June 2, 2006

Overall, China had in excess of 110 million Internet users last year. This represents a fairly large potential online market. However, China's eCommerce industry still faces many problems. "Despite a heated economy, getting eCommerce to increase inside mainland China has been difficult," says James Belcher, eMarketer Senior Analyst.

"Physically, China is a big country and even Chinese Internet users are not great believers in credit cards. As a result, the simple process of paying for goods and services isn't easy. Getting them delivered on time is not an easy feat either."

The good news is that Chinese Internet users represent a desirable target demographic. They are largely urban, young and educated.

They spend a lot of time online and can spread word of your product or service quickly, with their heavy usage of online forums and bulletin boards. They are also likely to have broadband access, so rich media offerings will not go to waste (as long as they are translated accurately).

"Large firms looking for a mass market (and there's no reason to think "niche" in China at this point) should stick to urban areas, where Internet users are concentrated," says Mr. Belcher.

"Opportunities also exist for companies that can make the e-commerce infrastructure work better. This includes handset makers and carriers, who can incorporate stored value cards in mobile phones, as many online orders are paid for upon inspection at retail locations."

In the future the Chinese e-commerce market could easily dwarf any other. China is already the second largest nation in terms of Internet users, and the Chinese will continue wide scale Internet adoption through the end of the decade. The 111 million Internet users online last year still only represented 8.5% of the country's population.

The Shanghai market research firm iResearch has reported on China's Internet user numbers since 2001, and projects that growth will continue at around 25% through at least 2007.

"Google, Cisco, Yahoo and Microsoft have received bad press in the past few months for some of their efforts in China," says Mr. Belcher.

"Attempting to take a nuanced approach which recognizes the ingrained nature of state-sponsored censorship and user tracking, these firms ended up accused by rights groups of contributing to Chinese oppression.

Their experience highlights the need for foreign companies to have a thorough understanding of the market, and even to consider a moral inventory, before moving into Chinese e-commerce."

Source: eMarketer