Big American dreams mark peak China e-commerce

3 minute read

Users of the online group discounter Pinduoduo ring the opening bell on the Nasdaq Stock Market in New York, during an event to mark its trading debut on market in Shanghai, China July 26, 2018. Picture taken July 26, 2018. REUTERS/Stringer

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HONG KONG, Aug 30 (Reuters Breakingviews) - Chinese e-commerce giants are looking to cash in on American shoppers. Shares of Alibaba (9988.HK) challenger Pinduoduo (PDD.O) rose 15% after smashing earnings expectations. The $84 billion company’s march to foreign lands against worsening global political headwinds is a telling sign of a limited runway to grow at home.

Pinduoduo is doing exceptionally well chasing down its domestic rivals. Despite months of Covid lockdowns in its prosperous home city of Shanghai, revenue rose 36% year-on-year to 31.4 billion yuan, about $4.6 billion, in the three months to end June. Analysts forecast a mere 3% gain per Refinitiv. It puts the dismal performance of its peer group to shame. Most of the strength came from a 39% increase in charges on sellers for advertising and other services, underscoring the company’s ability to keep customers glued with ultra-cheap goods and playful gamification features. A slight delay in planned investments helped net profit surge an impressive 268%.

Boss Chen Lei is not content with the success. He’s setting his sights on the U.S. to launch read more a cross-border e-commerce site next month, say Chinese media and Reuters. The aim is to emulate fast-fashion retailer Shein, the mysterious Zara challenger of Chinese origin that has perfected supply chains in the People’s Republic and gone on to excel overseas. Pinduoduo confirmed it wants to expand internationally. The $260 billion Alibaba has tried to push into Western markets and Southeast Asia through AliExpress and Lazada. Its challenge to entrenched rivals, including (AMZN.O), has had some lukewarm results. International e-commerce was just 7% of Alibaba’s revenue in the most recent quarter.

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The overseas push is being hatched as the U.S.-China relationship is at a low with rising tensions over Taiwan. Pinduoduo is one of many companies that could face a delisting from New York if an audit deal between the two major economies agreed on Friday is not properly implemented. But Pinduoduo is a successful late entrant when it comes to disruption. In China, it targeted smaller cities ignored by established rivals.

There is a big prize waiting if it can repeat the trick abroad. China is home to the world’s largest e-commerce market but the United States is richer. E-commerce is 14% of total U.S. retail sales, half the level than in China, and Americans on average spend roughly $4,000 online each year, double the amount of netizens in the People’s Republic, according to JPMorgan’s global e-commerce trends report.

With Beijing’s zero-Covid policy repeatedly hammering Chinese consumption and regulatory crackdowns an ongoing threat, Pinduoduo’s big American dream is a sign of the times.

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China’s Pinduoduo on Aug. 29 reported revenue of 31.4 billion yuan ($4.55 billion) in the June quarter, a 36% year-on-year rise. Net income rose 268% to 8.9 billion yuan during the three months, compared with 2.41 billion yuan a year earlier.

Pinduoduo will launch a cross-border e-commerce platform in September which will target the United States as its first market, Reuters reported on Aug. 23 citing a source with direct knowledge of the matter. The company confirmed it has plans to expand internationally without elaborating on details.

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Editing by Una Galani and Thomas Shum

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Beijing, crunching economic data, interviewing high-level officials, and travelling to far-flung provinces to visit factory floors and talk to local shopkeepers. Before that, she spent nearly three years in Santiago, Chile, where she built a trade news website reporting on the produce industry – and developed Spanish as a third language alongside Mandarin Chinese and English.