China’s vast online retail market drives the country to the top ranking on the Retail E-commerce Index by AT Kearney.

China’s current online retail market size of $23 billion is second only to the US and is predicted to explode over the next five years growing at 29 per cent a year as Chinese infrastructure and online purchasing behaviors evolve. While multiple categories are popular among Chinese online shoppers, consumer electronics and apparel are the largest two categories.

China has the world’s largest population (1.36 billion), the most Internet users (517 million) and the most online shoppers (220 million).

Pricing, promotions, and broad assortments, along with have encouraged Chinese consumers to buy online rather than in physical stores.

The convenience of e-commerce and purchase satisfaction have led to an increase in online purchase frequency. Fifty-four per cent of online shoppers have made more than 20 purchases in 2012, up from 41 per cent in 2011.

Sales are expected to increase further as more rural Chinese gain Internet access and infrastructure gaps are addressed.

Online marketplace models such as Taobao and Tmall own about half of e-commerce traffic in China, as they efficiently pool together consumers and retailers in a central location and offer consumers access to a wide variety of online retail products at competitive price points.

Most retailers that have not yet created a web presence in China, sell goods through marketplaces to reach a broader base of online consumers, and multi-channel retailers also rely on them to strengthen their online sales.

The marketplace model competes fiercely with pure-play online retailers, as most would rather sell through their own websites than share revenues with marketplace operators.

AT Kearney says that in China, social media plays an important role. More than 80 per cent of Chinese consumers say they use social media to learn about products before purchase, and 66 per cent write product reviews after making a purchase.