerce platforms, short video platforms have advantages in terms of customer traffic and livestreaming scenarios, according to Xin Youzhi.

“Livestream e-commerce” for now puts the emphasis on e-commerce, not livestream. “Users on e-commerce platforms like Taobao and JD will buy, with or without livestreams,” said Sandy Shen, VP analyst with the digital commerce team at research and advisory company Gartner.

“As people spend more time on short video platforms, the apps could become super apps like WeChat, which cover every aspect of our daily lives, including e-commerce,” said Shen. 

Young shoppers lead the way

The trend is already apparent among Chinese youth. “Millennials, the core user group of short video apps, could be easily converted to consumers on these platforms,” said Shen. 

She added that short video apps are becoming an important entertainment and information channel for people from lower-tier parts of the country, where e-commerce platforms like Alibaba and JD have lower penetration. For this group, it’s natural for them to buy through a platform they are familiar with, according to Shen.

User attention is only the first step on the way to winning the e-commerce market, however.

“In the early stage, the live commerce industry relied on customer traffic, KOLs and livestreamers, but the core of live commerce is still e-commerce. That means e-commerce is always driven by products rather than by people. Customer traffic is not a panacea,” said Xin, who also runs his own retailer and livestream company Xinxuan Group.

In the meantime, the industry is also getting to the point where it has to face and adapt to a new developmental stage. The industry needs to push its limits with respect to people, goods and business models, according to Xin.

The short video apps still need time to improve behind-the-scenes capabilities from supply chain and logistics to KOL talent training and regulation compliance, Xin added.

China’s youth-focused video site Bilibili may launch a shopping cart feature in its livestream pages in the coming weeks, Chinese media 36kr reported on Tuesday.

Why it matters: Bilibili is getting serious about livestream e-commerce, hoping to diversify its revenue sources. The firm has previously made a few tentative steps in the area.

• Compared with market incumbents like Alibaba and Douyin, Bilibili is late to the livestream commerce game, which has seen rapid growth due to the pandemic. The Shanghai-based firm tries to differentiate itself from other platforms by selling products relating to its core content of anime, comics, and games (ACG). 

Details: The video site, listed on both the Nasdaq and Hong Kong exchanges, is talking with several content creators about introducing a shopping cart feature for livestream shopping, 36kr reported, citing people with knowledge of the matter.

• Similar to the shopping experience offered on Taobao Live and Douyin, users will be able to click into a shopping cart embedded in the livestream interface to browse product listings and place orders.
• Bilibili will support the livestreamers by allocating more traffic to them. The feature is already in a small-scale test stage, a second source told 36kr. 
• The feature would offer Bilibili’s content creators a new way to make money from their popularity.
• In its fourth-anniversary celebration event held in September, Bilibili introduced four content creators selling ACG products such as art toys and costumes during a four-hour livestream. It was viewed as an attempt to try out livestream commerce.
• Bilibili did not respond to TechNode’s request for comment on Wednesday morning.

Context: Bilibili’s third-quarter revenue was RMB734.0 million ($113.9 million), representing an increase of 78% from the same period in 2020. E-commerce accounted for 14% of the company’s revenue. 

• In November, Bilibili obtained a payment license, moving one step closer to launching its own online payment service, an important step for tech companies looking to build a closed-loop shopping experience for users. 

Discussion around a high-profile spat between French cosmetics giant L’Oréal and China’s top livestreamers Li Jiaqi and Viya filled Chinese social media last week. 

In a rare public dispute for the retail industry, the duo accused the cosmetics brand of failing to deliver on its promises in giving them the lowest price for a face mask product as part of pre-sale promotions for this year’s Singles Day shopping festival, the Chinese equivalent of Black Friday in the US.

Furious users, who made purchases through the pair’s livestreams only to discover the product was available for cheaper days later on a separate L’Oréal’s livestream, voiced their discontent with the cosmetics company after it was publicly called out by the star livestreamers, and demanded the brand refund the difference.

With the popularity of live commerce, brands have become increasingly reliant on popular livestreamers as a sales channel to drive their revenue. The incident shed light on the hidden machinations between livestreamer KOLs and brands, who were once inanimate partners looking to capitalize on the live sales trend but have seen such relationships grow increasingly complex.

In recent years, China’s e-commerce environment has shifted to favor sustainable growth and profitability, not a win-at-all-costs pursuit of gross merchandise value (GMV). But that doesn’t mean that brands have abandoned steep discounts as a sales tactic – far from it, many are using such promotions to lure in customers who they then hope to build long-term relationships with. The dispute shows how much power – and sometimes how little agency – KOL livestreamers have as part of such collaborations.

A brief timeline

• Oct. 20: Several top livestreamers, including Li Jiaqi and Viya, promote L’Oréal’s Revitalift Filler mask in their livestream sessions on the first day of Alibaba’s pre-sales for Singles Day 2021. Fifty masks are sold for RMB 429 ($67), a deal that’s promoted as the lowest price all year. Li Jiaqi and Viya sell more than 800,000 units of the product, raking in around RMB 350 million.
• Nov. 1: Consumers find that the same product package is being sold more than a third cheaper at only RMB 257 on a livestream held by L’Oréal’s Tmall store. Angry buyers who placed orders via the pair’s livestreams ask the brand to refund the difference. The livestreamers redirect users to complete purchases on the brand’s Tmall stores.
• Nov. 17: Li Jiaqi and Viya explain in seperate statements that L’Oréal’s RMB 200 discount to users who spent more than RMB 999 is the cause of the price difference. “This is unfair for consumers who watched their clock to tune in to our show on October 20,” both streamers declare. The livestreamers suspended their collaboration with L’Oréal, giving the company 24 hours to come up with a solution. In a recognition of how damaging this could be to their personal brands, both stars pledge to compensate users out of their own pockets if the cosmetics company fails to make amends.
• Nov. 18: L’Oréal apologizes for the confusing promotion mechanism and explains that some consumers were able to purchase its products at a lower price in its online store because they used multiple discounts offered by the store and e-commerce platforms. After this fails to quell the backlash, the skincare giant says in a second statement that it will offer shopping vouchers to affected customers to settle the dispute.

Even this announcement fails to satisfy some users, however. “Why do I need the voucher? You expect me to buy your products again?” asked Weibo user “Wuyuemeirendemengda”.The sentiment is shared by many. A hashtag on the microblogging platform, “Why do I need the vouchers”, attracted 110 million views.

The condemnation was joined by state-backed media outlet People’s Daily, which criticized the company in a post from its Weibo account, saying the cosmetics brand’s blaming of complicated promotion mechanisms fails to address the more serious accusations of false advertising.

Others argued there was no “significant wrongdoing” on the part of the company because the promotion on its own store covered various products, while the promotion by the livestream KOLs only covered a single product. Regardless, the incident demonstrated the pitfalls of livestream strategies and resulted in several days of heated debate – not to mention some awkward headlines for the French brand.

A new way to shop the sales

Whereas Singles Day was once about hopping from store to store in search of a deal, the emergence of livestream e-commerce has seen hundreds of millions of buyers swarm to these virtual sales rooms to trust in livestream stars to guide them to the best bargains.

Fans of the “lipstick king” and the “livestream queen”, nicknames for Li Jiaqi and Viya, have spent lavishly and fearlessly because they believe the livestream figureheads will bring them the best deals. Consumers expect the products they recommend to be of high quality and to be sold at a low price that can’t be beaten anywhere else on the internet – thus, trust is crucial. 

This idea is so important to the presenters’ personal brands and income, that Li Jiaqi even starred in a hit variety show ahead of this year’s Singles Day which showed him bargaining with some of the biggest cosmetics firms in the world. Entitled Offers to Every Girl, the eight-episode show saw Li argue with firms including LVMH and Perfect Diary, bringing sales heads to their knees to gain extra-low prices.

The marketing worked. Buyers spent a combined RMB 18.9 billion during Li and Ziya’s livestream sessions on Oct. 20, the first day of Taobao’s Singles Day 2021 pre-sales.. 

Such numbers are only possible because the top KOLs have mostly delivered on their promises, yet this year things are beginning to change as brands shift their focus to store streaming or corporate streaming, a channel that addresses their new strategic focus of long-term growth.

Rise of the store-specific livestream

While the livestream model that Li Jiaqi and Viya have made their names with still retains enormous popularity, store-specific livestreaming, where brands or merchants promote their products through their own flagship stores either on Tmall or other platforms, is on the rise.

In its early stages, the live e-commerce industry relied on KOLs and livestreamers to bring them the traffic, but now an increasing number of mature brands are launching their own livestream sessions rather than relying on KOLs to promote their products, according to Echo Gong, an analyst at research agency Coresight. The trend is especially clear among companies that have already built a strong brand awareness and therefore feel increasingly emboldened to attract their own audiences. 

In addition to saving on the hefty commission fees star livestreamers now command, merchants also believe that they can direct user attention to their own marketing channels for long-term operations, thus building user loyalty. This trend was on full display during this year’s Singles Day shopping festival, where numerous merchants focused on long-term benchmarks such as customer retention, operating profit, and customer lifetime value, rather than judging themselves purely on sales numbers, according to a report research institute Bain released before Singles Day.

READ MORE: Singles Day 2021: Slower growth, more sense

During last year’s Singles Day promotional period, more than 60% of Taobao Live’s revenue came from corporate livestreams. According to data from iResearch in 2020, the sales of store-specific livestream accounted for 32.1% of the total live e-commerce industry in 2020, and it is expected to reach nearly 50% by 2023.

Xin Youzhi, also known as Xinba, a top livestreamer KOL with 95.6 million followers on video app Kuaishou, says he’s optimistic about store-specific livestreaming in the future. “The core of live commerce is still e-commerce,” he told TechNode “That means e-commerce is always driven by products rather than by people. Customer traffic is not a panacea.”

Conclusion: There’s no getting away from the fact that discounts will still be the most effective means to attract users for the foreseeable future given Chinese buyers’ long-ingrained taste for deals.

But promotions come at a cost. Instead of spending a huge chunk of their budgets on celebrity livestreamers, brands are increasingly looking to spend more tactically with the goal of attracting users to their own stores.

Disputes like the one between L’Oréal and its star livestreamers appear to damage everyone without a clear winner emerging. This specific incident tarnished the French brand’s image, while Li Ziqi and Viya were suspected in some quarters of monopolistic behavior.

The price bargaining power of livestreamers is “scary”, Weibo user Zeicha declared in a post on the microblogging platform in the wake of the public spat. “Similar to e-commerce marketplaces like Taobao, top KOL personalities like Li and Viya are platforms themselves. Instead of distributing customer traffic among the merchants, they hold onto the traffic on their own.”

Brands seem to have woken up to this too, meaning we could now be set for a whole new phase of livestreaming e-commerce.

Alibaba’s community group-buy arm Taocaicai suspended operations in southwestern China’s Guizhou province on Tuesday. Chinese media attributed the suspension to its accessibility issues within the WeChat ecosystem.

Why it matters: Despite Chinese regulators ordering tech giants to tear down walls between the services, blocking moves to fend off competition still persist.  

• The road to success in China’s community group-buy market, even for e-commerce giants the size of Alibaba, remains bumpy. Since mid-2021, market consolidation has wiped out some of the top rivals in the industry.

READ MORE: China’s grocery delivery fever is cooling down

Details: Taocaicai said in a Tuesday statement that it will stop operations in Guizhou. The firm stated that it will update the digital system for the region to “avoid the service barriers incurred by connectivity issues,” insinuating its lack of access to Tencent’s superapp WeChat is to blame. The company didn’t mention a timeline for resuming services in the region.

• Although the statement refers to the reason for the suspension in vague terms, an employee of Taocaicai told Chinese media Tech Planet (in Chinese) that the move is largely the result of the application experiencing delayed software updates on WeChat’s mini-program system (an app-store-like ecosystem within the app). The delay leads to inferior user experiences, the source added. 
• Taocaicai failed to get its WeChat mini-program updates approved for more than seven months despite continuous efforts to communicate with the platform, says Antonio Liu Neng, who identified himself as a programmer at Taocaicai in a post published on professional networking platform Maimai. By comparison, Tencent-related community group-buy platforms such as Meituan Select and Duoduo Maicai update weekly.
• WeChat mini-programs are a vital channel for community group-buy services to reach customers, especially in lower-tier cities where people rely on WeChat more for daily tasks and transactions. 
• Delayed updates to WeChat mini-programs harm Taocaicai’s ability to attract and retain users with sophisticated social functions such as lucky draws and coupons, said the Tech Planet report.
• However, the suspension won’t affect much of Alibaba’s community group-buy business, since Guizhou represents only a small portion of the company’s activity, said the report. The platform recorded more than 13 million daily orders in November, trailing only Meituan Select and Pinduoduo’s Duoduo Maicai in volume, thanks to growth in provinces such as Guangdong, Jiangsu, Hubei, Anhui, Shandong, and Henan.

Context: Alibaba, which has placed big bets on community group-buy services, is aiming to take over the market share left after rivals like Tongcheng Life and Shixianghui exited in recent months.

• In September, Alibaba rebranded its community group-buy services to Taocaicai by incorporating two existing community grocery services, Freshippo Market and Taobao Maicai.
• Authorities have made it clear that companies must stop blocking links to rivals’ services on their apps.
• Alibaba and Tencent have begun to heed Beijing’s orders over the past few months by partially opening their services to each other.

Deng Shuang, a Shanghai mother of a six-year-old, stayed up past midnight Nov. 10 just so she could snag an RMB 90 ($14.11) discount limited to customers who paid before 1:00 am on Nov. 11. But there were many fewer impulse buys for her on this Singles Day. “This year, I only buy stuff that’s useful,” she said.

Ding Zhe, a Shanghainese engineer, said he’s never been caught up in the Singles Day shopping frenzy. But he almost doubled his budget to RMB 1,800 this year. “My increased spending is not due to rising spending enthusiasm, but a result of real consumption demand,” he explained.

Singles Day is still a big deal, but people were less obsessed with the shopping event this year, at least as indicated by sales trends. Total sales still grew, but the growth rate was much slower, back to the tempered trajectory before the 2020 surge fueled by the pandemic.  

Also known as Double 11, the Singles Day holiday was started by college students as a cheeky meme to mock their singlehood. Alibaba turned the day into an online shopping festival in 2009. More than a decade later, it’s China’s largest shopping extravaganza and stretches over 11 days. Alibaba alone booked RMB 498.2 billion ($74.1 billion) gross merchandise value (GMV) during its Singles Day promotion last year, dwarfing Black Friday’s $9 billion GMV take in the US for the same year.

Skyrocketing sales were almost the only thing e-commerce platforms cared about for most of the history of Singles Day. But this year, they have more important matters at stake. 

Chinese e-commerce giants are seeking to prioritize broader and longer-term goals toward common prosperity and sustainability, themes that align with Beijing’s drive to reshape China’s economy. On top of that, retailers are also looking sideways for sustainable growth and profitability instead of winning top-line growth during the shopping season at all costs.

Alibaba’s chief marketing officer, Chris Tung, described the shift as a “coming-of-age moment” for the festival to take more “social responsibilities.”

All the changes point to a quieter 2021, but what’s more important is how the e-commerce titan will keep the retail ball rolling in the face of regulatory headwinds, fierce competition from rivals, and waning enthusiasm from retailers and buyers alike.

Alibaba’s slowest GMV growth ever

It was a lackluster year for Alibaba’s Singles Day event in terms of sales growth. The creator of the shopping event generated RMB 540.3 billion ($84.5 billion) in GMV during the 11-day promotion that started Nov. 1. That figure represents 8% growth from the RMB 498.2 billion GMV last year—a steep fall from the 26% year-on-year growth recorded in 2020. It is the first time in the past decade that Alibaba has recorded single-digit growth for Singles Day. Yet that figure wasn’t surprising, since it is basically consistent with the slower 13% year-on-year GMV growth rate for the financial year ended in March this year. 

Alibaba Vice President Yang Guang emphasized the “social responsibilities” of the festival in a Friday statement, calling this year’s festival a “meaningful milestone” as part of the company’s commitment towards building a sustainable future.

JD.com, however, reported a faster growth rate in Singles Day GMV than Alibaba. The online retailer recorded RMB 349.1 billion in GMV during the event, an increase of 28% on the company’s 2020 figure for the period, compared with 33% year-on-year growth in last year. 

As usual, Pinduoduo didn’t release any Singles Day sales figures. According to Douyin, livestream sessions on the platform attracted 39.5 billion viewers, and a total of 577 merchants achieved more than RMB 10 million GMV during its 16-day promotion from Oct. 27 to Nov. 11.

Nov. 11, the date which was the source of the festival, has become less important in generating sales ever since Alibaba, the largest player in the game, extended shopping windows last year.

China’s overall e-commerce sales across platforms for Nov. 11 dropped for the second year in a row to RMB 314.6 billion. That’s 6% down from RMB 332.87 billion recorded last year, according to data from China-based data services company Syntun.

Alibaba’s Tmall accounted for 57% of the total GMV on the day, followed by JD’s 27.6%, and Pinduoduo’s 6.4%, the report shows. 

Competing for fickle customers

Competition among platforms remains fierce and customer loyalty continues to decline. Over half of consumers surveyed by Bain & Company this year said they would buy from three or more platforms during Singles’ Day.

Tech companies encouraged spending with bigger discounts, quicker delivery, and more social services this year. 

