But, recently, the global management consulting firm Boston Consulting Group (BCG) released a new report “China’s Digital Generations 2.0: Digital Media and Commerce Go Mainstream,” which indicates explosive growth in China’s e-commerce.

Online shopping is a case in point. About 8 percent of Chinese consumers with Internet access now go online to get better deals, an increase of 5 percent over 2006, and statistics released by IResearch Consulting Group show that, in the first quarter of 2010, transactions across the whole Chinese e-commerce market surpassed RMB 1 trillion.

Taobao, founded by the Alibaba Group, illustrates in microcosm the growth of Chinese e-commerce. By the end of 2009, Taobao, after only six years in operation, had 170 million registered users; its 2009 gross merchandise sales exceeded RMB 200 billion, accounting for more than 80 percent of the domestic e-commerce market and becoming Asia’s biggest online retailer.

There is no shortage of stories featuring grassroots business making a fortune through Taobao. Song Fang, a laid-off worker living in Jinan, Shandong Province, opened up an online store on Taobao to sell cookware five years ago. So far she has filled 120,000 orders and her current annual turnover exceeds RMB one million. Feel Clothing Co., Ltd., used to be a “contract manufacturer” of certain domestic and foreign brands. In 2007, the company extended its operations to Taobao to sell its own brand of underwear, Gainreel, online. From modest beginnings of a few hundred yuan, daily turnover of this e-store has soared to RMB 100,000, making Gainreel Taobao’s No.1 underwear brand.

Lured by the prospect of profits, more and more international brands have rushed to set up branches on Taobao: just by clicking on the footwear portal gives access to some 500 shoe brands. In addition, Japan’s leading clothing chain Uniqlo also partnered with Taobao last year and launched a “flagship store” online. The turnover of this virtual store is far higher than that of Uniqlo’s bricks-and-mortar outlets.

Dismantling the Barriers

However, even Alibaba, despite being way ahead of its e-commerce rivals, is aware of many problems.

“Some of the problems are common to both e-tailing and traditional business – fake or shoddy products, untrustworthy storekeepers or delivery services, for example – but some are specific to e-tailing, such as Internet security, electronic payments and gateway authentication.” In Jing Linbo’s analysis, payment, credibility and logistics constitute the “three barriers” to Chinese e-commerce.

It is said that in 2009 Alibaba’s Chinese business market department handled 11,000 cases of crooked sales involving nearly 9,000 users. As well as the wildfire growth of Internet-based scams and supervision loopholes, some dishonest traders manage to hike their credit score through illegal means. In order to clean up the online shopping environment, Taobao launched a drive to eradicate credit cheating. During the eight-month campaign, over 20,000 e-stores were closed, bringing credit cheating basically under control.

In June, the State Administration for Industry and Commerce (SAIC) promulgated the Temporary Norm for Online Transactions and Related Service Management, stipulating that from July 1 individuals who are to open e-stores should provide authentic personal information, and those who are qualified for registration should also register with the SAIC in accordance with the law. Insiders believe these measures will be beneficial to establishing an enhanced credit scoring system in the e-commerce world.