There is one kilometer to go before China can embark on e-commerce
It looks ready at first sight
Sources indicate, globally speaking, every minute 5 million e-mails are transmitted; every hour, 35 million voice mails; every day, 37 million customers access the Internet and browse among 830 million Web pages at an average on line time of over 30 minutes.
Some people say Internet has integrated a supposed "new" economic market represented by the internet stock market valuations with the information market represented by the mass media into a brand new information economy. Although many people are worried about possible bubbles of the supposed "new economy," such a network does change our world.
In1999, China boasts "netizens" numbering 8.9 million, and 16 million are expected in 2000. Moreover, the information industry related to the Internet is the industry with the quickest growth in China.
According to the data issued by Ministry of Information Industry, the communication sector achieved revenues of RMB 280.3 billion in 1999, a 24.6% increase from the year before. Electronic information product manufacturing reached a sales revenue of RMB 430 billion, an increase of 22.7%.
In 1999, domestic Chinese web sites topped 15,000. Over 20 Internet companies are estimated to have assets over RMB100 million. It is estimated that over 40 Internet companies will boast a market value of over RMB 1 billion in 2000. It is manifest that Internet companies are developing at a fast pace and with great commercial potentials.
The three-fold structure of the Chinese information industry development, the "government on line projects," "enterprise on line projects" and "family on line projects" are growing fast. By end of last year, there were 3.5 million hosts with access to Internet, homepages numbering over 15,000, and registered domain names of more than 48,000. Government on-line projects, sponsored by 66 ministries, commissions, and bureaus also saw great achievements in 1999. By end of last year, 52 web sites were set up in relevant departments of the central government and the State Council. Government departments at various levels registered 2,400 domain names. This means China's data communication network has entered a fast phase of development.
Meanwhile, the network has integrated with traditional industry through means of technical transformation, industrial upgrading, etc., to cause swift changes to traditional sectors. On the other hand, famous enterprises also turn to Internet. Legend Corp. raised funds of HK$ 1.6 billion for development related to the Internet. TCL's international holding company has announced its purchase from its parent company of assets related to computers and mobile telephones, and will finish the investment schedule in the later half year. Ms. Wu Shihong, CEO of TCL says TCL will invest over RMB 200m to support its Internet business.
The network prevails in China at the personal level, business level, and government level. However, it still remains far away from the Chinese economy. Some say it is only 1 kilometer away.
A long way to go at a closer look
The Internet network remains distanced from the Chinese economy in the sense that e-commerce, as an independent industry, has not claimed a place in China?s economic structure, and it has not displayed its value and function by integrating with and transforming traditional industry.
The Internet has exerted more influence on the life-style of young people in fields such as reading, casual talking, spiritual communication, etc. with little economic benefit gained from phone fees. It is just talk at present that the Internet changes the economy. However, we should remember the Internet is truly market-oriented. Someone having done deep research into the Internet points out that there are many problems undermining this false sense of the Internet flourishing.
Yang Yiping, associate researcher from the Automation Research Center of the China Science Research Institute, comments that the Internet industry in China is expanding fast. However, it has not got onto the right track for an orderly development process, The Internet in China demands training for its professional personnel, exploitation of content, orderly structures for both software and hardware, and provision of support services. However, 70% of Internet companies neglect these important aspects, but try to announce more triumphs through statistics and figures. This superficially flourishing market is undermined by the prospect of dangerous market "bubbles." Mr. Yang also points out that since China has not mastered the core technology of both Internet software and hardware, developing a network supported economy might result in its being controlled by foreigners.
There are so far no institutes at the state level for the Internet economy's research and development. It is difficult to promote Internet related technology nation-wide. Even if for example the Automation Center of the China Science Research Institute or other centers have made an invention it may not reach the wider economy, according to Mr. Yang. There is a China Internet Supervision Center but being a management organization itself, it can barely begin to research the relevant technologies supporting the over 800 million web pages operational globally. Without such a technology research institute, the network cannot claim a place of its own as an independent industry in the economic structure.
