A Roadmap for Breaking Through in the New Economy of 2020

If someone asked you to sum up Chinese internet business in 2019, what would you say? Entrepreneurs might call it “disappointing” — growth was nowhere to be found. Programmers might call it “threatening” — layoffs were common. Speculators might say it was downright “dangerous” — those who played fast and loose with regulations paid the price. But for influencers, it was a banner year: both their audiences and their incomes grew substantially. For my part, I would call 2019 an exciting year.

Why? Because 2019 seemed to crack open a genuinely promising exit route for China’s new economy: the lower-tier market, accessed through internet channels. After a year of market education and consumer adoption in 2019, 2020 stands to deliver enormous growth opportunities.

But this growth won’t come from expanding the user base. It will come from deeper engagement and stronger purchasing power within lower-tier markets. Put plainly: a market downturn means the macro environment has already eliminated your competition at zero cost to you. That frees up resources to invest in your existing users — not just chasing new ones, but asking how many loyal users are willing to spend more time with your product and convert more often.

What is the “new economy”? It’s not simply a product with AI baked in, nor a gadget with a chip inside. It’s a complex, multi-dimensional system encompassing five core commercial variables: new media (being seen), new channels (being considered), new supply chains (delivering), new infrastructure (fulfilling), and new consumers (engaging). Right now, all five of these variables point squarely at lower-tier markets.

There is no clear map for navigating the new economy and lower-tier markets today — yet new categories keep emerging and new spaces keep opening up. As Liang Ning, Academic Director of Hupan University, observed: “In the past, there was a clear map, and everyone was competing on the strength and speed of running within it. Today, we find ourselves in an era of vast uncharted territory — hybrid zones, areas of rapid transformation — where the map itself has become unclear and unstable.” China’s new economy in 2019 has been achieving a different kind of growth precisely by pushing past old boundaries and opening new frontiers.

01. What’s Really Behind the Trillion-Yuan Opportunity in Lower-Tier Markets

“Lower-tier markets” only became a buzzword in 2018 — previously referred to simply as “low-tier cities” or “county and township markets.” This red-hot consumer segment is largely made up of China’s 2,856 counties, 41,658 townships, and 662,238 villages. Without the burden of high housing costs or soaring rents, residents in these areas have disposable incomes that aren’t much lower than those of first- and second-tier city dwellers.

A typical county has around 500,000 residents, with roughly a dozen townships underneath it, each home to about 50,000 people — or around 10,000 households. When you do the math, this is an enormously underexplored trillion-yuan market.

Lower-tier consumers share three defining traits: they have money and free time, and enjoy group-buying and bargain-hunting deals; they are price-sensitive, where affordability trumps taste; and they are novelty-seeking and love sharing and showing off. This consumer profile is ideally suited to the social network + influencer commerce model.

The data already bears this out: lower-tier markets are now the primary growth engine for mainstream e-commerce platforms. In fiscal year 2019, Taobao and Tmall’s combined monthly active mobile users grew by 104 million year-over-year, with 77% of that growth coming from lower-tier markets. JD.com’s active user count also grew by tens of millions, with more than 70% of new users from lower-tier markets. That said, these markets have one major structural challenge: fragmentation. Whether new supply chains and infrastructure can keep pace will be absolutely critical.

Take opening a convenience store in a township. The store is small — and the unit economics of last-mile delivery need to work out. Commercial success depends on profit and efficiency, not on chasing buzzwords. And that is precisely where the new economy finds its breakthrough.

I see five major variables enabling lower-tier market breakthroughs:

1) Being Seen (New Media)

The first platform to open up a new consumer vision in China was Sina Weibo. During Weibo’s early days, Xiaomi seized that window brilliantly — using the platform for brand building, PR, customer service, and fan community development all at once.

Today, consumers increasingly “discover” trends through influencers and KOLs (Key Opinion Leaders). After Weibo, Douyin (TikTok) and Kuaishou rose rapidly. Roughly 430 million users spend 60–70 minutes per day watching short videos on these platforms. The monetization potential is enormous: in 2019 alone, video-driven e-commerce transactions on Taobao exceeded 160 billion RMB. This is a critical outlet for e-commerce’s downward expansion.

In 2019, not only did Douyin, Kuaishou, and Weibo see the bulk of their new user growth come from lower-tier markets, but apps like Pipi and ZuiYou — specifically targeting lower-tier audiences — also rapidly accumulated tens of millions of active users. These new media channels have connected brands and lower-tier consumers, enabling them to observe each other and sparking commercial energy for brand expansion into these markets.

