Liberalization & Deregulation

Internet Diffusion

Electronic Commerce

Hardware Manufacturing

Software Development 

Who uses IT?

IT Labor Market

IT Geographics

IT Financing

Government Policies

Legal Environment

Transborder Data Flows 

Analysis: IT Strengths & Weakness

Analysis: Impacts on the Business

Sources and Links

The complexities of e-commerce are enormous and the learning curve is steep. China will have many problems as it struggles to embrace the new century. Experts predict that the total volume of global e-business trade is expected to exceed $1,000 billion by the year 2002 and further soar to $1,500 billion by 2003. Meeting the challenge is essential to China's future. Is the country ready for the next step in the information revolution? What hurdles lie ahead? 

Current Situation of E-Commerce in China

The E-commerce in China began in 1997. China Goods Order System (CGOS), China National Commodity Exchange Center (CCEC) were set up in 1997 as a sign of the beginning of the E-commerce in China. In 1998, there is "Capital E-Commerce project" and in 1999, the biggest E-commerce portal www.8848.com began its business. China is the second economical entity in Asian. In 1999, China's GNP is $991 billion. During the past six years, China has the complex increase rate of GDP as 11%. Now China has 16.7 million Internet users, which is only 0.7%--1% of the total number of Chinese people. The potential market is huge. 

Through reform and opening for more than 20 years, the IT industry in China is developing rapidly. The telecommunication service grew from RMB87.7 billion in1995 to RMB311 billion in 1999 with annual average growth rate of 37.2%. In 1999, the optical cable in China reached 2.50 million kilometers and the long-distance telephone line reached 1.76 million kilometers. The fixed telephone users reached 170 million, and in the city, 29 people from 100 people owned telephone equipment. The mobile telephone users will reach more than 60 million by June 2000. The continuous development of telecommunication infrastructure makes the Internet service and E-commerce acquire great development. 

Now, China has 40,000 business web sites, about 800 on-line shopping. The area of the E-commerce's application and development also expands from Beijing, Shanghai and Shenzhen to other cities. In 1999, the sales of the E-commerce is $7 million. For the first two quarters of 2000, the sales is $40 million According to IDC's estimation, in 2000, the sales of the E-commerce in the mainland of China will reach to $100 million. In 2003, it will reach to $3.8 billion. Large cities like Shanghai and Guangzhou saw an increase in the number of online consumers in the first nine months of 1999, with growth rates jumping from 2.3 percent to 18 percent and from 0.2 percent to 15 percent respectively. 

B2C and B2B over Internet in China 

B2C over Internet 

E-commerce in China is originated from the E-commerce from enterprise to consumer (Business to Consumer, that is, B2C). Most e-commerce in China today involves business-to-consumer transactions rather than business-to-business deals. 

According to e-commerce companies in Beijing and Shanghai, e-commerce first took the B2C form that catered to the vast consumer market, such as selling books, computers and household appliances. 

However, due to ambiguous market positioning, the lack of general interest in online shopping, the lack of popularity of credit cards and the fact that questions such as online payment and authentication mechanism have not been totally solved, many companies face the possibility of closing down. The stronger ones that survive this elimination process, such as Sina, Netease and 8848.net, mainly depend on hit rate or advertising revenue. Very few companies actually make money from online transactions. 

B2B over Internet 

The Business-to-Business E-commerce (B2B) mode will be the most important application area of the Internet E-commerce. 

In the US, B2B over the Internet last year reached US$43.1 billion, and will increase to US$109.3 this year, occupying 3% of the total US B2B market. In the future 5 years, it will increase for 20 times and by 2005, annual B2B over the Internet will reach US$6 trillion. 

B2B in China is greatly supported by the government departments and the individual industrial departments organize many electronic transaction markets. In 1999, online B2B is about 0.05% of the total transaction amount from enterprise to enterprise. According to Goldman Sachs's report, in 2005, the sales of B to B in Asian will reach to $440 billion. China will become the biggest market of B to B in Asian. 

There are not many reputable B2B websites in China. This mode of business is still in its embryonic stage. Alibaba.com is among the largest of these companies. The other e-commerce startups all target specific fields and trades, such as distance learning, building materials, cosmetics, medicines, securities, insurance and environmental protection. 

