With the most Internet users of any country, China is the world’s largest and fastest-growing e-commerce market. Capitalizing on opportunities, however, is becoming harder for consumer-facing companies as e-commerce penetration rates plateau in high-tier cities and as digital attackers, especially in the online-to-offline space, cut into incumbents’ margins.

According to McKinsey’s latest survey of China’s Internet users, promising sources of e-commerce growth are emerging. The research points to areas with major growth potential: the uptake of online shopping among consumers in low-tier cities, e-commerce penetration beyond first-mover product categories such as apparel, purchases initiated from social media platforms, and the use of cross-border shopping to supplement domestic channels.

Our research also revealed positive trends in multichannel services, known in China as online-to-offline (O2O) services. Some observers have speculated that O2O services have used investment capital to cut their prices and thereby win customers. While this is true for some categories, our survey suggests customers appreciate the convenience and quality of O2O services—particularly travel, dining, and transportation, on which they increase their total spending after they start to use O2O options.

This year’s survey, conducted online during January 2016, engaged more than 3,100 people across a wide range of income levels and household locations. Their responses confirmed our view that the e-commerce and O2O-services markets still hold enormous potential. In this report, we describe changes in Chinese e-commerce and consider the growth prospects associated with trends in low-tier cities, social media, and cross-border shopping. We then turn to the dynamics of the O2O sector and take a closer look at opportunities in travel, dining, and mobility services.

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