PwC

Unlocking the online retailing opportunity in Belt and RoadSeptember 2017

Michael ChengPwC Asia Pacific and mainland China/Hong Kong Retail and Consumer Leader

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China, is now setting the benchmark for present and future online retailing

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43% 47% 51% 54% 57% 60%

22% 21% 19% 18% 18% 17%

35% 32% 30% 28% 25% 23%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2015 2016e 2017e 2018e 2019e 2020e

Share of worldwide retail e-commerce sales2015 – 2020

China US Others

China online retail market: the largest and most influential market in the world

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Source: eMarketer, Aug 2016Note: Includes products or services ordered using the internet via any device, regardless of the method of payment or fulfilment; excludes travel and event tickets; numbers may not add up to 100% due to rounding.

Shop online at least once a week

Source: Total Retail Survey 2017, PwC

25%

Global

70%

China

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Rapid growth in online retailing in the last 8 years (2008 – 2016)

1.10%

2.00%2.90%

4.20%5.60%

8.00%10.60%

12.60% 14.30%

0.25%

5.00%

100.00%

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2008 2009 2010 2011 2012 2013 2014 2015 2016

China Online Retail Market 2008 – 2016

Online retail transaction value (bn yuan) % of total retail sales

Billion yuan

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57% CAGR in online retail transaction from 2008 to 2016, reaching RMB 4,700bn representing

14.3% of total retail sales in 2016

Source: iResearch, PwC

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Key drivers for rise of China online retailing

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Key drivers

Economic growth and digitalisation

Government support

New retail ecosystem

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$1,762

$4,535

$6,860

2000 2010 2016

Economic growth and digitalisation

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Source: National Bureau of Statistics of China; CNNIC; World Bank

GDP per capita (US$) Mobile penetration

2016

96%

2010

64%

2000

7% 85m users

859m users

1,322m users

Share of urban population

36%

2000

50%

2010

57%

2016

Internet penetration

23m users

2% 457m users

34%731m users

53%

2000 2010 2016

% of population aged under 44

2000

75%

2010

69%

2016

63%

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Favourable government policies support e-commerce development

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During 12th Five-Year Plan Period (2011-2015), the Chinese Government has established guidance and regulation for the development of e-commerce. In 2015, the Government announced “Internet Plus” initiative. E-commerce development is a national priority.

National priority— Internet Plus

In 2016, the Chinese Government announced the establishment of new cross-border e-commerce pilot zones in 12 cities e.g. Shanghai, Hangzhou and Guangzhou etc. Favourable tax and policies are applicable.

Cross-border e-commerce — Pilot zones

In 2017, Ministry of Industry and Information Technology (MIIT) and China Council for the Promotion of International Trade (CCPIT) decided to launch a special campaign to support Chinese SMEs in joining the development of Belt and Road.

Special campaign— Support SMEs

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New total retail ecosystem driven by market players

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Social network

Platform

Coopetition &M&A

Product & pricing

Fulfilment Payment

Social network Innovation & data analytics

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Key development in Belt and Road onlineretailing

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By 2020, Belt and Road online retail market is expected to approach US$300 billion

Online retail sales CAGR in 2014 — 2020e

10

$2,360

13%

Global

$291

16%

Belt and Road

$757

18%

China

2020e (in US$bn)Source: BMI, PwCNote: • Data only covers B2C, C2C e-commerce sales excluding digital services and content sales (eg: app downloads, music downloads, e-tickets, etc)• Data for Belt and Road is the average figure for the key 34 Belt and Road countries and regions, excluding China

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Belt and Road is ready for online retailing

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Thriving YOUNG population & changing CONSUMER BEHAVIOUR • 75% population is under age 44

(vs 63% in China)

Driving the world's new ECONOMIC centerCombined GDP of about US$12 trillion, 16% of global share of GDP (vs China: 14.9%, rest of the world: 69.1%)

Source: • BMI, PwC• China State Information Centre • e-conomy SEA Unlocking the $200 billion digital opportunity in Southeast Asia, Google/Temasek Note: “Belt and Road” refers to most of Belt and Road countries and regions excluding China

URBANISATION• 46% share of urban population

is expected in 2020 (vs 61% in China)

High MOBILE penetration• 90% average mobile penetration

(vs 96% in China)• E.g. In Myanmar, 65% Smartphone

penetration and it is one of world’s first smart phone only countries

Increasing INTERNET users • E.g. South East Asia (SEA) is the

world’s fastest growing internet region with an existing internet user base of 260m growing to 480m users by 2020

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Most popular Chinese products in overseas markets

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Source: eWTP助力“一带一路”建设 — 阿里巴巴经济体的实践, AliResearch, 21 April 2017

