China’s e-commerce boom

Commentary on China’s growth has tended to focus on deceleration. Indeed, from a post Global Financial Crisis peak of 11.9% in Q1 2010, real gross domestic product growth eased to ‘only’ 7.5% in Q2 2013 with some estimates of growth for 2014 beginning with the number ‘6’.

Yet, one part of the Chinese economy that is growing exponentially and that has the potential to deliver significant benefits for employment, tax revenues and overall activity levels is e-commerce.

Credit Suisse estimates that e-commerce sales in China reached US$207bn in 2012 (just 8% below the US) with a forecast annual growth rate of 30% over the next four years. With 600 million internet users (and rising), compared to 250 million in the US, adjusting for relative income levels, Chinese consumers clearly have a huge appetite for online shopping.

The story of Global Logistics Properties (GLP), the largest logistics facility developer in China, highlights the economic benefits of the e-commerce boom in China. The company is forecast to substantially grow its completed and stabilised floor space in China. This is largely being driven by the growth in e-commerce activity with Amazon - now the largest tenant - occupying 5% of total floor space. This footprint growth involves a significant amount of construction activity and the creation of thousands of jobs. GLP estimates that 75% of warehouses in the country do not meet modern requirements, so this should help address the lack of modern logistics infrastructure in China, and assist both international and domestic companies to meet China’s surging online-driven consumer demand.

Marc Franklin is co-manager of the Henderson Asia Pacific Capital Growth Fund and the Henderson Horizon Asian Growth Fund