The Chinese Government’s sudden affinity for fiscal policy expansion is expected to boost consumer consumption and online business activity from small and medium enterprises (SMEs) through a series of pro-consumption fiscal policies, said Joe Tsai, EVP, Alibaba Group. Such fiscal policies also allay fears that new “e-commerce policies” – which aim to make gray-market transactions more transparent – could reduce e-commerce participation from SMEs.
In its 4Q18 earnings release, Alibaba stressed it wasn’t too concerned about the slowing growth rates of the Chinese economy, or the impact of the ongoing trade war between the United States and China. After all, the domestic market is still the primary driver of growth for the company, and over the next ten years, signs point to the continued rapid growth of the country’s middle class.
The Organization for Economic Cooperation and Development (OECD) estimates the Chinese middle class will expand from 300 million today to 850 million by 2030. For air freight, more important than the size of China’s middle class is the trajectory of consumer appetites for imported goods. On the consumer side, the threshold for personal income tax exemptions has was recently raised, which should increase discretionary income, particularly for lower-income individuals.
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Returning to e-commerce, Alibaba’s core business relies on both the continued expansion of the Chinese consumer class and also the willingness of new merchants to join its online marketplace, Taobao. In recent years, many have feared that SME participation in China’s economy could be jeopardized by new guidelines introduced by the State Administration for Industry and Commerce (SAIC) requiring medium-sized online merchants to register their businesses in a national registry. The program has since been expanded to include merchants of all size – including the infamous mom-and-pop merchants on Taobao.
Although it was uncertain at first just how the government’s new e-commerce policies would impact participation from SMEs, there are now signs that the overall impact will be positive. In an earnings call with investors, Tsai said that new tax relief for SMEs offsets concern over the new policies. Of note is the tax exemption threshold for value-added tax (VAT), which was raised from 30,000RMB (US$4,500) per month, to 100,000RMB ($14,888) per month. This policy change will exempt many SMEs from VAT. Separately, the corporate tax rate has been reduced from 25% to just 5% for the first 1,000,000RMB ($148,885) in profits, and 10% for profits ranging from 1,000,000-3,000,000RMB ($148,885 – $446,655).
Looking ahead, the behavior of China’s consumer class will continue to come into focus as nominal GDP growth rates slow. The new measures are a sign of the Chinese government’s eagerness to pursue fiscal policy reform as a method of boosting consumer spending – growth that Alibaba hopes will boost the sales turnover across its online platforms.
As Alibaba’s online platforms increasingly look outward beyond China to integrate global merchants and source and sell products globally, its logistics affiliate Cainiao Network has responded to the anticipated onslaught of cross-border volumes by outlining blueprints for logistics hubs at six sites in different regions of the world: Liège, Moscow, Hong Kong, Kuala Lumpur, Hangzhou, and Dubai.
In the coming years, Cainiao Network’s reliance on airlift is expected to grow exponentially as the company’s logistics hubs become operational. Wan Lin, President, Cainiao Network, recently told Air Cargo World that as today’s peak volumes become tomorrow’s daily norm, “global air routes will expand rapidly.”