Qiuyan Fan, School of Information Studies, Charles Sturt University, Wagga Wagga, NSW 2678, Australia qfan01@csu.edu.au
Like many developing countries, China has considered the Internet a powerful tool for national development economically and socially. As e-commerce growth becomes more and more significant, China realised the potential of e-commerce and has made its first step towards Internet commerce from the plan of 1998 to the action of 1999. This paper outlines the present status of e-commerce development in China and identifies and analyses the major barriers to e-commerce adoption in China. Also, this paper compares two different diffusion modes of the Internet and e-commerce. It focuses on the factors that led to current conditions and which will likely influence future development. Hopefully, this study will help Chinese policy maker to build up a favourable environment for Internet commerce.
E-commerce is about doing business electronically. It is not a new phenomenon. For many years companies have processed and transmitted business data over a variety of Intranet networks (e.g. EDI). But electronic commerce over the Internet is a new way of conducting business. Internet electronic commerce is different from traditional e-commerce in that the network is not only a means to move data, but also the global open market (Communication to the European Parliament 1997). It has the potential to alter economic activities and the social environment significantly.
Generally e-commerce can be divided into three groups:
Business-to-Consumers (B-to-C) e-commerce involves individual consumers purchasing products from manufactures or service providers;
Business-to-Business (B-to-B) e-commerce is the area in which sellers and purchasers are both business entities;
Business-to-Government (B-G) e-commerce means that governments participate in e-commerce transactions e.g. public procurement.
Mainly e-commerce covers two main types of activities:
Indirect electronic commerce---the electronic ordering of tangible goods, which still must be physically delivered using traditional channels such as postal services or commercial couriers; and
Direct electronic commerce---the on-line ordering, payment and delivery of intangible goods and services such as computer software, entertainment content, or information services on a global scale (Communication to the European Parliament 1997).
The widespread adoption of electronic commerce requires widely available telecommunications infrastructures, affordable Internet access and efficient related services, as well as a critical mass of users who have basic IT skills.
According to international organizations such as WTO and World Bank, the value of goods traded online is projected to be as high as US$1.5trillion in 2001/2. Growth rates are expected to be high in Asia, particularly in China (See figure1.) According to ITU, estimates of e-commerce revenues for b-b transactions in the period 20001/02 are expected to range between $100 billion to $400 billion, and projections for b-c transactions from $25 billion to $90billion in 20001/02 (ITU 1999). The proportion of online trade across borders and Internet users making purchases are estimated to be 10 to 30 per cent. The proportion of global economy affected will be 1.5 to 4 per cent. All countries except the least developed will be affected by Internet e-commerce (Department of Foreign Affairs and Trade 1999).
Figure1: Forecast e-commerce revenue in China, US$m
|
Year 2000 |
42 |
|
Year 2001~2002 |
1870 |
|
Year 2003 |
380,000 |
(Source: ITU 1999 and Chinaeb 1999)
China has built up a telecommunications net centered around 16 optical cable lines and accompanied by multiple means of communications networks such as microwave, satellite, telephone, mobile phone, digital communications, and multi-media communications. (Horvath 1999). The optical cable trunk line totals one million kilometers and reaches all provincial capitals and 70% of Chinaās big cities. The digital data communications network reaches 90 percent of the cities and counties throughout the country, and the public computer network covers 239 cities. Approximately 13 percent of households throughout China have telephone access, with urban penetration running at over 40%. (Horvath 1999) Telephone mainlines (per 1000 people) is 56 in China (World Bank 1999).
