The rise of the second-hand market in China boosts the circular economy

The second-hand trend is spreading around the world and gaining ground in China, particularly with the weakening of its economy due to the Covid-19 crisis. We look at Xianyu, a Chinese app that provides a second-hand product purchasing platform for the 75.5 million users of Taobao, Alibaba's e-commerce website.

Since 2019, the second-hand market, which forms the basis of the circular economy, has grown rapidly in China. Whether it is clothing, cars or books, it has become as simple to sell as it is to throw away. According to Bloomberg, the second-hand market achieved a value of 100 billion dollars in 2018, a figure which is set to grow in 2020.

According to a survey by Mintel, more than half of urban Chinese buy second-hand goods for environmental reasons. Tech giants Alibaba and Tencent have taken the lead in this market by developing exchange platforms that enable buyers and sellers to carry out fast, secure and rated transactions.

The secret of the success of the circular economy in China is the scoring system introduced by Alibaba, which evaluates citizens over time. It should be noted that with the current epidemic, this scoring system, known as Zhima Credit or Sesame Credit, has been reviewed and relaxed.  

Xianyu – Alibaba's second-hand goods exchange platform



Linking individuals for second-hand sales:

Building on its expertise in online sales and social media, Alibaba has managed to transform Chinese preconceptions about buying second-hand and provide a solution for people on a tight budget. Xianyu, the platform developed by the tech giant within the framework Flutter, makes it possible to sell and/or buy articles that were previously acquired on Taobao, Alibaba's e-commerce platform.

Goods such as clothes, designer bags, refrigerators, smartphones and cars are sold in this way. According to the product category, the seller must enter information about the state of the item (time used, origin, brand, etc.) and receives an estimation of the sale price.



Occasion 2



Screenshot of the homepage and the screen for the telephone category – Source: The Pixellary

Recycling and transformation of unsold items

In addition to the buying and selling of second-hand goods, the application provides other functions for recycling. In a few clicks, clothes to be recycled can be retrieved from a private individual, who receives payment in exchange, in order to be resold to partner companies.

These partners sell some of the items collected and recycle the rest (about half) to produce industrial or agricultural materials (such as fabrics for greenhouse temperature control and noise-dampening). Since the platform was launched, 8500 tons of clothing, or around 24 million items, have been recycled.  

Xianyu's popularity is due to its Super App status

Ease of use

Its status as a "Super App", due to the fact that it combines various recycling functions in a single app, has boosted the platform's use and popularity. 64% of its 75.5 million users per month only use this platform. By contrast, in the United States, for example, in order to buy second-hand goods, users have to use several different interfaces or websites, creating an account, entering payment data and so on, each time.

Another advantage is that Xianyu is integrated in Alibaba's Super App, which is in turn integrated in the Alipay payment system, providing ease of use that makes it significantly more accessible for individuals of all ages. The main users remain millennials, however, with 60% of users born after 1990.

Social and fun side  

The Xianyu app is also connected to the gamification functions of Ant Forest, an Alibaba mini-app that enables users to win “green points” to grow virtual trees, which will then be planted in the real world, in China's arid regions. In 2019, 230,000 trees were planted due to actions carried out on Xianyu. Social mini-communities have also been created on Xianyu, based on hobbies, with communities for fishing, photography and sport, for example.

People belonging to a community can exchange information and advice, and products sold are more easily categorised. There is even a community to buy the products of bloggers and celebrities, or to follow and seek inspiration from their clothing styles.



Image 1: Promotion of goods that belonged to the basketball player Kobe Bryant



Image 2: Communities available in the local area  
Source: The Pixellary

Trust-based transactions guaranteed by the Zhima scoring system

Payment secured by Alipay

Annual sales on Xianyu achieved a value of 14.4 billion dollars in 2019, and are set to grow in 2020. Transactions on Xianyu are carried out through the Alipay online payment service, as are all of the Alibaba group's applications. Users have a virtual wallet, which is credited or debited when the second-hand good purchase is made.

However, given that transactions can involve significant sums (for cars and household appliances, for example), it is possible for the seller to receive a deposit to ensure and secure the transaction before the good is delivered. The amount of the pre-payments and payment deadlines are defined according to the parties' reliability, which is evaluated by the Zhima Credit scoring system.



Users can access their score on Alipay - Source: CIW

Credit scoring system

In order to ensure smooth transactions and honest information about products sold, Xianyu is linked to the Alibaba credit scoring system. Zhima Credit, also known as Sesame credit, uses an algorithm that evaluates each individual's level of trust according to their transactions on Alipay, their borrowing habits, bill payment times, late returns of goods rented, etc. Users are given a score ranging from 350 to 950 points.

The higher their score, the more individuals will be considered trustworthy and receive benefits, while a lower score means they have to provide additional information or pay a deposit. For example, if they have a score of above 690, sellers can receive an initial payment for their sale via Alipay of up to $298, before the articles are even collected. In order to carry out transactions on Xianyu, the minimum score necessary is 600.

Relaxed rules due to the coronavirus epidemic

The scoring system is used for other Alibaba applications and covers a multitude of activities in the daily lives of Chinese citizens. Due to health conditions related to the coronavirus, some citizens confined to their homes were unable to return goods rented from various companies. Such actions, which would normally have a negative impact on the score, were not taken into account by the system, which is giving users a "grace period" due to their inability to return goods.

However, Sesame Credit does record late returns and asks its users to resume their good habits once the crisis is over. Conclusion  The platform Xianyu has enabled the emergence of a circular economy in China, based on a scoring system that establishes trust and reliability. Other second-hand goods sales platforms are also available: Zhuan Zhuan has 2 million users per month, and Guazi achieved 50,000 second-hand car sales in 2018. However, despite all these figures, the Chinese second-hand market still has a long way to go, and remains far behind western markets, where second-hand car sales represent 10% of GDP, compared with 0.6% in China in 2017 (National Bureau of Statistics of China).

Significant growth is therefore expected in the coming years. Beyond acceptance of the concept, there is also growing awareness among Chinese consumers of sustainable development, which is encouraging them to adopt a different attitude to their purchases and consider buying second-hand and recycling. A comprehensive platform, such as Xianyu, which makes buying second-hand goods as fast and easy as buying new products, is helping drive the circular economy.

By using technology to combine the second-hand market with fun games and a social aspect, China's tech giants are promoting citizens' awareness of sustainable development and supporting environmental directives introduced.