Is China's Future in the Hands of Its Consumers?

E-Commerce and Retail Innovations Are Laying the Foundation for China's Consumption-Led Future

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China is emerging as the global leader when it comes to fusing technology and retailing.
China is emerging as the global leader when it comes to fusing technology and retailing. Credit: Brent Lewin/Bloomberg

There's been a lot of bad news out of China these past few weeks. The stock market is in disarray, and the currency has dropped like a stone. China's woes are driving down commodities, weighing on Asia and raising the stakes regarding September's expected U.S. interest rate hike. The devastating hazardous-materials explosions in the city of Tianjin couldn't have come at a worse time.

The big question is not whether Chinese growth will fall, but how Chinese growth will fall. Can China execute a "soft landing?" This means transitioning from the 10% annual growth rates of the past couple of decades -- built on low wages, manufacturing, exports and investment -- to a higher-quality and more sustainable rate like 5%, based on middle-class consumption.

Stick the landing, and China and the world will be in a better place for decades to come. A crash landing is scary to contemplate, as the recent China-led global volatility makes clear.

China's flight path is clearly getting bumpier, with growing worries that the apparently all-powerful communist government won't meet its 7% growth target this year despite increasingly frantic efforts to make it so. This turbulence is real, and it will likely continue.

But we should also be paying attention to what is going right in the Chinese economy in terms of laying the foundation for its domestic, consumption-based future.

E-commerce is bigger and growing more quickly in China than in the U.S. This is also true for smartphone penetration and the sophistication of social media. But all this tech innovation won't matter unless it is seamlessly integrated with the world of physical stores, supply chains and distribution networks.

China is emerging as the global leader when it comes to fusing technology and retailing, integrating online and offline buying. And this is being driven by private sector companies relying on Chinese venture capital and private equity, not by state-owned enterprises and government investment.
Two recent acquisitions tell us how the biggest players are thinking about combining online and mobile commerce with physical infrastructure to serve China's massive and still growing middle class of several hundreds of millions of people.

A couple of weeks ago Jack Ma's Alibaba (roughly China's Amazon + eBay + Paypal, no exaggeration) took a stake in Suning, a China-wide bricks and mortar retailer that has struggled with China's transition to e-commerce. This follows Walmart's move in late July to take full ownership of innovative Chinese online retailer Yihaodian. There were two underlying motivations for these two acquisitions by the world's biggest online (Alibaba) and offline (Walmart) retailers.

First, online retailers like Alibaba know minimizing inventory while getting goods to customers as soon as possible after they click "buy" is the key to maximizing the benefits of great sales websites and apps.
Second, offline retailers like Walmart know they must integrate technology into the in-store experience to deliver the services tech-savvy customers increasingly demand.

Alibaba likes Suning's great supply and distribution network throughout China. Walmart was impressed with Yihaodian's smartphone front-end interface.

These two big plays by Alibaba and Walmart show that, where online and offline retail are concerned, it is not "either, or" but "both, and." Using stores as tech-connected showrooms and getting goods into buyers' hands quickly are at the heart of contemporary Chinese commerce. It's essential to the soft landing for the Chinese economy and is just as important to Wall Street and Silicon Valley as it is to Beijing.

A version of this article originally appeared on LinkedIn.

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