B2C to A-plus for China's E-commerce

TAIPEI (TheStreet) -- It's easy to get cynical when China announces a new slew of rules. Chinese officials throw rules at sticky issues the way Americans throw committees at them.

But the sudden emergence of rules, whether enforced or ignored, usually means there's a problem far-reaching enough to merit the attention of a busy government. That pattern explains why Chinese commerce officials are working on 40 guidelines to promote the stable growth of e-commerce.

Stable growth should, in turn, shore up investments in the shares of overseas-listed companies that are increasingly "bound-2-China."

About 210 million people in China do some kind of business online, leading to a 51.6% increase in total e-sales volume in the second quarter, year-on-year, to 268.4 billion yuan ($42.7 billion), the official Xinhua News Agency reported, citing Internet industry research agency iResearch.

It makes sense. Traffic congestion in larger Chinese cities would naturally deter drivers from popping over to the mall, which may be as crowded as the roads. Parking is tough in city centers and public transit so packed that a passenger may miss a stop just by being wedged too deep inside the bus or train.

This week, as the country takes its annual National Day vacation, local news media say 530 people will jam roads, railways and airports -- more incentive to stay home.

Nice then when China's overall adventurous consumers can place orders from their home PCs and find the stuff at a neighborhood store or in their building lobbies a few days later. It's just that when it comes to making secure payments or settling disputes, today's laws are weak or confusing.

So the Ministry of Commerce has said it would "promote the launch" of its "Network Retailing Management Approach," the 40 guidelines. Then it will "research and formulate" regulations known as the "Third-Party Network Trading Platform Management Approach," the news Web site China Tech News reported last week.

I'm guessing from this language that China can expect broadly worded suggestions (as opposed to hard, cold, do-or-don't rules) for cops and courts to consult when taking sides in e-commerce disputes that escalate past the blood-stained private chatroom.

Chinese officials hope the regulations help resolve disputes in small transactions and protect sensitive data -- presumably the likes of credit card numbers.

Despite inevitable trouble enforcing such rules on giant, multi-party B2B2C operators, any step forward should be good for e-commerce as a whole. "The regulations are almost certainly to be on the side of the Chinese consumer, and this can only encourage more sales over the Internet," says Lamine Lahouasnia, a global retail analyst with Euromonitor International.

China Tech News adds that the regulations will guide the health and popularization of e-commerce, presumably over the long term, and help to build a related credit system plus an information database. Those trends should increase traffic for e-sellers that are either scalable or already of massive scale.

"The Chinese Internet retailing market is far from saturated, but the market is consolidating as stronger players dominate and weaker ones are acquired," the Euromonitor analyst says. "There is still a lot of room to grow, but only for retailers with a unique proposition and vertical integration."

Some classic cases:

The commerce ministry gave U.S.-based global retailer Wal-Mart Stores ( WMT) permission in August to increase its stake to 51.3% from 17.7% in a company that will own the online retailing business of China's largest online supermarket Yihaodian, Xinhua said. Wal-Mart share prices began hitting all-time highs from last month.

At the same time, Silicon Valley's Yahoo! ( YHOO) is selling back half of its 40% stake in Chinese e-commerce firm Alibaba. The move could raise investor confidence in Yahoo!, which is also strong in Asia as a search engine and news aggregator. Its share prices haven't recovered to post-global financial crisis levels.

In a purely local example, the online arm of China's biggest home appliance seller, Suning (trading at 002024.SZ) will buy Redbaby, an e-commerce baby-related merchandise seller with 7.5 million customers, the China Daily newspaper said last week. Suning, listed on the dodgy yet indicative mainland stock exchange, saw share prices go up 11.2% in the week from Sept. 24.

A not-so-classic case:

E-Commerce China Dangdang ( DANG) hasn't seen a jump in share prices since early 2011. The Beijing-based firm that does B2C trade in books and music reported a second-quarter net loss of 122.2 million yuan, versus 28.4 million yuan in the same period of 2011.

Its quarterly report cites increased warehousing and shipping costs, higher marketing expenses and a growing percentage of lower-margin "general merchandise" for sale versus its traditional media products.

But a tech analyst in Beijing told me Dangdang's chief problem is its lack of something other than e-commerce in a market led by sellers that are more vertical and diverse.

Inditex's Spanish-fashion brand Zara has taken a different kind of risk by going solo, rather than M&A'ing with someone or hooking onto an established e-mall. The company says it will open a direct e-sales channel for its dresses, shoes and cosmetics.

Inditex share prices hit record highs in late September, even though its foray into China follows the demise of other luxury-brand e-commerce efforts.

Watch to see if Zara grows its B2C sales, or if they fall from "A2Z."

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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