Web Is Newest China Trade Route

When a group of banana farmers in southern China’s Guizhou province found their fruit sales disappointing, they got on the Internet and found great demand for lean pork instead. So they switched to raising low-fat pigs and boosted their income.

A chicken farmer in Tianjin discovered through the Web that Romania needs poultry, so he is planning to open a hatchery there. The farmer, He Jijian, says he has also doubled his domestic business in the last year through Internet orders.

And a Shanghai factory that makes airplane armrests realized it could sidestep the government monopoly and sell directly through its Web site.

“Before, we had only one buyer: the Shanghai Import-Export Co.,” said Li Yajing of Wanghui Information & Engineering Co. “Now we’re thinking, why not cut out the middleman? We can have more choices and make more money.”

From a new breed of techno-peasants in the hinterland to a growing class of urban entrepreneurs, the Internet is changing the face of business in China. The number of Internet users is still relatively small, but as computers pop up in local libraries, cafes and government offices, traditional barriers to trade, information and access are melting away.

The Internet is not just a potential equalizer, but a singularly powerful modernizer, doing more than anything to bring China hurtling into the world marketplace of ideas and commerce.

“There are 800 million peasants in China,” says Internet entrepreneur Edward Zeng, who plans to open a network of cybercafes across China. “We’re trying to find a way to make the Internet relevant to everyone, not just students and rich people. When that happens, China will transform.”

At the rate Chinese users are getting online, that may happen soon. Public access to the Internet in China became available in 1995. By the end of last year, there were 2.1 million Internet users, according to the China Internet Network Information Center. By the end of this year, that number is expected to at least double, and some projections call for 10 million users by the end of 2000. Most people are using the Internet for e-mail and Web surfing, according to a December survey by the center.

But until last year, doing business on the Web has been a tough sell.

“E-commerce in its pure form--buying and paying over the Internet--hardly exists in China,” says Duncan Clark, a partner with consulting firm BDA China Ltd. “But there is a lot of exchange of information [online] that leads to sales, and that’s an important first step.”

The obstacles to e-commerce are considerable. Not many people own their own computer. There are about 2.5 million computers in China, and less than 10% are connected to the Internet, so many Internet users have to log on to public terminals. Even fewer Chinese have true credit cards. And even if they did, only a handful of domestic sites can securely process credit information online. And then there’s the distribution problem.

But Chinese computer users are making the Internet work in unexpected ways. To solve the credit card shortage, the German-owned Bertelsmann Book Club in Shanghai uses its own fleet of pedicabs to deliver books and take cash-on-delivery for purchases made online. Other companies use the post office network as their de facto partner for payments and quick distribution around the country. If it takes a bicycle rickshaw to get around the potholes on China’s information highway, so be it.

“China is such a huge market--it can’t be ignored,” says entrepreneur Zeng, based in Beijing. “But you can’t just copy the U.S. model, where there is no language barrier, payment problem or lack of PCs. We have to come up with our own solutions here.”

Already, the Internet cafe visitor in China can buy books or stocks on the Web, look for a job or even bid for extra textile quotas.

The best bets for e-commerce seem to be business-to-business networking, like the Chinese government’s Chinamarket.com site--https://www.chinamarket.com.cn--where buyers and sellers meet in a virtual trade fair and can go into encrypted chat rooms to negotiate prices.

In Dongguan, about 40 miles north of Hong Kong, a third of township enterprises promote their goods on the Internet. Last year, more than $10 million worth of orders were received online, according to the Dongguan government.

A Christmas light factory, Rui Guang Electric Co., is one of Dongguan’s success stories. Its sales had been lackluster, so it paid about $600 to set up a Web site. After one month, said General Manager Su Zhengliang, they received via e-mail an order worth $500,000 from Japan and another from a U.S. firm for $150,000.

“To pay $600 for $600,000,” marveled Su. “Isn’t it wonderful?”

Would-be e-tailers--with an eye on the U.S., where consumers spent about $10 billion on Internet purchases last year--are quickly learning what sells well online. Simple purchases like books, computer software and CDs do better than clothes or merchandise that customers want to see, feel or try on.

But Dell Computer is proving that people will buy even big-ticket items sight unseen if they are familiar with the product. Since Dell started selling computers online from its newly opened factory in Xiamen, sales have doubled every month.

But Shanghai’s government found that it is not just a simple case of “If you build it, they will come.” They had a site, an e-commerce program from IBM and official support. But when they put it on the Web, few visitors came, teaching them that e-commerce takes as much work in terms of marketing and simplifying transactions as real-life selling does. Maybe more.

“E-commerce has huge potential, but it’s just not there yet,” says Graham Earnshaw, a Shanghai-based Internet designer and consultant. “Give it another year and things will really start to happen.”

That’s because China’s biggest impediment to e-commerce--secure payment online--may be solved by the end of the year, says Franklin Fan, the e-commerce project manager in Visa International’s Shanghai office.

In February, Shanghai launched the first site in China able to safely take credit or debit card orders online, Shanghai Book Mall. Visa is working with Bank of China and 11 commercial banks to set up a nationwide settlements center and certification authority so that China’s 30 million bank card holders can use their plastic--mostly debit cards and credit cards secured by cash balances--on the Web. That may vault the mainland past supposedly sophisticated Hong Kong, which is still struggling to get its banks in sync with Internet communications protocols.

“I think Shanghai will pass Hong Kong soon,” Fan says. “The government here is very committed.”

Despite the Internet’s virtue as the great anarchic wall-breaker, government support is what is going to make the difference in China’s transition from developing country to global player. To help spread Net access in the home, Beijing just slashed Internet access fees and allowed residents to install a second telephone line for free--though Chinese still pay several times as much as Americans to get online.

Shanghai plans to have free public computers and Internet access in every city district by the end of this year.

Even with the new technology, the same old security concerns remain.

“Chinese have the same skepticism about paying on the Internet as people in the West do,” says Visa’s Fan.

Merchants have similar worries.

When the Beijing Railway Bureau started to sell tickets online in January, 350 people booked seats in the first week. But four out of five never paid. And in proof of how quickly Chinese can adapt to the new technology, during the standing-room-only Spring Festival holiday, hackers broke into the railway computer and booked blocks of first-class seats.