Introduction: The Illusion of Endless Growth

For years, the world has looked at China’s e-commerce market as an unstoppable force, a high-tech juggernaut of relentless innovation and staggering growth. But behind the headline-grabbing sales festivals and eye-watering transaction volumes, a more complex and troubling story of stagnation, burnout, and structural crisis is unfolding. According to industry insiders, the once-vibrant ecosystem is showing signs of deep exhaustion. This article unpacks five of the most surprising and counter-intuitive truths that reveal where China’s e-commerce industry truly stands today.

1. The Growth Engine Isn’t Accelerating—It’s Stuck in a Vicious Cycle

For the past five years (2020-2024), China’s e-commerce sector has been gripped by a phenomenon known as “involution” , a term that describes a state of intense internal competition that doesn’t produce any real progress. Many industry insiders bluntly describe this period as “treading water”.

The symptoms of this stagnation are clear: a relentless price war has become the main theme, where “low price is king.” This race to the bottom has created a sub-optimal ecosystem where merchants complain of paper-thin profits, factories struggle to survive, and consumers are left to navigate a minefield of product quality issues.

This environment gave rise to controversial platform policies like “refund only”, where consumers can receive a full refund without returning the product. While this ignited widespread disputes, it was also a calculated weapon in the war for user loyalty, designed to provide consumers with “instant satisfaction” at the expense of sellers.

This cycle has inflicted a significant human cost. All participants in the ecosystem—from the merchants and factory workers to the platform operators themselves—are left feeling exhausted and trapped. They are caught in a system that feels like it’s “pretending to be making progress” while simply burning everyone out.

2. Bigger Isn’t Better Anymore—The Market is Actually Breaking Apart

The involutionary price wars described above did more than just burn out participants; they also created the cracks through which the market’s old guard would crumble. Defying conventional business wisdom that mature industries consolidate, China’s e-commerce sector has done the exact opposite. Over the past decade, the market has become significantly less concentrated, not more.

The data tells a startling story:

• In 2014, just two companies, Alibaba and JD, controlled a staggering 80% of the market.
• By 2023, it took five companies—Alibaba, Pinduoduo, JD, Douyin, and Kuaishou—to make up that same 80% share.
• Between 2020 and 2024 alone, the combined market share of Alibaba and JD plummeted by over 20 percentage points.

This surprising shift was made possible because core e-commerce infrastructure, such as logistics and digital payments, has become “publicized.” With at least seven national delivery networks and universal digital payment systems available to anyone, new players like Pinduoduo and Douyin didn’t have to build these expensive systems from scratch. They could leverage the existing infrastructure to scale rapidly and compete directly with incumbents, effectively breaking apart the old duopoly.

3. The Algorithm Isn’t Your Guide—It’s the Casino

On today’s content-commerce platforms, the algorithm isn’t a neutral tool for discovery; it’s a mechanism for profit extraction. Insiders describe the model as “draining the pond to get the fish”, where the platform is the only guaranteed winner. Douyin (the Chinese version of TikTok) serves as a prime example of this dynamic.

Here is how the house always wins:

• Junk Traffic: Platforms sell brands what is known as “task-based traffic “. These aren’t genuine shoppers but users who are simply completing tasks—like watching a video or visiting a product page for a few seconds—to earn small rewards. This traffic inflates engagement metrics but generates almost no sales.
• Impossible Margins: Due to high platform take rates, advertising fees, and other hidden costs, insiders estimate that a product needs a 90% gross margin just to have a chance at profitability.
• Extreme Monetization: The numbers are staggering. In 2023, ByteDance (Douyin’s parent company) generated 400 billion RMB in advertising revenue from 2 trillion RMB in e-commerce Gross Merchandise Volume (GMV), the total value of goods sold over a given period. By contrast, Alibaba generated only 300 billion RMB in ad revenue from a much larger 7.7 trillion RMB in GMV. This reveals a stark difference in monetization strategy: ByteDance extracts approximately 20% of GMV as ad revenue, a rate more than five times higher than Alibaba’s sub-4%.

As a final, devastating proof point, insiders report that in 2025, Douyin reduced the share of platform traffic specifically dedicated to e-commerce from 13% to just 7%. By integrating e-commerce into the main content pool, it now forces sellers to compete directly with far more engaging formats like short dramas, making them pay ever-higher prices for an ever-smaller slice of user attention. This structure creates a brutal bidding war where the platform profits by pitting sellers against each other, leaving many with little more than a “fake GMV” and depleted bank accounts.

4. While Online Players Fight a Low-Quality War, Offline Retailers Are Winning with a High-Value Strategy

While online platforms are locked in a destructive race to the bottom, a “counter-current” of physical retailers is demonstrating a much healthier and more sustainable path to success. Warehouse clubs like Sam’s Club and Costco, along with celebrated regional chains like Pang Dong Lai, are thriving.

Their success lies in a fundamentally different approach to the concept of “low price”:

• Online platforms are caught in a cycle of “low-quality low price”. This strategy erodes industry-wide profits and creates an environment where “bad money drives out good money.”
• In contrast, Sam’s Club and Costco focus on “quality low price”. They achieve this not by squeezing sellers, but through supply-side efficiencies like bulk purchasing, supply chain optimization, and developing their own high-quality private-label brands.

Costco founder Jim Sinegal perfectly encapsulated this superior philosophy with a simple statement:

“We won’t have the cheapest sunglasses on the market, but we will have the cheapest Ray-Bans.”

Meanwhile, the regional retailer Pang Dong Lai has become a celebrated example of a “non-involution” model, praised for its high-quality products, fair prices, and exceptional employee welfare, proving that a more humane and sustainable model isn’t just possible—it’s profitable.

5. The Future Isn’t About Cheaper Goods, It’s About Instant Services

A major structural shift is underway in China’s consumer economy. The country is rapidly transitioning from a “goods society” to a “service society,” and the e-commerce giants are racing to catch up.
The data highlights this profound change:
• In the first eight months of 2025, online sales of physical goods grew by a modest 6.4%.
• During the same period, online service consumption exploded by 18.9%. Sectors like online travel and dining soared by 25.5% and 19.1%, respectively.
This trend is redefining the e-commerce battlefield. The new competitive frontier is “service power.” The focus is no longer just on selling cheaper stuff, but on delivering things faster and more conveniently. Giants like JD and Alibaba are now locked in a fierce battle for dominance in “instant retail” (即时零售), a model built on delivering products in minutes, not days. This fight for high-frequency service scenarios has become the industry’s new engine of growth.

Conclusion: An Industry at a Crossroads

The long-held narrative of China’s e-commerce as an unstoppable engine of growth is now obsolete. The industry is a complex and exhausted giant standing at a critical turning point, defined by a central conflict: the unsustainable, involutionary model of low-quality price wars versus the potential for a healthier ecosystem built on true value and sustainable practices. The era of easy, explosive growth is over, leaving the industry’s titans to confront a much more challenging future.
As the era of easy growth ends, can China’s e-commerce giants learn from their offline rivals and build a future based on sustainable value, or are they destined to burn themselves out in the endless race to the bottom?