• Alibaba buyers get a RMB 30 discount for every RMB 200 spent at all its stores, compared with RMB 40 discount for every RMB 300 spent last year. 
• Alibaba and JD kicked off this year’s Singles Day promotion at 8:00 pm Nov. 10, four hours earlier than the traditional launch time. 
• Alibaba introduced a shopping cart sharing function, which allows users to check what their friends are buying during the event, thus adding more social elements to the shoppertainment experience. 
• JD.com rolled out the on-demand “Nearby” channel, offering fast one-hour delivery services of high-quality products from nearby stores.
• This is the first Singles Day for JD to support payment with China central bank’s digital currency, which was released in December last year. More than 100,000 consumers made 240,000 purchases on the platform during the 11-day festival, says the company.

National goals in retail language

From hefty fines to stricter market guidelines, tech giants have learned some hard lessons in the past year as Beijing abandoned its laissez-faire attitude in favor of tightened regulation of the sprawling growth of Chinese tech companies. 

It’s no secret that Chinese tech firms are scrambling to heed Beijing’s call for broader goals like common prosperity and sustainable growth by committing hundreds of billions RMB to charitable efforts. 

In the wake of changes in macro environments, e-commerce titans, especially Alibaba, are bearing the brunt of regulator wrath. So it made sense that Alibaba would use Singles Day, its most efficient marketing tool, to translate Beijing’s policy changes into retail language relevant to the mass consumers.

READ MORE: Insights | Why Chinese tech giants are becoming very generous

Singles Day promotion priorities reflected every major regulatory push from the state:

• Promoting green lifestyles: During this Singles Day, Alibaba’s Tmall featured a dedicated vertical to showcase energy-efficient and low-impact products, as well as issuing RMB100 million worth of “green” vouchers to incentivize shopping decisions that contribute to an environmentally-friendly lifestyle.
• Reducing carbon emissions during delivery: Alibaba’s logistics arm Cainiao Network introduced package recycling to reduce the carbon footprint. Similarly, JD also pledged to reduce packaging wastes, adding that the 2021 Singles day promotion will be the largest ever where renewable energy is being used. Last year, President Xi Jinping announced that China aims to achieve carbon neutrality by 2060.
• Supporting vulnerable populations: Alibaba’s Taobao app introduced an option for “senior mode” for senior citizens, answering the state’s call to bring the elderly online. Alibaba will make a RMB 1 donation for every successful social media share of its “Goods for Good” program, which enables merchants to make donations to senior citizens or left-behind children in remote areas.

Although the state is promoting the common prosperity concept and tech giants are spreading the word, experts expect the impacts of the common prosperity initiative will be long term. There will be a “very limited effect” on consumption in the short term, according to Liu Jing, professor of accounting and finance and associate dean at Cheung Kong Graduate School of Business (CKGSB) in Beijing. 

“My guess is that it will only hit the luxury sector if the overall economy stalls or if the government actively tries to tamp down luxury consumption. The demand for luxury goods is a natural sign of economic prosperity,” he said.

The question of what can replace GMV as the most direct indicator of e-commerce festival success has become more acute. “There are no intuitive replacements,” said Michael Norris, head of research and strategy at Agency China. 

“If I were an e-commerce platform, I’d direct analysts’ attention towards growth in average user spend during e-commerce festivals,” he said.

Merchants look at user fidelity

Along with a shift in focus by e-commerce platforms, merchants and brands are also seeking a new definition of Singles Day success—one that’s centered around long-term growth rather than big figures for one event.

Despite extended promotions, the magic of Singles Day is “fading away,” according to Sharry Wu, EY Greater China’s consulting business transformation leader. 

“Mid-to-small ‘new retail brands’ are at a disadvantage in resource competition, and Chinese consumers are also contemplating purchase decisions during 11.11 due to the concern of mendacious price drops and product service quality,” she said.

Brands are less attracted by major platforms like Taobao Tmall and JD due to the intense battle in volume prices, according to Wu. To compete for sales, e-commerce platforms and retailers should learn about their customers through data,” she added.

In addition to GMV and monthly active users, James Yang, a Bain & Company partner in the Greater China retail practice, suggests brands judge themselves against benchmarks such as net promoter scores (an index measures the willingness of customers to recommend a company’s products or services to others), customer retention, operating profit, and customer lifetime value. 

“Retailers should think beyond just Singles Day to invest in winning during a broader spread of events across the year,” he said.

Consumer enthusiasm wanes

Consumers are losing their appetites with the proliferation of shopping festivals and abstruse discount methods. They will become more rational in spending, observed Echo Gong, an analyst with research agency Coresight. “More and more consumers will do their own research before placing the orders, and only buy big-ticket items at the biggest discounts.”

The China Consumers Association, a state-backed advocacy group, warned consumers on Nov. 4 of misleading prices during Double 11. 

Lower-tier cities are the main driver of new user growth, although consumers from higher-tier cities will still be the major shoppers. A report from Bain & Company expects more first-time Singles Day shoppers from lower-tier cities than from first and second-tier cities.

They may not be first-time online shoppers, however, given that platforms like Pingduoduo have reached many consumers in lower-tier cities. It’s therefore possible that shoppers from smaller cities will take part on Taobao’s platforms during such a big sales day, according to Zhang Gang, assistant professor of economics at CKGSB.

Conclusion: After more than a decade of development, e-commerce platforms and brands should understand that Singles Day is not their guaranteed sales booster.

Singles Day is good news for consumers looking to buy products at a lower price. But whether the event is sufficient to stimulate economic recovery hinges on how effectively new brands emerge to create new demand and how widely Singles Day penetrates across the country, according to CKGSB’s Zhang Gang.

China’s annual Singles Day online shopping festival has yet to officially kick off on Nov. 11, but its “pre-sales” events already hint that the hot sales trend will again be live e-commerce.

“Lipstick King” Li Jiaqi generated an estimated gross merchandise value (GMV) of RMB 726 million ($113.5 million, or EUR 97 million) for L’Oréal during a Taobao livestreaming event on Oct. 20, according to Ashley Dudarenok, founder of China trends watching company ChoZan.

European brands L’Oréal and Guerlain jumped on the country’s live e-commerce bandwagon early on back in 2016, hiring Chinese influencers to promote their cosmetics to Chinese viewers. Now, fueled by the pandemic, European companies are embracing livestreaming as well as promotional techniques from China as they target online European shoppers. They still have a lot to learn. 

Since its first appearance, live e-commerce has exploded in China and the market recorded triple-digit growth over the past three years. In China, the online shopping format is expected to be worth RMB 4.9 trillion in 2023, according to the China’s 2021 Live-Streaming E-Commerce Industry report released by market research firm iResearch on Oct. 27.

European brands in China’s live e-commerce scene

L’Oréal and Guerlain were followed in China a few years later by Givenchy, Unilever, Procter & Gamble, Pandora, La Mer, Nestlé, and many others. Today, few big European brands with a strong Chinese presence have not run at least one live shopping show. Italian pharmaceutical skincare brand Rilastil gets 35% of its total China sales from live e-commerce.

But success in China’s competitive livestreaming market shouldn’t be taken for granted. Dudarenok explained that it is very easy to make mistakes, such as choosing the wrong KOL, the wrong platform, or the wrong presentation style. 

The pandemic spurred European retailers into live e-commerce 

While European players in China have long been hiring Chinese KOLs, celebrities, and their own staff to host live shows on the most popular Chinese livestreaming platforms, they were slow to transfer the format to Europe, assuming it was only fit for a Chinese audience. 

A February 2021 study by Forrester and AliExpress rejected this assumption, finding 70% of 14,460 consumers surveyed in the UK, Spain, France, and Poland were interested in this new form of online shopping.

Livestreaming experiments in Europe started at the end of 2019 and increased in frequency in 2020, as the pandemic forced shops to shut down throughout the continent.

Italian apparel brand Motivi leaned into livestreaming right at the onset of the pandemic, engaging its own shop assistants to present collections and answer questions from customers in real time on its website, replicating the real shop experience.

Another example is Lancôme, which in November 2020 worked with live shopping platform Livescale to run a show with Italian influencer Chiara Ferragni. 

Monki, a fast-fashion brand of the H&M Group, also launched several live broadcasts featuring experienced sellers, again with the shows accessible directly from the brand’s website. 

Europe’s approach to live e-commerce

Still, when it comes to live e-commerce, China is about five years ahead of Europe. China’s experience may give us precious lessons to refer to. It took China a couple of years to transform live e-commerce into a popular format used regularly by both brands and consumers. Europe is now in the study and exploration phase, but we can predict some major differences in style and approach: 

Live e-commerce in China versus Europe

Will livestreaming be big in Europe?

Years 2021 and 2022 will tell whether live e-commerce in Europe has been just a temporary pandemic-driven boom or if it is here to stay. But numbers so far point in the right direction.

In 2020, Western brands saw 15 times more engagement in live e-commerce than with traditional social media, from three to five times more sales, and a 50% increase in the number of customers, according to Madison Schill, marketing and communications director at Livescale. According to Schill, the average sales conversion rate across all clients and platforms at Livescale was 9.5% in 2020. The rate this year is running about 18% in a sign that customers are reacting well.

Live shows in Europe might remain selective experiences, highly focused on content, reflecting the philosophy of the brand and the shopping habits of local customers. Sales people will likely continue to act as the main hosts, together with micro-influencers. Chinese tech players like Xinxuan, Alibaba’s AliExpress, and ByteDance’s TikTok with expertise in training and incubating livestreamers might serve as guides for European brands desiring to improve the live selling skills of their local hosts. 

If China’s growth trajectory is taken as a model, by 2024, Europe has the potential to reach around 160 million live streaming e-commerce users, of which approximately 100 million people might also make purchases while watching live streams, Leah Wang, Chief Marketing Officer of Xinxuan Group, said at the launch of the iResearch report.

In Europe, livestream shopping and e-commerce in general will probably never replace the in-store experience, but they will become part of a broader omni-channel marketing and sales strategy, in which physical shops remain at the center, sometimes serving as temporary livestreaming studios. Looking forward, we might see the expansion of live e-commerce into new verticals, maybe also into the B2B sector. 

Chinese food delivery giant Meituan has begun to carry out a new business strategy, focusing more on growing its retail business. The company made a few top-down organizational changes to support its new strategy, pivoting from “food plus platform” to “retail plus technology,” Chinese media LatePost reported on Wednesday. 

Why it matters: The Tencent-backed firm is seeking new growth points amid intensifying regulatory pressure. 

Details: Meituan founder and Chief Executive Officer Wang Xing announced in an internal meeting on Wednesday that the company is going to set up a special team to oversee the operation of its retail business, the new business priority for the company, LatePost reported.

• The team includes five members, including CEO Wang Xing, Wang Puzhong and Chen Liang. The latter two are senior vice presidents overseeing the company’s home delivery and grocery delivery arms, respectively. The other two members are Guo Wanhui, the head of restaurant produce delivery platform Kuailv, and the head of Meituan app Li Shubin.
• The company has integrated the business of Meituan Youxuan, a community grocery unit and Kuailv to increase efficiency. Chen will lead the integrated team with assistance from Guo.
• With the move, Meituan is taking a leaf out of Amazon’s book, which created a similar D-team in 2008, a critical transitional phase for the e-commerce giant to shift to a digital giant.
• Guo Qing, a member of the company’s senior executive team called S-team and manager of its transportation unit, is going to leave the company to work on his own startup, according to LatePost. Home delivery president Zhang Chuan reportedly will replace Guo.
• Meituan declined to comment on the story when contacted by TechNode Friday morning.

Context: Meituan and several other Chinese tech giants have been under growing scrutiny from regulators as well as the public. Meituan was fined RMB 3.4 billion ($534 million) for anti-competitive practices earlier this month. 

• Meituan has suffered a brain drain over the past years, with at least eight executives leaving since 2019. Senior vice president and co-founder Wang Huiwen left the company at the end of 2020.

For this year’s Singles Day shopping festival, there will be more first-time shoppers from lower-tier cities than from first and second-tier cities, according to a report published Wednesday by management consulting firm Bain & Company.

Why it matters: The change highlights a symbolic shift for e-commerce growth in tier-three cities and below, cities often projected as the new growth engine for e-commerce in China.

READ MORE: Singles Day 2020—bigger, longer, and more live

Details: Chinese consumers remain passionate about the annual fall event, China’s largest online shopping festival. Started as a one-day event by e-commerce giant Alibaba thirteen years ago on Nov. 11, it has grown to a month-long shopping spree with participation by scores of platforms. Overall, 95% of the 3,000 netizens who joined the survey hoped to make purchases, according to the Bain report.  

• About half of those surveyed said they plan to spend more than last year; only 8% plan to reduce the spending. The average expected expenditure per customer was RMB 2,104 ($329). Female buyers are expected to spend more than males.
• China’s e-commerce market remains fragmented, with more than 50% of the consumers intending to shop on at least three platforms, the report shows.
• “Retail in China is approaching a point where there can be no growth strategy without a loyalty strategy,” said James Yang, a co-author of the report. 
• Over the past decade, Chinese customers grew used to deep discounts and aggressive competition between platforms as both platforms and brands focused on getting large GMV (Gross Merchandise Value) figures. Platforms are placing less emphasis on GMV these days. 
• The report points out that retailers and platforms are paying more attention to new benchmarks, like customer lifetime value and consumer retention; these measures can help them to win “during a broader spread of events across the year,” the report said.
• E-commerce giants like Alibaba and JD are already cultivating loyalty with membership programs offering more values, better customer support, and faster deliveries.

Context: The first platform to launch Singles Day this year, Alibaba began events on Oct. 20, emphasizing sustainability and inclusiveness. 

• Alibaba’s Taobao online marketplace crashed and stayed down for 17 minutes on opening day due to a traffic spike generated by a sudden inflow of “over enthusiastic” customers, the company explained in a Weibo post.
• Top KOLs like Austin Li and Viya achieved total sales of RMB 18.9 billion during their livestreaming sessions on Oct. 20.
• JD launched its month-long promotion for Singles Day on Oct. 17, by adding to its campaign a new on-demand delivery feature together with its grocery delivery affiliate Dada Nexus Group.

On Thursday, troubled Chinese beverage chain Luckin Coffee released its unaudited financial report for the first half of 2021, posting doubled revenue and narrowed losses.

Why it matters: This is Luckin’s first normalized financial report after the company admitted to reporting fraudulent sales numbers of $310 million in April 2020. The company filed bankruptcy in the US in February but managed to remain relevant in China’s competitive beverage market. 

READ MORE: The Big Sell | Luckin is not dead

Details: The company recorded RMB 3.2 billion ($492.9 million) revenue in the first half of 2021, leaping 106% year on year from RMB 1.5 billion in the same period of 2020.

• The company warned that its performance in the first half of 2020 was “materially adversely affected” by the Covid-19 pandemic and advised investors to consider these factors when evaluating the growth metrics.
• Chairman and CEO Guo Jinyi attributed the revenue growth to revenue increase from self-operated stores, increased order frequency, higher prices, and improved cost structure.
• Revenue from core business product sales jumped 89% year on year to RMB 2.7 billion. Net loss fell 86.4% to RMB 211.4 million in the reporting period.
• The company operates 5,259 stores as of June, including 4,018 self-operated stores and 1,241 franchised “partnership stores.”
• Luckin is shifting to an asset-light model by growing more franchised stores. Luckin takes up to 40% of a franchised store’s profits once it reaches an agreed earnings threshold, depending on the size of the store.
• The number of self-operated stores decreased by 5.8%, and partnership stores increased by 50.6% in the period. Self-operated stores achieved an operating profit margin of 16.3%. 
• Revenue from partnership stores surged 357.8% year on year to RMB 441.2 million. 
• Partnership store revenue accounted for 13.9% of Luckin’s total revenue in the first half, up from 6.2% in the same period last year.
• The company’s average monthly transacting customers increased 35.1% year on year, from 7.8 million to 10.5 million, in the first half of 2020.

Context:  Luckin is attempting a comeback over the past year by settling the financial fraud. 

• The firm agreed to pay a $180 million penalty to the US Securities and Exchange Commission to settle charges of sales fabrication in December 2020.
• In September, Luckin settled a US class-action lawsuit, resolving some US investors’ claims against the company. Settlement amounts will be calculated based on a global settlement of $187.5 million.

Chinese social e-commerce app Xiaohongshu apologized for “deceitful” reviews of tourist attractions on the platform over the weekend to address mounting customer complaints. 

Why it matters: Xiaohongshu first emerged as a trusted review platform for China’s young middle-class consumers. But over the past few years, the company has struggled to maintain users’ trust due to misleading and fraudulent reviews.

• Travel and tourism spot recommendation is an increasingly popular category on Xiaohongshu in addition to reviews of consumer products from cosmetics to garments.

READ MORE: Xiaohongshu battles to regain user trust amid KOL purge

Details: Xiaohongshu, also known as Little Red Book or RED, issued a statement on Sunday to offer their “sincere apologies” for failing to provide trustworthy reviews.

• The app came under fire in the past few weeks. Users found some travel reviews from the app exaggerated the scenery by showing pictures with heavy beautifying filters.
• A Weibo hashtag titled “Drastic contrast of filtered pics on Xiaohongshu” had attracted 400 million views as of Monday morning.
• Xiaohongshu said in the statement that they will give more exposure to reviews that could help users to avoid such “traps.”
• The app said it already required users and KOLs to avoid using too many beauty filters, especially when giving recommendations for cosmetics, fashion, and stores. The company reminds users that their reviews could be used to influence buying decisions before they post to the platform.

