Information Technology and E-commerce Opportunities in China : Information Technology and E-commerce Opportunities in China June 5, 2003
Jeff Rohlmeier
Tu-Trang Phan
U.S. DEPARTMENT OF COMMERCE
Office of IT and E-commerce
AGENDA : AGENDA China market research trip – Jeff and Tu-Trang
IT market overview, policy environment, and market opportunities – Tu-Trang
E-commerce policy environment and market opportunities – Jeff
Bilateral and Multilateral Cooperation – Jeff and Tu-Trang
Conclusion/Discussion/Q&A – Jeff and Tu-Trang
INTRODUCTION ExportIT China Report : INTRODUCTION ExportIT China Report www.export.gov/infotech/
June 2002 market research trip
Cities visited:
Beijing, Shanghai, Xi’an, Chengdu, and Guangzhou
Interviewed:
national, provincial, and municipal government officials
U.S. and Chinese IT companies
IT end-users from banking, telecom, and educational sectors
Meetings and experience over past several years
OTHER ExportIT REPORTS : OTHER ExportIT REPORTS
II. OVERVIEW of the CHINA IT MARKET and POLICY ENVIRONMENT : II. OVERVIEW of the CHINA IT MARKET and POLICY ENVIRONMENT
FACTS & FIGURES : FACTS & FIGURES
CHINA IT MARKET IN 2002 : CHINA IT MARKET IN 2002 World’s 2nd largest IT hardware producer
3rd largest electronic component and equipment producer
2nd largest PC market
Fastest growing telecom services market
Largest number of wireless and wire line subscribers
CHINA’S IT INDUSTRY IN 2003 : CHINA’S IT INDUSTRY IN 2003 $76 billion
33 million additional fixed phone lines
52 million additional mobile phone subscribers
$198 billion in sales of electronic information products
$25 billion investment in fixed assets in the telecom sector Source: Ministry of Information Industry
TENTH 5-YEAR PLAN (2001-2005) : TENTH 5-YEAR PLAN (2001-2005) Accelerate e-commerce development
Promote the use of IT in sectors, such as banking, finance, taxation, and trade
Increase the use of IT in rural areas (“Go West” initiative)
Reform of SOEs
Promote S&T research
Promote development of IC and software sectors
POLITICAL DEVELOPMENTS : POLITICAL DEVELOPMENTS National People’s Congress met in March 2003 means new leadership
New Minister of Information Industry – Wang Xu Dong
Politburo Standing Committee : Politburo Standing Committee
AGENCIES RESPONSIBLE FOR IT POLICY : AGENCIES RESPONSIBLE FOR IT POLICY
IMPACT of WTO ACCESSION : IMPACT of WTO ACCESSION China’s telecom services market open to foreign investment.
Lower tariffs under the ITA.
Increased trading and distribution rights.
No more tech transfer and local content requirements.
IMPACT of WTO ACCESSION : IMPACT of WTO ACCESSION Improved IPR protection through TRIPS.
Tech standards and conformity assessment requirements will be consistent with international practices.
National treatment for internal taxes.
Eliminate export and import subsidies.
WTO AGREEMENTS : WTO AGREEMENTS
China has become the world’s second largest producer of IT hardware. : China has become the world’s second largest producer of IT hardware. Source: JEITA, The Yearbook of World Electronics Data, EIAK, MIC, November 2002
IT MARKET in A/P and CHINA, 2002 : Source: IDC, 2003 IT MARKET in A/P and CHINA, 2002
CHARACTERISTICS of the HARDWARE MARKET : CHARACTERISTICS of the HARDWARE MARKET Represents 73 percent of total IT market in 2002 ($16.2 billion – IDC).
Local PC makers dominate the domestic market.
Hardware market driven by
price declines
government support of e-gov initiatives
2008 Olympic Games (data storage)
Reliable after-sales service essential for success
U.S. TRADE with CHINA in COMPUTER EQUIPMENT and PERIPHERALS : U.S. TRADE with CHINA in COMPUTER EQUIPMENT and PERIPHERALS Source: Official statistics from the U.S. Department of Commerce, the U.S. Treasury, and the International Trade Commission.
CHARACTERISTICS of the SOFTWARE MARKET : CHARACTERISTICS of the SOFTWARE MARKET Less than 1/6 of the IT market ($2.1 billion – IDC).
China’s software purchasers are becoming more sophisticated.
Linux vs. Microsoft Windows
Government support of software industry
State Council Document 18
Software parks and bases
Software piracy is still a problem.
