China's E-Commerce Takes Off

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Includes: CHCG-OLD, UTRA
by: China OTC Player

Now that we know China is soon to become the most wired nation on Earth, what are the Chinese doing with all that connectivity? Well, E-commerce is one.

Research just released shows that online shopping is going to grow at a 75% CAGR for the next five years. If that doesn't sound a lot, what if I said that the sector is going to expand by 16.8 times from now till 2012? Barring logistical challenges, given the amazing speed the Chinese are adopting consumer behavior already prevalent elsewhere, I would say that this may perhaps be conservative.

Let's look at this in greater detail. In 2007, Chinese consumers made 59.4 billion yuan (or $8 billion) of purchases online. By 2012, this figure is projected to be 1 TRILLION yuan (or US$134.7 billion). Connectivity is greatest on the Eastern seaboard, including (not surprisingly) Shanghai, Beijing, Guangdong and nearby provinces, and should favor businesses operating out of those areas.

The greatest beneficiary may be Alibaba.com, whose subsidiary taobao.com (the Chinese eBay (NASDAQ:EBAY)) has a mind-blogging 67% share of online commerce on the Eastern region. Taobao's revenues is now greater than Hulian group, the biggest traditional retailer in China.

But many others will benefit too, including China 3C Group (OTC:CHCG-OLD), which not only operates out of Zhejiang Province (contiguous to Shanghai) but has already started an online presence to push its electronic goods. Universal Travel Group (UTVG.OB) is another, whose operations (including significant online assets) spans Shanghai, Guangdong and Tianjin, all coastal areas.

Interestingly, there are not many pure internet plays on the OTCBB, compared to the many listed on the major exchanges. But there is one company to take note of, and that is MyStarU.com [MYST.OB]. Not only is MYST affiliated with Alibaba.com (MYST subsidiary Subaye.com provides video-based e-commerce solutions to Alibaba), and not only is it based on the coast (operating out of Beijing with substantial assets in Guangdong and HK), it is in the process of launching various online initiatives including SkyeStar.com and StarEastNet.com, where the company's strategy of aggregation and creation of an online community is, I believe, just one small step short of E-commerce heaven.

My Position: Long CHCG.OB, UTVG.OB.