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. Last Updated: 07/27/2016

Firms Tap Chinese Market via Internet

BEIJING -- Faced with narrowing advertising margins, China's Internet companies are gambling on e-commerce as their future money-spinner amid predictions of a sharp increase in the country's on-line users.

But analysts caution that China's creaky on-line infrastructure, combined with inefficient mail delivery and a dearth of credit card-friendly Chinese, will prevent web firms from cashing in on a U.S.-style on-line shopping boom anytime soon.

Even so, many in the industry are placing hopes in forecasts for more and more Chinese to log on to the net, and in a rise in e-commerce investment following the country's pending entry to the World Trade Organization.

"Each portal's revenues from advertising is stretched because of the competition," said Richard Jacobson, senior Internet analyst at research firm International Data Corp.

"So definitely they will be looking at alternative means such as e-commerce for generating revenues," he said. Advertising remains a gem for Chinese Internet portals, generating more than half of the revenues for some. But the increased competition has prompted web firms to unveil Internet auction sites and cyber-malls to spur growth.

A senior official of Internet auctioneer said he expected e-commerce revenues to exceed advertising in a year.

A typical 468-by-60 pixels banner spread, popular among advertisers, costs about $30 per thousand hits, but customers are wielding more power to slash ad rates when bargaining with portals eager for more clients.

A saleswoman with a Chinese web firm said her company had offered ad discounts of as much as 50 percent to some clients.

"You can't just rely on advertising for revenues," said Liu Xiao Lin, assistant president of computer maker Legend Holdings, which launched its web portal and Internet personal computer late last week.

"China's user base is still comparatively small and you would have to have tens of millions of users before advertising can really reap good profits," he said.

But web portals see China's growing number of net users as a treasure waiting to be unearthed. The latest IDC figures show China has 3.79 million Internet users. That figure is expected to surge to 33.14 million by 2004.

Already, China's e-consumers are using the net to buy personal computers, books and movie tickets. In November, surfers bought about 2,000 tickets to the Star Wars film "The Phantom Menace" off the auction site of web firm, getting a price of about 15 yuan each compared with 30 yuan at box offices.

"The main attraction for any company to start such auction sites is the potential user base," Jacobson said.

"If you look at Singapore, the population is about three million, so that's about the maximum user base. That's the main difference in doing e-commerce in big countries like China and India, and smaller ones like Singapore and Malaysia," he said.

Internet company officials agree that once China joins the WTO, probably in the first half of next year, China's e-commerce will get a lift from foreign funds and expertise.

Companies planning to do business on China's net are taking a cue from the key U.S. Internet corporations.

"We'll probably adopt the U.S. model of doing business on the Internet, modify and localize to suit our market," said's Wang Yan, who adds that Chinese auction sites are patterned after the hugely successful U.S. But success in e-commerce in China is far from guaranteed.

Richard Lo, assistant director at ING Barings in Hong Kong, noted China's weak delivery system and infrastructure and said he was skeptical e-commerce would grow as it has in the United States.

Analysts say most on-line credit card payments are based on secure electronic transactions technology, which China's e-tailers would need to adopt for a more effective billing system.

State media reported that China's first online bookstore, Xinhua Bookstore in Hangzhou, closed in 1998, about one year after it opened. One Shanghai-based online shopping center ceased operations after just five months.

But analysts say there is nothing wrong with the business model. China's e-commerce industry is still budding, and it will take time for people to get used to e-shopping.