With more Internet users than any other nation on the planet, China's e-commerce is booming, but obstacles remain before the full business potential can be unleashed, analysts said.
China's online population is now at 220 million, Beijing-based research firm BDA China said late last week, overtaking the United States as the world's number one, highlighting the growth opportunities in the huge Asian market.
Fifty-five million of China's Internet users shopped online last year for a total turnover of 59.4 billion yuan (8.25 billion dollars), according to the China Internet Research Centre in Beijing.
That is up from 43 million online shoppers in 2006, when the value of transactions stood at 4.3 billion dollars, the centre said-and an even larger jump from the 62 million dollars spent online in 2000. Driving that growth were shoppers like Shanghai educational consultant Xue Ling, 27, who said she increasingly prefers to jump online to make purchases.
"It is much more practical," said Xue. "I'm sure to find everything that I want and it is sometimes less expensive than in stores." By 2011, the centre projected that online spending will hit 406 billion yuan as more of China's Internet users turn to online shopping. Yet the level of online spending remains modest: about 1,000 yuan last year per consumer, or 0.64 percent of total retail spending in China.
Growth in its e-commerce has lagged due to consumer concerns about reliable online payment methods and counterfeit goods. "I'm still shopping in town more than on the Internet. I just don't completely trust Internet shops," said Lin Yue, 24, a businesswoman in Shanghai.
According to the centre Lin's concerns are well founded. "The purchasing of fake goods, credit card theft and other related problems emerge in an endless stream," it said.
For people like Xue, the educational consultant, that means online shopping can be an exercise in frustration. "I have bought products online only to receive counterfeits," she said.
Nevertheless improvements in technology have meant that online payment systems are now safer and the challenge for Internet firms is to win over consumers' confidence.
"The online payment is no longer a technical problem for the Chinese portals, but a problem of confidence, as consumers continue to be wary of settlement systems via the Internet," Liu Bin, an Internet analyst at BDA China.
Another challenge that Internet companies in China face is the small number of credit card users, with 75 million credit cards in circulation by the end of 2007, according to state media reports.
Although credit cards are becoming more popular, Liu said their still low penetration rate along with quality controls and infrastructure issues explain why online sales in China last year made up little more than six percent of that in the United States.
"It gives the US an advantage that it will probably take China 10 years to catch up on," said Liu.
To overcome this difficulty, online business-to-business portal Alibaba has been relatively successful with Alipay, a system which allows users to pay in escrow only once the product has been received.
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