By Lai Youwei & Shi Guan, Research Team on "Characteristics, Problems and Countermeasures for E-Commerce Services Development in China ", General Office of DRC

Research Report No. 131, 2014 (Total 4630)

I. Current Status and Typical Business Modes of M-commerce Development in China

In recent years, the rapid popularization of mobile Internet has laid the foundation for M-commerce development. By applying M-commerce, consumers can spend their fragmented time browsing web pages and consuming anywhere and at anytime, with the efficiency of transactions greatly improved. As smart phones are widely applied, users across the world start to spend more time surfing the Internet with their phone and their interest in mobile shopping is further stimulated. Meanwhile, online retailers keep empowering mobile channels, such as launching mobile web pages and applications, to enrich users' experience of shopping. In March 2012, the Ministry of Industry and Information Technology (MIIT) issued the 12th Five-Year Development Plan on E-commerce, to promote the development of M-commerce, and enhance progress in the formulation of mobile payment standards. M-commerce pilot programs were launched one after another across the country and regional M-commerce witnessed swift development amid favorable conditions. Against such a background, M-commerce in China realized rapid progress.

According to the Statistical Report on Internet Development in China, by the end of June 2014, China had 632 million netizens, including 527 million mobile netizens, accounting for 83.4%. Cell phone usage surpassed traditional PC usage for the first time, making cell phones the primary Internet terminal. According to the statistics of MIIT, by the end of July 2014, the number of mobile Internet users in China had reached 872 million and the penetration rate of mobile Internet in mobile phone users stood at 69.1%. From January to July 2014, access flow of mobile Internet reached 1.036 billion GB, growing by over 50% every month since 2014. The monthly average flow per subscriber reached 178.8MB, up by 48%. In December 2013, MIIT granted the 4G TD-LTE licenses to China Unicom, China Telecom and China Mobile. By the end of July 2014, Chinese 4G subscribers had reached 20.625 million, up by 46.6% from the end of June 2014. The number of 3G Internet users had reached 376 million, accounting for 78.8% of all 3G cell phone users. The size of Chinese mobile netizens, mainly cell phone netizens, will keep growing rapidly.

The rapid expansion of mobile Internet users lays the solid user foundation for M-commerce development and mobile shopping has gradually become one of the first choices for netizens' purchase. By June 2014, the number of purchasers with cell phones reached 205 million, a year-on-year increase of 42%, and 4.3 times the increase of the total number of online market shoppers. Mobile shopping has increased by 38.9%. The share of M-commerce turnover in the total Internet turnover has rapidly increased. As indicated by the Statistical Monitoring Report on China Online Retail Market, in the first half of 2014, China's M-commerce transaction size reached RMB254.2 billion, up by 378% on a yearly basis. The share of M-commerce turnover in the country's total online market turnover already reached one fourth. The transaction size throughout the year is predicted to exceed RMB600 billion. Taobao data reveals that in the sales promotion activities on November 11, 2013, 35.9 million deals were made at Taobao mobile terminals, with the turnover reaching RMB5.35 billion, 5.6 times that of 2012 and accounting for 21% of the total turnover of Taobao.

In recent years, traditional e-commerce platforms in China have started to transform towards M-commerce one after another. Taobao and JD.com launched cell phone client terminals and cell phone websites to optimize user experience. A large number of small- and medium-sized enterprises launched their own mobile APP terminals¹, effectively improving the marketing accuracy and sales promotion. Industrial concentration of M-commerce is rapidly increasing. According to iResearch data, in the second quarter of 2014, the transaction size of China's mobile shopping reached RMB168.34 billion, up by 232.4% on a yearly basis. The market share of wap.taobao.com (for cell phone) in mobile online shopping was 84.2% and that of cell phone JD.com and cell phone vip.com was 5.3% and 2% respectively, with the combined share of the three growing to 91.5%.

M-commerce gave birth to new business modes. First, location-based services are activated with mobile Internet, which realizes the seamless integration of offline stores and online web stores and gives birth to the O2O mode (Online to Offline, an integration of online stores and offline consumption). All the physical stores and enterprises can publish their own apps at mobile Internet and mainly provide such functions as product display and experience to address the last-mile problems with client service, while deals are made online. In other words, Internet channels are not separated from offline ones, but are seamlessly connected with the latter and can promote their development. As the O2O mode is a “closed loop,” e-commerce platforms can track deals made by users and their satisfaction and swiftly adjust their marketing strategies accordingly. Second, information on supply and demand in many fields is highly dispersed and instantaneous and information mismatch may cause market failures. Mobile Internet provides updated technologies to facilitate the buyer and the seller to close deals. And third, as mobile payment is popularized, cell phones will replace bank cards as the comprehensive smart terminal. Mobile payment and WeChat payment drive forward the mobilization of online financial services such as online funds, P2P online loans and crowd funding.

II. Significance of Developing M-commerce

M-commerce is not only the result of e-commerce extending from cable Internet to mobile Internet, but greatly enriches the e-commerce applications and profoundly changes ways of consumption and payment. Having effectively penetrated into different fields and industries, it promotes the transformation and upgrading of related industries and is an important channel for China to stimulate internal demand and foster emerging industries.

1. Developing M-commerce helps promote industrial transformation and upgrading.

With a long industrial chain, M-commerce involves not only manufacturers of mobile terminals, but also production-based service providers such as telecom operators, financial and payment service providers, mobile commerce platforms, logistics enterprises and software suppliers. The rapid development of the market will forcefully promote the transformation and upgrading of related industries.

For instance, WeChat and other free mobile applications further replace the message-based businesses such as voice messages and SMS, which has a huge impact on domestic telecom operators and will drive them to improve service quality and reduce charges. From January to July 2014, income from voice services of the three major telecom operators in China dropped by 4.4% on a yearly basis, among which income of landline voice service and mobile voice service decreased by 12.7% and 3.3% respectively. During the same period, call duration of mobile phones only increased by 2.1% on a yearly basis, with growth dropping by 3.5%. Monthly average SMS sent by mobile subscribers were less than 40 and the share of mobile SMS income decreased to 4.5%. While voice business was plunging, data business became the new sector for growth of Chinese telecom operators. During the same period, income from mobile data and Internet business reached RMB124.69 billion, up by 46.4% on a yearly basis, contributing 160.9% to the income growth of telecom business.

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¹APP is short for application and it mainly refers to the third party application procedure at the mobile terminal. APP itself is a commodity and meanwhile is an important platform for promoting M-commerce.