This article was published on Jan. 8, 2025, at 1:58 p.m. on the CHOSUNBIZ MoneyMove site.
Chinese capital is rapidly flowing into South Korean e-commerce platforms. Chinese investment has entered not only vertical platforms and specialized malls but also comprehensive malls of large corporate groups. Recently, it has been understood that China is reviewing investments in the domestic e-commerce platforms TMON and WEMAKEPRICE, which are on the brink of liquidation due to financial deterioration.
It appears that Chinese e-commerce, which is advancing with a 'ultra-low price strategy' globally, has chosen South Korea as a means to enhance its inexpensive competitiveness. This is because the valuations of domestic e-commerce platforms, facing growth limits, are rapidly declining. Domestic operators and financial investors (FIs), who had no particular solutions to save their companies, seem to welcome the emergence of Chinese capital.
According to investment banking (IB) industry sources on the 8th, investments from Chinese capital into domestic e-commerce platforms are accelerating. Starting with a 100 billion won investment from China's big tech Alibaba in the fashion vertical platform 'Ablie' in October last year, Shinsegae Group's comprehensive mall Gmarket and the fashion vertical platform Musinsa have also attracted Chinese funds.
In particular, Shinsegae Group plans to establish a joint venture with Alibaba this year to incorporate Gmarket and AliExpress as subsidiaries. Emart will contribute 80% of Gmarket's equity in kind to the joint venture, while Alibaba will invest 30 billion won in cash and equity in AliExpress Korea, each holding a 50% stake.
There is an analysis that Chinese e-commerce, which has stagnated due to quality controversies, has begun utilizing Korean e-commerce platforms. China's manufacturing industry, often referred to as the world's factory, has launched an ultra-low price strategy, creating a global sensation, but its growth has slowed down due to issues such as low quality.
By immediately implementing overwhelming pricing policies along with free shipping and free return policies, the Chinese e-commerce platforms that have created a sensation in the domestic market have stagnated with monthly active users (MAUs) at 8 million for AliExpress and 7 million for Temu. Meanwhile, Coupang's MAU has surpassed 32 million.
The specific business plans of Shinsegae Group and Alibaba are still shrouded in mystery, but there are expectations that AliExpress can secure Korean sellers owned by Gmarket, escaping from quality controversies while also utilizing its vast financial resources to gain pricing competitiveness and increase its market share in the e-commerce sector.
The reason Alibaba previously invested in Ablie is similar. They aimed to secure excellent product quality by attracting Korean sellers, enhance the competitiveness of their platform through K-fashion and K-beauty, and collect data on Korean consumer preferences. It has been reported that they had previously proposed investments to Zigzag and W Concept.
Moreover, the decline in the valuations of Korean e-commerce platforms is fueling investments from Chinese capital. Most domestic e-commerce platforms, which had been focused solely on cutthroat competition based on the rapid growth of the e-commerce industry and market liquidity, are facing the risk of extinction beyond falling corporate values due to the high-interest rates and economic recession that began in 2022.
In particular, domestic financial investors (FIs) who had executed large-scale investments in domestic e-commerce platforms in the past and boosted their valuations are welcoming Chinese capital. This is because, in a situation where corporate value is decreasing due to market contraction, Chinese capital has become an exit (investment recovery) solution.
Of the 100 billion won that Alibaba invested in Ablie, 80 billion won is understood to be for the acquisition of existing shares. The valuation of 3 trillion won was based on new investments totaling 20 billion won, while 80 billion won was used for acquiring the shares of FIs that had previously invested in Ablie. It has been assessed that the corporate value based on the FIs' equity was only around 1.2 trillion won.
Recently, Musinsa's attraction of Chinese capital investment was also limited to the recovery of FIs' funds. China's global sportswear company Anta Sports acquired existing shares held by domestic venture capital firms IMM Investment, Atinum Investment, and Daishin Private Equity.
In this process, its valuation was set at 3 trillion won. Considering that Musinsa's market capitalization is around 2.6 trillion won in the over-the-counter market, a valuation premium has been achieved, but compared to July 2023, the expected valuation has notably lowered. At that time, Musinsa secured an investment of 200 billion won from the global private equity fund Kohlberg Kravis Roberts (KKR), receiving an estimated valuation of around 3.1 trillion won.
A source from the domestic venture capital industry said, 'Chinese platform companies have consistently wanted to invest in domestic platforms in the past, but investments aimed at securing operational know-how, such as sellers, were clear, which did not please either the operators or the FIs.' The source continued, 'However, recently, the needs of operators wanting to improve their financial structure and FIs that need to exit are aligning, leading to the inflow of Chinese capital.'
Concerns are emerging regarding Chinese capital's investment in domestic platforms. The Chinese government, which has tamed big tech, is actively utilizing e-commerce platforms to escape from the deflation crisis. The so-called 'Silk Road e-commerce' policy aims to enhance the dominance of Chinese e-commerce platforms and increase factory utilization rates within China.
There are also observations that the competitiveness of domestic e-commerce platforms will further deteriorate. This is based on the criticism that Chinese investments in domestic e-commerce platforms are merely a means to strengthen their own competitiveness. Additionally, the potential for personal information leakage is a concern. Alibaba.com has faced penalties due to personal information leaks involving domestic users.
A source from the financial investment industry noted, 'Recently, proposals for acquisitions from Chinese companies have poured in, regardless of the industry,' adding that 'there are quite a few platform CEOs who have reported receiving similar documents at the level of 'copy and paste.'