Business / View

E-commerce set to ride the tide

By Cindy Chung and Ben Chow ( Updated: 2015-05-19 17:03

As China's economic growth is slowing down, foreign investors are facing mounting difficulties in the Chinese market. It is true that making money is not as easy or as quickly as it used to be. But there are always some industries that can stand out and perform better than others, and they are where foreign investors should bet their money on.

The e-commerce industry is one of such sectors, thanks to the industry's massive growth potential, strong government backing and recent deregulations.

It is very easy to get a sense of how quickly China's e-commerce industry is growing. One of the most straightforward ways to do so is to look at the statistics of the market.

China overtook the United States to become the world's largest online retail market in 2012. The market sees no abating in its growth in the past few years, with online retail sales hit 2.8 trillion yuan last year, representing an increase of nearly 50 percent on the yearly basis.

At the same time, traditional retail outlets see their businesses slow down. Last year, total consumer sales in China amounted to 26.24 trillion yuan, an increase of only 12 percent, which was the slowest pace in years.

The trend is clear. Much business has been migrating from offline to online. So e-commerce is definitely the next growth engine.

Apart from the growth trend, the government's strong backing also makes e-commerce attractive.

Top policymakers' favor of the industry is obvious. Supporting the e-commerce has become part of a national policy called "Internet Plus", which was stipulated in Premier Li Keqiang's Government Work Report delivered to the National People's Congress (NPC) in March. He said: "We will develop the 'Internet Plus' action plan to integrate mobile Internet, cloud computing big data, and the Internet of Things with modern manufacturing, to encourage the healthy development of e-commerce, industrial networks, and Internet banking, and to get Internet-based companies to increase their presence in the international market."

Li's personal fondness of the e-commerce sector can also be demonstrated by the fact that he was glad to share his experience of shopping online at the press conference after this year's NPC meeting. Other displays of his support of the Internet industry included his invitation of executives of Internet companies to quarterly meetings to discuss the economic trend as well as his recent instruction for telecom companies to cut down Internet fees.

The support came not only from the premier. Central government agencies appear to have reached a consensus to support the e-commerce industry. In an action plan released by the Ministry of Commerce on May 15, the ministry set a goal of nearly doubling the value of the e-commerce industry in two years by rolling out a number of favorable policies.

The State Administration of Taxation also offered their help. It stepped in when several local governments intended to tax online sellers in late April. In a document released on May 6, the administration said governments should proactively explore policies to support emerging industries that include e-commerce and Internet industries. At the same time, the document clearly stipulated that local governments were not allowed to organize any tax assessment or inspections against a specific emerging, new industry within the year. This effectively put an end to tax inspections launched by the local governments.

The message is clear. The central government wants the tax exemption to stay for small e-retailers to make sure that the entire e-commerce industry, which is still at the emerging and budding stage, can develop at a fast pace.

With government support, the industry should abound with opportunities.

For foreign investors, there is another good piece of news.

China has decided to scrap the shareholding limits imposed on the foreign e-commerce companies. The policy means foreign investors can set up wholly-owned e-commerce business in China. They no longer need to control a Chinese company through variable interest entity or do their business with a Chinese partner. This will make mergers and acquisitions much easier.

The authors are Shanghai-based business consultants. The views do not necessarily reflect those of China Daily.

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