A new ecosystem

It was truly an infinite universe. The e-commerce supply chain from product posting and order placements to settlements and delivery was mind-bogglingly huge. China’s e-commerce giant Alibaba provided the reason and platform to shop online on Nov. 11, which the Chinese celebrate as Singles Day. The one-day event raked in a massive $14.3 billion in sales with over 40,000 companies taking part. More than 30,000 brands in 600 categories were sold in the Alibaba-sponsored event. The list of things on sale outnumbered by 1.5 times the products sold by U.S. retail giant Walmart. The products sold needed 400,000 trucks and 200 planes for delivery to customers around the world.

It was proof that cyber commerce has no frontiers. Over 5,000 international brands took part, including Korean brands. On Saturday, an Asiana Airlines plane flying to Hangzhou, China, carried a good number of bundles in its freight section. They were five tons of skincare and cosmetics products purchased on the Alibaba platform during the Singles Day event. “There was an inventory shortage that day,” a logistics company head said. “We have to fly the products despite a higher cost of shipping to meet the promised delivery date.” Win-Win Logistics enjoyed a Singles Day boom, shipping 10 billion won ($8.5 million) worth of mostly skincare products in 40 freight containers to Hangzhou. Its staff had to work day and night to meet overwhelming orders. It was a windfall for a company with only 25 staff. The Alibaba universe stretched to include a small Korean company like Win-Win.

China’s purchasing power stems from its colossal market, which is increasingly middle-income. According to the 2015 Global Wealth Report by Credit Suisse, the middle class in China, which accounts for a fifth of the world’s population and nearly 10 percent of global wealth, is the world’s largest. The number of Chinese with financial and real estate assets between $50,000 and $500,000 totals 190 million, outpacing the 92 million Americans with similar wealth. McKinsey estimates that more than 50 percent of Chinese households will join the upper middle class by 2020. Their spending will shape global demand. Despite an overall slowdown in the economy, private consumption has been rising by 10 percent year on year.

The Chinese economy has been built on manufacturing, which helped make China the world’s second-largest economy. Purchasing power has replaced busy hands as China’s trademark. China, which has driven the global economy with its cheap labor over the last two decades, will continue to do so in the next two decades with its enormous purchasing power. Beijing has already declared domestic demand as the driving force behind its “new normal” economic direction and pace.

Our trade policy must change accordingly. Bilateral trade evolved around manufacturing. Korean parts are assembled by Chinese labor in China and then shipped to the United States and other markets. This arrangement no longer is productive with rising labor costs and China’s increasing ability to produce intermediary parts. Korean companies are now threatened by Chinese rivals in smartphones and automobiles. Korea has failed to respond quickly to the paradigm shift and the new potential for the Chinese economy. Chinese companies are creating their own supply chain. The Alibaba ecosystem has demonstrated its competitiveness to the world.

Korean businesses must tailor their brands to win over Chinese customers. The free trade agreement could be a shortcut to success. The FTA bill is gathering dust in the legislature. The National Assembly won’t budge even at the warning that Korea could lose $4 billion a day if the bill is not passed this month. The Chinese economy is now a different universe. But Korea is doing nothing to adapt to it. The Alibaba habitat is flourishing, and its fruits are becoming more and more out of reach due to the stalemate over the Korea-China FTA.

JoongAng Ilbo, Nov. 16, Page 32

The author is the director of China Institute of the JoongAng Ilbo.

by Han Woo-duk