The Bank of Korea: "China's Online Food Sales Up 26.4% in January-February... Impact of COVID-19"

Bank of Korea Overseas Economic Focus

[Asia Economy Reporter Kim Eunbyeol] Although the Chinese economy has been severely impacted by the novel coronavirus disease (COVID-19), the service industry centered on the digital economy has actually shown significant growth. Under the active support of the Chinese government, the digital service industry was already growing, and the surge in online sales due to COVID-19 has contributed to this growth.

On the 5th, the Bank of Korea stated in its Overseas Economic Focus report, "Despite the severe downturn in the service industry caused by the spread of COVID-19, the online service sector is showing a high growth rate," adding, "In the future, service sectors based on the digital economy are expected to drive growth."

From January to February this year, retail sales in China plummeted by 20.5%, but online sales, especially for daily necessities, have continued to show strong growth. The growth rate of online food sales in China during January and February recorded 26.4% compared to the same period last year.

The service industry in China plays a key role in both growth and employment. The tertiary industry, including services, has consistently accounted for over 50% of China’s Gross Domestic Product (GDP) since 2015, with its contribution to growth approaching 60%. As urbanization rapidly progresses, the service industry is showing high growth rates. In Beijing, the service sector accounts for 83.5%, while Shanghai (72.7%), Tianjin (63.5%), and Chongqing (53.2%) also have high proportions of service industries.

Among service sectors, wholesale and retail trade accounted for the highest share at 17.9%, followed by finance (14.4%) and real estate (13.0%). Notably, service sectors based on the digital economy such as information and communications, software, computers, and finance are showing remarkable growth.

In terms of employment, urban service industries have absorbed surplus labor from manufacturing and rural areas. Even during the US-China trade dispute in 2018, employment in urban service industries increased by 4.6%, mitigating labor market shocks caused by a 9.9% decline in manufacturing employment. The number of service industry workers in urban areas accounted for 70.5% of total urban employment.

The Bank of Korea cited the following factors as the background for the growth of China’s service industry: ▲income increase and demographic changes ▲expansion of external openness ▲policies promoting service industry growth. With rapid increases in national income, service demand expanded mainly among people in their 30s and 40s and the elderly, and the expansion of service market openness, including foreign direct investment, also had an impact. The Bank of Korea also noted that the policy shift toward a qualitative growth structure focusing on service industry growth was helpful.

In particular, China’s service industry is characterized by accelerated digitalization as the government actively supports mobile payment activation centered on fintech companies. Online transactions account for 30.8% of China’s total retail sales, and among these, 83.0% use mobile payments such as Alipay and WeChat Pay. China’s share of online retail sales is 23.1%, ranking first in the world, surpassing major countries such as South Korea (16.0%) and the United States (9.0%).

The Bank of Korea stated, "Due to the surge in online demand focused on daily necessities caused by the spread of COVID-19, sales on e-commerce platforms have increased significantly," adding, "In February this year, the sales volume of food ingredients by JD.com, one of China’s largest e-commerce companies, increased by more than 400% compared to the same period last year."

Furthermore, it said, "The growth potential of China’s service industry is evaluated to be very high," and "The Chinese government plans to expand new infrastructure investments related to the 4th industrial revolution as a countermeasure to the economic impact of COVID-19, so the digitalization of the service industry is expected to accelerate even further."

This content was produced with the assistance of AI translation services.