China's online spending to skyrocket 5 times by 2010

eMarketer - COD and patchy postal delivery. No wonder more Chinese don't shop online.

Chinese e-commerce is growing at a quick clip. eMarketer estimates that the average amount spent online per Internet user in China will increase roughly fivefold by 2010 from 2006 levels.

That sounds great, but it is typical of an immature market.

In 2006, 20 million Chinese Internet users had made at least one purchase online within the past year, according to iResearch. That is a 15% penetration rate. By 2010 the penetration rate will increase to 28%. By comparison, in 2006 the US penetration rate for online buyers ages 14 and older was 66%.

Chinese retail e-commerce has several hurdles keeping it from growing even faster. One is low credit card usage, thanks to fraud concerns by both sellers and customers. Nearly two-thirds of respondents in a China Internet Network Information Center (CNNIC) study said that they do not buy things online because they are unsure about how secure it is.

China also needs a secure infrastructure for settling transactions, but lack of regulations and technical standards have resulted in a poor online payment system. These two problems have made COD the most popular online payment method. Only a quarter of online buyers surveyed by AC Nielsen used credit cards.

A third major problem is that it is tough to physically deliver goods once the sale is made online. Despite postal authority and express delivery company efforts to build countrywide networks, slow service and high costs are still the norm. Outdated facilities and a lack of automation and managerial talent are to blame.

Online retailers are developing their own delivery networks to get around these problems. Over half of respondents to a CNNIC survey said that they received goods bought online through an express delivery service run by either a third party or an online retailer.

As with most Chinese markets, the potential is vast. Until these problems are resolved, however, the market will continue to have mere "growth," instead of "phenomenal growth."

Learn more about online retail in the Asia-Pacific region. Read the eMarketer Asia-Pacific B2C E-Commerce: China, Japan and South Korea report.