2) Being Considered (New Channels)

You may remember a time when buying ad placements on e-commerce sites or portal pages was remarkably effective and relatively cheap. Or when purchasing keywords on Baidu generated excellent traffic at low cost. But everyone ran the same calculation, and gradually, the price of those ad slots and keywords rose until they were no longer affordable.

As mobile user growth approaches saturation, customer acquisition costs for online merchants and platforms have risen sharply. VIPKID founder Cindy Mi openly stated that her average customer acquisition cost was 4,000 RMB per user. Two main directions are driving new channel development:

First, a renewed focus on offline experience stores and shopping malls. After all, 70–80% of China’s total retail volume still happens offline. In 2019, over 700 large shopping malls were built domestically, with a significant share concentrated in specialty towns and townships.

Second, a deeper “downward” push in KOL cultivation. Over the years, influencers have expanded from broad general content into niches like food, parenting, beauty, and sports. The latest innovation is “professionalizing” influencer roles — think influencer customer service reps, influencer shop assistants, influencer chefs, influencer teachers — pushing into ever more specialized content verticals and reaching deeper into consumer segments.

3) Delivering (New Supply Chains)

The path from factory to consumer has shortened dramatically. How else could influencer commerce and influencer-led storefronts ensure consistent product quality and supply?

It might surprise you: the Chinese contract manufacturers for Oreo (US) and McVitie’s (UK) are already producing customized, small-batch products for influencer brands on a rolling basis. Want-Want Holdings, with annual revenues of around 20 billion RMB and over a hundred snack and beverage products, has seen small-batch contract manufacturing orders from influencer brands grow by more than 50% over the past two years. A garment factory in Qingdao has mapped human body proportions in exhaustive detail — holding over 90% of global body measurement data — and is shifting from producing 2,000 identical garments per five-minute production run to producing 2,000 entirely unique garments in the same window. This capability is a powerful enabler of custom-to-order for influencer storefronts.

That said, in the long run, “mass customization” targeting lower-tier markets will likely continue to face cost pressures.

4) Fulfilling (New Infrastructure)

In recent years, one defining benchmark of “new retail” has been the 30-minute psychological threshold. Delivery platforms have built city-level same-day fulfillment networks that are larger and faster than traditional courier companies.

Consumers now implicitly expect that whether they order fruit, takeout, soft drinks, or even a refrigerator, it will arrive within 30 minutes — a standard Hema Fresh (Freshippo) helped establish. When this becomes the norm, it stops being a differentiator and becomes a baseline requirement. As new infrastructure pushes deeper into lower-tier markets, new retail standards will continue to proliferate, raising the bar for what it takes to sell anything.

5) Engaging (New Consumers)

The post-90s and post-00s generation of consumers is rising fast, and they are strikingly different from previous generations — highly individualistic and self-confident.

To win with these new consumers, remember one rule: always be half a step more entertaining than the competition.

Take Huang Cuixian, an influencer brand selling fermented tofu. Hard to imagine a “low-end food” going viral? That’s not the point — it’s just more fun than anything else. The brand’s content might read: “Hot summer days kill your appetite. That’s when you need our ultimate weapon — oil-fermented tofu. And here’s the thing: fermented tofu isn’t just a rice condiment, you can cook with it too. Today we’re making stir-fried water spinach with Yunnan oil-fermented tofu.” Isn’t that delightful? Huang Cuixian’s products — not cheap, by the way — have not only penetrated China’s urban middle class but remain hugely popular in fifth-tier and below markets. Don’t underestimate the purchasing power of small-town youth.

In today’s economy, what truly brings people joy is often not what they buy, but rather the sense of taste and belonging they gain. People spend money less to acquire product features, and more to express their identity, fulfill an emotional need, or earn social currency.

02. What’s Powering New Economy Innovation in the Lower-Tier Market Expansion

Charlie Lewis, founder of “Startup Workshop,” once said: “Entrepreneurs are all addicts.” The meaning: once you’ve tasted the thrill of building a successful company — whether through IPO or acquisition — you can’t stop. Serial entrepreneurs abroad might found four or five companies, spending four or five years at each, perpetually converting new technology or untapped demand into business ventures.

Why the restlessness? Because they understand that what is “new economy” today might be “classical economy” in a few years. You have to keep finding new points of innovation.