Sports and lifestyle

Personal care products

Health and beauty

Food

Baby formula

Nail products

Mobile phone and accessories

Ladies fashion

Apparel and accessories

Jewellery

Most popular Chinese products in overseas markets

These products will be more and more popular

Present Future

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Most connected Belt and Road countries with China in cross-border retail e-commerce

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Central & Western Asia

Armenia AzerbaijanGeorgia KazakhstanKyrgyzstan TajikistanTurkmenistan Uzbekistan

East Asia

China

Mongolia

South Asia

Afghanistan BangladeshBhutan IndiaIran MaldivesNepal PakistanSri Lanka

Central & Eastern Europe

Albania Belarus Bosnia Bulgaria

Croatia Czech Republic Estonia Hungary

Latvia Lithuania Macedonia MoldovaMontenegro Poland Romania RussiaSerbia Slovakia Slovenia Ukraine

South East Asia

Brunei Cambodia Indonesia Laos

Malaysia Myanmar Philippines SingaporeThailand Vietnam

Middle East

Bahrain Egypt Iraq IsraelJordan Kuwait Lebanon OmanPalestine Qatar Saudi Arabia Syria

Turkey UAE YemenSource: eWTP助力“一带一路”建设 — 阿里巴巴经济体的实践, AliResearch, 21 April 2017

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RUSSIA: Most connected with China in cross-border retail e-commerce

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Most important overseas market in China cross-border retail e-commerce

50% of Russian overseas retail e-commerce sale is from China.

Increasing internet penetration

Internet penetration

reached 76% in 2016, while 43% in 2010.

Demand for quality and

reasonableprice products

Chinese key player with market shares

over 35% of Russian cross-border online shopping market.

Changing

payment landscape

Electronic payment becoming more popular and there are more cross-border e-commerce

3rd partypayment service companies in the market.

Source: • PwC• E-COMMERCE IN RUSSIA: MARKET INSIGHTS – SEPT. 2017, East West Digital News• 2015-2016 Sino-Russia’s Cross-border E-commerce Development Report, China Cross-border E-Commerce Application Appliance Department of Ecommerce of Heilongjiang Province Beijing Easepay E-

commerce Co Ltd, June 2016• “Russia’s retail e-commerce market soars 20% to $15.7 billion” , Russia Beyond, Mar 21, 2017 ( https://www.rbth.com/business/2017/03/20/russias-retail-e-commerce-market-soars-20-to-157-billion_723426)• CIA World Factbook

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INDONESIA: “Mobile-first” on track to be one of the largest online retail market in Asia

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World's 4th most populous country

&

Asia’s 3rd largest retail market

High growth on e-commerce supported by huge young population with

76% population under 44.

Total e-commerce sales is forecasted to reach US$130 billion by 2020.

Mobile-first Mobile phone penetration reached

149% & 70% of internet traffic originated from mobile devices.

Large pool of entrepreneurial

sellers using social network to promote the brands.

Government support

Regulations to allow more

foreign investment in the sector for the establishment of e-commerce company.

“Indonesia’s current e-commerce market is similar to China’s online marketplace beginnings.”

Source: • PwC• Indonesia Consumer & Retail Report, BMI research, Q3 2017• “Where is Indonesian e-commerce headed?”, CNBC, 12 April 2017 (https://www.cnbc.com/2017/04/12/where-is-indonesian-e-

commerce-headed.html)• “Indonesia will be Asia’s next biggest e-commerce market”, Crunch Network, Jul 29, 2016

(https://techcrunch.com/2016/07/29/indonesia-will-be-asias-next-biggest-e-commerce-market)• “Indonesia’s e-commerce market set to hit $130b by 2020”, Retail News Indonesia (http://www.retailnews.id/indonesias-e-commerce-

market-set-hit-130b-2020/)• CIA World Factbook• “Indonesia Posts 3rd-Largest Modern Retail Sales Growth in Asia”, Indonesia-investments, 18 Feb 2017 (https://www.indonesia-

investments.com/news/todays-headlines/indonesia-posts-3rd-largest-modern-retail-sales-growth-in-asia/item7625?)

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Other Belt and Road countries

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Central & Western Asia

Armenia Azerbaijan

Georgia KazakhstanKyrgyzstan TajikistanTurkmenistan Uzbekistan

East Asia

Mongolia

South Asia

Afghanistan BangladeshBhutan IranMaldives NepalPakistan Sri Lanka

Central & Eastern Europe

Albania BosniaCroatia EstoniaMacedonia MontenegroSerbia Slovenia

South East Asia

Brunei Cambodia Laos

Myanmar Philippines

Vietnam

Middle East

Bahrain Egypt IraqJordan Kuwait LebanonOman Palestine QatarSyria UAE Yemen

Thank you!