CHINA ESQUIRE

The AFP recently ran an article about the growth of e-commerce in China, arguing that it is “gaining a foothold” in China. Well, I suppose that could be a true statement if you compare it to the fact that there really wasn’t much going on before. But that being said, the first thing I thought was that e-commerce still had a very long way to go before it becomes as accepted as in the U.S. (though it was not that long ago… maybe 10 years ago that many of my friends remarked, “I will never buy anything online because it’s just not secure enough.” How things have changed.) The second is that this will present lawyers/businesses with many new opportunities in the future.

The article states ( h/t to China Digital Times… and yes, I know China Venture News ran it yesterday, I actually scheduled this post before they ran it):

With more Internet users than any other nation on the planet, China’s e-commerce is booming, but obstacles remain before the full business potential can be unleashed, analysts said.

China’s online population is now at 220 million, Beijing-based research firm BDA China said late last week, overtaking the United States as the world’s number one, highlighting the growth opportunities in the huge Asian market.

Fifty-five million of China’s Internet users shopped online last year for a total turnover of 59.4 billion yuan (8.25 billion dollars), according to the China Internet Research Centre in Beijing.

That is up from 43 million online shoppers in 2006, when the value of transactions stood at 4.3 billion dollars, the centre said — and an even larger jump from the 62 million dollars spent online in 2000.

By 2011, the centre projected that online spending will hit 406 billion yuan as more of China’s Internet users turn to online shopping.

Yet the level of online spending remains modest: about 1,000 yuan last year per consumer, or 0.64 percent of total retail spending in China.

Growth in its e-commerce has lagged due to consumer concerns about reliable online payment methods and counterfeit goods.

“I’m still shopping in town more than on the Internet. I just don’t completely trust Internet shops,” said Lin Yue, 24, a businesswoman in Shanghai.

According to the centre Lin’s concerns are well founded. “The purchasing of fake goods, credit card theft and other related problems emerge in an endless stream,” it said.

Another challenge that Internet companies in China face is the small number of credit card users, with 75 million credit cards in circulation by the end of 2007, according to state media reports.

Although credit cards are becoming more popular, Liu said their still low penetration rate along with quality controls and infrastructure issues explain why online sales in China last year made up little more than six percent of that in the United States.

First off, I make the observation that within the last year, despite the rather low level of online spending, the growth of spending did double. I don’t think this will be a fluke either. In fact, once e-commerce actually becomes reliable in China, I would expect the people in major cities like Beijing and Shanghai coming to rely more heavily on it. So expect even heavier growth than this.

Second, the law in this area needs a lot of development, which is where lawyers can come in. (though I think more for policy folks than for the transactional folks) But the article already hints at the problems with e-commerce: IP infringement/counterfeiting, credit card theft, and lack of payment methods. Let me add some: privacy of information and internet security (yes, that’s a business issue).

Before e-commerce can take off, IPR enforcement will have to grow. It’s just a matter of fact: intellectual property needs protection before consumers can trust products. I don’t need to preach on this issue at length, I am sure its been done time and time again. But if people cannot trust e-tailers, it will slow the growth of internet sales drastically. Which means growth opportunities for lawyers doing IPR work in China. (and from what a colleague has told me, a good chunk of IP enforcement is not just lawyer work… it’s also doing factory raids and such)

Credit card theft/financial privacy is an obvious area. Chinese lawyers will need to take the lead to write good and enforceable laws that govern the area of internet transactions. (which strengthens the idea that more lawyers in the Chinese Parliament is a good thing) The U.S. has so many privacy laws. For financial institutions there is the Graham-Leach-Bliley Act (not to mention California’s even more stringent version), and a lot more. (there is even a consumer protection law that makes it illegal to show more than 4 digits of a credit card number on a receipt!) Which means that Chinese lawyers, congressional folks, and law professors will have an opportunity to weigh in on these issues. Not to mention Chinese business lawyers having to write lengthy “Terms and Conditions” pages for internet businesses.

And for credit cards, that is yet another area where Chinese business lawyers can have a field day. Drafting long contracts for credit card agreements, writing disclosures as needed, working on banking laws… I know that China has begun to allow foreign banks like HSBC to incorporate locally and issue credit cards. It will be a boon to foreign banks, and therefore, business lawyers.

I think you get the point. This is a good thing for business lawyers, policy lawyers, etc.

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