China government planners are working to increase domestic consumption and domestic investment in the PRC economy. The State Council has decided that increasing the role of e-commerce is one way to promote consumer driven, private investment. The basic plan was outlined by the State Council in its May 7, 2015 Opinion on E-Commerce 国务院关于大力发展电子商务 加快培育经济新动力的意见.
The Opinion proposes to resolve the following primary barriers to developing a modern e-commerce industry in China:
- High minimum capital requirements and related licensing restrictions that keep SMEs and individuals out of the market.
- Taxation, social benefit and registration requirements that prevent lower wage individuals from using e-commerce as a supplementary form of income.
- Lack of effective online payment mechanisms.
- Inadequate consumer protection and associated lack of trust in products purchased from e-commerce platforms.
- Primitive and unreliable package delivery systems.
- Lack of coordination and procedures in international e-commerce, both for import and export.
As is typical of this type of PRC planning document, it uses virtually every current e-commerce buzzword at least once in the Opinion. As is also typical in this type of document, the Opinion is quite detailed in setting out the problems but is lacking in serious discussion on how to resolve them. The Opinion sets 2025 as its goal date for creating a fully modern, privately owned, Chinese citizen controlled e-commerce system, but does not address who will do it, how much it will cost and who will pay for it. It creates more questions than answers.
The Opinion does not directly address the real issues concerning e-commerce in China. China’s commercial Internet was created mostly by foreign companies (like Baidu and Alibaba) and was financed by foreign money from foreign companies (like Yahoo and SoftBank) and foreign investment funds, and from foreign IPOs in Hong Kong and New York. Its technology is also overwhelmingly foreign, acquired by Chinese nationals educated in United States universities and trained in Silicon Valley.
Since the Opinion’s primary focus is on building a Chinese owned and controlled e-commerce sector, it naturally contains little directed at benefiting foreign investors. There is, however, a proposal in the Opinion to increase the percentage ownership interest allowable for foreign investment in Chinese e-commerce companies. This presumably means that foreign investors would be permitted to take a majority ownership interest in Chinese e-commerce companies. The Opinion does not state what the new allowable percentage of foreign ownership will be and it also does not mention whether a majority foreign controlled e-commerce company would be permitted to acquire its own commercial ICP license.
The Opinion does include a long section on “opening up to the outside.” However, in keeping with the general “China power” theme of the Opinion, this opening up is concerned not with allowing foreigners into the Chinese e-commerce sector, but rather with encouraging Chinese e-commerce companies to move outside of China. The Opinion proposes that the Chinese government support this movement out of China in three ways. First, state owned banks will provide loans to Chinese e-commerce companies to invest outside of China, especially for M&A investments. Second, support will be provided for Chinese e-commerce companies to raise money overseas through public offerings. Third, Chinese e-commerce companies will be supported in gaining public recognition outside of China brand and product awareness.
Though there is little new in the Opinion, it does confirm the Chinese government’s intent to “take back” the Internet, at least in the e-commerce sector. It also illustrates one way that the Chinese government hopes to shift to a domestic consumption/private investment driven economy. Over the next few years we should begin to see the concrete steps the Chinese government will take to realize this difficult goal.