Issue 9 | October 30, 2017

An Original: Field Notes from China’s Retail Revolution
This past week, we brought some team members of GGV’s US portfolio companies on a China trip to study the phenomenon called “New Retail.” From unmanned convenience stores to shared KTV boxes, China has seen a slew of home-grown businesses that are selling goods and services in innovative ways. Here are notes, photos, and videos on four shops we visited that provide a primer on two buzzwords in New Retail, 无人 (unmanned) and 共享 (shared).

These 7 men now run China.

Chinese new leadership

Shi Jiu Da, The 19th National Congress of the Communist Party of China, concluded last Tuesday. The new party leadership was announced (tl;dr Xi is still the leader). Read more about them here. In his speech to the Congress, Xi called for accelerating the “deep integration of the Internet, big data, and artificial intelligence with the real economy.”

Wang Qishan, who led the Party’s Central Commission for Discipline Inspection and is commonly referred to as “China’s anti-corruption czar,” retired from the Politburo Standing Committee.

A Chart: Producer of China’s National Alcohol is now worth $110 Billion.

Top a-share Chinese companies by market cap

Kweichow Moutai

The luxury bai jiu (Chinese liquor) company, Kweichow Moutai Co., Ltd., became the first consumer brand to make it to the top 10 most valuable A-share Chinese companies by market cap. At $110 billion, Moutai is currently the most valuable liquor company in the world.

The highly sought after liquid is known as guo jiu (国酒), or “national alcohol” in China. A typical 17-ounce bottle costs $200 (though counterfeits abound). According to Moutai’s third-quarter earnings released last week, net profit grew 60% YoY.

Note: “A-share companies” refer to  Chinese companies traded on the Shanghai Stock Exchange and the Shenzhen Stock Exchange. 

Hellobike merged with Youon Bike.
Hellobike, one of the top three bike-sharing companies in China and a GGV portfolio company, merged with Youon Bike last week. The Hellobike team will be driving the operations of the newly merged company. According to a statement from Hellobike, the company will also become a strategic partner with Ant Financial, a shareholder of Youon Bike.

Hellobike is currently in over 100 cities and has over 9 million rides per day. Youon Bike, which went public this August, supports public bike-sharing programs for many municipal governments in China. The merger will provide the new company with significant strategic value in the form of governmental resources and support.

Hellobike was a relatively late entrant to the bike-sharing market, but was able to achieve remarkable growth by entering second- to fourth-tier Chinese cities first.

“First-tier cities, like Beijing and Shanghai, are already extremely saturated with bikes, so the number of rides per bike is actually relatively lower there,” said Jixun Foo, managing partner at GGV Capital who led our investment in Hellobike. “On the other hand, many lower-tier cities lack public transport systems, so the bikes there are used much more frequently, increasing the operating efficiency of bike-sharing programs.”

Yang Lei, the 28-year-old CEO of Hellobike, will become the CEO of the newly merged entity. “In the face of numerous strong competitors, we took up the challenge with courage. Not only did we survive, but we also proceeded into the finalist round,” wrote Yang in a letter to Hellobike employees that the company later published.

JD opened its C2C marketplace. (market cap $53 billion, 2016 revenue $37.5 billion), which operates an almost exclusively B2C online mall, relaunched its eBay-like C2C marketplace, welcoming back thousands of mom-and-pop merchants. The new service will be similar to Alibaba’s Taobao, where thousands of such small shops sell pretty much everything under the sky.

One of the biggest challenges of running a C2C platform is controlling counterfeit products. previously ventured into the space in 2014 when it acquired Paipai, the e-commerce business of Tencent, but shut it down the next year after countless efforts to fight counterfeits on the platform proved futile. Alibaba spends 1 billion yuan ($150 million) each year on a special team of 2,000 people who work to sweep away fake goods from Taobao and Tmall.

(GGV was an early investor in Alibaba in 2003.)

NetEase launches adult product e-commerce site.
One of the largest e-commerce platforms in China, NetEase, rolled out a new shopping site for adult products, (网易春风). This marks the birth of one of the first private-label adult product brands in China, a traditionally conservative society where sex only recently became an acceptable topic for public discourse.

The positive, bright, elegantly designed website emphasizes themes of “discovery” and “joy” (the Chinese name of the site literally translates into “spring wind”) as well as the high quality of the products, which include condoms and sex toys.

Ironically, one of its signature condoms is called “996,” which is “designed for people in tech, who work 9am-9pm, 6 days a week.”

NetEase TryFun 996 condom
– Zara Zhang & Hans Tung at GGV Capital