China first linked up to the Internet in 1994 and since then it has developed rapidly. From 1997 to 1999, Computer hosts, Internet users, domain names registered in the top level domain .cn, web sites and total bandwidth capacity of leased international connections respectively increased by over one thousand percent. (See figure 2).
|
Figure 2. Internet growth in China |
|||||
|
|
Computer Hosts |
Internet Users |
Domain Names(.cn) |
Web Sites |
International Bandwidth |
|
Nov 97 |
299,000 |
620,000 |
4066 |
1500 |
18.64Mbps |
|
July 98 |
542,000 |
11,750,000 |
9415 |
3700 |
84.64Mbps |
|
Jan 99 |
747,000 |
2,100,000 |
18396 |
5300 |
143Mbps |
|
July 99 |
1,460,000 |
4,000,000 |
29045 |
9906 |
241Mbps |
|
Jan 2000 |
3,500,000 |
8,900,000 |
48695 |
15153 |
351Mbps |
(Source: CNNIC, 1997-2000)
Five large networks provide global Internet connectivity to other networks or Internet Service providers (ISP), of which there are over 200 in the country. The total capacity of Bandwidth is 351M. (See figure 3).
|
Figure 3. The total capacity of bandwidth of national backbones |
|||||
|
|
CHINANET |
CHINAGBN |
CSTNET |
CERNET |
UNINET |
|
Bandwidth |
291m |
22m |
10m |
8m |
20m |
|
% of total |
83% |
6% |
3% |
2% |
6% |
(Source: CNNIC, as of Jan 2000)
E-commerce in China is in its infancy in terms of both technology and market. E-commerce was first introduced by IT industries and the media in 1998. Then people started to talk about e-commerce and government and businesses planned to develop e-commerce in China. In 1999, China put the concept of e-commerce into practice. Many e-commerce sites were established. ISP or ICP and Portal sites put out commercial content such as shopping channels and online malls in their web site. Business sites like alibaba.com and 8848.com, both founded in March 1999, are convincing people that this is a viable way of doing business. Alibaba.com has signed up 100,000 members from 180 countries around the world and has thus built the worldās largest on-line community of international traders, buyers and manufactures (Business Wire Jan 18 2000). 8848.com was visited by 1,300,000 Internet surfers and online sales revenuers were close to US$200,000 within three months. Moreover, a few big Chinese companies have redesigned their business processes to take advantage of e-commerce. For example, Stone Computer Corp. developed two web sites (urking.com and stone-ec.com) for e-commerce. Furthermore, many foreign joint ventures would like to be involved in China e-commerce market. Pacific Century Cyberworks(PCCW) has formed a US $60million joint venture with Netcel to provide e-commerce services in China. Compaq Computer Corp. will joint with CMGI Inc., the Internet venture investor, and Shanghai Information Investment Inc. in a joint venture to provide e-commerce applications and solutions to government and businesses in China. (Virtual China: Information Technology- Press Reviews, December 20,1999).
Although on-line business accounted for only 0.05 per cent of mainland transaction in 1999 (South China Morning Post Jan 20,2000), China has made its first step towards Internet commerce.
Internet users have listed "Speed is too low" and "Price is too high" as the top two disappointing aspects of Internet since CNNI released statistical reports of the development of Chinese Internet in November 1997. (See figure 3)
Figure 4: Top three disappointing point of Internet in userās opinion
|
|
Nov 1997 |
July 1998 |
Jan 1999 |
July 1999 |
Jan 2000 |
|
Speed is too low |
49.1% |
88.9% |
92% |
49.3% |
52.98% |
|
Price is too high |
32.6% |
61.2% |
74% |
36.8% |
34.28% |
(Source: CNNIC, 1997-2000)
Currently, 70% of Internet Users have dial up access to the Internet with 33.6k modems. Therefore, transmission speed is slow. As for costs, the majority of Internet users in China are those who have US$60-US$300 monthly income and spend over 10-15 hours on the net each week. At the time of this study, the average costs for full international access option users are about US$0.5 per hour within 60 hours (over 60 hours US$1/hour) from CHINAnet at 56kbps link, US$12 for 30 hours of use from CHINAGBN at 56kbps link, US$12 for 80 hours from UNInet at 14.4kbps or 28.8kbps, US$38 for unlimited service from Eastnet at 33.6kbps (Hayes 1999). Apparently, the costs are too high as a percentage of their income. As a result, lower speed and higher costs are most cited as barriers to Internet use which is, to some extent, the same as those for Internet commerce. The cost and speed of access to the Internet will significantly affect consumer involvement in e-commerce (OECD 1998).
