E-commerce, booming but still not there - the WTO-column

E-commerce in China was only five, six years ago for the consumer market minor in size and troublesome in the way it operated. Online payment systems were not in place and auction platforms had to organize offline meetings between their members, to get the business done. In those few years much has changed for the better. Payment systems - working as a virtual letter of credit - guarantee products are really delivered in a decent state. And even better: the consumers, especially the close to 140 million internet users, got fast used to virtual money, with QQ as a leading force, even triggering off warnings by the People's Bank of China, China's central bank, they cannot create their own money system.

Shaun Rein of the China Market Research Group makes in Business Week a strong case for e-commerce in China:

While China's Internet users will hit more than 140 million by the middle of 2007 and will overtake the U.S. as the largest group within the next few years, critics believe that e-commerce will never take off here because, as a matter of culture, Chinese do not like it. But do these numbers and conclusions incorporate the seismic shifts in consumer habits in China that have been taking place in the last decade? The answer is a resounding no.

Later he points at some of the research results. He sees a huge difference between the young generation and the old:

[Of the] Chinese youth between the ages of 18 and 28 in Shanghai, Beijing, and Guangzhou more than 80% said they were willing to buy items online and over 70% said they would use a credit card if they could.

That is a big but. The willingness to use online transactions does not mean they actually use it to such a degree that there is a substantial market. Millions of willing users does in China certainly not mean you have already their money in your pocket. Most of them still do not have the money - although they will in five to ten years time. And getting credit cards has indeed become much easier than in the past, so that might be in order in another five to ten years time. Growth is certainly there, as also the China Economic Net reports. The most popular auction site Taobao had last year a turnover of almost 17 billion Rmb (US$ 2.2 billion) between their 2.2 million members, a growth of 110 percent compared to 2005. Taobao has a turnover that is higher than that of Wal-Mart in China, the article says.

But I tend to get suspicious when companies define their success in turnover. Getting a high turnover is no problem in China, but it might actually be a problem if you are losing money for a long time. Taobao is bleeding capital to push the competition our of the market.

For business-to-business e-commerce has already been a resounding success, there is no doubts about that. Online transactions in China soured from US$85 billion to US$127.5 billion, but - as Shaun Rein also says - consumer spending is only a fraction of that number.

So, we are getting there. Much has improved over the past five years, but we need another five to ten year to see a really substantial consumer market. First, those young eager earners have to job hob a bit more to see their salary increase faster.

Fons Tuinstra