Urgent need for trading partners 

Both B2B and B2C have to be backed by a large inventory and must have characteristics and market appeal. Many e-commerce companies are looking for partners among domestic and overseas agents and import/export companies to import foreign products. They are also after unique products in order to boost the image of their websites. 

Transformation of traditional trading companies 

Under the impact of e-commerce, some well-established foreign-invested trading companies such as Jebsen and Dah Chong Hong are considering extending the e-commerce concept to products under their distributorship. According to Jebsen, they are looking for partners in China to further expand the market coverage of their existing range of international products. 

Opportunities

The opportunities for growth are almost unlimited. Net users, now 16 million strong, are doubling every six months the fastest growth in Asia. Money is pouring in from American venture capitalists. Some 50,000 Chinese domain names have already been registered. 

Most thrilling, however, are the successes of a new class of Net entrepreneurs. Many have cracked the Internet and set up their own companies. William Ding, founder of "www.netease.com," one of China's top portals, whose site now claims 6 million page views a day, has attracted investment from Goldman Sachs, ING Baring, Softbank and Techpacific.com. He and Charles Zhang of "Sohu," another of China's major portals, or broad-based content providers, are vying to be the first mainland Internet entrepreneur to be listed on the tech-heavy NASDAQ. 

Currently, 20,000 Chinese nationals with valuable information-technology experience are abroad. Many will now be lured back, and many of them see the Internet as a way of leapfrogging technology to draw even with the West. The sense of empowerment and pride in modernizing China through the Internet is spurring a new sense of nationalism. 

Some important links for E-Commerce Development in China: 

1. Payment over Internet 

The payment over the Internet is an important link for developing E-commerce and is viewed as a bottleneck in developing E-commerce in China. Fortunately, since 1999, because of the extensive use of bankcards, the payment bottle over the Internet is being rapidly solved. The bankcards started to be used in China in 1985. In recent five years, the issued amount of bankcards grows with annual average growth rate of 64%. The extensive use of bankcards creates a good condition for payment over the Internet in E-commerce. 

2. Goods Distribution 

The people in the E-commerce industry community have extensively recognized the importance of goods distribution in the development of E-commerce users, and they try to solve the problem in different ways. In this aspect, some gratifying progresses that could be called breakthroughs emerge. The China Post possessing the largest transfer network joins the E-commerce, and professional distributing enterprises special for E-commerce service appear one after another. Sparkice company has set its own distribution system in individual important provinces and cities in China, and has set strategic collaboration relationship with overseas UPS, FEDEX, etc.. 

3. Credit System 

The Chinese government actively supports the research and development of security products about E-commerce. In October 1999, the State Council and National Commercial Cipher Technology Administrative Commission issued the regulation for development and application of China commercial cipher technology. Now the certificate authentication (CA) in China is mainly organized and implemented by industrial departments and local governments. In 1999, the China International E-Commerce Center organized and implemented its CA, and developed public cipher key, and enciphers and decipher technology software. 

Problem

But the road ahead is still bumpy. Major issues related to tariffs, intellectual property rights, electronic payment and technological standards require international coordination. Other impediments include obstacles to web access and e-banking, along with inadequate supply and delivery systems, as well as security concerns. In China there are several obstacles in developing e-business. They include: 

1. 1. Outmoded shopping concepts and methods. Chinese customers shop by looking at, touching, listening to and tasting products. In general, they feel it is indirect and unsafe to shop on line. 
2. 2. A deficient general business environment. China's business activities are basically conducted on a person-to-person basis. With such a business pattern, online transactions often seem unnecessary. 
3. 3. Commercial electronization lags. The current transmission of the Chinanet is fairly slow, frequently causing delays. Simultaneously, many unreliable factors exist, such as those involved in software, lines and systems. Online prices, deals and final contracts involve many trade secrets and matters of personal privacy. There have been cases of using ordinary technical means to obtain credit card numbers and codes from business websites with ease. 
4. 4. Remnants of the planned economy. The existing management systems of China's information industry still bear signs of the centrally managed economy, and monopolies have restricted market competition, delaying the promotion and application of e-business. 
5. 5. Public awareness. The public's education level remains low and most people can't fathom the ever-developing technologies. 
6. 6. Language. As a result of China's long-standing lack of proprietary technologies, the nation will have no proprietary rights in creating networks, and its rights concerning network languages and sharing may become a problem. Currently, 80 percent of the information contained on the Internet is English, while Chinese-language Web pages constitute less than 0.4 percent of the total.