What Alibaba Group Holding Ltd Results Tell Us About China’s Economy

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Alibaba shares fell 3.87% to $66.85 on Thursday after the company reported mixed results for the December quarter. Even though its quarterly gross merchandise volume (GMV) grew only 23% to $149 billion, its revenue surged an impressive 32% YoY to $5.3 billion in the quarter. Analysts and economists closely monitor the volume of transactions on Alibaba’s e-commerce platforms as it gives insights into the resilience of Chinese economy.

Alibaba’s GMV growth points to consumer strength

After decades of infrastructure and export-led growth, China is shifting towards a consumer economy. Alibaba commands 80% of the country’s e-commerce market share, effectively acting as a proxy for Chinese consumption. The company’s executive vice chairman Joseph Tsai said during the earnings conference call that the Chinese economy was going through a structural shift to more moderate and more sustainable growth. Despite being the world’s second largest economy, it is still one of the fastest-growing economies.

Economists have been pessimistic about China’s economic prospects. But a healthy 23% growth in Alibaba’s GMV is a sign of consumer strength in the country. Brick-and-mortar store sales in China jumped by 10.7% in 2015. That is an impressive figure considering consumers are increasingly shifting from brick-and-mortar to online stores. China’s growing middle-class, now largest in the world, is turning the country into a consumer economy.

Rising consumer spending to counterbalance slowdown

Beijing is confident that rising consumer spending will offset the slowdown in other parts of the economy such as infrastructure. However, investors fear that the recent stock market volatility and a slowing economy will eventually hit the consumer spending hard. That’s why investors punished Alibaba, sending its shares down by more than 35% in the last 12 months.

Alibaba is expanding aggressively in rural areas to maintain its growth rate. The company has also ventured into offline-to-online services that allow customers to book movie tickets, restaurants, order meals, and avail other services using their smartphone apps.

Alibaba shares rose 1.48% to $67.84 in pre-market trading Friday.

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