In China, where there is lack of any tradition of catalogues or call centers and widespread belief that seeing is believing, it is more difficult to encourage the uptake of online trade from traditional commerce. CNNIC surveyed more than 22,000 Internet users in China in 1999, asking their opinion on Internet shopping. Only 23.4% of users think buying things online is convenient, 16% think Online shopping is promising and 15% use Internet for e-commerce. Most of the users do not use the Internet for e-commerce.(Figure 4)
|
Figure 5: Reasons for using Internet in China (Results of multiple choices) |
|
Looking up information: 95% Using E-mail: 94% Download software: 77% Chat with others on Internet: 42% Entertainment & Games: 35% Using some new technique such as IP Phone and Internet Pagers 19% E-business/ Internet Shopping:15% |
(Source: CNNIC, as of Jan 1999)
A newly released survey by CNNIC (Jan 2000) confirmed that 91.21% of the respondents of Internet users did not use Internet to buy online in 1999.
As Diana Dougan (1999) pointed out, one of the weakest e-commerce links in China is the electronic payment system and secure transactions rather than the telecom part of the Chain. Indeed, Chinese banks are only at the early stages of developing consumer debit and credit cards. Mastercard estimates that there are 10,000 people in China with international credit cards (MasterCardās Beijing Office (7 July 1998) cited in MOSAIC Group (1998)). Many of the Chinese banks are developing online banking transaction services with ICP or ISP. But security issues remain a major concern. China Merchants Banks, the largest commercial Bank in China, uses a 40-byte SSL encryption standard which is lower than the international standard (128-byte SSL) (South China Morning Post December 21 1999).
In the CNNIC's report of 1999, 87% of Internet users show that if the condition is mature, they would like to buy things online. Obviously, Chinese people have little confidence in the electronic commerce process itself at present as shown in the following results from a multiple-choice survey:
|
Figure 6. Why public do not like online shopping (percent in each group) |
|
No credible payment mode 50% No reliable way to transfer funds online 44.5% Lack of safety assurance of laws and techniques 65% Worry the quality of products or service 57% |
(Source: CNNIC as of Jan 1999)
Although the majority of registered domains are in the .com sector, it does not mean that the majority of businesses in China are putting business on the Internet. 90% of business web sites have no "transactive content" except for the photos of the General Manager and products. According to one estimate by the State Economic and Trade Commission, only half of Chinaās 1500 medium to large state owned businesses are utilizing the Internet for business. The percentage of smaller firms who are doing so is somewhat less (Xinhua English Newswire (14 August 1998). Chinese firms conduct business via Internet, cited in Mosaic Group (1998)). Recent players in China in Internet commerce mainly are portals such as China-enterprise.com, Netease.com, Sina.com and Sohu.com.
As most analysts point out, the development of the Internet and e-commerce in China is primarily a top-down effort on the part of the Chinese Government. The government played a crucial role in building up a national information infrastructure and developing an information economy. It initiated improvements in the Internet in China including substantial upgrades to the national backbone capacity of international bandwidth from 18.64Mbps in 1997 to 351Mbps in 1999, and heavily invested in telecommunication infrastructure.
In the past decade, China has taken a series of actions to improve access to telecommunications and use of e-commerce, and in particular to improving the ways it is employed to enhance trade performance, including:
Golden Bridge-- National public economic information communication network aims to connect ministries and State Owned Enterprises and to build the infrastructure backbone over which other information services will run.
Golden card---electronic money project which aims at setting up a credit card verification scheme and an interbank, inter-region clearing system.
Golden Customs---National foreign economic trade information network project.
Golden Macro --- National economic macro policy technology system
Golden Tax--- computerized Tax Return and Invoice System Project
Golden Gate ---a foreign trade information network aimed at improving export-import trade management.
Golden enterprise ---Industrial production and information distribution system
Golden Intelligence--- China education and research Network (CERnet)
Government use can play a crucial catalytic role in promoting Internet diffusion in China. The Ministry of Information Industry and China Telecom jointly launched the Government Online Project in 1999. This project aims to put government information online, increase the transparency of government work, reduce office costs and encourage vendors to do business with the government electronically. Currently, 2479 domain names are on gov.cn sectors.
