China’s online business-to-business (B2B) transactions are likely to get a boost from increased digitalisation over the next five years as the nation’s manufacturers step up efforts to enhance efficiency and save costs, according to a study.
The value of B2B deals in China could more than triple to 2.4 trillion yuan (US$350 billion) by 2024 from 700 billion yuan last year, according to a study produced by Bain & Co and e-commerce group Alibaba Group Holding. On average, the volume is seen growing by 30 per cent a year, it shows.
“Manufacturers have been aware that it is important to strengthen oversight on production process and control costs by using digitalised technologies,” Bruno Zhao, a partner at global consultancy firm said at a media briefing in Shanghai. “Digitalisation also effectively helps companies to better understand market demand and trends.”
China’s leadership is facing an uphill task of sustaining its explosive economic growth in the past decade amid rising trade tensions. It has been encouraging manufacturers and service providers to infuse more technologies in their operations, as the new economy built on big data analysis, artificial intelligence and blockchain become the new source of growth.
E-commerce helps businesses slash marketing and human-resource costs, breaking down trade borders and widening their access to customers around the globe. While China is a global leader in e-commerce by transaction value, the upside remains tremendous.
The penetration rate stands at only 2 per cent of the 50 trillion yuan annual B2B transaction value, the study shows, trailing the 15 per cent rate for business-to-consumers platform due to advances and adoption of smartphone technology.
“Online B2C businesses have grown by leaps and bounds in China over the past two decades as companies focused on better serving the vast base of customers," said Zhao. “B2B e-commerce will enter into a high-growth territory in the next five years as internet infrastructure for online trading improves."
China’s economy expanded by 6 per cent in the third quarter to September 30, marking the slowest pace since records began in 1992, amid a bruising trade war with the United States. Analysts including Fitch Ratings now see the pace slipping below 6 per cent in the next two years.
A weak property market and car sales, two of the major economic growth divers over the past decade, has exacerbated the bearish sentiment among manufacturers amid more 18 months of trade war with the US. A breakthrough, however, is imminent as both sides are poised to sign a “phase one” deal this week.
E-commerce and e-payment have been the bright spots in the digital era, with the country’s technology behemoths Alibaba and Tencent Holdings increasingly wielding their influence on how consumers and businesses conduct their buying and selling activities. Alibaba is the owner of the South China Morning Post.
The proliferation of B2B e-commerce has given rise to many billion-dollar companies, such as Zhaogang.com, which connects buyers and sellers of industrial steel through an online market place.
“B2B e-commerce can be more than online business transactions,” said Li Congshan, general manager of 1688.com’s Imall, the B2B trading platform operated by Alibaba that’s dedicated marketplace for major industrial brands and their official distributors. “It is an important part of digitalisation strategy.”
She added that data arising from the online transactions can help reduce overcapacity and upgrade manufacturing capabilities to meet customers’ rising demands for better products.
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