China's leadership has committed itself, and its claim to legitimacy, to continuing economic growth. Telecommunications, electronics and information technology have already become integral aspects of modern economic development: from banking and financial networks, to communications and marketing tools. As individual sectors they are also major motors of growth. It is therefore no surprise that the government is already moving to back the development of e-commerce as heavily as it can.

China's top-level backing for e-commerce was seen in Kuala Lumpur last November, when speaking at an Asia-Pacific Economic Cooperation (APEC) forum meeting, President Jiang Zemin described e-commerce as "the future of business", and called on developed countries to provide less-developed countries with the technology and other assistance needed to promote it. The call, made at such a high level, reflects the emphasis China is beginning to put on the economic benefits of having a wired nation.

What confuses many outsiders is that e-commerce -- like the Internet -- is expected to be a "bottom-up" development: lots of little retailers employing the new technology to begin innovative business practices. Instead, what they find in China is the government, in its myriad forms, moving in as the central players. But, again, there should be little surprise: the government is still the major economic engine. An ever increasing variety of examples exist.

Already, the People's Bank of China has built out one national financial communications network, the Centralised National Automated Payments System (CNAPS). This national bank clearing system has used an information technology restructuring programme to replace the PBoC's provincial branches with regional offices. By doing so, it restructured the administrative structure of the banking system to parallel its network architecture. These steps are serving to centralise decision-making and minimise administrative interference from local authorities. As a result, the central bank's headquarters is slowly but surely achieving far greater control over monetary policy than it has had in the past, and thereby realising an increase in administrative efficiency and economic control.

In the summer of 1998, the Ministry of Foreign Trade and Economic Cooperation opened its China Market web site (www.chinamarket.com), the country's first official export-oriented business-to-business e-commerce site. More recently, the government has announced a number of initiatives aimed at providing nation-wide standards and infrastructure to support e-commerce. In November 1998, after three months of planning, a project headed by Beijing Vice Mayor Liu Qichu and including representatives from the Ministry of Information Industry, Bank of China and tax and customs authorities was launched to, among other things set up credit-card verification and secure payment systems, draft laws and regulations, and develop a front-end for an "e-commerce city".

To say that these are merely government-to-government businesses is to miss the point. In China, because of its preponderance of state-sector and government-controlled business, it is still the level where most major business is done. And it will be building off the back of government-developed networks that consumer-oriented e-commerce will develop.

Which leads to a further issue. The most cited obstacle to e-commerce in China is the lack of a nation-wide credit card verification scheme. Although MasterCard and Visa operate in China, it is not possible to just walk into a store with their logos on the door and expect to be able to buy goods, because no central clearing houses yet exist for these cards. Most cards are linked to the issuing bank. If a merchant is not set up to clear transactions with the specific bank which issued the card, then no purchase is possible. But if the majority of initial e-commerce activity in China is to be conducted by various government entities, and at a wholesale rather than a retail level, the immediate problem of payment verification all but disappears.

Furthermore, according to reports from Beijing, the Golden Card project could still meet its target of having a nation-wide, inter-bank credit-card clearing house by 2000. In the meantime, the first local steps are already being taken. In November 1998, a Shanghai-based online CD store become the first on-line merchant in China to accept credit cards, albeit only ones issued by the Agricultural Bank of Shanghai. Though this will restrict business, if it has any degree of success other businesses and banks are sure to follow.

Finally, Credit cards are already widely used as a payment mechanism in China -- not by individuals for purchases of goods at retail outlets, but by companies which previously had to do transactions with suitcases full of cash. Now, long-distance deals can be done with relative security -- the recipient being reasonably sure that if a corporate credit card is used it will be paid. This may not have been the intended use of these cards, but it works well enough for China now to be MasterCard's second largest market -- even without a nation-wide card verification system yet in place.

What of the other big problem that is often cited -- a lack of computers, or for that matter, a shortage of telephone lines to plug them into. True, people who raise this issue have a point. Although China's telephone roll-out has been phenomenal, the absolute level of phone penetration, at just seven sets per hundred people, is still low, and computer ownership when spread across China's population is even lower. But the problem is not quite what it seems.

As the manufacturers of mobile phones and their networks have pleasantly discovered, an overall lack of wealth has not stopped China becoming one of the world's big three cellular markets -- once a network is in place. Demand clearly exists in China for goods, and while the overall market may remain poor when measured in terms of GDP per capita, this translates into several tens of millions with enough spending power both to buy hardware and pay monthly usage fees.

There is, however, a better reason for thinking that people will buy into e-commerce than simply that they may want to buy a computer at some time in the future and probably will be able to afford. This is because to focus on computers and the phone network is to miss one huge network that is already out there and starting to turnover large sums of money in terms of e-commerce -- cable television. As the table shows, this is already one of the biggest subscriber bases in the world. It has got this way by being rolled out very fast and being offered to Chinese consumers at a very low price -- typically Rmb100-150 (US$12-18) a year -- that virtually every household can afford it. With a network infrastructure in place, it is beginning to be used for commerce in a major way -- for television shopping, an industry now estimated to have an annual turnover of up to US$150 million, according to Beijing-based media consultancy Claydon Gescher Associates.