In July 1998, the web site chinamarket.com was established by the Ministry of Foreign Trade and Economic Cooperation, which was the first official export-oriented business-to-business e-commerce site.
The Ministry of Foreign Trade and Economic Cooperation stipulates that all import and export companies must use the China International e-commerce network to apply for a quota license by 2000.
The State Council has marked the Year 2000 for developing e-commerce and many provincial governments have set development of e-commerce as the top priority in 2000. The state Council also is drafting an e-commerce development framework including regulations and laws to address the issues arising from e-commerce. The Chinese Government is planning to promote e-commerce to all enterprises within 5 years (South China Morning Post January 20, 2000).
Though government played an important role in financing the initial development of the Internet, its expansion must be driven primarily by the market itself and by broader participation business. Business models must evolve rapidly to meet the Internetās decentralized nature and to its tradition of bottom-up governance (Clinton 1999). Internet commerce is expected to be a "bottom-up" development, where consumers and business will benefit from adopting it.
A further challenge facing China is to build up a favourable business environment for Internet commerce. The government should take actions to create public and business awareness and confidence in e-commerce, in particular, to support and encourage small business to adopt new business methods, techniques and innovations and understand the potential benefits of e-commerce in terms of cost savings, opening up of new markets and opportunities for new products and services (Communication to the European Parliament 1997). Development of relevant skills and widespread network literacy is needed.
Clearly the long-term evolution of Internet commerce should be based on the developed financial systems and adequate distribution systems as well as an effective legal system. The government has an important role to play by reviewing and adjusting the existing legal and financial, as well as logistical, conditions to meet the new requirements of online trade.
Finally, commerce over the Internet should be facilitated on a global basis (Clinton 1999). China should get ready to meet WTO requirements and remove foreign exchange control to allow international payment.
The growth and potential of e-commerce in China appears promising, many challenges still remain. China would have to work on improving telecommunication infrastructure and accessibility. Much attention should be paid to building user and consumer trusts in information systems and electronic transactions and improving logistic systems.
Government involvement is definitely needed in China but if e-commerce is to flourish it can not be based on top-down regulation. Therefore, it is far more important for enterprises to take a lead in developing Internet commerce, rather than government.
CNNIC (The China Internet Network Information Centre). Semiannual Survey Report on Internet Development in China, 1997-2000. (online)[HREF1]
Chinaeb (1999) Global Internet User Distribution. [HREF2]
Clinton, W (1999). Read the Framework (online) [HREF3]
Communication to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Region (1997). European Initiative in Electronic Commerce (Online)[HREF4]
Dougan D.(1999) Scaling the Great Wall of E-commerce (Online)[HREF5]
Department of Foreign Affairs and Trade. Creating A Clearway on the New Silk Road, Canberra, 1999, p.27
Hayes (1999). Shanghai ISP Overview (Online) [HREF6]
Horvath J (1999). Sharing Scientific Information-A Chinese Analysis (online) [HREF7]
OECD (1998). The economic and social impact of electronic commerce(online)[HREF8]
ITU (International Telecommunication Union) (1999). Challenges to the Network: Internet for Development (online) [HREF9]
Ntoko A (1999) Addressing the Challenges and Opportunities through Partnership (online). [HREF9]
South China Morning Post. (Jan 20,2000) Technology.
Virtual China: Information Technology- Press Reviews, December 20,1999
World Bank, World development indicators 1999(online) [HREF10]
Xinhua English Newswire (14 August 1998). Chinese firms conduct business via Internet, cited in Mosaic Group(1998).The global diffusion of the Internet project: An Initial Inductive Study.(online) [HREF11]
Qiuyan Fan, © 2000. The author assigns to Southern Cross University and other educational and non-profit institutions a non-exclusive licence to use this document for personal use and in courses of instruction provided that the article is used in full and this copyright statement is reproduced. The author also grants a non-exclusive licence to Southern Cross University to publish this document in full on the World Wide Web and on CD-ROM and in printed form with the conference papers and for the document to be published on mirrors on the World Wide Web.
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