E-commerce has played a huge role in lowering overall transaction costs for small businesses

There is no doubt that e-commerce is one of the fastest-growing industries in China. Last year, the number of e-commerce information, transaction and technology services companies climbed to 25,000, while third-party payments by these companies rose to more than 1.76 trillion yuan ($288 billion; 217 billion euros).

Aside from the impressive growth numbers, e-commerce has also played a key role in creating better market opportunities for small and medium-sized firms in China. Under the traditional international trade pattern, access to international market information was always a costly affair for SMEs. The high-cost trade pattern has forced many SMEs to depend on secondary orders from the bigger players.

E-commerce has led to more openness and globalization for SMEs. It has removed the time and space barriers among different countries and regions and simplified the entire international trade process by lowering the transaction costs. The addition of more trade channels has effectively lowered the threshold for SMEs in international trade.

Third-party e-commerce platforms like Alibaba, HC360 and DHGate have helped several Chinese SMEs make significant strides in global trade. E-commerce has not only become a key tool for SMEs planning global moves, but also helped foster more emerging markets and better regional economic development.

All of these indicate that e-commerce is an emerging industry that has high industrial relevance, sensitivity and a strong driving force. Its rapid development not only stimulates the growth of credit, logistics, payment, standards, cloud computing and other support services, but also promotes the development of transaction-related technology, operations, credit, payment, training and other derivative services, including finance, human resources, third-party logistics, information services, education and training. It is also prompting traditional service industries to speed up their industrial upgrading process.

Internet technology has ensured that service trade companies do not have to go abroad to connect with customers in different countries, and also removed other barriers such as time schedules and overseas expenditure. Training, industrial development, consulting services, and new product design are turning to e-commerce, thereby increasing more opportunities for the service trade.

E-commerce development in China has also promoted technology trade. More high value-added products are being made, and technology updates are becoming faster than ever.

Last year, the China Internet Network Information Center in Beijing came out with its 30th "China Internet Development Statistics Report". Data from the report show that by the end of June 2012, the number of enterprises engaged in foreign trade through e-commerce had reached 1.8 million.

The growth in the number of e-commerce users has more or less stabilized since 2011. In-depth consumption along with the growth in user numbers will be the main drivers for future growth, the report said.

Online banking and online payment users grew by 14.8 percent and 12.3 percent during the first six months of last year to 191 million and 187 million respectively. Mobile online payment users during the same period rose to 44.4 million, representing an increase of approximately 14 million from the end of 2011.

While these numbers indicate the immense potential of the e-commerce sector, there are also several benefits that it can bring to the Chinese economy.

First, e-commerce transactions will help provide more choices for commodity transactions. Because most of the e-commerce activities are reliant on e-commerce sites, many of the sales of the same quality products are quite concentrated. Many professional shopping sites have thousands of catalogs.

There is also the rapid development of search engines. Consumers can in a very short time navigate to the homepage of their desired products.

Though these measures are aimed at providing consumers with larger choices and to save costs, it is also about providing greater flexibility in choosing the same type of product. E-commerce will increase the pressure on companies to adopt more consumer-centric production techniques.

At the corporate level, e-commerce will enable more communication and contact between enterprises in an open and transparent manner, thereby reducing transaction costs.

Development of e-commerce in China also allows companies to establish long-term partnerships with major suppliers, and better procurement of raw materials. Manufacturing processes have become more streamlined with an integrated system of information transmission and information processing.

E-commerce has also proved to be an extremely important tool for pricing. Many Chinese companies have realized that it helps them to stay competitive.

Companies are now using e-commerce for the complex raw material procurement process. By using their own private network electronic data interchange systems, Chinese companies have been able to speed up the procurement process, thereby enabling more manpower for the physical tasks like price negotiations and forging better relations with suppliers.

The author is a researcher at the Institute of Industrial Economics of the Chinese Academy of Social Sciences.

(China Daily European Weekly 08/16/2013 page9)