Indeed, the early internet companies were largely built on human weaknesses: greed, impulse, laziness, the desire for a bargain. Discount promotions, attractive sales representatives, referral commissions — these tactics worked for early e-commerce.

So what will power new economy innovation to reach lower-tier markets in the future? I see three primary directions: node empowerment, middle platform empowerment, and cultural empowerment.

1) Node Empowerment

In his book The Rational Optimist, Matt Ridley describes innovation as “the mating of different ideas.” The railway, for example, emerged from combining a high-pressure steam engine with a mine cart running on tracks. The lawnmower was the offspring of a miniaturized gasoline engine and a miniaturized harvester. Almost every imaginative invention works this way.

Ride-hailing, bike sharing, influencer commerce, and social commerce have all emerged from the foundational evolution of internet technology catalyzing new idea combinations. The key is identifying where these combinations intersect — and empowering innovation at those nodes.

Pinduoduo’s ability to fuse social networking with e-commerce, rapidly breaking into smaller cities and towns to claim a top spot in China’s e-commerce rankings, was a direct result of node empowerment. Here’s a fact that may surprise you: China’s largest social app (WeChat) and China’s largest e-commerce app (Taobao) actively block each other. This corporate rivalry created an empty node in the market.

From day one, Pinduoduo partnered with Tencent to fill that gap — the blank node between social and commerce. Backed by Tencent’s social traffic, Pinduoduo built a group-buying mechanism that connected clearance-seeking merchants with discount-hungry consumers. As users accumulated on Pinduoduo, it became a new traffic platform in its own right.

By contrast, why hasn’t large-scale social commerce emerged in the US? Because the gap between social networks and e-commerce was already filled long ago by direct selling, which is legal in the US. Well-established direct selling brands have already achieved deep market penetration.

A more recent example of node empowerment at the market edge is the platform Yunji (云集). Its users are 95% female and 86% are mothers. These women become sellers on the platform not only for financial reasons, but for an important psychological one: the sense of relevance, status, and accomplishment that selling provides. Through selling, they demonstrate their value — to friends and family, to their households. Yunji precisely identified an emotional and social void among a marginalized demographic, and turned it into a market.

2) Middle Platform Empowerment

The standout feature of new economy innovation this year has been the rise of the “middle platform” (中台). Alibaba is building a data middle platform; Tencent is building a technology middle platform; ByteDance (Toutiao) has plugged all its business lines into a middle platform and is currently building a new live-streaming middle platform.

Middle platform empowerment means consolidating shared resources — big data, algorithms — and making them available as tools to all front-line teams.

When Alibaba acquired Ele.me (a food delivery app), it immediately connected it to Alibaba’s data middle platform. Because Ele.me has to engage with large numbers of offline merchants, it needs visibility into how those merchants are actually performing. Alipay already holds exactly that data — merchant location and transaction flow — and can now provide it directly to Ele.me.

Douyin, with over 100 million daily active users, is operated by a product team of just 400 people. Yet its parent company ByteDance has over 10,000 people in its data middle platform organization, supporting the shared data needs of all its product lines.

For lower-tier market expansion, reliable middle platform empowerment is essential. Consider Didi and Hellobike pushing into third-, fourth-, and fifth-tier cities. What enables them to operate efficiently at that scale? When asked how Didi maintains the same efficiency in smaller cities as in metropolises, president Jean Liu explained: through the intelligence of a data middle platform, Didi can divide any city into a hexagonal grid and accumulate mobility data for each cell — rainy days, sunny days, rush hours, off-peak hours, weekdays, weekends, and where people travel after leaving each zone. Algorithms then generate demand forecasts, projecting how many people in any given area will need a ride. According to Liu, Didi’s technology can now predict demand 15 minutes ahead with 85–90% accuracy. The system also runs carpooling algorithms, telling drivers in real time whether passengers need to be picked up and where — determining the optimal route choice.

Hupan University’s academic dean Zeng Ming articulated a model called S2B2C, particularly well-suited to lower-tier markets: an S (a company with systematic support capabilities) empowers many small-Bs (small merchants), who together serve the end consumer C. The countless small restaurants, neighborhood shops, and modest local businesses on China’s streets survive because there is genuine demand for what they offer — but they remain exactly as they are because they lack the capabilities to level up their quality and efficiency. Somebody needs to empower them.

