August 2020
Executive Summary COVID-19 has further accelerated the trend of digitization in China. The pandemic has had a transformative and long-term impact on consumer behavior and business models. Companies that have adapted to these changes have emerged as winners in China’s new normal.
Largest internet market in the world
China has nearly 900 million internet users, more than the US, Germany, France, UK, Italy, Russia and Japan combined. In 2019, Chinese internet users spent a whopping 5.6 hours per day online on mobile devices. During COVID- 19, this increased to 7.2 hours per day. The time spent online has translated in a surge in e-commerce, livestreaming, online entertainment as well as an uptick in traditionally off-line services that have shifted online, including digital health and education.
Shift online According to China’s National Bureau of Statistics, retail sales of consumer goods from January to August of 2020 plummeted -8.6% (yoy). However, online retail sales during the same period soared by 9.5% (yoy). Growth in the monthly figures indicate that shift online is not just a temporary lock-down phenomenon. Online sales of physical goods now account for 25% of total retail sales in China.
This has been a boon for online retailers like JD.com (China’s Amazon), who posted a Q2 revenue growth of 34% compared to previous year. Since January of this year, JD has more than doubled its stock price and increased its market value by $64 billion.
Consumers have also embraced online education as COVID-19 disrupted schooling nationwide. As schools closed from February to April, 270 million Chinese students took online classes through a variety of platforms. Kuaishou, a social video platform (a rival to Douyin or China’s Tiktok), partnered with China’s Ministry of Education to create a nationwide online cloud classroom. 120 million Chinese students used the Dingtalk online platform (developed by Alibaba) to live-stream classes and take online tests. Teachers used the app to monitor students and “ding” them to finish their homework. The app was so effective that hordes of Chinese students complained to app stores that their COVID-19 “holiday” had been ruined.
Artificial Intelligence: China Racing to Pole Position
Similarly, an unprecedented wave of Chinese consumers flocked to online health apps during COVID-19. The pandemic became a catalyst for digital health, pushing it past an inflection point towards mass adoption. Apps such as Pingan Good Doctor, China’s largest health platform, experienced a 1000% surge in new subscribers during the outbreak period and recorded over 1.1 billion visits since January. The company has doubled its share price since January of this year.
Livestreaming becomes an important sales and marketing channel
Businesses have also ramped up the use of livestreaming on platforms like Tmall (developed by Alibaba). Retailers have turned their sales staff into livestream hosts to flog their wares online. In February, during the height of COVID-19, the number of merchants on Alibaba’s Taobao livestreaming platform increased by 719%. Chinese consumers spent an average of 2 hours per day viewing livestreams. Popular livestream hosts, like Trip.com co- founder James Jianzhang, attracted 1.2 million viewers and generated US$3.8 million of sales within one hour last April, despite the travel industry demand slump caused by COVID.
Contactless delivery piloted Delivery services have also benefited from the pandemic as families stayed home, even after the lock-down period. Online platforms like Meituan Dianping delivered food, groceries as well as other products. The company pioneered “contactless” delivery, using unmanned vehicles and robots to deliver goods and reduce the risk of human interaction/infection. In Q2, the company delivered on average 24.5 million orders per day. Its stock price has surged 140% year-to-date.
ACATIS QILIN Fund continues to adjust holdings to reflect the new normal COVID-19 has further accelerated the rate of China’s digitization and tech innovation. The ACATIS QILIN fund has invested in the above highlighted China champions and continues to adjust its holding to reflect the new normal in China. Read more about it here.