Jing Gao
Liu Qiangdong or Richard Liu, chairman of JD.com has warned of a potential Chinese dot-com bubble, pointing out that a “Chinese pre-owned vehicle trading app valued at USD 200 million” has in fact sold only two used cars so far.
Delivering his opinions at a recent internal conference, Liu Qiandong, the founder of China’s second largest e-commerce site, slammed Chinese entrepreneurs and their obsession with chasing investors and rushing into what they see as a goldmine. Liu believes this will only add more frothiness to the tech bubble.
According to the memo, obtained by tech blog Huxiu.com, following JD.com’s investment in supermarket chain Yonghui, a number of similar retail chains badgered the e-commerce site for partnerships.
“They say they’ve got to be involved in the Internet one way or another,” Liu said, “I asked why? One of them was quite honest: they feel that when plugged into the internet, even pigs can fly.”
“But why does a pig have to fly?” Liu went on to say, “You might experience a few seconds of thrill when high up in the sky, but you will die faster when you fall.”
Liu told the audience that the overvalued ‘used vehicle trading app’ was developed by an acquaintance of his and that the two cars sold on the platform were actually bought by employees.
The overvaluation of Chinese tech startups and their undue reliance on VC money has prompted concern of a possible wave of bankruptcies looming on the horizon, as previously reported by AllChinaTech.
Food delivery startup “unicorn” Ele.me has reportedly run out of cash and falsified financial records to gloss over problems. Massage-on-demand app Kungfu Bear is mired in wage disputes and its latest financing round has fallen short of its projected target.
“So many startups are valued at more than one billion USD, but it is of no damn use if they cannot become efficient businesses in their respective sectors,” Liu said.
JD.com itself is a money-losing firm. It is operating at a net loss of 510 million RMB (US$82.3 million) as of the second quarter 2015, its earnings release shows. In contrast to the much lighter Alibaba, which continues to dominate China’s e-commerce market, JD is an asset-heavy company with 166 warehouses, 2,043 locations and over 100,000 employees.
“People say to me the asset-light business model is the smartest. So why does JD insist on staying heavy? [Because] We saw an opportunity: logistics costs in China are exceptionally high.”
Almost one in every five dollars of China’s gross domestic product (GDP) was spent on transporting goods in 2014, an industry report showed. This painfully inefficient system has eroded profit margins.
Liu said an observation at a computer retail store in Beijing’s Zhongguancun area in 2007 led to his determination to increase investment in infrastructure rather than trying to avoid offline hassles.
After a Lenovo desktop computer leaves the Lenovo factory and is delivered to the warehouse of Digital China, Lenovo’s distributor, it is shipped to a regional commissions merchant and is then transferred to a local dealer where it is placed at the back of the counter, from where it is finally sold to a consumer, Liu said.
“There is simply too much moving around of goods in China. On average, a product is moved five to seven times. Our ambition is to cut that number at least by half.”
Liu also cites Gome and Suning, China’s two largest consumer electronics retailers, as uneconomical and unproductive examples.
“We are so much better than the likes of Gome, Suning and Wal-Mart. For every 100 dollars worth of electrical appliances that Gome and Suning sell, they spend 18 yuan, whereas JD spends 12. JD splits the six dollars saved with both the consumer and the manufacturer,” Liu said.
In response, on Wednesday Gome called Liu’s criticism an, “overgeneralization.” “Nothing speaks more about a company than its profitability,” it said in its statement to the Beijing Business Daily, pointing to JD’s soft underbelly.
Suning refused to comment on Liu’s remarks, and instead simply replied, “Go ahead and take a look out our earnings reports.”
(Photo from Sina.com)
