Muddy Waters, Taobao Mall Wake Up to China E-commerce Hype
After several years of near-nonstop hype about the potential of e-commerce in China, notorious China short seller Carson Block and leading e-commerce operator Alibaba Group are both finally waking up to the same reality that much of the talk is vastly exaggerated. In many ways, this reality should come as no surprise to anyone, as even bullish market watchers say that all online sales in China stood at a relatively modest $50 billion last year. So even if they double over the next 2-3 years, we’re still only looking at $100 billion in overall sales by 2015 — a fraction of levels in developed markets like the US and hardly enough to support the huge number of online merchants that have exploded onto the scene in China with billions of dollars in new funding over the last year. According to one media report, Carson Block, who does business through his firm, Muddy Waters, said many Western investors see a small segment of newly wealthy Chinese consumers in big cities like Beijing and Shanghai, and mistakenly extrapolate that to the entire nation of 1.3 billion, even though a big majority of those people live on annual incomes of $2,000 or less. (English article) Meantime, a report in the Chinese media is saying that Alibaba Group’s leading B2C site, Taobao Mall, has raised the threshold for online merchants to use its site, partly in a bid to squeeze more money out of them but also to weed out the many companies that stand little chance of long-term success and could potential damage the site’s reputation with poor customer service and fraudulent business practices. (Chinese article) Taobao’s sister company, Hong Kong-listed Alibaba.com (HKEx: 1688) is currently dealing with a similar situation in the overhyped B2B space, following a scandal earlier this year that saw its CEO resign after the company disclosed a relatively large number of fraudulent merchants operating on its site. (previous post) Alibaba, Block and others are finally waking up to the reality that China’s e-commerce market, while full of long-term potential, has become overhyped and in need of a clean-up of many smaller, less reputable merchants.
Bottom line: The latest comments from short seller Carson Block and news on Taobao indicate a much-needed cleanup is underway for China’s unruly e-commerce sector, with more to come.
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◙ E-Payments: Lots of Noise But Little Space
◙ China Internet Bubble Sees Vancl Dressing Down 中国互联网泡沫见证凡客裁员