Industry players, such as Australia's Television Shopping Network, which is turning over US$300,000 a month operating out of Guangdong, concede that putting a credit-card verification system in place will be a major boost to the industry. But it also points out that there are already other ways of securing payment from customers. China Post's Express Mail Service is perfectly happy to handle cash-on-delivery business. EMS takes 2% commission on top of its delivery fee, and can be relied on, says TVSN, to get goods to customers within two days.

Dell Computer likewise is another company which clearly believes e-commerce already exists in China. It takes orders over the Internet for computers delivered from its base in Xiamen, with payment coming in via wire transfer. Its goods are delivered, using the PLAcontrolled EAS delivery company, within five days of payment being received.

This combination of government driven networks with the entrance of big companies looking to exploit them for commercial gain, means that e-commerce has already arrived in China. Its take-off is not at question, even by the government as President Jiang's remarks show, only the extent and speed of its take-off. Credit card verification is perhaps the one major piece of the jigsaw waiting to be slipped into place. But that will not be long in coming. The tendency in China is to assume that things will take longer than planned -- with credit cards, it will almost certainly be the other way round.

What is even more interesting is how the government is already allowing e-commerce to be the driver that fragments China Telecom's telephone network. Until now, the main driver of growth for the network has clearly been the old Ministry of Posts and Telecommunications, and its vehicle, China Telecom. It built out a network based on a technology -- ATM, or asynchronous transfer mode -- which works on the basis of allowing a central authority to roll out a hierarchical network.

This made a lot of sense administratively, both to the engineers and to the bureaucrats. If China's telephony network had been developed on purely commercial grounds, or in a fragmented way by the regions which could best afford it, then the country would have had a highly developed network along the coast, but little to show in the interior. Thanks to the old Ministry of Post and Telecommunications (now the Ministry of Information Industries, MII), China has the second largest network in the world, and one which is being extended to every corner of the country -- a true pursuit of "universal service".

However, once a network is in place, different priorities come into play. For the leadership obsessed with maintaining economic growth, this means putting the infrastructure to work in every possible way -- and while they are clearly happy with the way in which the MPT/MII has rolled out its telecom network, it is clearly not happy with attempts by the MII or its proxy, China Telecom, to retain control over it at the expense of holding back business developments.

The turning point may prove to be one of the most interesting court cases held in China -- the testing of the Ministry of Information Industry's assertion that voice and fax services can only flow over the public network, and not over the Internet.

This case arose after two brothers in Fuzhou, the capital of Fujian province, began running an Internet phone service which offered international calls at half the rate of China Telecom. The brothers claimed their service was a computer service, not a telecommunications one, and so fell outside the authority of the MII. They lost their original hearing, at the court of first instance, Mawei District People's Court, but won on appeal at the Fuzhou Intermediate People's Court.

On a matter such as this, it is unlikely that a Chinese court would reach a decision on a legal basis alone. Reports of the case said the court had consulted with "Internet experts" and made its decision on the basis that Internet telephony is technologically different from conventional telephony. It is possible to read too much into such a decision, but one possibility -- especially given Premier Zhu Rongji's widely known antipathy for the MII's monopolistic tendencies -- is that the court received a signal from on high that it should rule in favour of the brothers.

The Mawei District People's Court in late July ruled that the case was a criminal case, effectively overruling the higher court in a highly unusual judgement. The Chen brothers are seeking to appeal this decision to back to the Fuzhou Intermediate People's Court. The MII's response to the intermediate court's ruling was to issue a statement maintaining that it still had responsibility for all matters to do with telecommunications in China -- in short, an assertion that the Fuzhou court was wrong. It could well turn out that it wins this case, as the districts court's July ruling may well portend. But the position may be a hard one for the MII to maintain in the longer run.

For a start, overseas users will adopt Internet phone technology to make calls to China, while organisations such as foreign companies will be able to use Internet telephony over their networks, using lines leased from China Telecom. As these calls will be untraceable, policing will be impossible. Furthermore, arguments in favour of Internet telephony will be coming from major users of telecoms. Organisations such as the Ministry of Foreign Trade and Economic Cooperation, which will be arguing that unless the MII allows Chinese companies and other bodies to make international calls at the cheapest rate, they will be labouring at a disadvantage. It is hard to see the MII's position on this issue doing anything but giving way -- the question will be: how quickly.

The same monopolistic erosion is likely to be true on other fronts. It is happening with the Golden Projects, which began life as a series of coordinated schemes, but which are now taking on separate lives of their own. Moreover, certain major ministries and large communications users, with their own networks in place, are beginning to by-pass China Telecom and develop their own connections to the rest of the world. Heavy backing also continues to exist for China Unicom, the weak, but only officially sanctioned competitor to China Telecom. Change can also be seen in the pressure mounting for China Telecom to lower its charges for both Internet usage and phone services. Clearly, while building out the network was the priority in the earlyand mid-1990s, that focus is now shifting towards use of the network -- to boost the economy and maintain the leadership's claim for legitimacy based on being able continuously to improve people's living standards. The mistake would be to equate this opening up of the network with an erosion of government influence or administrative centrality. China Telecom has only become more powerful (not less) the more services it has introduced. And bringing people onto the network does not equate with losing sight of them.

No, it should be becoming clear that the government is far from afraid of its citizens going online. And the message being promoted -- step up, register with us, and spend your money on a state-sponsored service -- is far from new in China. Now, all that is required is some control over some of the irritating content that is allowed to swirl around out there.

IV. Controlling the content >>