What Every Business Should Understand about E-commerce in China

Domestic consumption and investment is a major theme of the current Chinese administration; E-commerce has been one way to do that. While the government is actively promoting private corporations, it is taking a “hands on” approach to market development. The caveat is this: the government is looking to build a Chinese owned e-commerce sector—not one dominated by companies financed abroad.

Investors such as Yahoo will be hurt, while Alibaba (and its subsidiaries) will thrive. One clear understanding is that the Chinese government will provide funding for mergers and acquisitions. By doing so, this will be a quick way to develop the technology for a fully functioning e-commerce market. This will mean these companies must adhere by international standards—particularly for good business practices such as IPR enforcement.

Why is developing it so important? Think about these facts, China has an internet marketplace of more than half a billion users about 35% of all users worldwide. Currently, sites like Taobao and JingDong dominate the market, but are owned by the same company—Alibaba. Alibaba.com and Taobao have more than 700 million users worldwide.

While many legitimate vendors operate online, a simple search of Bing or Baidu will pull up a number of counterfeit goods (Brand names are often translated into Chinese.). Developing proper payment mechanisms both safeguards against these sort of issues and adds legal repercussions to those who violate them.

On such websites, one will often see vendors unassociated with the official company, have multiple products with large price discrepancies, or provide second hand goods—none of which benefit the end consumer nor the business.

From the business owner side, getting these counterfeit goods can be difficult as the intellectual property rights software is in Chinese. Beyond that, a trademark or copyright registration and some supporting business documents (in digital format) will suffice. Alibaba group is craving the internationalization of an Amazon or Ebay and is willing to enforce its anti-counterfeit measures; this strategy will take time and will only become effective after the government enacts more stringent IPR protection.

Filing a trademark according to the Madrid protocol (and Paris convention) gives some precedent, but requires a business to file within 6 months of the original filing. Since many businesses file trademarks early (i.e. before expanding to China), they forgo this opportunity; their only remedy is filing in China which takes about 18 months and is a first-to-file system. Such a system provides a disincentive to use the mark.

Setting up an E-commerce website in the near future may be beneficial for your business.

About the author

David writes about economic activity throughout Southeast Asia and specializes on international trade relating to China. In addition, he holds a Masters Degree in Economics from Peking University.
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