This article was originally published in CEO Forum.

In the world of digital retailing, all eyes are on China. Even as overall retail sales growth slows, along with the rest of China’s economy, online sales in the world’s largest digital marketplace continue to boom, growing at an annual rate of 25% (see Figure 1). Based on Bain & Company analysis, business-to-consumer (B2C) online retail in China will grow three times faster than overall retail. In fact, by 2018 half of total online sales will come from Tier-3 cities and below. Penetration continues to increase for online shopping’s core categories. For example, consumer electronics registered a 20% penetration rate, and the penetration rate for apparel rose to 18%. In groceries, one of the fastest-growing categories, penetration is now at 3% (see Figure 2). All of this is supported by a population that eagerly embraces online commerce and a leading-edge, cost-effective infrastructure for payments and delivery.

To understand the dimensions of this booming business, consider the rapid expansion of the infrastructure that is smoothing the flow of e-commerce and steadily making it a more viable alternative to traditional retail channels. The country’s third-party online payment systems are sophisticated by any standards, and they have flourished in part because of their convenience. The total transaction value for third-party platform Alipay alone reached more than RMB 3.5 trillion in 2013. That’s triple the total value of everything transacted on PayPal, the global system that encompasses far more than retail payments.

Meanwhile, China’s logistics system has advanced with similar drama. Last year, 9.2 billion parcels were delivered by express companies (see Figure 3), with six large, branded shipping companies each distributing more than 1 million packages a day. Economies of scale have helped these logistics companies cut the cost of deliveries by about half. And thanks to heavy investment by logistics players, a retailer now can deliver merchandise to the majority of cities in Tier 1–3 within two days and to the rest of the country within four days.

Read the full article in CEO Forum.

Serge Hoffmann is a partner in Bain & Company’s Hong Kong office. Bruno Lannes is a partner in Bain’s Shanghai office. Melanie Sanders is a Partner in Bain’s Melbourne office.