Context: Once an internet darling, Xiaohongshu has struggled in recent years to balance a scalable monetization model while maintaining its community feel. It has previously battled user trust issues and is facing fierce competition from other platforms. 

• Xiaohongshu has received investments from Alibaba and Tencent. It is rare for two Chinese tech rivals to invest in the same company.
• The company is reportedly mulling a Hong Kong stock market debut as soon as this year after suspending a proposed New York IPO plan this July due to Beijing’s stricter reins on overseas listings.

Chinese life services app Meituan has come under fire for data privacy issues ranging from intensive location tracking to account safety loopholes.

Why it matters: Data privacy complaints are yet another blow to the Chinese “super app” Meituan, which was recently fined $534 million for antitrust violations.

Details: A Chinese gadget review vlogger named Xuanningxuan Sir criticized the app for tracking his location even when he’s not using it.

• The Meituan app was reportedly tracking the vlogger’s location every five minutes around the clock on Oct. 8, according to a two-minute screen-shot video he shared in a Weibo post on Sunday. “This is creepy. What on earth do they want to do?” he asked in the post.
• Xuanningxuan’s concerns are shared by many. On microblogging platform Weibo, the hashtag “Meituan app tracks user location all day around” had attracted 100 million views as of Monday morning.  
• Separately, Wang Sicong, the son of China’s one-time richest man Wang Jianlin and a serial tech investor, reported his account on Meituan’s restaurant review app Dianping was stolen. The news also made local headlines on Monday.
• Wang, known for being vocal online, reported the incident in a Sunday Weibo post. Xuanningxuan suggested on Weibo that an account security loophole could be the reason for Wang’s situation. Dianping only requires a phone number and birthdate for users to change the bound phone number of an account, potentially leaving accounts vulnerable to hackers.
• Dianping responded to local media and said they had frozen Wang’s account to prevent further data leakage.

Context: Data privacy issues have drawn increasing attention in China, both from individuals and regulators. In August, the country approved one of the world’s strictest data privacy laws, aiming to curb data collection by technology companies.

• Meituan is not the only company that faces such concerns. WeChat was criticized last week for regularly accessing users’ photo albums even when the app is not used. A statement from parent company Tencent promised to end the practice.

China’s top antitrust regulator on Friday imposed a RMB 3.4 billion ($534 million) fine on Chinese food delivery giant Meituan for antitrust practices. 

Why it matters: The hefty penalty on Meituan is yet another anti-competitive strike from Chinese regulators. In April, regulators slapped a record $2.8 billion fine on Chinese e-commerce giant Alibaba for similar offenses.

READ MORE: Big Sell | Antitrust comes for Meituan

Details: The State Administration for Market Regulation (SAMR), China’s top market watchdog, said in a Friday statement (in Chinese) that it had issued a $534 million fine on Meituan six months after launching an investigation of the food delivery giant. 

• Regulators said the investigation found that Meituan had forced restaurants and other merchants to list exclusively on its platform, a practice commonly known as “forced exclusivity.” 
• Meituan punished merchants who refused to comply by charging higher commission rates, giving them less exposure on the app, and imposing other unfair practices.
• The penalty is equivalent to 3% of Meituan’s RMB 114.7 billion revenue generated in the calendar year of 2020 in China. For comparison, Alibaba’s April fine was about 4% of its annual revenue.
• The regulator also required Meituan to refund exclusive partnership deposits to merchants on the platform, amounting to RMB 1.3 billion.
• The regulator ordered the company to revamp its operations and file self-examination compliance reports to SAMR for the next three years.
• The company said in a Friday response (in Chinese) that it has “accepted the penalty with sincerity and will ensure our compliance with determination.”

Context: China’s antitrust crackdowns this year have punished some of the country’s best-known tech companies, including Tencent and Alibaba.

JD.com and Baidu have jointly invested $400 million in elevator advertising firm Xinchao Media Group.

Why it matters: The two Chinese tech giants are returning investors in the Chengdu-based media company. The deal is a major external investment for JD following a management reshuffle. In May, Hu Zhengwei, the former executive board of investment firm Warburg Pincus, became JD’s investment unit head, replacing JD’s vice president Hu Ningfeng. 

Details: The deal makes JD the largest shareholder of Xinchao, according to a report by China STAR Market. Xu Lei, president of JD, is now a board member of Xinchao.

• JD confirmed the investment with TechNode but declined to disclose the specific amount it invested.
• Xinchao’s corporate website says the company is valued at more than $2 billion. 

Context: Xinchao operates more than 650,000 digital advertising panels in elevators across 105 Chinese cities, reaching 200 million middle-class consumers and serving more than 23,000 clients, according to the company website.

• JD led a RMB 1 billion investment in Xinchao in 2019, while Baidu led a RMB 2.1 billion fund in the elevator-ad company in November 2018. Other investors include home furnishing chain store Red Star Macalline, classified ad site 58.com, and edtech platform TAL Education.
• The company plans to invest RMB 10 billion in the next five years, aiming to operate 2 million digital ad panels and reach 300 million to 500 million middle-class Chinese residents.
• JD.com’s e-commerce rival Alibaba has made similar investment moves, holding a 6.6% stake in Focus Media, another elevator ad company, after investing $15 billion in July 2018.

Over the past two years, the vicious price war among Chinese delivery companies has taken a toll on an industry that’s often referred to as the “backbone” of the country’s e-commerce boom. Recently, signs have emerged that the grueling battle may finally be reaching a breaking point.

Beginning in September, six delivery services started to charge an extra RMB 0.1 ($0.02) per parcel, a major change in pricing strategy, given that courier companies have charged less than delivery costs for years in pursuit of capturing market share. 

The companies that joined the price increase are some of the biggest in the sector: ZTO Express, YTO Express, STO Express, Yunda Express, Best Express, and J&T Express. All pledged to use the extra money to boost delivery worker incomes and protect their rights. 

The change is mainly a response to intensifying regulatory pressure to improve conditions for delivery workers. But there are other, perhaps more pressing motivations for Chinese courier companies to use this shift to mark the beginning of the end for a price war that has had an impact on the long-term and sustainable development of the industry.

“The price war shows signs of easing, but there’s still a long way for the whole industry to get back on track to healthy development,” Lei Zhongnan, CEO of logistics tracking platform Kuaidi 100, told Chinese media recently.

Express delivery is no longer a lucrative business: Data from China’s National Post Bureau (NPB) shows that the volume of parcels delivered in China surged 40.1% year on year to 67.3 billion in the first eight months of this year. That’s already 81% of last year’s volume of 83 billion units. 

• However, the expansion in volume comes on top of a much slower revenue growth. Revenue generated from the sector climbed 23.4% year on year to RMB 650.9 billion over the first eight months, or 74% of 2020’s RMB 875 billion total revenue, NPB data shows.
  
• China’s express delivery market is a highly concentrated one that’s dominated by a few top players including SF Express, Alibaba-backed Best Express, and a number of couriers collectively known as “Tongda Operators” — ZTO Express, YTO Express, STO Express, and Yunda Express. The six operators represented more than 80% of China’s express delivery market in 2020, according to data from market intelligence platform askci.com.
  
• In a crowded market, the companies, mostly offering the same services, had been relying more and more on lowering prices to gain market share. Per parcel delivery price dropped 13.1% year on year to RMB 9.8 ($1.5) in the first half of this year.

The negative impact of the price war is explicit in the gloomy financial reports of the major players, as courier companies see their revenue skyrocket while profits sink. Six out of the seven listed courier businesses achieved double-digit revenue growth in the first half of this year; YTO and ZTO lead the group with an over 30% year-on-year revenue jump. But net profits slumped across the board, with STO suffering the steepest plunge of more than 300%. STO and BEST Express are recording losses.

• Delivery companies are less willing to bleed for market share. In August, per parcel delivery price of YTO Express increased 5.45% month on month, or a 0.95% increase compared with a year ago. 
  
• Similarly, SF Express and Yunda Express increased per parcel price by less than one percent month on month, although the figures still represent year on year drops. 

How the war began: Despite competitive tensions, there was a delicate balance among major courier companies before 2019. But that balance was disrupted by the entrance of Southeast Asian delivery upstart J&T in 2020. Founded by a Chinese entrepreneur in Indonesia, J&T Express expanded to China later after becoming a quick success in the Southeast Asian market in 2015.

• The company expanded rapidly, reaching the 20 million parcel per day milestone within 10 months of entering China, a feat that took rivals like STO, YTO, ZTO, and Yunda Express more than a decade to achieve. Its most effective weapon is, of course, price cuts.
• In one of its fiercest campaigns, which took place in March last year, J&T offered nationwide delivery for just RMB 0.80 per parcel for users in Yiwu, China’s eastern commodity center, compared with the RMB 1.2 to RMB 1.3 per parcel offered by rivals.
• Similar to “Tongda” couriers’ early boom being driven by orders from Alibaba marketplaces, J&T’s initial boom in China has mainly been driven by delivery for e-commerce upstart Pinduoduo, which accounts for around 80% of its orders. 

Price wars in the China tech arena are generally fueled by venture capital and express delivery is no exception. J&T has received multiple hefty rounds of investment over the past two years at sky-rocketing valuations.

• J&T Express completed a $1.8 billion financing round at a valuation of $7.8 billion in April, higher than market cap for STO Express, Yunda Express, and YTO Express at the time.
• The company closed a $250 million strategic investment deal in August.
• J&T Express reportedly plans to raise over $1 billion from a U.S. initial public offering (IPO) as soon as the fourth quarter, at a $5 billion valuation.

Delivery workers are working more for less: Price wars have also led to lower incomes for delivery drivers who earn on per package delivery fees. As delivery drivers shift to other industries for better pay, the delivery worker shortage has become a serious problem for courier companies. 

• China had more than 4 million express delivery workers in 2020. But as a result of deteriorating working conditions and lower pay, the voluntary turnover rate of express logistics personnel climbed to 33.1%, the highest across all industries.
• Increased pay and better working conditions could solve the labor shortage, but for courier companies, higher pay for workers means increased costs, making their low-price model economically inefficient.

Regulators have recently stepped in to protect the rights of express and food delivery drivers as part of the state’s efforts to help lower-income workers amid the authorities’ declared aim of creating “common prosperity.” Local and central government agencies have rolled out rules trying to end unreasonable low-price deliveries.

• April 9: The municipal postal authority in Yiwu cracked down on delivery services J&T Express and Best Express for price-dumping, partially closing their distribution centers in the county-level city.
• April 22: Zhejiang provincial government issued a guideline forbidding courier companies from taking parcel orders at lower than the cost of delivery. E-commerce platform operators were also warned against using technological means to interfere with merchants’ choice of couriers.
• July 8: Seven central government regulators, including the Ministry of Transport, the State Post Bureau and the National Development and Reform Commission, issued guidelines to protect the rights of express delivery workers, including measures aimed at ensuring more reasonable salaries, having companies buy them social insurance, and clarifying the companies’ responsibilities to protect workers’ rights.

What’s next?

• Increased pay and improved welfare may alleviate the delivery force shortage to a certain extent. An experienced courier can handle 200 to 300 parcels per day, an anonymous delivery worker told local media. That means the RMB 0.1 per parcel increase would boost their average monthly income by about RMB500.
• Instead of providing similar services, the couriers are trying to expand their product lines. “Tongda” couriers have expanded into the high-end express delivery market, and SF Express has upped its investment in cold chain delivery and delivery installment services.  
• Some companies are ditching price wars altogether. Lan Haisong, CEO of ZTO Express, said it’s “irrational and unsustainable” to compete for market share with “unnecessary” price cuts. ZTO Express topped the seven major courier businesses with RMB 180 million net profit in Q1 this year.

Conclusion: Price wars have been a successful weapon for market entry for many delivery companies such as J&T. But such tactics are not likely to last. The state is tightening its regulation on irregular pricing, while there is renewed focus on the rights of delivery workers and the impact on the user experience. Increasing costs also mean that a number of major courier companies are now turning their backs on the delivery price wars. 

Also in the news

Investors bet on robot delivery: Increasing labor costs have propelled the growth of robotic delivery technologies recently. This month, investment has flocked to a bunch of business-faced startups ready to apply robotic delivery tech in various fields, from warehouse management to the service industry.

• Chinese service robot maker PuduTech announced a RMB 500 million ($78 million) investment on Sept. 14.
• Keenon Robotics made public the next day the completion of a $200 million Series D funding led by returning investor SoftBank.
• Hai Robotics, a Chinese warehouse robotics startup, announced on Sept. 22 two financing rounds totaling more than $200 million.

Alibaba expands community group-buy push amid rival startup fallout: Consolidation in China’s community group-buy market continues. As startup casualties increase, Alibaba is pushing further to fill the market gap left by the collapse of smaller rivals.

• Alibaba-backed online grocer Nice Tuan is reportedly downsizing its operations in August.
• Meicai, a Chinese app that supplies farm-to-table produce for restaurants, has been reducing its operations and laying off employees this month.
• Chengxin Youxuan, the community group-buy unit of Chinese ride-hailing giant Didi Global, shut down operations in 22 provinces, accounting for more than 60% of its service locations.

Alibaba rebranded its community group-buy unit to “Taocaicai” on Sept. 16 as some rivals have lost momentum after rounds of market consolidation. The new brand will incorporate Freshippo Market and Taobao Maicai, Alibaba’s two existing community grocery services.

Luckin Coffee has settled a US class action lawsuit, resolving some US investors’ claims against the company, which admitted in April 2020 to fabricating $310 million in sales. Settlement amounts will be calculated based on a global settlement of $187.5 million, according to a company statement issued Sept. 19. 

Why it matters: The bankrupt company, striving for a business turnaround, is moving a step further to repair its image after the fraud scandal. 

READ MORE: The Big Sell | Luckin is not dead

Details: The settlement plan is still subject to approval from courts in the US and Cayman Islands, according to a Tuesday statement from the company, which is registered in the Cayman Islands.

• Luckin’s chairman and chief executive, Guo Jinyi, said this settlement will resolve a “significant contingent liability” for the company, allowing it to “move forward with a greater focus on operations and execution of strategic plans.”
• The company also reported Tuesday in its annual report that revenue increased 33.3% year on year to RMB4.0 billion ($618.1 million) in 2020, despite being hit by the pandemic. The revenue growth was primarily driven by price increases, said the company.
• Luckin operated 3,929 self-operated stores as of 2020, a drop of around 15% year on year from 4,507 stores in 2019. As a result of the ongoing restructuring, the number of the company’s partnership stores nearly tripled to 874 in 2020 compared to 2019. 
• Shares of the company, still available on the OTC market after delisting in July, climbed nearly 40% to $15 per share so far this year on business turnaround prospects. That is well below its historic peak of $50 per share reached in January 2020 when it was listed on the Nasdaq.

Context: The fraud perpetrated by the once high-flying coffee chain has made regulators and investors more wary of Chinese tech companies.

• Luckin agreed in December to pay a $180 million penalty to the US Securities and Exchange Commission to settle charges of sales fabrication.
• China’s State Administration for Market Regulation imposed an RMB 61 million fine on Luckin and a group of affiliated companies last September for creating unfair competition by stating fraudulent sales figures.
• Lu Zhengyao, the ousted founder of Luckin, is trying to make a retail comeback with his noodle chain restaurant Qu Xiaomian.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode, the guys are joined for the second time by John Artman, tech editor at the South China Morning Post. They go over some of the SCMP’s 4th annual China Internet Report released recently, and talked about the four areas of China tech regulations: antitrust, fintech, data security, and cryptocurrency. They also go over China’s recent crackdown on overseas IPOs and what that means for overseas investors.

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:

• John Artman – @knowsnothing

Editor:

• Peter Isachenko

Podcast information:

• iTunes
• Spotify
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

TechNode has announced the winners of the first OTEC-Emerge Technology Awards. The awards were announced at the OTEC-Emerge Tech Summit held in Beijing on Friday.

Emerge is TechNode’s annual conference about emerging trends in China tech. It presents a strategic and forward-looking view of China’s tech sector in English with voices from experts and representatives of leading companies. The third Emerge conference features the theme of “What’s next for tech in the new normal?” This year, TechNode partners with the Overseas Talent Entrepreneurship Conference (OTEC) to present the OTEC-Emerge Tech Summit.

OTEC-Emerge Technology Awards shortlisted innovative tech startups in three areas of smart mobility, fintech, and e-commerce. 

QCraft, a US and China-based self-driving startup, won the Rising Star Award. Hangzhou-based vesoft Inc., a developer of China’s leading open-source graph database Nebula Graph, walked away with the Best Tech Innovation award. The Best Investment Value award goes to Evoke Electric Motorcycles, an electric vehicle maker.

“TechNode has long been an independent and reliable English media outlet focusing on China’s technology innovation. We launched the OTEC-Emerge Technology Awards by discovering startups representing China’s innovation from a professional and neutral perspective,” said Lu Gang, founder and CEO of TechNode. 

“Through this rare tech award selected by an English outlet, We hope to help the global tech industry better understand the latest technological innovation trends in China and promote more outstanding tech companies to an international platform by discovering startups representing China’s innovation,” said Lu.

Rising Star Award

QCraft – Chinese self-driving startup founded by Waymo alumni.

