This week, the quarterly reports of Alibaba (NYSE: BABA) and JD.com (NASDAQ: JD) will be closely watched as they are seen as barometers of consumer sentiment in the world's second-largest economy. According to DBS Bank estimates, these two companies command about 69% of sales in China's e-commerce industry, and in recent years, they have faced increasingly fierce competition from low-cost platforms like Pinduoduo (NASDAQ: PDD) and TikTok, owned by ByteDance.

Due to cautious consumer spending in China following the outbreak of the COVID-19 pandemic, along with a slowdown in economic growth and the real estate sector, Chinese customers are seeking discounted and cost-effective ways of shopping. Alibaba and JD.com have responded to this trend, but they face the risk of lower profit margins.

The battleground of low-cost competition poses challenges for Alibaba's Tmall and JD.com. They have traditionally focused on enhancing consumer value chains through the sale of high-end products, but now they are compelled to offer a broader range of low-cost products while maintaining their market, to prevent loss of market share.

Cathy Lai, an analyst at S&P Global, stated, "As long as consumers maintain relatively cautious spending habits, these dynamics are expected to further slow revenue growth and erode profit margins. Alibaba and JD.com are both throwing themselves into expanding the brand-less product domain dominated by Pinduoduo." Taobao and Tmall stated, "With their user-centric philosophy, the Taobao and Tmall Group actively invest in product supply, competitive pricing, and quality services to meet the needs of consumers at all levels."

As of the September to December quarter last year, including the revenue from the biggest sales event of the year, "Singles' Day," Alibaba's Taobao and Tmall Group saw revenue grow by only 2% year-on-year, while JD.com grew by 3.6%.

According to data from the London Stock Exchange Group, analysts expect Alibaba's overall sales (with 65% coming from its domestic e-commerce business) to increase by 5.3% year-on-year in the March quarter of this year, while JD.com's revenue is expected to grow by about 6%, consistent with the growth trend of recent quarters. In contrast, Pinduoduo's revenue grew by 123% in the December quarter last year, but this included revenue from its rapidly growing overseas platform, Pinduoduo Global, and its domestic platform, with most of its revenue coming from domestic operations. Market research firm eMarketer predicts that TikTok's growth in 2023 will reach 60%.

Currently, China's e-commerce giants are once again entering a large-scale discount season, gearing up for the important 618 mid-year sales promotion that will start at the end of May.