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"The secret ingredient to China's e-commerce success John, not just all the stuff for sale, but the speed in which it's delivered."
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(SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: "The secret ingredient to China's e-commerce success John, not just all the stuff for sale, but the speed in which it's delivered." (SOUNDBITE) (ENGLISH) CHINA EDITOR, REUTERS BREAKINGVIEWS, JOHN FOLEY, SAYING: "Yeah really, cheap delivery is driving some huge business models now in China. And companies like JD.com, which is the country's answer to Amazon, it has more than 24,000 delivery guys who can get stuff to your doorstep, sometimes within three hours of you ordering it and at little or no extra charge. That's something U.S. companies like Amazon have been struggling with for years, and they still can't really do on any great scale. So that's really where China's got an edge over some of its rich country competitors." (SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: "But you do have to ask, like all labor in China, the price is going to go up eventually. How long can you have cheap labor that works for hours and hours every day?" (SOUNDBITE) (ENGLISH) CHINA EDITOR, REUTERS BREAKINGVIEWS, JOHN FOLEY, SAYING: "That's the big question for these companies because these couriers -- mostly male, mostly migrant workers and usually between the ages of about 20 and 30 -- that's the demographic that's going to be most squeezed in China over the next 20 years. And wages are going up fastest at the lowest end of the income bracket. So in other words, they are paying more to the people who deliver the packages and the people who buy them are not having pay rises half as quickly." (SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: "So are these e-commerce companies working on borrowed time, eventually it is going to hit the bottom line quite severely?" (SOUNDBITE) (ENGLISH) CHINA EDITOR, REUTERS BREAKINGVIEWS, JOHN FOLEY, SAYING: "Well there's quite a long way for this to go yet Tara, but one thing we are going to see is that margins are likely to come down. At the moment, JD.com is investing heavily in infrastructure and delivery, which means it makes zero margins. Alibaba however, which is even bigger, does not have any infrastructure and its margins are close to 45 percent. What we expect is that they're going to converge somewhere in the middle as Alibaba gets more invested into the retail chain and JD.com builds up economies of scale. So expect things to settle somewhere south of the middle." (SOUNDBITE) (ENGLISH) REUTERS REPORTER, TARA JOSEPH, SAYING: "China's e-commerce boom, one of the secrets in the success is very, very fast and cheap delivery." ENDS