While China’s economy may be slowing now, the long-term implications associated with our Living the Life, Rise of the New Middle-class and Digital Lifestyle investing themes in that market will continue to be felt. Even if China’s economy slows to something between 5%-6%, the economic reality is it will continue to grow far faster than the US. Per the Fed’s most recent FOMC economic forecast, it sees US GDP between 1.8%-2.5% over the next few years.
That faster rate of growth mixed with our three investment themes cited above will continue to drive retail sales growth in China. Will that eclipse the US in 2022, a year later or a year sooner? It’s hard to predict but it’s the longer term tailwind that we’re focused on here at Tematica. Sneaking up right behind China is India, which boasts wonderful demographics that will continue to power our Rise of the New Middle-class theme for years to come.
With regard to our Digital Lifestyle theme, given the far superior rate of adoption of mobile payments not to mention Alibaba’s seemingly replicating Amazon’s strategies, it comes as little surprise to us that digital shopping will be a key driver in China. This is backed to some extent by the growing usage of digital commerce and social media by the luxury brands that are associated with our Living the Life theme.
China’s economy may be slowing, but it is on track to overtake the United States and become the world’s top retail market this year.
The latest forecast by eMarketer predicts that retail sales in China will increase 7.5% to $5.636 trillion in 2019. That’s approximately $100 billion more than the United States, where retail sales are expected to grow 3.3% to $5.529 trillion.
And while growth rates are slowing for both countries, China’s growth rate will exceed that of the United States through 2022. By 2022, total retail sales in China are expected to hit $6.757 trillion, while U.S. total retail sales will reach $6.030 trillion.
A major driver of China’s retail economy is e-commerce. Online retail sales in China will increase 30.3% to $1.989 trillion in 2019, accounting for 35.3% of the country’s total retail sales, which is the highest percentage in the world, according to Marketer. The United States lags far behind, with e-commerce on track to represent 10.9% of total retail sales this year.
By the end of 2019, China will account for a whopping 55.8% of all online retail sales globally, with the metric expected to exceed 63% by 2022. The United States is expected to account for 17% of all global online sales, followed by the U.K. at 3.8%, Japan at 3.2% and South Korea at 2.4%.
Emarketer noted that Alibaba will lead e-commerce sales in China with a 53.3% share. But its share has been steadily declining for the past several years as smaller players chip away at the e-commerce giant’s dominance. In particular, social commerce platform Pinduoduo has seen triple-digit growth since 2016, although its share remains small, according to eMarketer.
There has been much talk this year about the rapid rise and fall of Bitcoin. We here at Tematica have long said the far more interesting disruptor is Blockchain, and as Bitcoin has fallen hard in recent weeks, we’ve seen a flurry of renewed news flow for blockchain, including a growing number of patent filings from MasterCard, IBM, Alibaba, and others. We see those firms as looking to establish a firm position in a technology that could very well upend the financial and transactional markets. Like most other disruptors, ranging from 5G to augmented reality, this renewed blockchain newsflow could lead to a frenzy of activity in the near-term that will likely give way to a longer than expected development time. Still, blockchain is one the radar screen for our Disruptive Innovators investing theme.
Blockchain has been receiving attention well beyond cryptocurrencies, and the focus has shifted in part to patent filings. Though it may seem that China has dominated patent filing activity in recent weeks, a number of firms (not Alibaba) have been making their own way across the patent landscape.
In the latest news germane to intellectual property and blockchain, Mastercard has filed three patent applications with the U.S. Patent and Trademark Office, as reported this week. Amid those patent filings came details that the payments giant has developed a blockchain-based system, which aims to streamline high-volume B2B transactions. The patents are titled “Method and System for Recording Point-to-Point Transaction Processing.”
In those filings, Mastercard noted that the infrastructure underpinning B2B payments is unwieldy and still focuses on individual payment transactions. The number of transactions/settlements is on the rise, though, and there is strain on current infrastructure. The company’s embrace of digital ledger technology (DLT) can help data related to those transactions to be stored and used securely.
Recent news also follows earlier patent activity, where Mastercard patent filings seek to utilize digital signatures in signing blockchain transactions. In more patent activity in July, Mastercard filed a patent application that had been titled “Blockchain-Based Asset Bonding System to Fiat Currency Accounts,” which would pave the way for bitcoin transactions on credit cards.