Brands like Miniso (名创优品), Keep, Three Squirrels (三只松鼠), and Food Street (食宝街) in Zhongguancun are already doing exactly this — providing an S2B2C empowerment system that upgrades the delivery of previously underserved demand with better quality and efficiency, enabling a more sophisticated, higher-performing penetration of lower-tier markets.

One important caveat: S2B2C is ultimately a physical system built on intelligent commerce. The human factor always comes first, and the influencer plays a critical role in filling the “humanization gap” in intelligent commerce.

3) Cultural Empowerment

In the past, heritage brands born in Beijing, Shanghai, or Guangzhou typically needed 5–10 years to build national recognition — sometimes requiring multiple generations of sustained effort.

But look at the consumer brands that have emerged in recent years: Zhou Hei Ya (周黑鸭), born in Wuhan, Hubei; Three Squirrels (三只松鼠), born in Wuhu, Anhui; HeyTea (喜茶), originally from Jiangmen, Guangdong. All of them achieved nationwide reach in just three to four years.

This isn’t because these brands are uniquely exceptional — it’s because the new economy has created a system-level tailwind. Shortened supply chains, faster logistics networks, and the ubiquity of third-party payments have dramatically accelerated the journey from product design and manufacturing to the consumer’s hands. And the commercial explosion of short video platforms, social media, and influencer commerce has ignited a long-awaited renaissance of Chinese domestic brands — the “Guochao” (国潮, “national wave”) phenomenon.

Take Perfect Diary (完美日记), the domestic cosmetics brand. Rather than slapping on Japanese or Korean imagery like traditional domestic cosmetics brands, it proudly displayed its Chinese DNA — and went on to top beauty sales charts on Singles’ Day (11.11) this year.

Many brands that the post-70s and post-80s generations grew up with are now staging a comeback. Heritage names like Warrior sneakers (回力), White Rabbit candy (大白兔), Pechoin (百雀羚), and Xie Fuchun (谢馥春) — brands your grandmother might remember — are being infused with fresh energy and transformed into new-era influencer brands. This is cultural empowerment at a scale that encompasses most Chinese brands.

The biggest driver of this “Guochao” wave is the post-90s and post-00s generation. For them, the most valuable thing isn’t a product’s features — it’s whether it gives you something worth talking about.

In the past, across Europe, ordinary people spoke English or Russian while French was the lingua franca of high society. That’s why in novels like War and Peace, Russian characters occasionally slip into French mid-conversation. Confucius famously said: “Without learning poetry, one has nothing to say” — referring to the Book of Songs (Shijing). In ancient China, the ability to quote from the Shijing was the social passport of the upper class, much like French in 19th-century Europe. Today, domestic brands rising from lower-tier cities and towns have become a new form of cultural currency — a badge of taste — among China’s young generation.

In stark contrast, American brand Forever21 and British brands ASOS and Topshop have all exited the Chinese market. Even Zara, which we see everywhere, has been steadily cutting prices. These once wildly popular international brands are now considered — simply — not cool enough.

03. Conclusion

The iterative evolution of internet technology has built better new economy infrastructure. But true commercial revolutions are still driven by human initiative — the scramble for goods, traffic, and data reflects the ongoing cognitive upgrade of our era.

Hupan University has a framework for describing China’s new economy rise: the “Three Waves Running in Parallel.”

Wave One — Consumer Upgrade: scramble for goods. Whoever has the goods wins.
Wave Two — Internet Revolution: scramble for traffic. Traffic enables the aggregation of goods; whoever has traffic wins.
Wave Three — Intelligent Revolution: scramble for data. Traffic depletes with use; data grows with use. Data enables the aggregation of traffic.

But the ultimate macro trend is intelligent commerce — where the fuzzy, experience-based knowledge that once existed only in human minds, applied frequently to business scenarios, is being systematically extracted, modeled, datafied, and algorithmized, becoming part of business intelligence and concentrating increasingly in a handful of super-engines. This is the third wave, and it is the most representative of the new economy.

In the years ahead, all three waves will rise — but not in sync. The later waves will consistently surpass the earlier ones.

Looking back, everyone marvels at how fast technology changes the world. But in truth, innovation moves slowly — far more slowly than we imagine. Understanding the macro trends is not the hard part. The hard part is having the strategic clarity to know where to focus, and the speed to act on it.

*This article is from the WeChat public account “Li Meng.” Author: Li Meng, founder and CEO of IMS (Tianxiaxiu) New Media Business Group.