Best Tech Innovation

vesoft Inc. – Hangzhou-based startup devoted to developing China’s leading open-source graph database solution, Nebula Graph.

Best Investment Value

Evoke Electric Motorcycles – developer and manufacturer of light weight electric motorcycles.

Best Smart Mobility Startups

AutoX – Alibaba-backed self-driving car company with ride-hailing pilot services in a number of cities.

DeepRoute – Alibaba-backed self-driving startup focused on fully automation technologies for passenger transport and urban logistics.

Evoke Electric Motorcycles – developer and manufacturer of lightweight electric motorcycles.

Hesai Technology – Lidar sensing technologies developer for autonomous vehicles.

Horizon Robotics – startup company developing artificial intelligence chips for smart vehicles.

QCraft – Chinese self-driving startup founded by Waymo alumni.

RoboSense – developer of smart sensor systems incorporating LiDAR sensors, and perception software.

TuSimple – startup that creates autonomous trucks and advanced driverless vehicles.

UISEE – Chinese autonomous driving company focused on providing robot delivery services.

WeRide – Xpeng-backed smart mobility company creates leading L4 autonomous driving technologies.

Best fintech startups

AKTE – food safety platform leveraging automatic data collection and blockchain-based security technologies.

Hrfax – fintech startup that offers consumer installment loan-related services for financial institutions.

Ice Kredit – fintech company providing risk management solutions to both individuals and financial institutions.

imToken – multi-chain cryptocurrency wallet that allows users to use one identity to manage multiple wallets.

Kingsware – robotic process automation system committed to building an enterprise-level safe robot management platform.

Ningze Fintech – financial technology solution provider that connects banks, loan firms, and online financial platforms.

Nuanwa Technology – health insurance technology company offering customization services and risk control solutions for health insurance companies.

SphereEx – distributed data infrastructure that helps users to manage their fragmented database.

vesoft Inc. – Hangzhou-based startup devoted to developing China’s leading open-source graph database solution, Nebula Graph. The database has been widely adopted in the fintech sector.

XTransfer – fintech company that provides cross-border financial services for China-based small- and medium-sized enterprises.

Best Ecommerce and New Retail Startups

AiMall – AI company empowering traditional retail businesses by utilizing visual intelligence, emotional intelligence, and deep-learning algorithms to link customers, brands, and stores.

Benlai – Chinese fresh produce e-commerce platform.

Duozhuayu – WeChat-based second-hand book trading platform.

Floral & Life – lifestyle app offering gardening and planting tips.

ImageDT – AI retail solution offering services such as channel management, intelligent network management, and sales forecast analysis for retail and consumer goods enterprises.

Luxnow – Y Combinator-backed peer-to-peer marketplace to access luxury items.

Mmchong – Shanghai-based community group-buy platform targeting higher income groups.

SandStar– artificial intelligence company that applies computer vision technology in the retail industry to enable grab-and-go convenience, autonomous checkout, and big data analytics.

Wellcee – home rental & social platform targeting expatriates and youth in China.

Whale – digital marketing platform.

Chengxin Youxuan, the community group-buy unit of Chinese ride-hailing giant Didi Global, is to shut down operations in 22 provinces, accounting for more than 60% of its service locations, Chinese media Late Post (in Chinese) reported Wednesday. The downsizing came a month after the company laid off one-third of its staff and relocated its headquarters.

Why it matters: Didi is shrinking Chengxin Youxuan after failing to mount a significant challenge to Meituan’s and Pingduoduo’s community grocery products. China’s competitive community group-buy sector is going through new rounds of consolidation that already forced out players such as Tongcheng Life and Tencent-backed Shixianghui in July. 

Details: Chinese media Late Post reported that Chengxin Youxuan will reduce service locations from 31 provinces to nine provinces. 

• Chengxin observed that most of the cut provinces are dominated by rivals Meituan Select and Duoduo Maicai, while the remaining nine provinces still have developing potential, the report said.
• The downsizing is expected to be finished by next week. The unit could see more changes in the future, including further layoffs. Chengxin cut 30% of its staff in July and currently employs about 10,000 people. 
• Chengxin is conducting 6 million daily transactions, a drop of nearly half from its peak, the report said. 
• Didi’s spokesperson didn’t respond to TechNode’s Wednesday inquiries. 

Context: Didi was one of the first Chinese internet giants to get into the community group-buy sector, with the hope of bringing in new revenue streams as its core ride-hailing business slows. In May, the Information reported that Didi planned to spin off the unit in a separate listing as early as next year.

• Didi is still under a state cybersecurity review that began in early July. The ride hailer listed on the New York Stock Exchange on June 30. Its market value has since tumbled to about $47 billion, a little more than half of that on its first trading day.

Meicai, a Chinese app that supplies farm-to-table produce for restaurants, has been reducing its operations and laying off employees, Chinese media Jiemian reported on Friday.

Why it matters: Cutbacks came after Meicai failed to expand its online grocery delivery business and in July shelved a US IPO plan.

• The company experimented with a grocery community-group buy model to compete with Pinduoduo and Meituan last year. It halted those operations early this year to refocus on servicing restaurants.

Details: Meicai has closed its research and development center in Chengdu, Chinese media Jiemian reported. The company also plans to cut at least half of its employees in several teams in its Beijing headquarters, including product development, sales, and finance.

• The layoffs started two weeks ago and are expected to end in mid-September;  they will affect new employees and mid-level managers. 
• Meicai partially confirmed the downsizing in a Saturday statement, saying the company is conducting “organizational optimization.” The statement said all branches are running as usual.

Context: Founded in 2014, Meicai largely focuses on supplying farmers’ produce directly to restaurant owners. 

• Meicai is competing with Meituan’s enterprise-facing food distribution arm Kuailv in the business-to-business produce market. Kuailv also cut back its services in late August. 
• The company has received investments from renowned investors, including Tiger Global Management, Hillhouse Capital, and GGV Capital. The firm raised $800 million in its most recent round in 2018.

Online grocery Dingdong Maicai posted mixed results for the second quarter ended June in its first-ever quarterly report published on Monday.

Why it matters: After a downsized IPO, the Chinese online grocer faces souring market sentiment. Investor enthusiasm toward the online grocery delivery industry has cooled as the sector grows more competitive and attracts regulatory scrutiny. 

READ MORE: ​​The Big Sell | China’s grocery delivery fever is cooling down

Details: Dingdong Maicai recorded second quarter revenue of RMB 4.6 billion ($719.6 million), climbing 77.9% year-on-year.

• The company’s gross merchandise volume for the reporting period reached RMB 5.4 billion, increasing 80.8% year-over-year from RMB 2.9 billion in the same quarter of 2020.
• However, Dingdong’s net loss more than doubled to RMB 1.7 billion, compared with RMB 714.5 million a year ago.
• The number of average monthly users on the delivery platform reached 8.4 million, up 39.1% from a year ago.
• Dingdong Maicai manages its own warehouses in residential neighborhoods for quick delivery. The company operated 1,136 such facilities as of June, more than double the 625 warehouses of rival MissFresh.
• “Geographically speaking, we achieved 49.8% year-over-year growth in our GMV from our most mature markets in the Yangtze Delta region,” said Liang Changlin, founder and chief executive officer of Dingdong, in an emailed statement, referring to the area along Yangtze River in eastern China which includes Shanghai, as well provinces of Jiangsu, Zhejiang, and Anhui. 
• Growth was mainly driven by a rise in customers and an increase in purchase frequency from existing users.
• In the third quarter, the company expects a 100% year-on-year revenue increase and improved gross margin. Dingdong also expects its net losses to narrow over the next two quarters. 
• Shares in Dingdong closed  at $21.31 in overnight trading in the US on Monday.  The company’s offering price was $23.5 apiece.

Context: Dingdong Maicai raised $95.7 million after making its New York debut in late June. The company downsized its IPO by more than 74% from its initial $357 million target set earlier in the month. MissFresh, which filed for a US IPO on the same day as Dingdong, raised $273 million in a Nasdaq IPO on June 26.

Alibaba-backed online grocer Nice Tuan is reportedly downsizing its operations, according to an internal letter (in Chinese) made public on Saturday and in various Chinese media reports. 

Why it matters: Nice Tuan is the latest grocery startup to scale back its operations amid consolidation in China’s highly competitive community group buy market.

• The market shakeup has already affected several top players, including Tongcheng Life, Tencent-backed Shixianghui, and Didi’s Chengxin Youxuan.

READ MORE: The Big Sell | China’s grocery delivery fever is cooling down

Details: Chinese media reported that the Nice Tuan laid off staff at short notice with no severance pay, prompting many workers to complain on various social media. In the internal letter, Nice Tuan didn’t mention those that had been laid off but said it would launch “major” reforms in some low-profit areas. 

• TechNode found that Shanghai users couldn’t place orders through the company’s WeChat mini program as of Monday morning.
• Chinese media QQ News reported that Nice Tuan had stopped operating in several cities, including Changchun, Harbin, Jinan, Zhangzhou, Fuzhou. 
• The company will prioritize markets in central China’s Hunan and Hubei provinces, as well as southeastern China’s Jiangxi province, a company representative told Chinese media 36Kr, adding that operations in some highly loss-making areas will be shut down.
• The company said in the letter that it plans to integrate some of its regional operations into Alibaba’s grocery retail business unit (including Fresh Hippo and other community group buy services). The company will share Alibaba’s operational resources, supply chain, and partners, Nice Tuan founder Chen Ying said in the letter.
• The company’s page on Weibo is filled with employee complaints, accusing it of forcing workers to quit without severance pay and violating the country’s labor law. 
• A Weibo user with the handle of Yansideyulalala said more than 100 workers in the company’s Chengdu office were laid off on Saturday without any advanced notice or severance pay. TechNode couldn’t verify the user’s identity. 
• The company didn’t respond to TechNode’s Monday requests for comments. 

Context: Nice Tuan has received more than $1.2 billion in funding since it was founded in 2018. The firm received its most recent investment, a $750 million Series D, in March from Alibaba, DST Global, GGV Capital, and others.

• Since last year, Chinese tech giants such as Pinduoduo and Meituan have entered the competitive community group-buy market, squeezing out smaller players by offering customers generous discounts to gain market share. 

If you have been looking at China’s grocery delivery market over the past two years, you’ve had a pretty wild ride. It’s been crazy out there. Before the pandemic, it was a startup fad—but once people across China locked down, tech giants and venture capitalists pumped billions into the field.

The turnover of China’s community group-buy market surged by 120% year on year to reach RMB 75 billion ($12 billion) in 2020, according to data from research agency 100EC. The figure is expected to increase 38% year on year to RMB 104 billion in 2021. Despite the growth, the market is getting tougher for the smaller players.

While sales are rising, the investment fervor surrounding China’s grocery delivery market is quickly cooling down. A new round of consolidation is wiping out all but the largest players. 

Collapse of startups: In July, two major online grocery startups withdrew from the market. Both are regional market leaders that have received multiple funding rounds from tech giants and renowned VCs.

• July 8: Tongcheng Life, a Chinese grocery delivery startup, announced that it has filed for bankruptcy. The company reportedly owed a combined RMB 200 million ($31 million) debt to over 1,000 suppliers. As one of the earliest entrants to the market, the firm was once valued at more than $1 billion, after receiving more than $306 million financing since its establishment in 2018.
• July 28: Tencent-backed Shixianghui ended its community group-buy service amid fierce competition in the market and regulatory pressure. The service’s website and mini-app are no longer functioning. 
• Aug. 13: Baoneng Shengxian, a grocery delivery startup in Western China’s Xi’an city, was reported to be facing insolvency issues amid layoffs, storefront shutdowns, and rumored delays to salary payments.

All three of these companies use the “community group buy” model, which relies on once a day deliveries to central locations to offer ultra-low prices. In the more high-end on-demand delivery market, two non-giants Dingdong and MissFresh made it to IPO in late June.

Venture capital continues to flow into community group-buy, but it’s been winner-takes-all for the top platforms. In the first five months of this year, Tencent-backed community group-buy platform Xingsheng Youxuan received $3.1 billion in funding, and Alibaba-backed Nice Tuan secured $750 million. Their combined fundraise represents over 95% of funding for the market during the period, a report from corporate intelligence database Qichacha shows.

Profits in view for grocery delivery leaders?

Chinese tech giants only began to make direct plays in the grocery delivery businesses during the most recent boom, starting in 2019. Before then, China’s biggest tech companies tapped the sector only through investments in startup leaders, a lean approach that sought to stay abreast with the latest tech trends without expanding heavily.

Tech titans including Alibaba, Pinduoduo, Meituan entered the grocery market about two years ago, intensifying competition in the already crowded sector. Rivalry in the area turned into a cash-burning subsidy war that not even the deepest-pocketed players could sustain. Tech giants, now operating their homegrown business, not only compete with each other, but also startups they previously invested in.

Chaotic, cash-fueled expansion prompted regulators to issue a list of restrictions on group-buy businesses, forbidding predatory pricing to beat out competition, as well as cracking down on falsely advertising discounted prices and posting misleading product information.

Under this financial and regulatory pressure, tech giants started to pivot their grocery business strategy from loss-making expansion, to monetizing existing businesses. The biggest players in the field are seeing results.

• Duoduo Maicai expected to record positive gross profits from July. Meituan Youxuan expects to record gross profit in some regions, local media reported.
• Ride-hailing giant Didi scaled back a community group-buy grocery unit Chengxin Youxuan. The unit laid off about a third of its staff, began an all-staff pay cut, and relocated its head office from Chengdu to Beijing and Hangzhou. 

Report: nearly 45% of beauty brand sales take place during two shopping festivals

China’s two major online shopping festivals—Singles Day in November and 618 in June—account for nearly 45% of total annual cosmetics sales, according to data from thirty beauty brands on Alibaba’s marketplace Tmall. Digital agency DLG surveyed the brands in July for a report on shopping festivals.

While sales figures on the platform throughout the rest of the year are somewhat consistent, months with a local celebration or festival, including Chinese New Year and Chinese Valentine’s Day, also known as Qixi, account for a slightly higher percentage of sales, according to the report.

Luxury brands may not have to give major discounts to win shopping festival traffic, DLG wrote. Brands have also taken advantage of the consumption deluge by launching new collections and limited editions at full price during shopping festivals, and boosted sales through buy now, pay later schemes like installment plans.

“Unlike discount driven holidays in the West, these festivals are critical occasions for brands to launch new products, introduce innovative shopping experiences and create touchpoints with loyal and new customers alike,” said James Lin, head of Fashion and Luxury for North America Alibaba Group, in the report.

Also in the news: 

China helps merchants after Amazon bans: Since May, Amazon has blocked up to 50,000 Chinese sellers on its platform, citing “improper use of the review function” as the reason.

• Shenzhen, China’s cross-border e-commerce hub, is offering RMB 2 million subsidies to cross-border sellers for each “independent store” or website they build to diversify online sales channels.
• Li Xingqian, director of China’s Foreign Trade Department at the Ministry of Commerce, said in July that the state would help companies to comply with international standards while protecting their “legitimate rights and interests.” Li called the problems “growing pains” in China’s cross-border e-commerce industry.

Tech investors set sights on consumer retail: Chinese venture capitalists, typically backers behind technology startups, are chasing after nascent consumer brands selling everything from foods and beverages to cosmetics. It normally takes decades to build brand awareness, but some emerging brands are scaling at tech-like speeds by leveraging logistics, social media, and e-commerce.

• Charles Lu, the Luckin founder who fell from grace after the 2020 financial fraud scandal, is back in the retail game with noodle restaurant Qu Xiaomian. TechNode visited one of its first locations in Beijing and had a very ordinary bowl of noodles.
• Nayuki, the Luckin-like bubble tea chain that raised $656 million in its Hong Kong debut this June, came under scrutiny Aug. 2 after state news agency Xinhua reported on hygiene issues in two Beijing stores. The news sent the company’s share down 10%. A later statement from the company said inspectors found no evidence of food safety violations.

Beidian, a Chinese social retail startup, is reportedly in arrears with their payments to thousands of merchants. According to several Chinese media news reports, the company may owe at least RMB 130 million ($20 million) to about 1,300 merchants. 

Why it matters: Beidian may become another small Chinese social e-commerce platform facing a cash shortage, as it reportedly utilizes the controversial sales strategy of multi-level marketing, also known as pyramid selling. 

• In 2017, China fined NASDAQ-listed social commerce company Yunji RMB 9.6 million for pyramid selling, the country’s first penalty against such practice. A court in Hunan province froze RMB 30 million of online seller Zebra Prime in 2020. Online retailer Peanut Diary fined RMB 9 million for pyramid selling in February. 

Details: Beidian announced on Monday that it plans to change its business model from a direct-sale online retailing platform to a shopping guide site, which redirects shoppers to other e-commerce platforms like Alibaba’s Taobao. The announcement, made public on Tuesday, prompted merchants to travel to Beidian’s head office in the eastern city of Hangzhou, asking for money back. 

