Hong Kong has become the new battleground for Chinese e-commerce giants Alibaba Group Holding and JD.com, as they search for new growth opportunities amid stiff competition on the mainland.

Both companies last week announced heavy investments into the Hong Kong market, waiving delivery fees for certain orders and boosting related services such as local product returns.

Alibaba, for instance, said it will invest 1 billion yuan (US$142 million) to boost its online retail platform Taobao's offerings in Hong Kong, as part of a campaign to ship orders above 99 yuan for free to one of the more than 800 self pickup stations in the city. Alibaba owns the South China Morning Post.

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Separately, JD.com announced that it will spend 1.5 billion yuan to roll out new services in Hong Kong, including free door-to-door deliveries for certain orders above 299 yuan.

The two companies' ramped up competition in Hong Kong come as the e-commerce market in China matures, while the city still offers growth opportunities.

"Hong Kong's proximity and connectivity to the mainland, coupled with its relatively low e-commerce penetration rate, makes it a very attractive growth market," said Jacob Cooke, CEO of WPIC Marketing + Technologies, an e-commerce and technology consultancy.

E-commerce in Hong Kong is less advanced than many other developed markets, partly because of the convenience offered by the city's compact network of bricks-and-mortar retail stores, as well as higher wages for delivery and logistics workers.

In July this year, online sales accounted for only 7.8 per cent of all retail sales in Hong Kong, the city's Census and Statistics Department said in August. The value of online retail sales in the first seven months of 2023 even decreased by 0.1 per cent from the same period in 2023, it added.

Hong Kong shoppers, however, have started looking across the border to hunt for bargains. In fact, they have flocked in such large numbers to the warehouse-style stores in mainland China in recent years that Walmart-owned Sam's Club is planning to launch online shopping and delivery services in the city.

"JD and [Alibaba] see the large demand for value for money products in Hong Kong, as evidenced by high northbound travel over weekends and holidays, and the popularity of Sam's Club," said Chelsey Tam, senior equity analyst at Morningstar.



"Given that competition and e-commerce penetration is high in China, they see Hong Kong as a relatively easy market to increase growth," she said, adding that some of the city's most popular online retail platforms do not even offer features common on mainland platforms, such as chatting to merchants.

The higher cost of operating in Hong Kong, however, will pose a challenge to the mainland Chinese tech giants, despite their expertise.

"One of the biggest challenges is the high cost of land, labour, and end-delivery in Hong Kong, which has always made logistics difficult to scale efficiently," Cooke said.

To address that, JD and Alibaba are investing heavily to expand their infrastructure, such as adding more pickup points and optimising their warehousing and last-mile delivery services, he added.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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