Alibaba Group Holding Limited (NYSE:BABA) Q1 2020 Earnings Conference Call - Final Transcript
Aug 15, 2019 • 07:30 am ET
to offer two reasons. Both are big secular trends happening in China that we have taken advantage of. First is demographics, and the second is the rapid pace of digitization.
On demographics, China's $5.5 trillion domestic consumption market is driven by two massive demographic forces. First is the emergence of the middle class of over 300 million people living in large cities. This affluent middle class population is almost as large as the entire U.S. population, and their consumption needs and wants are approaching developed market levels. We have talked about the desire by these consumers to upgrade the quality of products they buy, especially the pursuit of brands and imported products. Alibaba's Tmall platform benefits tremendously from this ongoing trend, and we believe it will continue to be the leading choice for consumers looking for quality and consumption upgrade.
The second massive demographic trend is the rise of urbanization affecting third-, fourth- and fifth-tier cities. Other than the major metropolitan areas like Shanghai, Beijing and Shenzhen, China has more than 150 cities with a population of at least 1 million people. In aggregate, these lower-tier cities and the surrounding townships have more than 500 million people with a consumption economy of $2.3 trillion. What is happening is the lower-tier cities are urbanizing very fast with a projected 300 million people that will move from rural areas into these cities in the next 10 years. The economy of these smaller cities will grow faster than the major metropolitan areas. We've seen projections that retail consumption from the lower-tier cities and townships will triple from $2.3 trillion today to nearly $7 trillion by the year 2030.
That is a compounded annual growth of more than 10% over a long period of time. In the current quarter, we grew annual active consumers of our China retail marketplaces to 674 million, of which more than 70% come from lower-tier cities. Alibaba's China retail platforms, especially Taobao marketplace, is very well positioned to capture the consumption demand from the lower-tier cities. Alibaba is uniquely positioned with capability to capture opportunities of both the growing middle class in metropolitan areas and urbanization of lower-tier cities. This unrivaled capability is enabled by our multiple retail platforms that are highly trusted by consumers; extensive ecosystem of brands, merchants and manufacturers; and AI-driven personalization technology.
The second big secular trend, I want to talk about, is the rapid pace of digitization. Over the past 10 years, digitization of the Chinese economy has been driven by smartphones.
Because of the convenient and always-connected nature of mobile devices, more and more users are spending more and more time connected to the Internet. This is giving the digital service providers, like ourselves, a great feedback loop to understand user trends, so that they can rapidly and continuously improve their services.
Under our all-in mobile strategy, Alibaba has become the leading player in digitizing commerce. We have developed the most sophisticated AI algorithms to serve consumers on our platform, which results in