• On Monday, more than 60 merchants and suppliers gathered at the headquarters of Beibei, the parent company of Beidian, demanding the company to return their owed payments and deposits, Chinese media 21 Tech reported. However, the crowd found the company had moved out and emptied its head office in Hangzhou.
• A merchant surnamed Sun told (in Chinese) media site Lanjinger that Beidian stopped paying her in May. Sun started selling on Beidian in late 2018.
• Beidian merchants sell a wide range of products, including fresh groceries, food, baby products, skin care products, toys, and cosmetics. Normally, Beidian takes a 25% commission and pays merchants a month after sales close. Merchants told Chinese media that many of them are owed several months’ worth of payouts. The highest overdue payment is about RMB 5 million. It’s still unclear what triggered Beidian to withhold merchants’ payments. 
• Beibei Group, Beidian’s parent company, reportedly cut around 500 or half of its headcounts in April.
• Beidian could not be reached for comments on Friday.

Context: Beidian was founded by Alibaba alumni Allen Zhang in August 2017 as a subsidiary of Beibei Group, a maternal and children’s product e-commerce platform. Apart from its social e-commerce business, the firm drew controversies for adopting a multi-level revenue-sharing model that’s similar to some pyramid schemes. It encourages existing store owners to recruit more members with cash incentives. Members get paid in commission based on the referrals they attract. 

• Beidian closed a $126 million financing round in 2019 from Hillhouse Capital, Sequoia Capital, Sinovation Ventures, and others.
• Beidian’s parent company Beibei Group is a major player in China’s baby product market. The group operates maternal and infant product marketplace Beibei.com and Ximei, an invite-only e-commerce app for premium brands. The company has received a total of over $224 million in four funding rounds from investors like IDG Capital and Sequoia Capital China.

Lu Zhengyao, the founder of Luckin Coffee who was forced out of the company following a 2020 admission that as many as half the coffee chain’s sales were fiction, is back in the retail game. This time, he’s running what looks like just another noodle shop.

Qu Xiaomian, whose name you could translate as “Charm Noodles,” opened its first two locations in Beijing and Chongqing on Sunday. It serves Chongqing-style noodles and bingfen, a type of sweet jelly dessert popular in Sichuan. The company is reportedly targeting (in Chinese) a first wave of 500 shops.

For connoisseurs of retail strategy, the noodle chain is a letdown.

Luckin had three advantages: it was introducing consumers to a new habit, it was lean, and its product was crazy cheap. When it launched, coffee in China was a high-end niche product, dominated by Starbucks and specialty cafes. Luckin made it a daily necessity for millions of office workers, using locations in office buildings, delivery, and discounts to push coffee into consumers’ hands. A focus on app-driven pick-up and delivery let the shops stay lean on labor costs—it wasn’t uncommon to see only one person in a shop, working through a queue of fifty orders. 

Luckin never made a profit, but it grew like an invasive species to a peak of some 4,500 stores in 2019. When it was forced to cut back in the wake of the accounting scandal, it had opened a market for newer chains like Manner Coffee. Luckin never went away, and after a long quiet period trading on the OTC markets, it’s expanding again and claims to be profitable per-store.

READ MORE: The Big Sell | Luckin is not dead

Qu Xiaomian doesn’t seem to share any of Luckin’s advantages.

The product isn’t new to anyone in urban China. Chongqing xiaomian (little noodles)—essentially, a vivid red bowl of chili oil with some pickled beans and noodles for contrast—are a common breakfast food in their home city. Around 2015 or 2016, the meal broke into the national consciousness as a quick lunch, and a Chongqing noodle craze saw China’s cities carpeted with shops selling them. It’s died down a bit from the peak. Yet it’s still a challenge to find a mall in Beijing, or a cluster of restaurants near an office park, that doesn’t have at least one Chongqing noodle shop. Qu Xiaomian doesn’t do much to stand out. 

The Beijing location is a stall in an underground food court, sharing seating with neighboring restaurants. Located in a well-hidden corner of the basement of Phoenix Retail City, a high-end mall, it saw a bustling lunch trade a little past noon on Monday—perhaps 20 customers at one time, enough that the shop’s red bowls pushed into the space in front of food court neighbors, but not so many that it was hard to find a seat.

Luckin’s operational innovations are not in evidence at Qu Xiaomian. Customers do order on phones, but the WeChat mini-app is relatively clunky, requiring one scan to open the app and another to identify what shop you’re at. Staff count seemed high: I counted seven people preparing food behind the counter, four or five bussing tables, and two whose job seemed to be calling order numbers and helping customers figure out which bowl of noodles was theirs. Another three middle-aged men in polo shirts loitered attentively by a wall, discussing the business. Asked about business so far, they said “pretty good.”

Nor is the food distinguished by low prices, or especially high quality. Customers seemed neither over- nor underwhelmed. “It’s kinda spicy,” said a woman finishing a bowl of noodles. “It’s OK if you like spicy.”

The food was a little pricey, but generous. A bowl of wanza (crushed yellow pea) noodles, a soy-braised egg (lu dan), and a bottle of water cost me RMB 33 ($5.10). That’s more than you’d pay at a typical Chongqing noodle shop, but probably in line with a location in the embassy part of Chaoyang District. It is not offering discounts to first-time customers.

The noodles had a rich soup, and a good amount of the traditional toppings—even peanuts, which at a cheaper shop can be detectable only in trace amounts. It comes at only one level of spice, well-calibrated to be hot but not nuclear, allowing the customer to taste the other ingredients. But the noodles themselves tasted over-cooked, or hastily defrosted—short on al dente character. The braised egg was rubbery and bland.

An extensive jelly menu could be the shop’s distinguishing feature—a good third of the menu was taken up by bingfen, served in plastic cups and containing brightly-colored syrups. Colorful jellies could be a riff on the vast fancy tea market, which Luckin entered in 2019 to a muted reaction.

Bottom line: Qu Xiaomian doesn’t look like the Luckin of noodles. As of now, it looks like just another noodle shop.

CORRECTION: An earlier version of this article described wanza noodles as “crushed chickpea noodles.” Wanza sauce is in fact made from yellow peas.

Wang Chengwen, a former Alibaba employee who has been the focus of a #MeToo event after a female subordinate accused him of sexual assault, was applying for a job at ByteDance, according to various media reports Monday. 

Why it matters: Alibaba is facing intense public backlash over its handling of the employee sexual assault case. The company initially refused to fire Wang after the female employee reported the case, according to her recounts. 

READ MORE: Alibaba faces public outrage for alleged employee sexual assault case

Details: ByteDance confirmed the news with TechNode on Tuesday, saying they had the interview without knowledge of the sexual assault case and had stopped the interview process. 

Wang was evidently trying to switch jobs before the case became public over the weekend. He had passed the first round interview for a position at ByteDance, the company confirmed.

ByteDance said they will not hire employees with moral issues, adding that they will strengthen talent background checks.

Alibaba faces public outrage after a female employee accused her supervisor and a client of molestation and sexual assault in an internal post made public over the weekend. Her name was not revealed. She also accused the company, which refused to fire the supervisor because it wanted to “protect her reputation.” Alibaba has fired the alleged perpetrator and several of his managers after the news sparked public outrage on Saturday.

Why it matters: The case rekindled a public discussion on the difficulties and danger Chinese women often face at work. Once viewed as open, progressive, and lucrative alternatives to other employers, China’s internet giants are now facing a reckoning.

READ MORE: INSIGHTS | Founders behaving badly

Details: In a lengthy internal post, a female employee at Alibaba’s grocery unit Taoxianda accused her supervisor Wang Chengwen and a client of sexually assaulting her during a work trip in the eastern city of Jinan on the night of July 27. The post was leaked and made public over the weekend, quickly going viral on Chinese social media platforms. On Monday, it remains as one of the most discussed topics on Chinese social platforms such as Weibo and WeChat.

• According to the woman’s post, several of the company’s department heads tried to silence her after she reported the incident to the unit’s management. Senior managers told her they had decided not to fire Wang to “protect the accuser’s reputation.”
• In the post, the woman said she became intoxicated and lost consciousness after being forced to drink at a work dinner. She later learned through surveillance footage that she was “kissed,” “touched,” and “brought into an empty room” by a client.
• The woman said she woke up the following day in a hotel room naked, vaguely recalling being coerced into sexual acts by Wang. Through surveillance videos, she learned Wang had entered her hotel room four times during the night. 
• The woman called the police on July 28, and reported the incident to Alibaba on Aug. 2. 
• On Aug. 8, local police in Jinan said they are investigating the case in a Weibo statement.

Alibaba’s reaction: On Aug. 7, when the case first became public, Alibaba told media outlets that the company had suspended Wang, and wouldn’t tolerate behaviors like molestation and sexual assault. In a report after investigating the incident, Alibaba said that related managers and its human resources department “lacked empathy and made major judgment mistakes,” according to Caixin.

• Alibaba CEO Daniel Zhang said in the statement that the company had fired Wang, who confessed to performing “intimate acts with [her] while she was inebriated.” Two executives of its neighborhood retail business, Li Yonghe and Xu Kun, have resigned for “not making timely decisions or taking appropriate action.”
• Alibaba Group has a “zero-tolerance policy” against sexual misconduct and ensuring a safe workplace is a “top priority,” an Alibaba spokesperson wrote in a response to TechNode’s queries on Monday.

Anger on Weibo: A Weibo hashtag titled “Alibaba female staff was sexually assaulted”, had attracted 740 million views as of Monday morning. Some Chinese netizens are unhappy with the company’s responses. 

• A Weibo user with the handle of Nüde (meaning woman’s ethic in Chinese) wrote, “It took so long for the company to finally fire Wang. That’s because they made the move under social pressure rather than considering his behavior punishable.”
• “If what the female worker describes is true, this is not Alibaba, it’s the 40 thieves”, said a commentary posted by a WeChat account run by People’s Daily, referring to the Arabian folktale “Ali Baba and the Forty Thieves.“ 

Context: Alibaba has previously prompted public outcry for sexual incidents and its company culture. 

• Jiang Fan, then president of Alibaba’s Taobao and Tmall, was removed from the company’s partners committee after an alleged affair with a social media influencer in 2020. Jiang was widely seen as a potential successor to Daniel Zhang, the current CEO of Alibaba Group.
• Alibaba’s billionaire founder Jack Ma faced criticism for an off-color joke encouraging married employees to have more sex in 2019.

China’s ride-hailing giant Didi reportedly scaled back a community group-buy grocery unit, Chengxin Youxuan, Chinese media Late Post reported on Wednesday. The unit is pivoting its business strategy from loss-making expansion to earning money.

Why it matters: Cutbacks at Chengxin Youxuan come as two community group-buy rivals, Tongcheng Life and Tencent-backed Shixianghui, abandon the market after years of costly cash-fueled expansion. 

• Didi is still under a state cybersecurity review that began in early July.

Details: Chengxin Youxuan began to scale back its business in June, according to Late Post‘s report. The unit laid off about a third of its staff, began an all-staff pay cut, and relocated its head office from Chengdu to Beijing and Hangzhou. 

• Chengxin Youxuan has reportedly laid off around 30% of its employees since July. Most laid-off staff were in city management, business development, operations, and logistics and located in central Hunan and Hubei province, the report said.
• Chengxin Youxuan canceled bonuses in August, meaning a 20% pay cut for all workers. The unit also reduced travel subsidies. 
• Didi moved Chengxin Youxuan’s main office from Chengdu to Beijing and Hangzhou, closing the Chengdu office.
• The unit will relocate some staff back to Beijing and Hangzhou to focus on product research and development and data analytics, while sending more staff to front-line operational positions, Late Post writes, citing employees at the company.
• Didi didn’t respond to TechNode’s inquiries, made Thursday morning.

Context: In May, The Information reported that Didi planned a separate listing for the grocery unit as early as next year, hoping to bring a new revenue source to maintain growth as its core ride-hailing business slowed down. 

• In March, China’s top market regulator fined five community group-buy platforms a total of RMB 6.5 million (around $1 million) for price dumping. Targets included Chengxin Youxuan and rival platforms backed by Pinduoduo, Meituan, and Alibaba.

Chinese online grocer Shixianghui appears to have ended its community group-buy service amid fierce competition in the market and regulatory pressure. The service’s web site and mini-app are no longer functioning. Meanwhile, the company is raising funds for a new snack store business.

Why it matters: The Tencent-backed firm is the latest company to exit the highly crowded community group-buy market, which relies on part-time distributors using WeChat groups to sell groceries to their neighbors. Recent exit signals that the market is going through a new round of consolidation.

• Shixianghui’s retreat from community group-buy comes only three weeks after rival Tongcheng Life went bankrupt.

Details: Shixianghui’s official website and its WeChat mini-program are no longer accessible since last week. On Monday, local media found the company had moved out and emptied its head office in Wuhan. Once valued at $500 million, Shixianghui showed multiple signs of a possible shutdown in recent weeks.

• Both the website and the mini-program do not load as of Friday afternoon, with the mini-program displaying an endless loading wheel.
• Several senior managers left the company this month. Dai Shanhui, founder and chairman of Shixianghui, exited the platform’s operating body on June 30. Senior partner Du Fei announced his departure in a Weibo post on Monday.
• However, Dai denied bankruptcy rumors. He still owns more than 80% of the company, according to information from corporate intelligence database Tianyancha. In an interview with local media, he said that the firm is undergoing a business transition rather than going bankrupt.
• The company’s new community snack chain store Ailingshi is reportedly completing a funding round of up to $30 million.

Context: An early player, Shixianghui was once making profits before tech majors such as Alibaba, Didi, and Pingduoduo entered and competed with heavy subsidies.

• Dai claimed in a January interview that the company earned profits in all its locations in 2020, about 50 cities across China. The company brought in around RMB 200 million to RMB 300 million per month in sales.
• In March, Shixianghui was among the five community group buy companies fined for irregular pricing by China’s market regulator, the State Administration of Market Regulation. The other four companies were Didi’s Chengxin Youxuan, Pinduoduo’s Duoduo Maicai, Meituan’s Meituan Youxuan, and Alibaba-backed Nicetuan.

On a sweltering overcast Monday in Shanghai, thousands of hip, young Chinese people arrive at an exhibition hall in the far-west of the city. They’re there to check out the Taobao Maker Festival.

Currently in its sixth year, the festival is organized by e-commerce giant Alibaba. Every summer, the company turns Taobao, its popular online shopping platform, into a bustling real-life market, inviting young tech entrepreneurs to showcase new prototypes and products. The e-commerce leader is hoping to continue to capture young consumers’ attention.

The average age of festival merchants is 30 years old, with the youngest just 21 years old, said Chris Tung, Alibaba’s chief marketing officer, at a press briefing held on July 16. The event itself is not specifically tech-focused. The online retailer defines a maker broadly as any entrepreneur who creates a new concept or a product. 

Tung called Taobao Maker Festival “a window into the young people of China”. “What it is today for young people is what it will be tomorrow for commerce,” he said.

Products and services showcased at the festival cover almost everything: futuristic tech gadgets, unique Chinese-style handicrafts, new escape room concepts, plant-based meat, and more.

As always, we focused on tech-related makers’ stories at the festival, hoping to get a preview of the future trends.

Flying cars

As electric vehicles and autonomous driving become more familiar concepts to Chinese consumers, entrepreneurs are exploring the future of daily transportation.

Xpeng Huitian, an autonomous aviation unit at electric vehicle maker Xpeng Motors, showcased a recently revealed “flying car” prototype at the event. With eight propellers on four axes, the passenger drone could carry two adults. It has a maximum load of 200 kilograms (441 pounds). Voyager X2, the electric drone, can travel 35 minutes at between 80-100 km per hour on one charge. The flying car completed its first crewed test flight in June.

“X2 supports autonomous capabilities and could be used for air patrols, search and rescue, and medical transportation,” Xpeng Huitian representative Zhang Yongjiu told TechNode.

Also in transportation, Soco Xray is a triphibian electric vehicle that can travel in the air, on land (including snow and ice), and on water. Super Soco, a Nanjing-based electric scooter company, developed the prototype of the vehicle. 

The scooter maker sells its vehicles through Alibaba’s e-commerce platforms and more than 2,000 brick-and-mortar stores worldwide. The company sells scooters to over 73 countries.

Shenzhen-based electric skateboard manufacturer Exway offers skateboards that can travel 30-60 kilometers on one charge. Charging can take up to two hours. More than 70% of the company’s products are sold to overseas markets, a company employee said. 

Low calories and low fat

Young Chinese are embracing healthier and greener food trends. Since 2019, plant-based meat has been in vogue. This year, low-calorie and low-fat food are leading the scene. 

Boohee, a Chinese health management app that claims to have more than 120 million users, introduced crispy meat, a healthy potato chip-style snack that is made of protein and low in calories and fat. 

Baoji Dujiaoshou, which means muscular unicorn, launched a low-calorie burger with a transparent patty that contains only 4.18 calories. 

By Nice, a brand that produces low sugar and fat desserts, launched broccoli and melon ice cream, which contains fewer calories than a banana.

NFT real estate

Chinese artist Huang Heshan showed off a virtual real estate art project in non-fungible tokens (NFTs). Huang has partnered with NEAR Protocol and blockchain gaming firm Web3Games for the NFT project. 

Called TooRich City, or Butu Garden in Chinese, the project includes more than 300 villas and high-end units. Butu means “not going bald” in Chinese, expressing the artist’s hope that people won’t lose their hair over skyrocketing property prices in China. 

Huang created a fictional virtual character named Fulitu for the virtual real estate project. Fulitu is a bald, wealthy, and undereducated real estate developer. But in contrast to some real-life Chinese developers, Fulitu cares about regular Chinese people and develops housing for the poor.

