The Chinese Yuan has crossed the psychological barrier of 7.5 RMB/USD, a level last seen nearly a decade ago. The currency’s appreciation has been gradual but visible, not withstanding the cries of western bureaucrats. By all accounts, the Yuan will continue rising, though not at the same pace as its trade surplus, which is projected to jump from $177 Billion in 2006 to $300 Billion in 2007. Predictions regarding the extent of the appreciation range from 20% to 400%, the implication being that it depend who you ask. But the general consensus is clear: the Yuan is pointing upwards. Bloomberg News reports:

　　Non-deliverable forward contracts show traders are betting the yuan will reach 7.0070 in 12 months, a gain of 6.9 percent from the spot rate, and 6.95 by the end of 2008.

　　China to Float the Yuan?

　　Since it was freed from its fixed exchange rate regime two years ago, the Chinese Yuan has appreciated nearly 9% against the USD. While the Yuan’s exchange rate is clearly managed by the Chinese government, many commentators agree that its rise has given off the aura of a floating currency. One economist thinks China will cement this perception the conclusion of the Beijing Olympics-to be held in 2008-and allow the currency to float freely, at which point it could surge by as much as 10% against the USD. Evidently, China is growing tired of the lack of control it has over its domestic economy due to its exchange rate policy and is clearly overwhelmed by the need to continue growing its forex reserves (which now stand at $1.33 trillion) in order to control the Yuan. Bloomberg News reports:

　　They have to adopt a free-float system; it's not a question of whether they will, but a question of when. After the Olympics, the new leadership will be firmly in place.

　　#V:f$Y.n$T4M8swww.hiall.com.cn3. What must china do to improve the confidence of foreign investors and create a stable and open market economy?

　　1~6G&B."o1T,Z*@#c!Z)Q4. Comment on Chinese consumer confidence of internet based commerce?

　　China internet: The long march toward e-commerce

　　FROM THE ECONOMIST INTELLIGENCE UNIT

　　By Alice Woudhuysen

　　China is known the world over as a leading producer of electronic equipment and high tech goods. But when it comes to the buying and selling products over the internet, the country is still in its infancy.

　　In a country famous for its government-led plans, this month saw an entirely new one when the Chinese government rolled out its first e-commerce development plan. Dubbed the E-Commerce Development Plan during the 11th Five-Year Period, the plan aims for China to have a basic support systems and technical services to support the development of e-commerce nationwide within three years.

　　By 2015, according to China's bureaucrats, e-commerce will become an "important industry" and e-commerce applications should promote the "dramatic growth of economic and social development in China." Given the state of the country's internet network to date, this could be a very tall order indeed.

　　On the plus side, internet usage has grown rapidly in China over the past ten years. The EIU predicts that by the end of 2007, China will have more than 140m internet users and that within the next few years it will overtake the US as the country with the most internet users in the world. However, in terms of e-commerce, China remains at the starting blocks.

　　According to China-based IT consultancy Analyses International, China’s retail e-commerce sales reached US$657m in 2006 and may triple to US$1.25bn in 2015. By comparison, the US Department of Commerce estimates that US retail e-commerce sales reached US$122bn in 2006 and are growing at over 20% annually.

　　China’s e-commerce is lagging behind most developed markets because it is hindered by a lack of policies, a proper credit system and poor logistics. The new e-commerce development plan should help to tackle these problems. And, while China should not expect to catch up with the US in terms of market share, it can expect to benefit from US internet companies investing in China.

　　A nascent B2B market

　　According to a report by Chinese market research and advisory firm China Center for Information Industry Development Consulting (CCID Consulting), the trade volume of China’s e-commerce - which includes business to business (B2B), business to consumer (B2C) and consumer to consumer (C2C) - grew by 52% in 2006. However, whilst 99% of China’s 42 million companies are small and medium-sized, only 3% of them made deals over the internet in 2006.

　　Conversely, in the US, B2B e-commerce is progressing rapidly, with the US Census Bureau estimating that over 94% of all e-commerce can be classified as B2B. According to an end-2003 review from the Institute for Supply Management and US market research firm Forrester, 85% of large US companies use the internet to purchase materials and services.