CHARACTERISTICS of the IT SERVICES MARKET : CHARACTERISTICS of the IT SERVICES MARKET Implementation services is largest segment
Steady growth expected in the next 4 years
CAGR of 26 percent, 2002-2007
Local companies dominate the market
Established network for computer hardware
Source: IDC, 2003 IT Services Market by Segment, 2002 and 2007
CHARACTERISTICS of the INTERNET MARKET : CHARACTERISTICS of the INTERNET MARKET 59.1 million users by January 2003 (CNNIC)
2ND largest home Internet population
But, only 5 percent of population has access to the Internet
Access mainly through dial-up connections (57%),but broadband connections is growing.
By 2008 – 37 million homes will use broadband
State control of the Internet
OPPORTUNITIES in IT : OPPORTUNITIES in IT “Informatization” to promote industrialization.
“Go West” campaign
China’s accession to the WTO
2008 Beijing Olympic Games
III. Electronic Commerce : III. Electronic Commerce China may have the greatest potential of all Asia/Pacific countries to experience exponential growth in its e-commerce sector.
59 million Internet users in China, a growth of nearly 73 percent since June 2001 (Source: CNNIC).
E-businesses in China are multiplying almost as fast as Internet users. 78 percent of all Chinese websites are now operated by “enterprises” and 5 percent are operated by “businesses”. (Source: CNNIC).
Electronic Commerce (continued) : Electronic Commerce (continued) However…
Only 34 percent of Internet users in China are currently purchasing goods and services on-line. (Source: CNNIC).
Only 11 percent of Chinese “enterprise” websites and 45 percent of Chinese “business” websites offer “e-commerce services”. (Source: CNNIC).
Electronic Commerce (continued) : Electronic Commerce (continued) Nevertheless, despite the challenges faced by China’s e-commerce sector, there is reason to be optimistic.
Some observers estimate that China’s e-commerce sector (B2B and B2C) will grow from $15.6 billion (2002) to $98.8 billion in 2006. (Source: UNCTAD).
Central government has stepped up its national “informatization” campaign/developing a legal framework for e-commerce.
Electronic Commerce (continued) : Electronic Commerce (continued) Business-to-Business (B2B):
In 2000, it was estimated that there were an estimated 370 B2B websites in operation in China and that the size of the B2B market was approximately $9 billion. (Source: US&FCS China).
Recent studies indicate that the Chinese B2B market will continue to expand, perhaps totaling as much as $22 billion by 2006. (Source: UNCTAD).
Electronic Commerce (continued) : Electronic Commerce (continued) State enterprises and joint ventures have begun to implement B2B strategies. However, the vast potential for B2B e-commerce in China not yet realized.
Current B2B market in China is exemplified by a small number of innovative firms that supply e-business infrastructure products and solutions as an extension of their normal operations.
Electronic Commerce (continued) : Electronic Commerce (continued) Factors inhibiting further growth in China’s B2B sector:
Traditional “cash and carry” culture/Lack of online payment use.
Slow, unreliable postal/package distribution system.
Lack of confidence in the overall security of doing business online.
Electronic Commerce (continued) : Electronic Commerce (continued) Business-to-Consumer E-Commerce (B2C):
Only a small number of the country’s consumers are actually purchasing good and services online.
Nevertheless, while the B2C market may appear comparatively small in China, the sheer size of the potential B2C market in the country warrants the attention of online merchants.
Electronic Commerce (continued) : Electronic Commerce (continued) Large cities of Beijing, Shanghai, and Guangzhou, are beginning to favor e-commerce over traditional methods of purchasing goods and services (including books, computer equipment, mobile phones).
The development of B2C Internet portals (e.g. Sina.com, Sohu.com) are making e-commerce more convenient and efficient than ever for consumers.
Electronic Commerce (continued) : Electronic Commerce (continued) However, several factors have conspired to hamper growth of the B2C market in China:
security concerns
inconvenience of payment
late delivery
unreliability of the merchant
Nevertheless, an increasing number of Chinese consumers appear to recognize the benefits of e-commerce: reduced cost, efficiency and the enjoyment and curiosity of shopping online.
Electronic Commerce (continued) : Electronic Commerce (continued) Financial Services:
Increasing variety of online services.
However, online banking and brokerage services in China are currently focused almost exclusively on the B2B market.
The lack of Internet security for personal banking is one reason why online banking in China is limited.
Nevertheless, all indications are that China will continue to experience growth in both its Internet banking and online brokerage sectors.
Electronic Commerce (continued) : Electronic Commerce (continued) Electronic Learning:
While Chinese consumers, in general, have refrained from purchasing goods and services online, Chinese students are widely engaging in online education services (“e-learning.”)