READ MORE: CHINA VOICES | What China thinks of NFTs

Three months after a sweeping crackdown on “forced exclusivity,” Chinese regulators are moving to take more control over Chinese e-commerce companies’ pricing. The latest target of Chinese market watchdogs is price discrimination.

China’s State Administration for Market Regulation (SAMR) indicated that it would take a tougher stance on price discrimination when it proposed regulations on consumer pricing practices on July 2. Price discrimination is a kind of personalized pricing, where companies charge customers different prices for the same product or service by analyzing purchasing habits.

An online travel agency might hike up the price of an airline ticket for a user who is a regular big spender or has a history of last-minute purchases. Platforms even appear to charge their most loyal customers higher prices, who they think would be willing to pay more.

Meituan came under fire in late December after a viral WeChat post accused the food delivery giant of charging its paid members higher delivery fees than its free users. The writer of the post said that he was charged RMB 4 ($0.6) more for a delivery fee than a free user, even though he ordered from a member account for which he paid RMB 6 to RMB 15 per month. Meituan said the extra charge was made in error. TechNode could not independently verify the writer’s claims. 

Research conducted by Fudan University shows that ride-hailing apps charge an “Apple tax” to iPhone users, a group that is generally considered as premium in China. The report shows that iPhone users are more likely to get the pricier “chauffeured rides” and receive less of a subsidy compared with Android users. 

The new regulations would also punish price fixing, price dumping, and price fraud. Included in the 12 pages of proposed rules is a section on the pricing strategies of China’s tech economies, or companies using “new business models,” to use the regulator’s term.

SAMR is seeking public comment on the draft rules through Aug. 2.  

Companies operating under these “new business models” would be subject to a fine equivalent to 0.1% to 0.5% of their sales if they are found to charge different prices for the same product or services by leveraging big data and other technological means to predict users’ willingness to pay. The draft also forbids businesses from dumping products at low prices to create a monopoly. 

Illegal gains would be confiscated and companies could be required to suspend their business operations during a  rectification process. For serious violations, they could even lose their business licenses. 

Under Chinese law, price discrimination is already illegal. But Chinese regulators have largely tolerated these practices for the past two decades. 

Chinese consumers grapple with discrimination 

Amazon first experimented with price discrimination back in 2000, when the global e-commerce titan charged different prices to individual customers for the same DVDs. The company stopped in response to swift consumer backlash and still avoids the practice two decades later.  

But Chinese online businesses are widely believed to employ the revenue-boosting tactic. Platforms deny that they charge different prices to different customers—but few consumers believe it.

User complaints about the practice flood social networks and mass media. As of the end of June, there were over 1,300 submissions about price discrimination on Sina’s Black Cat consumer platform alone. The complaints concern nearly all major tech names in China, from e-commerce giants Alibaba, JD, and Pinduoduo, to food delivery apps Meituan and Dianping, to online travel platforms Ctrip, Qunar, and Alibaba’s Fliggy, to ride-hailing apps like Didi.

While price discrimination exists across industries, it is more prevalent in areas that offer services than those that sell physical and standardized products. “Sectors like online travel and ride hailing are more vulnerable to the practice compared with e-commerce and food delivery, which offer standardized physical products at steady costs,” said Zhang Yi, consulting CEO and chief analyst at iiMedia Research.

Denials from companies haven’t boosted user trust. Most consumers still believe price discrmination is ubiquitous in China. Results from a consumer report conducted in 2019 show that an overwhelming 88% of those surveyed believed online platforms leverage user data for personalized pricing to make users pay as much as possible. Meanwhile, nearly 60% said they have experienced the phenomenon.

Ctrip and Alibaba declined to comment when reached by TechNode.

A woman surnamed  Hu, a membership user of Ctrip, sued the online travel platform for price discrimination last year. She had reserved a hotel room for RMB 2,889 a night in July 2020 but, on checking out, she discovered the price of the room was only  RMB 1,377. A court in Zhejiang province ruled in favor of Hu, requiring Ctrip to pay RMB 4,777 in compensation.

A tricky concept

Although many users believe they face price discrimination, it’s difficult to prove—and its been going on for centuries.

In some ways, companies are bringing back an old way of pricing. People haggled over prices for most of our commercial history until the Quakers invented the “fixed” retail price tag in the mid-19th century. If people pay different prices for the same products, it’s difficult to tell whether it’s a discount or an overcharge.

Users believe that a variety of user data such as birthdate, educational background, occupation, geographic location, past purchases, web visits, and social media “likes” are used to feed the pricing strategies. The fact that personal data is freely traded on Chinese black markets for tiny sums has made the problem worse.

“As a matter of economics, there are both scenarios where price discrimination benefits certain categories of consumers and promotes overall consumer welfare and efficiency and also scenarios where it does not,” Nathan Bush, a partner with multinational law firm DLA Piper, explained to TechNode. 

A platform generally applies the practice to charge higher prices to customers who it concludes will be willing to pay more, mainly targeting premium members. These companies charge their lowest prices to users about whom they have the least data, raising prices once they see evidence of loyalty. 

From a seller’s point of view, the goal is to charge each customer the highest price he or she is willing to pay. Regulators and consumers see it as an unruly, unfair practice that does not benefit consumers. 

The Chinese term for the concept, “shashu,” literally translates as “killing someone you know,” underlining the fraudulent aspect of the practice by which platforms take advantage of the customers who use or trust them the most.

Crackdown on price discrimination

While there are laws forbiding price discrimination on the books, Chinese regulators rarely examined e-commerce platforms’ pricing strategies before 2020. Things started to change late last year as regulators waged a war on anti-competitive practices in the online world.

The 1997 Price Law (in Chinese) says merchants should price their products and services based on “production and operation costs and market supply and demand conditions.” It forbids merchants from “implementing price discrimination” when providing “the same products or services.”

The country’s 2008 Anti-Monopoly Law (in Chinese) also forbids practices such as “implementing differentiated treatment in transaction conditions such as the price” for the same goods. The clause, however, only applies to companies with a “market-dominant position,” or companies that enjoy more than 50% of a “relevant market.”

“Whereas the Anti-Monopoly Law treats price discrimination and predatory pricing as potential ‘abuses’ by dominant firms, the older Price Law contains much broader rules against price discrimination and predatory pricing that are not limited to dominant firms,” said Bush.

“Perfect” price discrimination—when a business charges a different price on every sale in an effort to get the highest possible price every time—is rare in conventional markets, but e-commerce makes it possible for companies to try, Wu Weiming, senior partner at Shanghai-based Allbright Law Firm, wrote in a note (in Chinese).

“On the internet, differentiated pricing for different consumers becomes possible. It is difficult for consumers to notice from their own web pages or mobile terminals even if their prices are different from other consumers,” Wu wrote. 

Not only market-dominant players

In November, SAMR proposed a set of antitrust guidelines targeting internet platforms. The guidelines for the first time pointed out that pricing products or services differently according to customer purchasing power, consumption history, or user preference is considered monopolistic behavior.

The guidelines, formalized in February, call for stricter regulation of unfair pricing practices. But the supplement to the Anti-Monopoly Law once again only applies to companies with dominant market positions. So far, SAMR has only deemed Alibaba a dominant player in China’s e-commerce market, fining the e-commerce giant $2.8 billion for “forced exclusivity” in April.

However, SAMR’s July 2 draft provision on illegal pricing activities is a major step closer to cracking down on price discrimination by all online marketplaces, because it also applies to non-dominant marketplaces like JD.com and Pinduoduo.

More hurdles to overcome

Even though the state is issuing tough regulations to crack down on price discrimination practices, there are more hurdles to overcome when it comes to execution. 

The unpredictability and uncertainty in pricing as a result of peak or low seasons and hours, among other factors, may lead to big price fluctuations. Therefore, it’s difficult to collect evidence to prove that the companies have boosted prices based on an individual customer’s characteristics.On top of that, regulating the practice will need the companies to share, at least with monitoring authorities, their recommendation and pricing algorithms, Chen Wenming, a lawyer with Zhejiang Xiaode Law Firm, told local media. This is a prime obstacle to regulating the practice, since most companies will be reluctant to offer this critical information, Chen said.

YCloset, a fashion rental startup, is shuttering its operations after five years. The company took its last orders on Tuesday.

Why it matters: YCloset’s collapse comes as investor sentiment sours toward the once-popular fashion rental market, which has proven to be capital intensive. As YCloset scaled, it struggled to keep up with high expenses in shipping, dry cleaning, and staying abreast of the latest fashion trends. 

• The fashion rental market boomed in China in 2017 as the country embraced the “shared economy,” an umbrella term meaning businesses exchanging services on a pooled resource. The term applies to tech firms such as ride-hailing giant Didi. Bike rental firm Ofo and car rental app Togo were two notable failures.

Details: YCloset stopped taking orders from users on Tuesday. The firm plans to discontinue support for sales and online channels by August 15, including services on its main app, WeChat mini program, and its website, according to a July 9 letter from the company addressed to customers.

• YCloset claimed it once reached 20 million users. The company said it is “deeply sorry” for the inconvenience caused by its decision to shut its doors and thanked its customers for their five years of support. The firm didn’t provide a reasons for the closure.
• Pablo Mauron, Partner & Managing Director China at Digital Luxury Group, told TechNode that the YCloset consumers “could not opt for one-time rentals, and brands in the subscription pool were not that inaccessible in terms of price either.”
• “I would not say that the clothing renting model is unsustainable in China. With the right positioning and options for consumers, it can potentially work,” Mauron added.
• YCloset is also known as Yi23. Yi means clothing in Chinese.

Context: Founded in 2015, YCloset operated a business model similar to US counterparts Stitch Fix and Rent the Runway. The company targeted female users and allowed subscribers to rent branded apparel and accessories. 

• The Beijing-based company charged a monthly subscription fee of RMB499 ($70) for unlimited rentals. Three to five pieces of clothing could be rented at one time. 
• The firm also helped brands promote their products by encouraging users to buy the rentals. 
• The company raised a combined $70 million in six rounds of financing from prestigious investors like Alibaba, SoftBank, IDG Capital, and Sequoia Capital, according to intelligence database Crunchbase. 
• YCloset’s most recent investment was received in 2018 from Alibaba, a backer of American fashion rental platform Rent the Runway.

UPDATE: The story has been updated with a new quote.

Local service superapp Meituan is cutting back on mobile power bank rentals while bringing back a ride-hailing app, as ride-hailing market leader Didi faces a cybersecurity review. Tea drink chain store Heytea secures $500 million in Series D. Amazon expands a crackdown on Chinese sellers.

Meituan adjusts offerings

• Meituan plans to downsize its mobile power bank rental service, Chinese media reported on Wednesday. Donews reports that Meituan is selling its rental service in 33 Chinese cities to local operators. Most of these cities are second-tier ones such as Jinan, Baoding, and Changsha. Gao Cheng, head of the rental service division in Meituan, recently left the company. Many business development staff from the division have transferred to Meituan Youxuan, a community grocery division. [Donews, in Chinese]

• Meituan relaunched a standalone ride-hailing app on Friday, three years after removing Meituan Dache to cut expansion costs. The launch came as market leader Didi’s apps are banned from accepting new users during a cybersecurity review. Meituan’s ride-hailing service continued operating as a mini-program within the Meituan super app during the app’s hiatus. [SCMP]

Heytea raises half a billion

Modern tea drink chain store Heytea completed a $500 million Series D. Investors include Sequoia Capital China, Hillhouse Capital, Tencent Investment, and Temasek. Founded in 2012, Heytea popularized “cheese teas” and runs about 695 stores across China. The brand is popular among young, urban Chinese consumers. [Ebrun, in Chinese]

Amazon widens crackdown on Chinese sellers

Amazon closed 340 online stores operated by one of the largest Chinese retailers on the platform for allegedly violating Amazon’s rules without specification. Shenzhen Youkeshu Technology Co. sells a variety of products, including electronic gadgets, toys, and outdoor equipment. Amazon froze $20 million in payments due to the retailer. The ban may reduce Youkeshu’s first-half sales by 40% to 60%, according to a recent filing by the retailer’s Shenzhen-listed parent Tiza Information Industry Corp. Amazon banned in June three electronics brands under Shenzhen-based electronics company Sunvalley Group for soliciting positive reviews with gifts. [SCMP]

Suning chairman steps down after bailout

Zhang Jindong, the billionaire founder of Suning, resigned as chairman of the Chinese retail conglomerate this Monday. Zhang lost control of the company when the business sold a nearly 17% stake to a government-led consortium. On July 5, the troubled retailer secured a $1.36 billion bailout offer from a group of investors led by the state asset management committees of the Nanjing and Jiangsu governments. Alibaba also joined the funding consortium, alongside Chinese electronics makers Midea Group, Haier Group, Xiaomi, and TCL Technology Group. [Bloomberg]

Louis Hinnant contributed to the reporting. 

Tubatu, a Chinese home furnishing platform, filed for an initial public offering on the Shenzhen Stock Exchange’s tech-focused Growth Enterprise Market (GEM) late last month.

Why it matters: Tubatu runs an online marketplace to connect customers, decoration companies, designers, and construction material providers. China’s domestic stock market is gaining traction among tech companies in China amid stricter scrutiny of US listings. 

• Tech-focused markets, including Shenzhen’s GEM board and Shanghai Stock Exchange Science and Technology Innovation Board, are popular listing destinations for medium-sized tech firms, often leaders in smaller vertical markets.

Details: Tubatu plans to raise RMB 700 million ($108 million) by offering up to 60 million shares, according to its prospectus filed on June 30. The filing came three years after a failed attempt to go public in Hong Kong.

• Tubatu said the raised funds will be used for improving technological capability, upgrading information systems, and expanding regional coverage, among others.
• The firm’s revenue increased from RMB 583 million to RMB 680 million in 2018 to 2019, but that figure dropped to RMB 615 million in 2020 due to the negative impact of the COVID-19 pandemic.
• The company’s net profit more than doubled between 2018 and 2020 to reach RMB 86.6 million.
• Tubatu claims to serve about 114,000 renovation companies and 9,000 material suppliers currently.
• Based on its IPO size, Chinese media expect the company’s market valuation to be around RMB 3 billion, much lower than the RMB 10 billion valuation cited in Hurun’s 2020 Global Unicorn Index.
• Tubatu’s low market valuation comes from an over-reliance on online service revenues, such as matching landowners with decoration companies. Revenue from online services represented 99.94% of the company’s total revenue in 2020, up from 96.34% in 2019 after the company scrapped a low-profit home decoration service.

Context: Home furnishings is a big market in China, where apartments often come without finishes like paint, cupboards, or flooring. China’s online home decoration market reached RMB 400 billion ($61 billion) in 2020, according to data from research agency iiMedia.

• The company also offers construction supervision services and Zhuangxiubao, a payment app that ensures customers only pay after satisfying renovations.
• Founded in 2008, Tubatu has raised a combined $216.5 million in three rounds of financing, according to intelligence database Crunchbase. Its last round was in 2015 when it raised $200 million from Sequoia Capital, Matrix China, and 58.com in its Series C.
• Qeeka Home, a rival of Tubatu, has seen its share price more than halved since it debuted in Hong Kong in 2018.

China Tech Investor is a weekly look at China’s tech companies through the lens of investment. Each week, hosts Elliott Zaagman and James Hull go through their watch list of publicly listed tech companies and also interview experts on issues affecting the macroeconomy and the stock prices of China’s tech companies.

Make sure you don’t miss anything. Check out our lineup of China tech podcasts.

In this episode the guys welcome Emma Lee back to discuss MissFresh and Dingdong Maicai. Key topics include what grocery e-commerce is, who the players in the space are, how they are different, and more. Elliott and James also discuss Didi Global. The conversation with Emma Lee was recorded on July 1, 2021 and the rest of the episode was recorded on July 2, 2021. 

Hosts may have interest in some of the stocks discussed. The discussion should not be construed as investment advice or a solicitation of services.

Watchlist:

• Tencent
• Alibaba
• Baidu
• Bilibili
• Xiaomi
• JD
• Pinduoduo
• Meituan-Dianping
• Kuaishou

Hosts:

• Elliott Zaagman– @elliottzaagman
• James Hull– @jameshullx

Guest:

• Emma Lee – TechNode

Editor:

• Peter Isachenko

Podcast information:

• iTunes
• Spotify
• RSS Feed
• Music: “Hey Ho” by Steve Jackson, Royalty Free Music

Alibaba strengthens its local services to combat Meituan. Troubled retailer Suning gets a $1.36 billion bailout from Alibaba and a provincial government. Chinese regulators to increase penalties for misleading price practices. Nayuki Tea goes public in Hong Kong. Logistics firm Yunquna raises funds to expand overseas network. 

