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Is China the next eCommerce superpower?

September 15, 2006

According to market research company Ovum, China is slated to become the world's largest broadband market in 2007. Ovum has released some estimates that claim not only will China have about 79 million Internet broadband subscribers by next year, but that number will grow by 75 percent in less than four years, resulting in about 139 million subscribers in 2010.

Overall, a broadband subscriber is generally defined as any business, household, organization or individual that has paid for a broadband Internet connection. This represents all broadband lines in service and is the number most often published by broadband access providers.

This is a useful measure for cable and telecom companies, as well as the firms that service these companies, as it most accurately gauges relative market position.

A more granular measure of the broadband market may be had by measuring broadband households, which are private residences with broadband connections.

This definition is useful for companies targeting the consumer sector. Using this description, eMarketer put the number of broadband households in China at 54.1 million and 81.4 million in 2007 and 2010, respectively.

eMarketer's projections for broadband households in the US through 2010 actually put it roughly equal with China. China will still lag the US in 2007, when eMarketer projects the US will have 60.8 million broadband households, but will pull slightly ahead in 2010, when the US will have 80 million broadband households to China's 81.4 million.

Given China's massive population and push to get broadband access in more households, it is something of a foregone conclusion that eventually the country will have an undisputed claim as the world's largest broadband market in terms of households.

However, online retailers who do not yet have a presence in China need not panic. The fact is that e-commerce in China is in its infancy.

The country lacks an online payment system for handling credit card transactions in a safe, efficient manner. Poor logistic and distribution networks restrict how far apart sellers and buyers can be so that mailing things can be a hassle. Additionally, Internet retailers offer limited product selection, and quality is often suspect.

These obstacles have not curbed the desire of foreign Internet retailers to establish operations in China. Foreign investment by the likes of eBay in Eachnet and Japan's Rakuten in Ctrip presents a two-way opportunity.

Foreign firms gain entry to huge, relatively untouched markets while transferring new technology, operational expertise and business knowledge to China.

However, it will be a long time before China comes close to the US in retail e-commerce sales. Analysys International projects that retail e-commerce sales in China in 2007 will reach $955.1 million, with an "m."

By comparison, eMarketer's projection for retail e-commerce in the US for 2007 is $125.1 billion, with a "b."

So although Chinese broadband users are doing plenty with their high-speed Internet connections, buying things online is not chief among those activities.

The China Internet Network Information Center, which is the official statistical agency through which most data on Internet usage in China are released, has not yet detailed differences in broadband user usage compared to dial-up.

However, a glimpse at activity for all Internet users in China shows that online shopping was an also-ran as of November 2005, with less than 20% of users shopping online even "sometimes."

Source: eMarketer

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