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Asia Connect / Europe
Chinese e-commerce boom spurs retail M&A deals along Belt Road
China's e-commerce titans eye Southeast Asia, Middle East for future investments
Janette Chen 18 Jul 2018
Online titans Alibaba and JD.com have acquired stakes in and formed joint ventures with e-commerce retail and logistics shops in Southeast Asia, in a sign China’s e-commerce boom has spread to the Belt and Road regions.
Early this year, JD.com led a Series C investment round in Vietnam e-commerce company Tiki, becoming one of the largest shareholders in the company. In September 2017, the company and top Thai retailer Central Group formed a US$500 million e-commerce joint venture.
“Logistics is pretty hot nowadays in China. With the retail and e-commerce developing, logistics has become a key distinguishing competitive advantage,” says Jeffrey Sun, partner at Orrick's Shanghai and Beijing offices. Orrick is an international law firm that has Chinese e-commerce companies among its clients. 
In April, Alibaba signed a cooperation agreement with Thai authority in areas including e-commerce. Alibaba also set up in Malaysia its first electronic world trade platform (eWTP) pilot site outside of mainland China.   
"Chinese e-commerce players cannot go global without developing well in Asia,” says Jack Ma before Chinese media, noting the importance of expanding in the Southeast Asian market.
Chinese investments have been focused on Southeast Asia so far, but there are talks e-commerce firms will expand into other Belt and Road regions including the Middle East, says Sun.
E-commerce firms are either taking stakes in companies or investing in projects in joint venture with local e-commerce firms.
“Rather than setting up new entities, Chinese companies tend to invest and cooperate with existing players,” says Sun, noting that many of them are taking minority stakes in companies. The role of Chinese companies investing in the e-commerce space in Southeast Asia is mainly about bringing in the fund and the technology, according to Sun.
“China, compared to certain regions in Southeast Asia, is relatively more advanced in e-commerce development. In the meantime, Chinese companies gain local on the ground logistic resources – even it is not 100% controlled by you.”
Chinese regulators have been tightening its control over Chinese overseas investment since late 2016.  “For logistics and e-commerce, the Chinese government seems to be more willing for Chinese investors to go out, which is a good thing for the Chinese government to do,” says Sun.
Unlike other industries such as energy and infrastructure, the investment in the e-commerce space along the Belt and Road is driven by Chinese private companies, according to Sun. “For e-commerce, rather than picking winners or losers themselves, it is better for the government to let the private players make the decision,” says Sun.
“Generally speaking, the major players in the e-commerce sectors along the Belt and Road countries are private companies. Most of them are listed in the US or Hong Kong. The funds invested in the space are mostly private funds. We also see some state-owned backed funds, but they are playing a minor role. Their role is mainly providing the funds rather than making decisions or playing any government role,” says Sun.
“I expect the Chinese government to facilitate China’s ODI (overseas direct investment), rather than directly investing government’s money. At least, I believe this is a case in e-commerce, and I want to see this trend replicate in other areas as well,” says Sun.
Sun sees possibilities of Chinese e-commerce companies expanding in the Middle East. “Chinese players can utilize the local funds there. Rather than sending over their own money, there is a possibility that Chinese players can just bring in their business model, technology, and management expertise and raise the fund locally,” says Sun.

    

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