Alibaba gets competitive with Meituan

E-commerce giant Alibaba has reconstructed operations to establish a new life services division. The new division includes mapping platform AutoNavi, online travel agency Fliggy, food delivery app Ele.me, and local services connector Koubei. The move will help Alibaba to compete with Meituan, a local service giant in China. (SCMP)

Suning bailed out

Troubled retailer Suning will receive an RMB 8.8 billion ($1.36 billion) lifeline from an investment group that includes Alibaba, rivals Midea and Haier, and the Jiangsu provincial government. The coalition will hold 16.96% of equity and Suning’s founder Zhang Jindong will lose majority control of the company. (Bloomberg)

No more price manipulation

China’s top market regulator further restricted e-commerce platforms from manipulating prices on their platforms price manipulation . In a July 2 directive, the State Administration for Market Regulation specified that it will increase penalties for price dumping, price hikes, and disregarding government price controls. (Government statement, in Chinese)

Nayuki Tea IPOs

Nayuki Tea, a chain that offers modern tea-based drinks, raised HK$4.84 billion ($623 million) in a Hong Kong IPO on June 30. The tea store, which now also sells coffee-based drinks, competes with rivals like fruity beverage chain HeyTea and coffee chain Luckin. The company’s shares fell more than 10% on the morning of its first trading day. (Yicai, in Chinese)

Yunquna to expand overseas network

Chinese logistics firm Yunquna announced on June 29 that it had raised $150 million in its Series D. Citic Capital led the investment and China Renaissance served as the financial advisor. The company said it will use the funds to expand its overseas destination ports and improve shipping and delivery speed. (Caixin Global)

Luckin discloses fraud details

Chinese chain store Luckin Coffee released an amended 2019 financial statement on June 30, the first filing since it admitted fraud in 2020. The company booked a loss of $454 million in 2019 and inflated revenue by nearly RMB 2.12 billion. (TechNode)

China’s society is aging fast. According to the latest census data, released in May, 264.02 million people in China are 60 or older. That’s 18.7% of the population. There are 190.64 million people 65 or older, accounting for 13.5% of the population. Life expectancy in the country has also increased. 

Taking into consideration the number of people over 50 and the slowing birth rate, it will be crucial for companies to pay close attention to the needs of the silver-haired generation in the coming decades. They have savings; they want to improve their own, their children’s and their grandchildren’s living standards; and the consumption channels they use are increasingly digital.  

People who grew up without credit cards or internet banking are now using their phones regularly to both make and receive payments, pay bills, hail taxis, shop, and purchase property. 

Digital literacy plans 

As of June 2020, only 10.3% of internet users were 60 or older, according to the China Network Information Center. More than 60% of people over 60 in China do not use the internet, but surveys show that they have a strong interest in digital services for shopping, entertainment, socializing, accessing healthcare services, and staying connected with their family members. To bring more seniors online, the Chinese government has asked websites and apps to redesign themselves to be more senior-friendly through modifications like bigger fonts and deleting pop-up ads. 

A profile of the digital silver generation 

China’s silver-haired generation is often perceived as traditional grandmas and grandpas who find tech incomprehensible, but those that are online are some of China’s most committed users. 36.69 million over 60s have a high school education or higher, and some already rely heavily on their mobile phones, using  mobile apps at least five times a day. Elderly internet users start using apps and surfing on their mobile phones at 5 a.m.-7 a.m. (link in Chinese). The influx peaks at 9 a.m. before dropping. Qutoutiao also reports that the average daily usage time of those over 60 is 64.8 minutes per day, which is 16.2 minutes longer than users over 40, and that they tend to stick to short video platforms. 

Silver-haired internet celebrities 

There are more and more older influencers and wanghong—people who are “internet famous” and focused on commercial activities and marketing. 

A recent Questmobile study shows that the ratio of influencers (who are usually called key opinion leaders/KOLs in China), older than 46 was 11.4% on Douyin, 10.2% on Kuaishou, 9.1% on Weibo, and 8.4% on Xiaohongshu.

One example is Grandpa Kang, who goes by kangye1937 on TikTok, Douyin, and Instagram. He became very popular on Douyin (China’s internal version of the app) and TikTok (the international version of the app), showing his fashion sense and how older people enjoy life in the big city. 

Screenshots via Douyin © @Kangye1937

Silver-haired wanghong are also live streaming. “I am Grandma Tian,” has gained 33.37 million fans on Douyin and achieved sales of 1.5 million RMB in her live broadcast debut in May last year (source in Chinese) selling primarily snacks and drinks.

Screenshots via Douyin © @tlaolao

Another example, “Grandma Wang,” a popular older influencer who specializes in skincare products, says she “only wears high heels.” She achieved sales of 5.3 million RMB in a single live broadcast.

Screenshots via Douyin © @wnn111111

Covid-19’s effects on shopping 

Due to Covid-19, elderly people found new ways to shop for fresh groceries. According to Deloitte, 25.4% of the new users for fresh grocery apps during the Lunar New Year, 2020 were 41 or older. Fresh grocery shopping app MissFresh (Meiri Youxian) found that its users over the age of 40 increased by 237% (source in Chinese), and that 90% of these older users surveyed were doing mobile grocery shopping with the help of their children.

This has accelerated online shopping becoming a habit for some in the older generations. According to CBNData and Age Club (source in Chinese). The number of over-50s shopping via live e-commerce is increasing year by year, and more than 60 million middle-aged and elderly people are making purchases during live streams. On Taobao, 24% of users were born in the 1970s or earlier, and there are about 1,000 Taobao Live broadcasts every day aimed at the middle-aged and elderly market.

Older users are mainly attracted by low prices and good deals, according to the study. 18% of middle-aged and elderly people say they feel lost if they don’t get good deals during live broadcasts. That’s why they tend to engage during live streams and share links with their children. 

Digital products and services for the elderly 

Even before Covid-19, China was increasing its use of technology for services for the elderly. For example, the facial recognition app laolai.com was used by the government to confirm identities and social security payments for the elderly. Laolai also has an official WeChat account to help seniors get important information about digital services. 

Screenshots via 老来网 laolaiwang

WeChat also introduced helpful features several years ago when tech giants were encouraging users to use family accounts to help older family members and arranging courses to teach older people how to use apps and shop online. There are also special apps that combine these kinds of services like one called Oba (translation: “Dad”).

 Screenshots via 偶爸 Ouba

The need to cater to the needs of seniors is also being mandated. In February 2021, the Ministry of Transport ordered that major ride-hailing companies like Didi, Dida etc. upgrade their apps to make it possible to hail a taxi with just one click.

We’ll see in the next few years how China’s digital space transforms to meet the needs and interests of elderly people and how marketers pay attention to their online lives. They have very strong purchasing power, so brands need to keep up with grandma and grandpa.

Chinese chain store Luckin Coffee released an amended 2019 financial statement on Wednesday, its first financial reports since it admitted to fabricating sales in April 2020.

Luckin’s stock price jumped up more than 20% on the news. The company was delisted from Nasdaq in June 2019 and now trades through the over-the-counter market or pink sheets.

Why it matters: The filing revealed that the company spent almost twice what it earned in 2019, suggesting that giving away free coffee may not be a sustainable business model. It reported a loss of $454 million for the year, compared to $434.5 million in revenue. The statement also confirmed how the size of the fraud, and gave the amount of fictional costs for the first time.

READ MORE: The Big Sell | Luckin is not dead

Details: Luckin released restatements of unaudited results of the second and the third quarter of 2019, as well as an unaudited result of the fourth quarter of 2019. The fourth-quarter result, released for the first time to the public, was postponed due to the fraud scandal.

• Luckin disclosed in the update that the company inflated its 2019 revenue by nearly RMB 2.12 billion ($328.3 million), slightly less than the RMB 2.2 billion previously estimated. The company’s fabrication grew more than four times over the quarters of 2019, from RMB 250 million in the second quarter to RMB 1.17 billion in the fourth quarter.
• According to the new figures, net revenue in the second and third quarters of 2019 reached RMB 653.4 million and RMB 843.2 million, respectively, restated from RMB 870.0 million and RMB 1.5 billion in earlier, false filings.
• Luckin reported losses of RMB 1.13 billion on RMB 1.05 billion in revenue for the fourth quarter of 2019. The losses doubled from the same period last year, while revenue went up 125.6%. 
• Total operating expenses in the fourth quarter of 2019 were RMB 2.19 billion, representing an increase of 97.2% from the same period a year ago. The company says this growth was driven by business expansion. 
• The company attributes the growth in revenue in the fourth quarter to attracting new customers and repeat customers by issuing coupons, discounts, and adding non-coffee drinks. 
• Luckin said on Wednesday in a separate statement (in Chinese) that as of June, it operates more than 5,200 stores in China. The statement, if verified, could mean the company has again overtaken Starbucks as the largest coffee chain store in China. Starbucks runs 5,000 stores in the country, according to its website.

Context: Luckin admitted accounting fraud in April 2020. Several employees, including its COO, had fabricated transactions for much of 2019, amounting to an estimated RMB 2.2 billion in falsified sales.

Chinese on-demand grocer Dingdong Maicai raised $95.7 million in a US IPO on Tuesday after pricing its shares at the lower end of the range. 

Why it matters: Dingdong Maicai’s debut received a lukewarm reception, even after cutting its original IPO target by 74% a day before the debut. Coming days after its rival MissFresh’s disappointing Nasdaq debut, it reflects declining market sentiment for Chinese online grocers. 

Details: Dingdong Maicai went public on the New York Stock Exchange on Tuesday, just four days after its rival MissFresh debuted to a disappointing result on Nasdaq. 

• Shares of Dingdong Maicai inched up 0.09% on the first trading day, and rose 5.23% in after-hours trading.
• The company raised only a quarter of its original target of $357 million. It reduced the target 74% to $94.4 million a day before. 
• Dingdong Maicai’s founder and CEO Liang Changlin told local media that the company has “sufficient cash” after raising a combined $1.03 billion in two funding rounds finalized in April and May this year.
• Liang added that those private investments had allowed Dingdong to be flexible in the IPO. “Fundraising is not the primary goal for this IPO,” Liang told local media. 

Context: MissFresh closed at $8.65 on Wednesday, after falling more than 30% from its $13 offering price.

Online grocer Dingdong Maicai slashed the target for its US initial public offering by nearly 74% on Monday, just three days after the company’s rival MissFresh debuted to disappointing results on the Nasdaq. 

Why it matters: Dingdong’s downsizing signals a cooling appetite for Chinese online grocers as the sector grows more competitive and attracts regulatory attention. 

• Dingdong’s rival MissFresh saw its shares drop by more than 30% following its Nasdaq debut on June 25. 

READ MORE: MissFresh shares sink on IPO as grocery faces bumpy ride

Details: In a Monday filing, Dingdong Maicai said it plans to raise $94.4 million in its US IPO, down by more than 70% from its original target of $357 million. Chinese media reported that Dingdong plans to go public on June 29 on the New York Stock Exchange.

• The Shanghai-based company plans to offer fewer shares, reducing its offering from 14 million shares to 3.7 million.
• Dingdong set a price range of $23.5 and $25.5 per share.

Context: Founded in 2017, Dingdong Maicai offers fresh produce and grocery deliveries through a mobile app. The platform’s most popular categories are vegetables, fruit, and seafood. 

• The company saw its orders more than triple between 2019 and 2020, thanks to a surge in demand for grocery delivery services during the coronavirus pandemic. 
• The company secured more than $1 billion in investment in April and May. Investors include some of the most prestigious global funds, such as SoftBank Vision Fund, Tiger Global Management, and Sequoia Capital China.
• Dingdong Maicai and MissFresh are operating on losses and burning cash to fend off fierce competition from tech giants, such as Alibaba, Pinduoduo, and Meituan.
• China’s market regulator has kept a close watch on the online grocery sector. In March, regulators fined five platforms totaling RMB 6.5 million (about $1 million) for irregular pricing. The companies included Pinduoduo’s Duoduo Maicai and Didi’s Chengxin Youxuan. Dingdong wasn’t fined, but the company has been punished by regulators for food safety complaints at least 19 times, Chinese news reported.

Chinese online grocery delivery startup MissFresh (Meiri Youxian) met a cool reception in US markets Friday. It raised $273 million in a Nasdaq IPO after pricing its shares at $13, the lower end of the expected range. The Tencent-backed company’s shares plunged 26% to close at $9.6.

It’s the latest sign of investor concerns about China’s competitive grocery delivery market.

The rise of “community group buy” has attracted a stampede of players backed by deep-pocketed tech giants like Pinduoduo and Alibaba, triggering a costly price war at the discount end of the market. Stricter regulatory control also casts a shadow. MissFresh, which offers on-demand delivery in more upscale markets, is not a community group buy platform.

MissFresh’s on-demand rival Dingdong Maicai reportedly also trimmed the price of its offering in the face of negative market sentiments. It doesn’t help that both MissFresh and Dingdong are still in the red. 

MissFresh CEO Xu Zheng told TechNode that the company has plans to defend its turf and expand into the “sinking market” in an exclusive interview after the company’s US stock debut.

China’s neighborhood retail market is “massive,” with market value forecast to reach nearly RMB 15.7 trillion by 2025, Xu said. “The market of this size is big enough to accommodate diversified user demands and different business models,” he said.

Watching costs

MissFresh is cutting back on delivery infrastructure in a bid to achieve profits. The company’s core grocery delivery businesses is built on “distributed mini warehouses” (DMW), which the firm claims to have invented.

Grocery delivery operated under the DWM model will continue to be the company’s main source of revenue, Xu said, but it will focus on what Xu describes as “high-quality” growth. 

The DWM model, in which products are picked from warehouses placed in residential neighborhood for quick delivery, delivers quick order fulfillment and lower attrition rate, but it’s expensive. Pre-pandemic, these costs threatened to sink the industry.

The DMW model saw a resurgence in 2020, when China’s online grocery delivery market received an unexpected boost from the pandemic, as locked-down consumers went online.

READ MORE: Covid-19, an opportunity for e-commerce

The model is used by many companies including MissFresh, Dingdong Maicai, and Meituan Maicai. But the market boom created an increasingly competitive field that offers few opportunities other than cash-fueled growth.

While its rivals have poured money into aggressive expansion plans, MissFresh has gradually downsized its physical operations over the past two years. The company’s prospectus showed that it was operating only 631 mini-warehouses in 16 cities as of March, less than half its 2019 count of over 1,500.

The company has focused on high-yield buyers: Xu said he’s targeting young mothers, aged between 26 to 45. The company booked a high per order sales of RMB 94.6 (about $14.5) for its on-demand retail business in 2020, the highest among its peers, according to iResearch.

The strategy has paid off with a narrowed net loss. MissFresh’s net loss dropped to RMB 1.7 billion in 2020, from RMB 2.9 billion one year before. By contrast, Dingdong’s net loss widened to RMB 3.2 billion in 2020 from RMB 1.9 billion in 2019 as the company pushed harder for expansion.

But there’s also downsides. Cutbacks in operations have meant slowed growth. The company booked RMB 6.1 billion revenue in 2020, slightly higher than its RMB 6.0 billion in 2019. Meanwhile, Dingdong Maicai recorded RMB 11.3 billion in revenue in 2020.

Cheaper community group buy services, which bundle deliveries for a whole neighborhood into a once-a-day drop-off, have done better in lower-tier markets.”

Digitizing the wet market

Facing intensified competition in its core business, Xu said MissFresh is poised to break into lower-tier markets with an approach that works together with the wet markets that currently rule the roost.

“Fresh markets remain the go-to place for fresh produce shopping. In big cities, offline wet markets represent 30% to 40% of fresh produce shopping, and they represent 70% to 80% of the shoppings in small cities or towns,” said Xu (our translation).

MissFresh plans to use its IPO proceeds to fund efforts to digitize China’s offline wet markets and enhance AI-driven retail cloud services. The company plans to invest a combined 40% of funds raised in the two initiatives, on par with the 50% proceeds budgeted for sales, marketing, and technology for the on-demand retail business. The rest will be used for general corporate purposes, according to the company’s prospectus.

Both of the new businesses are quite young. The company launched its intelligent fresh market business in the second half of 2020. It promises to help wet markets to optimize their merchant mix, while providing electronic payments, online marketing, and customer management tools. The company’s retail cloud business initiative, launched in 2021, offers AI-based smart supply chain, smart logistics, and smart marketing solutions to enhance automation level and efficiency.

The two businesses are targeting emerging markets in lower tier cities, where upcoming community group-buy rivals like Pinduoduo’s Duoduo Maicai and Xingsheng Youxuan first took off.

Xu sums up the team’s innovation philosophy as “respecting the underlying market laws and breaking the rules”. “While respecting the underlying laws of different market, we should be prepared to break outdated rules,” said Xu.

China’s second largest annual shopping festival, 618, has traditionally been a key battleground for the country’s e-commerce companies. But this year, the stakes are higher. E-commerce platforms not only have to contend with each other, but with an ambitious group of short-video and grocery delivery apps looking to grab a piece of the pie. 

Since online retailer JD.com launched the shopping festival in 2010 to mark its anniversary on June 18, the event has grown into a mid-year shopping extravaganza. The festival is second only to Singles’ Day, created by Alibaba in 2009 and held annually on Nov. 11. 

This year, e-commerce sales across platforms grew by a quarter year on year to reach RMB 578.5 billion ($89.6 billion) during the festival, data from China-based data services company Syntun shows. 

E-commerce platforms still hold the home-court advantage, but are defending multiple fronts. New rivals like short video platforms Douyin and Kuaishou offer enticing interactive and social content at a time when e-commerce companies are grappling with the increasingly diverse demands of users.

Upcomers

The decade-old 618 shopping extravaganza is no longer a three-horse race. Gone are the days when Alibaba, JD.com, and Pinduoduo were the only players going head to head. Now, nearly all major Chinese apps are looking to capitalize on the event. 

While it’s not the first time that short video apps Douyin and Kuaishou have taken part in 618, the two companies appear to be getting serious about the event. Neither have released their sales figures for the shopping festival, but both companies are making significant inroads. 

