GALA Gazette: China is Clicking

China is Clicking
Author: Robin Teow, Lehman, Lee & Xu

China embraces e-commerce, with enthusiasm

111 million - that is the number of people in China, or 8.5% of the country’s total population, who might be connected to the net as you read this article. Globally there are some 970 million netizens. That is 15.2% of the world population. And as the world’s second largest Internet market after the United States, China is expected to see an annual jump of at least 15% in the number of web users before 2010.

Considering the economic impact of the Internet revolution, it is certainly no exaggeration to say that the “Internet is globalization on steroids”. Its development is essential in today’s fast paced global economy as an instrument to stir global growth, to enhance efficiency and to intensify market integration both internationally and domestically. The ability of the Internet to link different parts of the world in a global electronic market place and information exchange has certainly produced a wide-ranging and positive effect on both developing and industrialized economies.

China’s rapid Internet growth is viewed by many as unprecedented and out of the ordinary in the world despite its yearly per capita GDP of less than US$2,000. It has witnessed in recent years the meteoric emergence of the World Wide Web and also the profound implications of electronic commerce (“e-commerce”) business transactions. This remarkable phenomenon is largely attributable to the massive inflow of foreign direct investment into China, particularly in the high-technology industry. Foreign investors wanting to plough money into China are being impelled by the pressures of global economic competition to bring with them the best international business practices and state-of-the-art technology. China has greatly benefited from such economic input in that its national innovation system and technology absorbing capacity have progressed considerably as a result.

The development of Internet is pivotal to and interconnected with the expansion of e-commerce, as the Internet is one of the most effective means of delivering what the notion of e-commerce has always implied. The significance and potential of e-commerce can no longer be disputed. It is more than just electronics and commerce added together. From the world of hype and fantasy, it has shifted towards that of digital reality. E-commerce represents a completely new way of doing business over a medium that changes the very rules of doing business. It is far more about strategy and business management than it is about technology. It is set to revolutionize trade and industry, and affect economic relations between and within countries and companies in years to come, and in ways beyond comprehension. Simply put, this communication evolution is going to have a sweeping effect on the way the world will conduct business transactions in the future. Therefore, its continued growth is absolutely fundamental both to the promotion of the nation’s economic restructuring, and as a decisive factor behind China’s economic competitiveness in the 21st century.

The Chinese government’s general policies towards the Internet and e-commerce are a fusion of encouragement and control. In an effort to maintain control over the application and evolution of China’s Internet and e-commerce, the Chinese government has adopted a hands-on approach to setting the pace of Internet and e-commerce development and promotion, as opposed to developed countries where Internet and e-commerce development is mainly driven by private companies and individual enterprises. In this regard, the Chinese government has mapped out an all-inclusive plan that embodies the strengths of information technology with the governmental agenda of implementation through regulation. Key objectives include economic growth; enhanced political monitoring and control; and improved communication, distribution and network infrastructures.

Furthermore, in order to achieve these goals, China has set in motion a number of “Golden” programs to refine China’s infrastructure, to build up the country’s technological presence and its innovative ability to conduct business on the Internet. In particular, the “Golden Bridge program” was devised to develop infrastructure necessary for the dissemination of information on the Internet. The “Golden Card program” was designed to develop China’s credit card and banking network. The “Golden Gate program” was formulated to aid the administration of foreign trade and the exchange of information globally.

The latest figures have unquestionably shown that e-commerce has come of age in China. E-commerce sales raked record revenues of 553.1 billion yuan (US$68.72 billion) last year with over 71% netizens shopping online, an increase of 58% over 2004 and the momentum is set to continue this year.

The consumer-to-consumer (C2C) market has become the new growth market with a turnover of 13.5 billion yuan (US$1.68 billion) triple the 2004 volume.

Domestic online auction site Taobao.com, which has 70% of China’s C2C market users and conducted transactions worth 9.7 billion yuan (USD1.2 billion) last year, has beaten the Chinese unit of US auction service eBay to become the No. 1 C2C website in the country by offering free services.