Treasury Today Country Profiles in association with Citi

How are treasurers leveraging China’s digitised economy?

Big data in Shaghai city concept

China’s digital revolution is having a profound impact on how businesses behave. We look at the numbers behind this revolution and see what impact it is having on treasury teams in the country.

A recent report from the McKinsey Global Institute has confirmed what many in the financial and tech industries have long known: China’s economy is rapidly becoming one of the most digitised in the world. Such a monumental development clearly has a wide-ranging impact on the Chinese financial industry, particularly for the country’s corporate treasurers.

eCommerce agenda

In the field of eCommerce and digital payments, China is already a frontrunner. With an internet population of 73m, many of whom are relatively young and tech-savvy, it is no surprise that the value of China’s eCommerce market eclipses those of France, Germany, Japan, the United Kingdom and the United States combined, accounting for more than 40% of the value of all e-commerce transactions worldwide.

The sheer scale of the Chinese eCommerce industry brings its own special considerations. Alibaba’s payment processing capacity stands at around 120,000 transactions per second, which is triple that of other leading payment processing systems. In addition, not only is consumer demand on Chinese eCommerce sites much greater in China, but it’s also much more volatile, due in large part to the aggressive and effective online promotional campaigns. Indeed, busy periods can result in as many as 11 times the amount of online transactions as slower periods – almost four times as variable as the United States.

For corporate treasury teams in China, the scale and volatility of online transactions invariably means more focus on ensuring adequate liquidity and cash flow for Chinese eCommerce companies than more traditional retailers elsewhere.

Corporate treasurers should also consider investing more time and resources into accurately predicting when such peak demand for products will occur. By working closely with the company’s marketing and social media teams, they can begin to work out when these busy periods might be, and prepare accordingly.

New payment models

The digital revolution isn’t just limited to online shopping. Everywhere from shopping centres to roadside vendors, more and more Chinese people are opting to pay for goods and services with non-traditional payment methods such as e-wallets and other finance apps.

The prevalence of mobile payments in China is hardly surprising, considering the fact that approximately 20% of Chinese internet users rely solely on their mobiles, compared with just 5% in the United States. The mobile share of eCommerce sales in China stands at around 70%, eclipsing the United States by over half.

China has a bevy of home grown payment platforms and apps, ranging from WeChat, a social app with payment features, to Alipay, a dedicated third-party online payment platform. Both are accurately termed ‘super apps’, as they offer a vast array of services, from tuition payments to restaurant bookings, in addition to their standard payment features.

Their prevalence and importance cannot be underestimated: according to the McKinsey Chinese iConsumer Survey, 31% of WeChat’s 900m customers said they had used the app for online shopping in 2017, up from 13% just two years previously.

It’s clear that corporate treasurers in China should make moves to support multi-channel payments, with particular emphasis on mobile. Not only does this allow their companies access to China’s 731m ‘netizens’ at home – many of whom lack credit cards for more traditional online shopping – but also unlocks opportunities to support their company’s global businesses with more uniform payments worldwide. Indeed, many retailers in places such as London and New York are already starting to accept WeChat and Alipay payments in a bid to attract Chinese tourists and expats.

What next?

Whilst the digitisation of the economy is most prevalent in China, it is clear that the rest of the world is beginning to follow suit. For example, it is estimated that in the United States, the in-store mobile payment volume will grow from US$75bn in 2015 to US$503bn in 2020.

As a result, corporate treasurers across the globe should pay close attention to the developments happening in the digital space in China in the coming years. One thing is certain: the era of digital globalisation has only just begun.

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