e-Commerce in China: numbers and trends

Jack Ma and Philip McMaster at Alibaba.com
credits: Adventurpreneur

China could become the world's biggest online market within two years: the number of Chinese netizens has surpassed 123 million and number of people with access to broadband connection rose by 45.3 percent during the first half of the year to 77 million. Studies show that a typical Chinese consumer spends an average of 17.9 hours per month (36 min./day) engaged in popular online activities such as chatting, blogging, gaming, and shopping.

If foreign businesses want to get in on the action in China, though, they should learn to speak the language. Eighty-five percent spend their time viewing mainland Chinese-language content, while only three percent viewed overseas foreign language content. "The Internet industry is attached to content," said Professor Guo Liang of the Beijing-based Chinese Academy of Social Sciences, refering to the 18th Statistical Survey Report on the Internet Development in China.

UPDATE: I'm moving this blog to http://designative.info

China reports a total of 694,000 websites, over 20% being individual's. The number of domain names surged 40 percent to reach 2,592,000, according to the report on China's Internet information and resources 2005 published by the State Council Informatization Office.

E-commerce has been slow to develop in China, though, for several reasons including low penetration rates of credit cards, consumer trust issues, and poor logistics and distribution channels. Eager to tap into China's consumer revolution, both Chinese and foreign companies like China Mobile, DHL and UPS have invested the money and time needed to address these issues.

The efforts have paid off. Chinese consumers now flock to online shopping sites like Amazon's subsidiary Joyo and competitor Dangdang, which recently raised $30 million USD from venture capital firms Doll Capital Management and Walden International. Joyo alone is expanding services from book selling to include electronics and other products and is becoming a de facto online shopping bazaar. The number of goods offered on Joyo's website have increased from 45,000 to 450,000 in the past 2 years.

Joyo's rise mirrors the growth numbers of e-commerce in China. An estimated 2.08 million Chinese bought products and services online in 2001. In 2006, the number of Chinese consumers making orders online will rise to over 20 million according to estimates by the China Market Research Group CMR. This year two in three people are expected to buy online, with books and computer gear proving particularly popular.

Other mind boggling statistics reflect the growth in all areas of e-commerce: in 2004, the entire Chinese Auction market was about $561 million; in 2005 that number jumped 200% and reached $1.7 billion, with Taobao being the strong player. According to Alibaba.com CEO Jack Ma, Taobao will dominate China online auctions, going head on against eBay.

If such momentum of growth continues, China's on-line transactions are expected to reach one trillion yuan this year (something around 89 billion dollars), a sharp rise from last year's 700 billion yuan."It means China is ready for a boom in e-commerce," said Chi Congbing, analyst with CCID Consulting.

China: Technology, Innovation and the Environment

Shanghai sunset: pollution
credits: mysticmaggatha

Since the beginning of its economical opening -- when the first 5-year plans were devised in 1979 -- China has being growing at an incredible speed, with its GNP numbers jumping from 44 billion dollars to 1.6 trillion dollars in just 20 years.

Such growth has pushed the Chinese manufacturing industry into devouring huge amounts of natural resources in a alarming way: in 2004, China -- the 8th largest economy in GNP scale -- consumed 8% of all the oil, 31% of all the coal, 10% of all the electricity, 30% of all ore, 30% of all steel, 19% of all aluminum, 20% of all the copper and 40% of all cement produced in the world.

Adding such demand for natural resources to low efficiency means of production (the power-generation, steel and chemical industry in China spends 40% more energy in comparison to developed countries) and we get one of the most polluting countries in the planet: according to the World Bank, 6 out of the 10 the most polluted cities in the planet are in China.

UPDATE: I'm moving this blog to http://designative.info

Worries about the quality of life of its people -- as well as with its the capacity of continuing to grow in a sustainable way -- has recently lead the Chinese Central Government to changing its development macro-strategy for the next five years: new initiatives (both state-run and private) of development zones/projects will emphasize on environmental and sustainability issues. Sectors such as Information Technology, financial and tourism will be stimulated, and special incentives will be given to create investments on technological innovation.

Chinese People and their Mobile Phones: SMS

Monk and his mobile
credits: Michaeeel

As in most Western countries, mobile phones are also very popular in China, among all different age groups and walks of life -- sometimes seen in very unusual places. The contrast between China and other Western countries shows up in the -- astronomical -- numbers: up to 1997, there was little over 10 million mobile phone service subscriptions... today, there are more than 400 million.

