The irony of e-commerce

The room to grow without stiff regulation helped the explosive growth of the sector and, in turn, created an important source of growth for the Chinese economy.

Today, online sales account for 7.8 percent of the country’s total retail sales, according to the Ministry of Commerce. That number might seem modest, but it is already exceptional considering that just six years ago the value of e-shopping was only about 1 percent of the total retail sales.

Online retail sales jumped by 52 percent in the first four months of 2014 from a year earlier, compared with a 12 percent gain in the broader retail sales, the weakest performance since 2004.

As China restructures its economy and plans to have consumers play a more important role in GDP creation, e-commerce is set to play an indispensible role in the economic environment.

Based on the strong momentum of current growth, the sector does not look likely to let the nation down.

By 2020, China’s e-commerce sector will be larger than those of the US, Britain, Japan, German and France combined, according to a recent report from global accounting firm KPMG.

Less regulation, however, has not always been entirely constructive. While it helped the e-commerce industry expand rapidly, it has also brought some irregularities, such as selling of fake goods by online shops.

As regulation tightens, online sellers will find it more difficult to take advantage of regulatory loopholes in pursuit of profits. China’s new consumer protection law, for example, will cover the online shopping sector. The law stipulates that consumers can unconditionally return the purchased goods to the online seller if they are not satisfied.

The new rules will protect the interests of consumers and provide much-needed structure to the industry. But such regulation may also temporarily slow down the expansion of online sales.

Moreover, now that the number of China’s e-shoppers reaches 300 million, or about half of the total number Internet users, the market is ripe for saturation.

With stiffer regulation and a market already blown up to $300 billion, however, it will be almost impossible for China’s e-commerce industry to repeat the eye-popping growth of the past.