China’s economy may be slowing down, but the country is still set to eclipse the United States as the world’s top retail market for the first time.
Retail sales in China will reach more than $5.6 trillion this year, about $100 billion more than in the United States, according to a report published Wednesday by research firm eMarketer.
The Chinese population’s growing wealth and the rapid development of e-commerce have driven the country’s epic retail boom.
“In recent years, consumers in China have experienced rising incomes, catapulting millions into the new middle class,” said Monica Peart, senior forecasting director at eMarketer. “The result has been a marked rise in purchasing power and average spending per person.”
The firm’s prediction highlights China’s increasing importance as a market for global brands even as growth overall cools. The country is already the world’s largest market for cars and smartphones.
The gap between the Chinese and US retail markets is set to widen in the coming years, with China’s growing more quickly through at least 2022, according to eMarketer.
China’s biggest e-commerce companies, Alibaba (BABA) and JD.com (JD), have played a key role in the industry’s explosive growth. More than 35%, or almost $2 trillion, of Chinese retail spending is expected to take place online this year, eMarketer said, compared with just 11% in the United States.
China is home to Singles Day, Alibaba’s annual online spending blitz that regularly racks up bigger sales than Black Friday and Cyber Monday combined.
Alibaba accounts for more than half of all online sales in China, but it faces increasing competition from smaller rivals like Pinduoduo, according to eMarketer.
Like Amazon (AMZN) in the United States, China’s internet giants have moved into the brick-and-mortar retail industry, as well.
Tencent (TCEHY), the owner of top messaging app WeChat, and three other companies invested $5 billion in Wanda Commercial Properties, China’s biggest mall operator, a year ago. Tencent is also a major shareholder in JD.com.
In 2017, Alibaba paid $2.9 billion for a 36% stake in Sun Art Retail Group (SURRY), widely considered the Chinese equivalent of Walmart (WMT).
Slowdown fears overdone?
Chinese consumers are feeling the effects of the country’s slowing economy and trade war with the United States. Retail sales growth is expected to weaken to 7.5% in 2019, from around 8.5% last year, according to eMarketer.
Apple (AAPL) alarmed investors earlier this month by warning that its sales in China were lower than anticipated for the holiday quarter. CEO Tim Cook said in a letter to investors that the company had been blindsided by “the magnitude of the economic deceleration” in China.
Spending on products like cosmetics and jewelery is suffering as consumers feel the pinch from cooling growth in the real estate market and rising debt, according to Michelle Lam, an analyst at investment bank Societe Generale.
“As China’s growth has been losing momentum, consumer spending has also exhibited clear signs of weakness,” she wrote in a note to clients this week.
But other analysts are more optimistic.
“While we expect consumption growth to slow, we think that the anxiety about China’s consumers is largely overdone,” Tianjie He, a senior economist at research firm Oxford Economics, wrote in a note on Wednesday.
“We do not expect a significant slowdown in 2019,” he wrote, adding that China’s consumers will remain “a key driver of economic growth.”