Chinese consumers bought US$176.1 billion worth of goods online in the first half of 2014, almost 10% of all retail sales. Great potential, writes financial analyst Sara Hsu in The Diplomat, although there are also major barriers for its development.
However, two major barriers to rapid expansion of online sales exist. One of the problems is the presence of counterfeit goods. Recently, online retailers Jumei, JD.com, and Amazon.com were forced to delist fake beauty products sold through a third party on their websites. Because of this issue, luxury brands have faced difficulty in increasing sales online, and some online luxury shops have even gone out of business. Websites have attempted to combat this problem through several channels. Sellers are required to post their personal information; when this is unavailable, trademark infringement can be pursued online via an inquiry through Internet Service Providers. Mediation and litigation can be pursued, but they are time consuming and costly.
The second major barrier to rapid expansion of internet sales is the presence of low profit margins. Profits continue to be scarce, and e-tailers, including Yihaodian and Toto, admit they are in the red. Alibaba’s profits stem not from sales but from advertising revenue. Worse, China’s State Administration of Taxation may impose a tax on online sales in the near future. There continues to be debate over whether small and midsize sellers should be taxed at a rate equal to that of large sellers, and how to tax small retailers that are often unregistered. A tax on online sales would further reduce the potential for profits in the fledgling industry and may result in a less attractive industry for foreign and domestic e-tailing sites alike.
China’s online shopping sector is still nascent and has significant scope to grow. If appropriate institutions are put into place that increase trust between buyers and sellers, enhance profits among sellers, and continue to attract new sales, the industry may be a surprise performer in China’s push to expand consumer spending.
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