E-commerce & E-business

Overview

China’s e-commerce has grown rapidly in recent years.  Statistics show that China’s e-commerce business volume reached USD1.1 billion in 2000, including 50 million US$ from Business to Consumer (B2C) transactions and US$ 1.1 billion from Business to Business (B2B) transactions. The country’s internet regulator, the Ministry of Information Industry, says that for 2002 it will top US$ 1.2 billion. Even though the vast Chinese market for e-commerce development is expected to exceed US$ 60 billion by 2004, industry research firm International Data Corp. (IDC) does not expect many Chinese companies to develop and implement e-commerce strategies for the next two years because of pricing and technology obstacles. ¹⁴

E-business and e-commerce are seen, as in all states, as strategically vital to the long term development of the national economy. At first sight China may not seem well positioned, without a developed modern legal system and without clear competitive ground rules for a ‘socialist’ market economy. As elsewhere, the grandiose promises offered by B2B e-commerce may have – in the majority of cases – remained largely that: promises. However, in getting what we refer to in the West as B2B e-commerce out the door, China has kept its secret weapon quietly to itself: the government. In China, the drivers to the adoption of online exchanges, supply chain management, centralized procurement and paperless trade aren’t the private sector, they are the bleeding state enterprise sector and the government’s determination to kick the next stage of economic development into gear. In China, it won’t – for the moment – be B2C or B2B, it will be B2G and G2B – in fact, B2G2B if the government gets it right.

B2B

There are 677 domestic B2C Web sites, 205 of which have been operating without any suspensions since their establishment, and 370 B2B Web sites. The majority of China's e-commerce Web sites are based in Beijing, Shanghai and Guangdong, which are also the areas in China where the Internet and e-commerce have developed the fastest. Supporting the development of e-commerce is a telecommunications infrastructure that is already vast and substantial. Overall teledensity was lower than 15 by the end of 2001. Clearly though, it makes better sense to measure China’s e-commerce potential by its major cities than by a national yardstick. This is where China’s Internet users are concentrated.

By the end of 2000, one government consultancy reported that while 56 percent of enterprises had their own websites, only 13.8 percent participated in online procurement; and while 87.7 percent released information on the web, and 79.1 percent collected clients’ information, only 27 percent received online orders. ¹⁵

But B2B companies are up against the same realities of doing business in China as the firms they are trying to help. They must operate in a land of insufficient transport and communication networks, deal with banks that cannot process transactions from one branch to another, and of restrictions on services such as insurance and distribution. E-commerce enterprises have the additional challenge of working in a sector that is under constant government scrutiny and subject to sudden and arbitrary restrictions in addition to spending much of their time educating would-be clients. Many potential consumers in China lack even a computer (let alone a network) and few appreciate what an Internet-based accounting system can do for them. Moreover, the Renminbi is still not a fully convertible currency, and the purchase and sale of foreign currencies is heavily regulated, thus restricting individuals from remitting foreign exchange abroad. For e-commerce to be viable in any jurisdiction, payment mechanisms must be secure, convenient and reliable. Consumers must also have confidence in the confidentiality of information transmitted online, such as credit card and other financial or personal information. Consumers and business people need to be confident about the identity of the person they deal with and that the messages they send are not tampered with. While encryption technology is available to ensure the confidentiality of such information, users must have confidence in the companies using encryption technologies or providing encryption services. There is also a need to ensure the legal recognition and enforcement of electronic contacts and electronic signatures. So, until nationwide services become more prevalent, e-business in China will either have to depend on services provided locally by individual banks or payment solutions of their own.

B2C

(Source: Semiannual Survey Report on the Development of China’s Internet in January 2002, China Internet Network Center.) ¹⁶

The Internet users frequency of accessing the E-business websites :
Frequently 21.9%
Sometimes 49.8%
Rarely 25.8%
Never 2.5%

The users ever purchased commodities or services via Internet last year :
Yes 31.6%
No 68.4%

The users ever purchased commodities via auction websites last year :
Yes 6.9%
No 93.1%

The users ever successfully made second-hand dealing last year :
Yes 8.7%
No 91.3%

The purpose for users to purchase online:
Saving Time 48.3%
Reduce Costs 38.8%
Easy to Operate 41.7%
Looking for Rare Commodities 28.9%
For Fun and Curiosity 31.5%
others 1.6%

Product (Service) that users had purchased
Books and Magazines 58.0%
Computer Appliance 33.7%
Photographic Equipment 3.6%
Communication Appliance 15.5%
AV Equipment 34.4%
Living and Housing 11.6%
Clothing 4.4%
Family Electrical Appliance 5.6%
Sports Equipment 4.4%
Medical Care Services 3.1%
Present Delivery 14.7%
Financial and Insurance Services 2.6%
Ticket Ordering 9.7%
Educational Services 11.8%
Others 3.1%

Payment methods :
Cash and Delivery 42.8%
Online payment 15.6%
Post Offices transfer 3.9%
Bank Transfer 6.8%
(The author’s note: You may notice there is no payment by credit card, which is viewed as a bottleneck in developing e-commerce in China.)

Deliver methods that being used :
EMS 20.5%
Other express deliveries 7.1%
Postal parcel 25.5%
Air, train parcel 2.2%
Home delivery 44.4%
Others 0.3%

Have you ever experienced that goods have not been delivered after your order and payment :
Yes 13.9%
No 86.1%

The satisfaction degree of users when exchange through the Internet :
Quite satisfied 3.5%
Satisfied 34.8%
So so 39.9%
Unsatisfied 20.4%
Quite unsatisfied 1.4%
(The author’s note: only 38.3% users are satisfied with online shopping, which indicates that the online shopping community is still amateur.)

Primary obstacles of online purchase:
Security can not be guaranteed 31.0%
Inconvenient Payment 11.8%
Quality of products, after service and credit of the producer can not be guaranteed 
30.2%
Delivery is time wasting, the channel is not expedite 13.9%
Unattractive Price 6.3%
Unreliable Information 6.3%
Others 0.5%
(The author’s note: e-commerce in China is still plagued by consumer suspicion of online security and a dearth of credit cards.)

 Most promising online business in the future (multiple choice) :
Online shopping 54.5%
Online Stock Trading 38.0%
Online For-Profit Information Services 34.2%
Online Game and Entertainment Services 36.3%
Online Communication 55.4%
Virtual Community 20.8%
Online Program Ordering Services 38.4%
Online Education 51.8%
Online Hospital 26.7%
Others 0.7%

Status of purchasing goods or services online

The author's note: there are numerous issues hinder e-commerce in China, that is why only 31.6% of the Internet users ever purchased goods or services online. However, you may also notice the percentage jumped from 8.79% in January 2000 to 31.6% in January 2001, which indicates the B2C in China is growing, and still has huge potential.