• Douyin went all-in on 618 promotions this year by hosting  a slew of promotions. The company started its pre-sales campaign as early as May 25. The company also rolled out a game called “The Interaction City” to engage users, and provided commissions to entice merchants. 
• Douyin didn’t reveal sales figures, but said merchants on the platform nearly tripled their revenue compared with last year.
• Instead of 618, Kuaishou celebrated its own shopping festival, dubbed 616, on June 16th. Held just two days earlier than 618, the festival is able to capitalize on the shopping season but is unique enough for Kuaishou to brand the festival as its own. Like 618, 616 is a month-long event that spans from May 18 to June 16. The company didn’t release overall figures, but said its sales in May more than doubled compared with a year earlier. 

Varied approaches

While short video apps have large user bases with extended user retention, they have relatively underdeveloped e-commerce ecosystems. 

To make up for this, the apps have taken different approaches to expand their e-commerce businesses, either by integrating online shopping into their platforms to convert awareness into purchases, or by leveraging established advantages in content to expand market share and deepen cooperation with brands, Chris Mulliken, consulting partner at EY, told TechNode.

“Others continue to expand sales conversions but through external links to other platforms,” said Mulliken. Short video apps have also partnered with e-commerce platforms—as long as the retailers only play the role of supplier or logistics service provider.

In the lead up to 618 last year, Kuaishou reached a deal with JD, allowing Kuaishou users to  purchase the e-commerce giant’s self-run products without leaving the short video app. This allowed Kauishou to lock users into its app, while leveraging JD’s stock and delivery capabilities. Douyin struck a similar deal with Suning in 2020.

Grocery delivery

Short video apps aren’t the only one with their sights set on 618, grocery and fresh produce delivery platforms are also upping the ante. Overall sales through on-demand grocery delivery apps, such as JD Daojia and Meituan Shangou, reached RMB 17.8 billion during this year’s 618, Syntun data shows. The Syntun report shows JD Daojia topped the category, followed by Alibaba’s fresh produce delivery service Taoxianda and Meituan’s Shangou.  

• JD-backed on-demand retail platform JD Daojia doubled sales from June 1 to June 18 compared with the same period last year. On June 18, the peak of the festival, the company set a new sales record of more than RMB 300 million, the most it had ever made in a 24-hour period.
• Meanwhile, Meituan’s grocery delivery business Meituan Shangou rolled out 618 promotions for the first time, targeting the grocery category.

“In the post-pandemic era, O2O platforms are seizing more opportunities brought by change in consumer behavior and economic recovery”, EY’s Mulliken said.

“We see a future wherein all of these future trends converge—social media, online video, livestreaming, e-commerce—into integrated platforms that provide a premier customer engagement experience which then can conclude with the consumers making a purchase,” he added.

E-commerce giant still rules, for now

This years’ 618 saw new sales records, but growth is slowing. 

As China’s mobile internet population reaches its ceiling, there are fewer first-time online users to acquire, forcing the companies to go after the existing internet users. This group tends to maintain a loose connection with a particular app and use multiple apps at the same time.

“It is the ‘relationships’ and ‘content’ that triggers online purchases, rather than promotion activities,” according to Zhuang Shuai, the founder of Beijing-based consulting firm Bailian. Nevertheless, e-commerce companies are still coming out on top.

China’s overall e-commerce sales across platforms for the 18 days from June 1 to 18 reached RMB 578.5 billion ($89.6 billion), according data from Syntun. Sales grew 26.5% year on year, but slowed from a growth rate of 43.8% in 2020. Growth during last year’s  618 was mainly driven by recovered consumption demand and government support to drum up China’s post-Covid recovery. It’s a big increase from 11.8% year on year growth in 2019.

Syntun’s report shows that livestream e-commerce has gained traction. During this year’s festival, sales through livestreaming reached RMB 64.5 billion, or 11% of the total value of all goods sold. 

Alibaba still leads the pack in terms of total 618 sales. The company is followed by JD and Pinduoduo, according to Syntun. JD was the only company to release sales figures, while all other companies described growth in vague terms. 

• Alibaba published overall sales data last year but did not release figures for this year. The company recorded RMB 698.2 billion in gross merchandise volume last year. Tmall, the company’s business-to-consumer marketplace, more than doubled the number of brands it offers on the platform, reaching 250,000 this year. 
• Huge discounts are still a major selling point for Tmall, which served up RMB 10 billion in consumer coupons and subsidies for this year’s festival. 
• Livestreaming was another highlight for Alibaba. All three of China’s top livestreaming celebrities—lipstick king Li Jiaqi, Viya, and Cherie— aired on Taobao Live during the festival. 
• This year’s 618 was a big deal for Alibaba. It was the first shopping festival since the company’s record antitrust fine. 

JD did release sales numbers. The company racked up a record RMB 343.8 billion between June 1 to June 18, up from RMB 269.2 billion last year. 

• The figure represents a growth rate of  27.7%, lower than last year’s  33.6%. 
• JD’s 618 marketing campaigns ran between May 24 and  June 20, during which more than 90% of the core brands on its platform participated in the event, the company said. 
• Around 90% of consumers received their orders either on the same day or with next day delivery during the festival.

Pinduoduo also did not publish its overall sales figures. The company said it offers value-for-money products throughout the year, so its users don’t need to wait for shopping festivals to get good deals. 

• The company emphasized celebrating the two year anniversary of the RMB 10 billion subsidy program in late May, rather than 618.

Suning booked a 117% year-on-year increase in sales volume of imported beauty products and a 106% year-on-year jump for imported wellness products, the company said, without providing concrete figures. Suning said it saw a “significant increase” in sales of imported products during its 618 shopping festival, according to the company. 

Free from forced exclusivity

With stricter regulation on monopolistic practices, this year’s 618 was China’s first forced exclusivity-free shopping festival of the past decade. 

Forced exclusivity, which forced merchants to sell exclusively on one platform, was widely adopted by e-commerce companies as they sought merchant resources. This was especially true during shopping festivals, when every merchant is scrambling to fill orders. 

Massive orders during a few peak days may result in over-subscription from buyers. As a result, platforms signed exclusivity agreements with merchants to ensure sufficient stock to fill orders.

One of the most notable forced exclusivity incidents occurred during 618 in 2019. Home electronics manufacturer Galanz accused Tmall of hiding its products from search results after the company rejected Tmall’s plea to remove its listings from rival platform Pinduoduo.

Without forced exclusivity, brands can list on as many platforms as they want in order to access customers, resulting in a situation when every e-commerce platform offers a similar lineup of brands and products. Under these circumstances, providing users with unique shopping experiences, through livestream and short video for example, could be key to the success of platforms in the future. 

However, the over-subscription issue could persist, leading to more pressure to fulfill orders and increase delivery efficiency during the festival. 

For e-commerce latecomers like Douyin, removing forced exclusivity levels the playing field, allowing short video apps that aspire to expand into the e-commerce market to avoid the harsh battles Pinduoduo faced when challenging Alibaba a few years ago.

Aihuishou IPO up 23% on its debut in New York. Huitongda, a supply chain company focusing on rural Chinese retailers, applied for an initial public offering in Hong Kong. China’s e-commerce platforms wrap up the biggest 618 shopping festival to date. Amazon blacklists three Chinese sellers for soliciting positive reviews with gifts.

Aihuishou debuts, Huitongda to come

• Used electronics reseller Aihuishou debuted on the New York Stock Exchange on June 18. The JD.com-backed company saw its shares jump about 23% on the first trading day. (Caixin Global)
• Huitongda, a company providing supply chain services and other services to rural retailers in China, filed an initial public offering to be listed in Hong Kong on June 18. Key investors include China International Capital Corporation, Citibank, and China Renaissance. Despite operating on a loss, the company’s revenue had grown from RMB 29.8 billion to RMB 49.6 billion ($4.6 billion to $7.7 billion) from 2018 to 2020. (Sina Finance, in Chinese)
• Chinese online used car dealer Uxin secured up to $315 million in new investment from Nio Capital and Joy Capital. More than 10 key investors have agreed to hold their investment for nine months. Meanwhile, the Nasdaq-listed company reached agreements with its holders of convertible notes (financial instruments that can convert into stocks), including 58.com, TPG and Warburg Pincus, to convert their notes into $69 million of Class A share of the company. (TechNode China, in Chinese)

618 shopping festival

• Chinese brands performed well during the 618 shopping festival. Local brands accounted for 73% of brands that did more than RMB 100 million in sales, according to Citic Securities. Citic did not calculate the share of sales represented by these brands. Chinese smartphone maker Realme saw its sales surge 30 times from last year, according to retail giant JD.com. Domestic cosmetic brands Perfect Diary and Florasis (Hua Xizi) topped the sales chart in the cosmetics and fragrance category. (Citic Securities, in Chinese)
• Some Chinese online retailers saw record-high sales numbers during the 618 festival. JD.com increased its total transaction volume by 28% to RMB 343.8 billion, while Suning.com’s sales volume was up 129% compared to last year, according to the companies. ByteDance’s Douyin launched its own version of 618 called the “Good Things Festival,” pairing brands with livestreamers in thousands of limited-time promotional events. (Pandaily)

Amazon bans three Chinese brands

• Amazon banned three Chinese merchants after they solicited positive reviews with gifts. The brands, RAVPower power banks, Taotronics earphones, and VAVA cameras, were found offering gift cards to customers in exchange for good reviews and were subsequently barred from selling on the platform on June 16. Shenzhen-based electronics company Sunvalley owns the three brands. (SCMP)

Food delivery platform Meituan announced a big hiring plan, planning to almost double its headcount to gear up for expansion into areas like community group buy. E-commerce giant Alibaba wants to help international merchants set up their own livestream platforms. Cross-border logistics firm Kuajing Haoyun secured series A funding. 

Meituan is hiring

Chinese food delivery giant Meituan plans to hire 60,000 new employees this year as it expands into new business areas such as community group buying. The planned expansion will almost double the company’s current headcount. Meituan said in a statement on Wednesday that it intends to recruit engineers, customer managers, and logistics professionals. (Reuters)

New initiatives from Alibaba

• Alibaba Cloud launched a new service to help international merchants build their own livestream platforms, seeking to capitalize on the growth of livestreaming outside of China. The unit is having its slowest growth period since 2014 after the reported loss of TikTok as a client. (TechNode)
• Alibaba’s logistics arm Cainiao collaborates with the Hainan government to provide smart logistics infrastructure for a supply chain pilot zone. The collaboration aims to draw over 1,000 merchants and cut down customer pickup time to under 70 seconds. The move is part of Beijing’s plan to develop the southern island province into China’s largest free-trade zone. (SCMP)

Companies raising funds

• Cross-border logistics platform Kuajing Haoyun completed a series A financing round, securing an undisclosed amount in the millions of yuan. Pavilion Capital, the private equity unit of Singapore-based investment company Temasek, led the round, with Mountain View Capital serving as the financial advisor. According to the Shenzhen-based company, Kuajing Haoyun currently has 1,000 logistics partners on its platform and has worked with about 36,000 small and medium cross-border e-commerce sellers worldwide. (Kuajing Haoyun, in Chinese). 
• Online pharmacy Dingdang Kuaiyao announced on Tuesday that it had raised $220 million. Hong Kong private equity fund TPG Capital Asia, healthcare investment firm OrbiMed, and private equity fund Redview Capital invested in this round. The company offers on-demand drug delivery services to users through mobile apps. Previous to the latest funding round, 18 institutional investors had withdrawn from the company in May. (Sohu, in Chinese) 
• Wine e-commerce platform Lady Penguin (Zui E Niang) completed its series A funding round on June 11, raising an undisclosed amount in the millions of yuan. Hong Kong-based FinTrek Capital was the sole investor. According to 36Kr, Lady Penguin will use the funds for branding and to expand offline channels. The company offers a monthly subscription for wine and free wine-related content online. (36Kr, in Chinese)

MissFresh and Dingdong Maicai, two Chinese online grocers, filed for US IPOs. Short-video app Kuaishou tests a local services app via Wechat, competing with Meituan and Ele.me. Online retailer JD.com and its logistics business are expanding overseas.

IPOs, fundings, and earnings

Tencent-backed online grocery delivery platform MissFresh filed for an initial public offering on the Nasdaq on Tuesday. The company said it plans to use the proceeds to enhance its technology infrastructure, upgrade its supply chain, develop its retail cloud business, and expand marketing. Goldman Sachs and Tiger Global Management are investors in the Beijing-based firm, which has raised more than $1.6 billion since its founding in 2014. (SEC filing) 

Chinese grocery app Dingdong Maicai filed for an initial public offering on the New York Stock Exchange on Tuesday. The filing comes after the SoftBank-backed company raised more than $1 billion in its two most recent funding rounds in April and May. (SEC filing)

Caihuoxia, a second-hand consumer electronics trading platform, has secured $45 million Series A funding in a round led by Eastern Bell Capital. The company is valued at $140 million. 58.com-backed re-commerce platform Zhuanzhuan Group will remain a controlling investor of the company after the deal. (36kr, in Chinese) 

Dian Xiao Mi, which provides software support for cross-border online retail trades, announced on June 2 that the company had completed its Series B to raise RMB 135 million ($21.1 million). Gaorong Capital led the funding round. Previous backers GGV Capital and CDH Investments also took part the round. (TechNode, in Chinese)

Dada, a JD.com-backed on-demand grocery delivery firm, released its first-quarter earnings on Monday. Revenue grew 58% year-over-year to RMB 1.67 billion, while net loss tripled to RMB 720 million. (Dada)

Kuaishou gets into local services   

Short-video app Kuaishou has launched a new WeChat mini-program to provide local services. Users can discover restaurant discounts and coupons, and use group-buying features. Kuaishou is competing against food delivery platforms Meituan and Ele.me, according to iiMedia research chief Zhang Yi. The service is currently only available in Changsha, Harbin, and Shenzhen. Kuaishou’s direct rival Douyin is already offering local services in 300 cities around China. (KrAsia)

JD.com expands international service

E-commerce giant JD.com has launched three weekly chartered cargo flights between the southern Chinese city of Shenzhen and Thailand’s Bangkok. The flights will cut down delivery times to Thailand to less than 48 hours. The tech giant runs online shopping platform JD Central in Thailand through a partnership with local retail conglomerate Central Group. According to a company statement, JD.com ships daily necessities, small household electronics, and other e-commerce products to Thailand. (Nikkei Asia)

JD Logistics launched its first cargo flight between China and the United States on June 7. The flight, operated by China Eastern Airlines, will run three times a week from the eastern city of Nanjing to Los Angeles. The flights will help shipments to be delivered in 48 hours. The move comes after JD Logistics CEO Yu Rui said the company expects users outside the JD ecosystem to power growth, following the logistics firm’s IPO on May 28. (JD.com)

Online fashion 

Fashion retailer Mogu’s sales from livestreams rose 42% year on year. The increase comes despite a 24% drop in revenue to RMB 91 million. The company intends to restructure and focus on growing its livestreaming business, according to Chief Strategy Officer Raymond Huang. (Caixin)

Online fashion marketplace JOOR opened its first China office in Shanghai after setting up new offices in Tokyo and Melbourne earlier this year. CEO Kristin Savilia said that the new Shanghai branch will allow for continued expansion across the APAC region, as the company’s wholesale volume for APAC-based brands in 2021 grew by 419%. (TechCrunch)

Alibaba Cloud on Tuesday unveiled a new service to help global online merchants set up their livestreaming platforms. The e-commerce giant was one of the first to popularize livestream shopping.

Why it matters: China is leading the trend in livestream shopping. Alibaba, a leader in the sector, wants to capitalize on its expertise as the model gains popularity outside of China.

• Livestream shopping took off in China in 2019. By the end of 2020, the model quickly attracted 388 million shoppers, more than a third of China’s 989 million internet users.

READ MORE: Insight: How e-commerce and livestreaming became frenemies

Details: Alibaba Cloud now offers a paid service to global merchants hoping to build livestream shopping platforms of their own, the company announced at the virtual Alibaba Cloud Summit 2021 on Tuesday.

• The company said it plans to leverage its livestreaming technologies, including “distributed real-time video processing technology” and “uninterrupted signal transfer,” to help customers cut down delay time during virtual sales sessions, it said in a statement emailed to TechNode.
• The service also offers replays of livestreams, livestreaming applications and user interfaces, real time subtitle translation for cross-border livestream, among others.
• In a separate press release, the company said it will invest $1 billion to support startups and train new technical talents in the Asia-Pacific region over the next three years.

Context: Alibaba’s cloud computing subsidiary is supporting the new service. Alibaba Cloud, once a reliable growth engine for the company, needs new growth areas. The unit’s revenue for the March quarter increased 37% year on year, the slowest pace since 2014. The loss of a major “top-class customer,” reportedly Tiktok, is the main reason for slowed growth in the quarter.

• The Chinese e-commerce giant is trying to export its success in livestream commerce to other parts of the world.
• 388 million Chinese shoppers bought products through livestreams as of December 2020, a report by state-backed research agency CNNIC shows. The figure represents 39% of China’s 989 million netizens.
• According to a report by China Consumers Association, Alibaba’s Taobao Live takes the lion’s share of the market, representing 69% of all livestreaming shoppers in China.
• Outside of China, other retail giants are starting to invest in livestream shopping. Walmart partnered with TikTok last December to have the first pilot test of livestream shopping experience in the US on the video platform.
• In 2019, Amazon launched its live platform, which allows influencers to promote items and chat with potential customers.