China Readying for E-Commerce

Bracing for massive e-commerce growth, Chinese government officials are preparing a regulatory framework to govern the industry and lay out guidelines on taxation, advertising, content, and other key areas.

According to published reports, a senior Chinese Information Ministry figure said this week that officials are currently drawing up rules governing advertising and taxation and are expected to complete them later this year.

However, it is unclear how the Chinese government is leaning when it comes to Internet taxation. As in the U.S. and elsewhere, there is likely to be some argument for and against the implementation of taxes on Internet-purchased goods.

The online advertising industry in China generated an estimated $8 million (US$) last year, which is paltry by U.S. standards. However, that figure is expected to double this year, and officials are said to be drawing up rules to prevent the posting of false and deceptive advertising online.

Rules of Engagement

The regulatory framework appears to be a joint effort by both government officials and senior industry executives to address the issues surrounding the industry while it is relatively small and manageable. Many Chinese Internet entities are controlled by the government, creating a unique public/private forum in which the tightly-held reins of the government often hinder the needs of the company.

For example, the Centre of Computer and Microelectronics Industry Development (CCID), run by the Ministry of Information, is reportedly involved with drawing up the new regulatory framework. The organization owns an Internet content provider that plans to enter the e-commerce field and is seeking a listing on Nasdaq in the near future.

Meanwhile, the Information Ministry is also involved in regulating content on Web sites situated in the country. In April, it passed a decree banning the publication of foreign news on such portals as Sina.com and Sohu.com.

It also created the Internet Information Management Bureau, which will regulate news content and is also said to be helping liven up state-owned agencies’ Web sites to help them compete in an increasingly competitive field.

Big Bang

Industry analysts say that Internet users in China could grow from an estimated 10 million now to 60 million by 2005. Still, e-commerce in China is hindered by a variety of factors, ranging from poor access to limited PC use to lack of credit cards.

Despite these obstacles, China is still viewed as one of the great untapped Internet territories. Research firm IDC predicts that e-commerce revenues in the country will grow from $43 million last year to $12 billion by 2004.