information technology and e-commerce opportunities in china june 5, 2003 jeff rohlmeier tu-trang...
TRANSCRIPT
Information Technology and E-commerce
Opportunities in China
June 5, 2003
Jeff RohlmeierJeff Rohlmeier
Tu-Trang PhanTu-Trang Phan
U.S. DEPARTMENT OF COMMERCE
Office of IT and E-commerce
AGENDAI. China market research trip – Jeff and
Tu-TrangII. IT market overview, policy environment,
and market opportunities – Tu-TrangIII. E-commerce policy environment and
market opportunities – JeffIV. Bilateral and Multilateral Cooperation –
Jeff and Tu-TrangV. Conclusion/Discussion/Q&A – Jeff and
Tu-Trang
I. 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 REPORTSMARKET(S) RELEASE DATE
Spain and Italy June 2003
France and Germany September 2002
Brazil August 2002
Japan May 2002
Argentina April 2002
Mexico April 2002
Hungary and Czech Republic April 2002
II. OVERVIEW of the CHINA IT MARKET
andPOLICY ENVIRONMENT
FACTS & FIGURES
Population 1.3 billion
Economic Growth Rate 8 percent
GDP, 2002 $1.3 trillion
GDP per capita $1000
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
$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)
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
National People’s Congress met in March 2003 means new leadership
New Minister of Information Industry – Wang Xu Dong
Politburo Standing CommitteePosition Old Leadership New Leadership
President and General Secretary Jiang Zemin Hu Jintao
Premier Zhu Rongji Wen Jiabao
Communist Party Affairs Chief Zeng Qinghong
NPC chairman Li Peng Wu Bangguo
First Vice-Premier in charge of the economy
Huang Ju
Secretary of the Political and Legal Affairs Commission
Luo Gan
Chairman of the Chinese People's Political Consultative Conference
Li Ruihuan Jia Qinglin
Central Commission for Disciplinary Inspection
Wei Jianxing Wu Guanzheng
Politburo Standing Committee Member Li Lanqing Li Changchun
AGENCIES RESPONSIBLE FOR IT POLICY
IMPACT of WTO ACCESSION
1. China’s telecom services market open to foreign investment.
2. Lower tariffs under the ITA.
3. Increased trading and distribution rights.
4. No more tech transfer and local content requirements.
IMPACT of WTO ACCESSION
5. Improved IPR protection through TRIPS.
6. Tech standards and conformity assessment requirements will be consistent with international practices.
7. National treatment for internal taxes.
8. Eliminate export and import subsidies.
WTO AGREEMENTSName of Agreement Time Frame Commitment
ITA Upon Accession
TRIMS Upon Accession
TRIPS Upon Accession
TBT Upon Accession
GPA Observer Status
Telecom Services Phase-in Schedule
China has become the world’s second largest producer of IT hardware.
10
25
40
55
70
85
Year
Bill
ion
s o
f U
.S. D
olla
rs
United States 89.1 85.5 70.9 70.2
China 18.45 25.5 28.1 35.2
Japan 48.3 52.15 39.2 31.488
Taiw an 21 23.1 20.1 17.3
1999 2000 2001 2002
Source: JEITA, The Yearbook of World Electronics Data, EIAK, MIC, November 2002
Asia-Pacific
51%14%
35%Hardware
PackagedSoftwareServices
China
17%
73%
10%
Source: IDC, 2003
IT MARKET in A/P and CHINA, 2002
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
543 473 579
2,8454,183
6,367 6,050
9,252
-2,302-3,710
-5,603 -5,264
-8,673
764 786
-10000-8000-6000-4000-2000
02000400060008000
1000012000
1998 1999 2000 2001 2002
Year
Mill
ions
of U
.S. D
olla
rs
Exports Imports Balance
Source: Official statistics from the U.S. Department of Commerce, the U.S. Treasury, and the International Trade Commission.
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.
$385. 91 $1, 342. 82
$1, 772. 10
$191. 58$1, 128. 86
$983. 33$2, 601. 44
$412. 79 $1, 076. 31
$5, 525. 37
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2002 2007
Year
IT consulting Implementation Support services
Operations management Training and education
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 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
1. “Informatization” to promote industrialization.
2. “Go West” campaign
3. China’s accession to the WTO
4. 2008 Beijing Olympic Games
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)
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)
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)
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)
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)
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)
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)
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)
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)
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 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)
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)
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)
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 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 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)
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)
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)
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)
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:
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?
Tu-Trang PhanSenior AnalystU.S. Department of CommerceInternational Trade AdministrationOffice of Information Technologies & Electronic Commerce (OITEC)PH: (202) 482-0480; FAX: (202) [email protected]
Jeff RohlmeierSenior AnalystU.S. Department of CommerceInternational Trade AdministrationOITECPH: (202) 482-0343; FAX: (202) [email protected]