　　As the EIU’s 2007 e-readiness rankings suggest, China is actually a beneficiary of the growth of B2B volumes in the US. The result has been the creation of big, sophisticated B2B transaction service providers, including one of the world’s largest online B2B marketplaces, Alibaba.

　　US portal Yahoo! bought a 40% stake in Alibaba for US$1bn in 2005. Today, over 15m business and consumer customers in China use Alibaba’s online platform. While most do not pay to use basic services, more than 100,000 businesses do. The Chinese firm is evolving into a comprehensive supplier of online business development resources for Chinese customers: many of whom would not be doing business online at all if not for Alibaba.

　　An inefficient credit system

　　E-commerce platform vendor Art Technology Group (ATG) suggests that only 24% of China’s internet users currently shop online. Although the Chinese government is eager to increase B2C e-commerce, it largely depends on credit card purchases, and it is very difficult for the average Chinese citizen to get hold of a credit card.

　　Countrywide, it generally takes more than a month to obtain a credit card in China as the banking system remains highly inefficient. Inspaniduals spend a long time dealing with an inefficient system of credit checks and sub-par service, where consumers regularly have to wait in two-hour long queues to see a bank teller.

　　In 2004 there were just 10m cards in circulation in China. Although 2006 saw the addition of 15.6m credit cards, there are still fewer than 50m credit cards in circulation for an emerging middle class of 250m. And even those fortunate enough to have a credit card find that their cards lack viable credit limits because of Chinese banks ’ weak risk-management departments.

　　However, this situation is beginning to change. Banks such as China Merchants Bank (CMB) are pushing hard to develop credit cards for use in online transactions. CMB, which is the market leader, is also coming up with co-branded credit cards to appeal to younger Chinese customers. To date, it has forged relationships with Young Card, Bertelsmann, Hello Kitty, MSN mini, Ctrip (CTRP) and Air China (AIRYY) to name a few. Given that an estimated 90% of all online shoppers in China are under 40, this should be lucrative for both banks and online retail sites.

　　China’s financial services market is also opening its doors to global banks such as Citibank, Standard Chartered and HSBC, which are all buying stakes in Chinese banks. In October 2006, GE Money (the consumer and small business financial services unit of General Electric) invested US$100m in Shenzhen Development Bank (SDB) and launched a credit card with the bank and Wal-Mart.

　　Online trust

　　Even with a better credit system, the success or failure of e-commerce strategies is linked to the issue of online trust. According to a survey produced by US-based research and advisory company in August 2006, even in the US, nearly half of online adults said that concerns about theft of information, data breaches or internet-based attacks affected their purchasing payment, online transaction or e-mail behaviour. The financial cost of this mistrust in e-commerce was approximately US$2bn in 2006. Gartner also estimates that US$913m in 2006 e-commerce sales were lost because of security concerns among online shoppers.

　　China’s problem is that it lacks an online payment system for handling credit card transactions in a safe and efficient manner, meaning that only about one in three online purchases is made using a credit card. The remainder are paid with cash on delivery or post office transfers. What is clear is that the government needs to develop a better online payment system and encourage e-commerce sites to support multiple payment models which allow greater flexibility when purchasing goods.

　　Another issue linked to online trust are the products themselves. Home-grown internet retailers offer a limited product selection, of which the quality is often suspect. In March this year for example, online book store Dangdang.com was forced to apologise to a publishing house for selling pirated books online. Incidences like these lower consumer confidence, thus hindering e-commerce growth.

　　Poor logistics

　　Also hampering China’s e-commerce growth are its poor logistic and distribution networks, which restrict how far apart sellers and buyers can be, thus making sending purchased items difficult.

　　US internet retailers such as Amazon are helping to remedy the situation. In June this year, Amazon invested more capital into its Chinese e-commerce operation Joyo.com. It introduced some of the features of its worldwide sites to the Chinese market to boost its performance, offering free shipping on all orders and providing customer-specific purchase recommendations. It has also increased its stake in Joyo.com, which subsequently changed its name to Joyo/Amazon.