Three major obstacles stand in the way of Internet development in China: 1) payment on line, 2) delivery systems, and 3) security. General manager of Health 123 Web Site Company, Mr. Shao Haiyang points out that there are only 4 or 5 banks in China to provide on line payment service. Most domestic B-to-C companies don?t have their own delivery system and distribute commodities via EMS or other express delivery companies. Slow payment and slow delivery of goods therefore are unavoidable. Besides, people focus on the Internet's potential markets, instead of the concrete real ones. Other purchase procedures, including contracts are undeveloped. Hence the security of e-commerce is most important.
Development of e-commerce in China is also influenced by 2 additional factors: 1) how widely computers are used, and 2) government policy. Mr. Shao Haiyang explained that the Health123 web site provides popular services. However, since computers are not widely used, and more young people have access to Internet than their elders, the Internet resources are not made good use of.
The unreasonable fees system concerning telecommunication also hinders the development of the Internet supported economy. Over-priced telecommunication system access makes it impossible for Internet service companies to make much of a profit margin, and exerts a heavy burden on end users, who have to pay more than 10% of their monthly salary for Internet access each month, while people in the U.S. pay less than 1%. This causes a vicious circle hindering e-commerce in the long run.
President of Sina, Mr. Wang Zhidong comments that e-commerce does have a lower cost compared with traditional commerce, but not to a large degree. E-commerce entails lower overhead on retail space and stock supply but requires heavy investment in hardware, promotion complicated delivery systems. E-commerce flourishes in the U.S. because of the long developed prosperity of its economy and finance, and their integration with Internet. China has invested heavily to attract people to have access to the Internet, before building up any delivery system. And the payment problem remains the last to solve.
The last long 1km to go before crossing the threshold
Mr. Yu Xiaodon, professor of the Economic Research Institute of the State Development Planning Commission, points out there are 2 paths for Internet development. The first one is to lower the threshold and allow more companies to do e-commerce before considering making profits. The other is to place profit before enterprise development. Comparatively, the first path is probably easier for Chinese enterprises. Nevertheless, the enterprises should be sustained in face of low profits, and be allowed to recruit outstanding personnel. It is very dangerous, according to Mr. Yu that some Internet companies are anxious to list on the market.
Mr. Yu emphasizes that China's Internet industry should draw lessons from the failure of the software industry. Some bigger enterprises should have divisions and unite to focus on specific fields, so as to form a number of representative examples to guide the development of other minor ones. We have disadvantages compared with foreign counterparts. So we should stick to our own characteristics in strategy development over the long run.
Professor Yang Xueliang of the China Science and Technology University also comments on the critical point for the traditional industry and the information industry: to apply the information technology in transforming traditional industry in an intensive mode. The e-commerce network would then get fully involved with the main stem of the economic structure.
Shi Da is one of the most influential computer manufacturers in China. Mr. Ye Long, president of Shi Da, says, most enterprises have invested in setting up more web sites, and neglected constructing fundamental support sectors. In the next 5 years, the Internet scale in China will be ranked as the world's second largest. Hardware facilities are in demand. It is impossible to rely on importing hardware from abroad. This is an impediment to the development of the domestic Internet hardware industry.
Hardware products are generally considered to have little profit. Mr. Ye thinks otherwise that China has many advantages in manufacturing at low cost. It is the world trend to transfer manufacturing industry to less developed areas. If we do not face the challenges, we may lose the chance.
The government has decided to speed up establishing the China Internet Exchange Center, with its first branch to be set up in Beijing. China has also prepared plans for Internet development and will support constructing web sites with resources and technical supervision.
Regarding the technical development of web sites, an official from Ministry of Information, Mr. Chang Xiaobing announced that the Ministry has decided to speedily expand the bandwidth of Internet companies, enhancing the "infoway" bandwidth from the current 351M to over 1,000M , in order to facilitate information flow. Regarding the plan for developing Internet, China will in coming years set up 5 central level key web sites, and make them among the top web sites in the world. With the key web sites, an Internet system is to be set up at a central level, local level, and in embassies and consulates abroad. It is expected in the next 10 years, that a 100% access to the Internet will be achieved in the central government, provincial and autonomous area governments, as well as in embassies and consulates abroad.
To dash over that final 1 km, China must adopt 4 measures: first, to recruit manpower and set up necessary institutes to manage the Internet industry; second, to provide financial solutions to key web sites for fixed asset investment, set-up funds and necessary daily operating capital; third, to support expending the bandwidth; and finally, it is necessary to do much more research and development regarding Internet communications and management. |
