China - online and ready

CHINA:China's's online shopping market is expected to expand more than five times to €78 billion over the next three years, writes CLIFFORD COONAN from Beijing

XIAOFEI USED to head to the Zhongguancun electronics village in Beijing to fulfil her computer needs, but these days she sits in Haidian on her university campus and uses her laptop to purchase hardware and software alike.

“I hated queueing and dealing with traffic. And then I hated the way the salespeople would hassle you. This way is much more convenient, and they bring it to your house, so no need to carry,” she says.

Some 194 million Chinese – or 38 per cent of the country’s online population of 513 million – use the internet for shopping, according to data from the China Internet Network Information Centre. That’s a rise of 21 per cent on the previous year.

The country’s online shopping market is expected to expand more than five times to 650 billion yuan (€78 billion) over the next three years.

It's not just computers. Xiaofei also uses online shopping business-to-customer (B2C) facilities such as 360buy.comand Taobao, the Chinese version of eBay, to buy all kinds of things – clothes, books, food, medicine, car parts . . . even make-up. "It's all there. Even my favourite designers," she says.

The number of internet users in China continues to expand rapidly, surging past 500 million as new web surfers go online using mobile phones and tablet computers.

It’s hardly surprising, given the rent increases in downtown Shanghai and Beijing, but internet malls are on the up and up and the government plans to establish regulations for third-party transaction platforms, including internet malls, to facilitate the industry’s growth, the commerce ministry said in October.

Online retailing has become huge all over the world, but in China it has provided a means for people living in second- and third-tier cities to enjoy the same kind of shopping experience as their compatriots in Shanghai and Guangzhou.

And consumers who get together to buy in bulk and get a discount on websites grew 245 per cent to 65 million.

In tandem with the boom in online retailing, online payment, ebanking, online tour reservation and mobile phone payment have all risen strongly.

The Chinese government has implemented a rigorous set of controls on internet content, known colloquially as the “Great Firewall of China”, which keeps a tight rein on politically suspect material. However, the government has no qualms about commercial freedoms online and this shows in the booming world of Chinese e-commerce.

The Boston Consulting Group believes that China’s internet retailing market may overtake the US as the world’s largest, with transactions valued at more than 2 trillion yuan (€240 billion) in 2015.

While China’s consumer banking system remains heavily regulated, heavy on cash use and clunky, the number of ebank users grew by 19 per cent last year.

The number of people accessing the internet through mobile phones reached 356 million last year, accounting for nearly 70 per cent of all webizens in China.

The big guns are stepping up and the biggest beneficiary in China is the e-commerce giant Alibaba Group, which dominates the business-to-business (B2B) market with its Alibaba.comsite. It is also investing heavily in its Tmall.comwebsite, which allows businesses to sell products directly to customers. So confident is it in the future that it decided, almost overnight, to change the name to "Tian Mao", which means "Sky Cat".

“We changed the name of Tmall into ‘Tian Mao’ to reflect the characteristics of fashion, elegance and good quality,” says Wang Shuai, chief marketing officer of Alibaba group.

In 2011, 100 billion yuan (€12 billion) worth of goods were sold through Tmall.com, 3.5 times what was sold the previous year.

It was spun out of Taobao last year to allow it to focus more directly on B2C business, and had around half the market last year. It is one of the 10 most visited websites in China.

Alibaba is expanding furiously, and it angered many of its business customers last year when it increased its service fees tenfold, and it has since promised to invest 1.8 billion yuan (€220 million) to help small- and medium-sized merchants expand.

Online retailer Jingdong Mall, also known as 360buy.com, is the largest and fastest growing B2C, which became the first online retailer in China to exceed 10 billion yuan (€1.2 billion) in annual sales, winning a large part of the market share by offering free delivery.

Jingdong is looking at an IPO, which could raise nearly €4 billion. It has 12,000 employees and sells consumer electronics, computers and, now, books. It now has 25 million registered users and 6,000 suppliers nationwide.

Jingdong is going online in the ebook market, starting out with 80,000 ebooks at the start, rising to 300,000 by the end of the year. It's the latest Chinese retailer to get in on the ebooks market – Dangdang.com, launched in December.

“Our customers are used to e-commerce, and many registered book buyers purchase books and videos at least twice a month,” Shi Tao, vice president of Jingdong Mall, said at the launch this month.

Like many areas in China, copyright issues have held back the performance of online retail. The ebook industry has been hampered by a lack of transparency when it comes to resolving digital IPR questions.

Jingdong will act as an agent and share profits with publishers, and has signed a deal with more than 200 publishing houses, including the powerful People’s Literature Publishing House, in what Shi calls a “win-win” situation.

Buy, buy, buy . . . Alibaba steals a march in sales

Alibaba is the brainchild of Jack Ma and the firm, founded in Hangzhou in 1999, has three key businesses since he split China’s largest e-commerce website Taobao into three separate companies last year.

These are the product search engine eTao, B2C website Tmall (recently renamed Tian Mao) and C2C website Taobao.com.

Another important part of Alibabas business is Alipay, the leading online payments company in China, which facilitates transactions on both Taobao and Tmall.

Jingdong moved into the digital arena in 2004, selling products such as consumer electronics, computers and books. It now has 25 million registered users and 6,000 suppliers nationwide.

Tmall accounted for 53.3 per cent of the B2C market in 2011, while 360buy.comtook up 17.2 per cent, vancl.com2.1 per cent and dangdang.com1.9 per cent.

IPR issues remain an impediment to the real opening up of the Chinese online retail market. The US Trade Representative (USTR) continues to list Taobao on its name-and- shame list of notorious markets for piracy.