Two main reasons why e-learning has become so popular: 1) State Council and Ministry of Education efforts; and 2) Premium on education in China.
Inhibiting factors: untrained faculty; lack of facilities; lack of broadband; cost of Internet.
Electronic Commerce (continued) : Electronic Commerce (continued) Legal/Regulatory/Policy Framework:
Nationwide “informatization” campaign
However, China currently lacks a national framework comprehensive enough to many aspects of e-commerce.
No clear delineation of responsibilities for e-commerce policy in China.
Nevertheless, authorities have instituted (or are developing) legal, regulatory and policy initiatives in several key areas.
Electronic Commerce (continued) : Electronic Commerce (continued) E-Government:
“Government Online” program successful
Over 3,300 websites in China use the “.gov.cn” domain name. (Source: CNNIC).
Local governments have made progress in applying information technologies.
e-government workshops
Electronic Commerce (continued) : Electronic Commerce (continued) Digital Divide:
Large cities account for over 30 percent of China’s total online user population.
Qinghai, Ningxia, and Tibet collectively account for less than 1 percent.
China has instituted a “Go West” campaign, part of which encourages e-businesses to relocate to western provinces.
Electronic Commerce (continued) : Electronic Commerce (continued) Electronic Payments:
Online payment mechanisms (credit cards, etc.) are not widely developed or used in the country.
National financial network not yet equipped for use of efficient payment mechanisms or instruments.
Information security concerns not yet addressed.
Electronic Commerce (continued) : Electronic Commerce (continued) Electronic Authentication (E-Signatures):
MOFTEC to draft a comprehensive Electronic Signature Regulation.
Would provide legal effect for e-authentication.
Not clear if law will be minimalist, transparent, technology-neutral.
Electronic Authentication (continued) : Electronic Authentication (continued) Information Security:
Internet Security Law (2000) aimed at guaranteeing information security in telecom and e-commerce.
However, law stops short of imposing civil and criminal penalties for most cyber-security violations.
Law has not yet been implemented in all of the country.
Electronic Commerce (continued) : Electronic Commerce (continued) Data Privacy:
No legislation that would provide the country’s Internet users with any measurable degree of personal data protection.
First draft civil code to emphasize the protection of privacy rights.
Unclear how this code will be applied to personal data exchanged online.
Content Restrictions and IPR: See Overview of IT Market (Part II of presentation).
Electronic Commerce (continued) : Electronic Commerce (continued) Taxation of E-Commerce:
July 2000: Task force appointed to look into possibility of taxes on electronic transactions in an effort to boost government’s finances.
However, China has refrained from imposing duties on e-commerce.
China likely to continue this policy while “informatization” efforts proceed and while it implements WTO-compatible laws and trade practices.
Electronic Commerce (continued) : Electronic Commerce (continued) Summary: Market Opportunities in E-Commerce:
Several institutional/societal factors (such e.g. lack of credit card usage and inefficient delivery systems) have combined to restrain more rapid growth of e-commerce in China.
However, U.S. e-commerce companies should note the shear size and overall potential offered by the Chinese market.
China’s B2B market will likely continue to offer U.S. companies the greatest opportunity for export sales.
In general, in the short-term, the Chinese B2C e-commerce market may offer less opportunity than B2B.
IV. Bilateral and Multilateral Cooperation on ICT issues: : IV. Bilateral and Multilateral Cooperation on ICT issues: E-commerce
Ministry of Commerce represents China’s interests in the Asia Pacific Economic Cooperation (APEC) E-Commerce Steering Group (ECSG).
U.S. Department of Commerce has participated with China in E-Commerce summits in 2000 and 2001.
2002: Joint U.S.-China roundtable on e-commerce in Washington, D.C.
IT and Telecom
U.S.-China Joint Commission on Commerce and Trade (Ministry of Commerce and Ministry of Information Industry)
APEC Telecommunications and Information Working Group with the Ministry of Information Industry
V. Questions? Comments? : V. Questions? Comments? Tu-Trang Phan
Senior Analyst
U.S. Department of Commerce
International Trade Administration
Office of Information Technologies & Electronic Commerce (OITEC)
PH: (202) 482-0480; FAX: (202) 482-3002
Tu-trang_phan@ita.doc.gov
Jeff Rohlmeier
Senior Analyst
U.S. Department of Commerce
International Trade Administration
OITEC
PH: (202) 482-0343; FAX: (202) 482-5522
Jeff_rohlmeier@ita.doc.gov