It doesn’t feel right to talk about “positives” when it comes to a global pandemic, but for the e-commerce sector, the Covid-19 crisis we’ve been living through has undoubtedly been lucrative.

Crises often prove to be catalysts for innovation, and that certainly seems to be the experience right now for the digital sector. The global lockdowns have pushed more and more people online, and the results are pretty striking. 

At the height of the lockdowns, for example, Amazon was reportedly earning $11,000 every second as Q1 sales rose 26%.  

In China, the numbers are also startling. JD.com reported Q1 year on year growth of 20%; Alibaba reported 22%; and Pinduoduo, an eye-catching 44%.

The big question now is whether these trends will endure in China, and whether the levels of e-commerce that have emerged will continue as the “new normal.”

That question will be the focus of an Asia House and TechNode webinar on 16 June, featuring insights from TechNode founder Gang Lu, McKinsey Global Institute Partner Jeongmin Seong, the Co-Founder and Managing Partner of SoGal, Pocket Sun, and Andre Zhu, Senior Vice President of Strategy and Legal, Pinduoduo Inc. The views of practitioners working in e-commerce in China and beyond would be a welcome addition to the conversation. You can register for free HERE.

Promising policy environment 

On a policy level, the signs are promising. At this year’s highly unusual “Two Sessions” in Beijing last month, legislators placed a particular emphasis on “New Infrastructure” as a spending priority area.

Rather than roads and bridges, New Infrastructure refers to projects that support next-generation industries, such as data centres, 5G networks, AI, the Internet of Things, and EV charging stations. 

New Infrastructure has become the policy buzzword of 2020 and the government is keen to get private capital involved. Shortly after the Two Sessions, Tencent announced a five-year plan to invest $70 billion in technologies such as cloud computing and AI. Alibaba announced a similar three-year $28 billion program in April.

China sees the digital economy as the engine of growth through the challenging years ahead, and is prepared to invest heavily to ensure the tech sector thrives. Private companies are following suit, and we may see a new wave of economic activity, spurred by China’s favourable digital policy environment.   

All of this will bring profound change, both in economic and social terms. Pinduoduo’s business model, for example, uses tech to bring products directly to consumers from the producer, thus bypassing much of the established supply chain. But it is also creating engagement between rural farmers and urban consumers, breaking down social barriers in a way that has not been seen before in China. 

Can cross-border e-commerce drive global recovery?

But with the world facing what could be a deep recession in the wake of COVID-19, can the digital sector play a role in the global recovery via cross-border e-commerce?

It will have to overcome some real challenges to do so. One is what critics refer to as the “splinternet”. China has experienced a parallel development of an ecosystem of apps and digital services which operates almost entirely separately from the rest of the global digital economy. For those wishing to understand the immediate impact of the Covid-19 crisis, and as China emerges from the crisis ahead of other major economies, this unique ecosystem could indicate how the digital economy might respond in the global setting, and provide badly needed support to rebuilding economic activity.

In any case, looking longer-term, there is no clear sense of a point of convergence of the two ecosystems, and whether this specific phenomenon poses challenges to the development of the international digital economy remains uncertain.

Many other complexities remain, with rivalries and political tensions coming to the fore. At an Asia House conference in Singapore last year, Arancha González, then Undersecretary General of the United Nations, said that much of the debates currently raging within the World Trade Organization are about data—who owns it and where it is located. This is a constant hindrance to the development of the digital economy as a whole, especially in a closely-knit regional market such as ASEAN, with impacts on issues such as interoperability.

A taxing matter

Then there is the issue of tax. We are starting to see governments across Asia take a tougher stand when it comes to foreign tech companies based beyond their borders but trading within them. Indonesia, for example, has pushed ahead with new regulation in April, charging tech companies value added tax on taxable intangible goods and services sold through electronic platforms. The government will also charge income tax or electronic tax on e-commerce activities carried out by companies with a significant economic presence there. 

With Indonesia’s payments market estimated to grow to $95.2 billion by 2025, according to recent Goldman Sachs reports, such measures may not be a deterrent. Facebook is making moves to elevate its presence in Indonesia’s e-payments market despite the new regulations. 

There are also far more tangible obstacles to cross-border e-commerce taking off—high shipping costs, complex and expensive customs regimes, and long delivery times, which are the antithesis of the value-driven efficient and consumer-centric digital economy. Until these issues are smoothed out, e-commerce will remain largely domestic, though it still may play a role in the global economic recovery by driving imports and consumption. 

Digital players can help bring the change

It will be up to the digital players themselves to push for solutions that would enable the true potential of e-commerce to be unleashed. There is a diversity of views among governments as to the support that may be given. 

Either way, the voices of e-commerce companies in the region need to be heard.

“COVID-19, e-commerce, and the rise of new retail in China,” an Asia House webinar held in partnership with TechNode, takes place on June 16, 09:00-10:00 UK time. Register for free now.

Charlie Humphreys

Charlie Humphreys is the Director of Corporate Affairs at Asia House, London, where he is responsible for public affairs, thought leadership, and stakeholder engagement.