Even more impressive is use of short messages (SMS): just in the first 10 months of 2005, there were more than 260 billion. Short messages are so popular that such demand pushes the industry into creating a myriad of services based on systems that automatically answer messages sent through SMS from costumers: for example, in big cities like Shanghai, one can check the Yellow Pages through SMS, make restaurant reservations through SMS, and so on.

UPDATE: I'm moving this blog to http://designative.info

Internet in China: Online Gaming & "Gold Farming"

Internet Cafe
credits: shizukabazooka

According to the China Internet Network Information Center, the population of Internet users in China by last June is over 123 million -- 63% of those people have broadband access. More that 20 million chinese play online games, and the e-commerce revenue have grown 50% in relation to last year numbers.

Estimates of the revenue of the online gaming industry points to a total of 1.3 billion dollars by 2009, an annual growth of 35%, according to IDC. Such growth ended pushing the numbers of other sectors up: online games brought 17.3 billion Yuan (2.14 billion dollars) to Telecommunication industry, 7.1 billion Yuan (887.5 million dollars) to the Information Technology industry, and 30 million Yuan (3.7 million dollars) to the Publishing industry.

UPDATE: I'm moving this blog to http://designative.info

Unlike american consumers -- who usually pay US$ 50 to buy a new game -- players in China, where software is still an issue, are not willing to pay much for their games. Therefore, game developers have to come up with creative ways to generate revenue: according to Bill Bishop, CEO of Red Mushroom Studios, one of the fastest growning areas of the game business in China selling online gear for game characters.

The gaming culture in China is even creating new professions: in Liaozhong, colleting virtual items of online games has become income source for many young people. Even some of the most conservative estimates might say that these so-called gold-farmers bring in around 200 million dollars a year in this underground virtual items auctions industry.

China, Socialism & Consumer Behavior

Ferrari Store
credits: shanghaidiaries.com

With the opening to new markets and the growth of the Chinese economy, a new social class has emerged -- to some extend, unthinkable in a Communist China: the millionaires. According to a survey from Cap Gemini/Merrill Lynch, the number of millionaires (in US Dollars) in China have reached more than 230,000. The large majority of these new riches choose Shanghai to invest their money and also spend their money. And these new riches can by quite demanding consumers: Yang Qingshan -- secretary-general of the Chinese Strategy and Branding Association -- says that more and more Chinese people invest in luxury items, such as cars, watches, designer clothes, accessories and cosmetics.

Seeking to target such people, new businesses that will recently were unthinkable in the "Empire of the Center": the Millionaire's Fair -- event organized by the Millionaire Magazine, held for the first time in 2001 em Amsterdam -- since then showcased products in countries such as France, Belgium and Holland, was hosted for the first time in an Asian country this year, in Shanghai.

UPDATE: I'm moving this blog to http://designative.info

Despite of the poor infrastructure, the e-commerce is also flourishing in China, fueled by so many wealthy clients: the number of online business in China surpasses 20 million.

Several luxury brands from all over the world have been attracted by these consumers: Dior, after opening several stores in china which sells over 11 million Yuan an year -- something around 1.3 million dollars--, recently opened a Dior Center in Shanghai, the third in the world after Paris and Tokyo, hoping to reach 15 million Yuan in annual revenues.

The luxury automobile industry was to first to acknowledge such market potential, and for years have been harvesting fruits of their investment in Asia: 3 of 4 most expensive units manufactured by Bentley last year, each one costing more than 8 million Yuan -- something around 1 million dollars, were bought by Chinese millionaires; 15% of all the limousines manufactured by Rolls-Royce had Asia has their buyers.

Despite of such explosion of consumption, the ordinary joe in China still keeps his money under the mattress: the Chinese National Savings is over 9 trillion Yuan-- a little over 1 trillion dollars, representing 45% of the Chinese Gross National Product (GNP). As a comparison, Brazilian National Savings -- also an emerging economy, goes around 25% of the Brazilian GNP. The rate of consumption over the Chinese GNP doesn't go over 50%, much lower the the overall world average of 80%.

Nevertheless, the Chinese Central Government doesn't want their comrades to stray away and recently created a system to overtax luxury items, trying to discourage spending and promote socialist values.