Five Effects of China ROK FTA

Recently, China and South Korea officially announced that China-ROK Free Trade Agreement (FTA) initialed text has been completed, and disclosed some contents involving tariff concessions.

In addition to greatly accelerating economic integration, the China-ROK FTA will also have multiple strategic effects:

First, global negotiations effect. It is one of the most important, the highest quality and level of the FTA signed among the world’s major economies, promoting the negotiations for the global trade liberalization and investment facilitation rules.

Second, regional cooperation effect. China ROK FTA will further urge Japan, Taiwan and other economies to accelerate or upgrade the free trade agreement negotiations with the China’s mainland economy, which is helpful to build China Japan ROK free trade zone, promoting the Free Trade Agreement negotiations in the whole of East Asia and the more inclusive and forward-looking FTAAP establishment. 

Third, bilateral demonstration effect. Korea, as a US ally, reached the free trade agreement with China first, together with the subsequent FTA with Australia, it will have an important demonstration effect in the Asia-Pacific allies of the United States.

Fourth, the interconnection effects. China ROK FTA eventually make ROK involved into China’s "one belt one road", accelerating its interconnection with China and its integration into the Eurasian continent.

Fifth, bridge effect. South Korea had already signed FTA with the EU, the US and other major economies, and supports China’s Asia-Pacific free zone initiatives, and is negotiating to join Trans-Pacific Partnership (TPP), but compared with ROK’s FTA Agreement signed with other countries, China ROK FTA has the largest number of tariff preference objects. South Korean Foreign Economic Policy Research Institute predicted that the FTA Agreement would come into force in five years, South Korea's gross domestic product (GDP) is expected to enhance 1.25% at most. (www.chinainout.com)

China-ROK FTA Negotiations Completed, FTA Initialed

Chinese Ministry of Commerce on the 25th announced, China and South Korea completed the initialed text of FTA, and confirmed the content of the agreement. So far, China and South Korea free trade negotiations has been completed.

The Commerce Department said China-ROK FTA negotiations started in May 2012 and the substantive negotiations finished in Beijing in November 2014. China and South Korea FTA is by far the biggest trade involving the country, the most comprehensive range of areas. ROK said that in all the FTA signed between South Korea and other countries, ROK FTA has the largest number of the tariff preference objects. The two countries agreed to sign a formal agreement in the first half of this year.

Under the regulations, in 20 years at most, China’s zero-tariff goods will reach 91% of tariff lines, 85% of imports, the Korean zero-tariff goods will reach 92% of tariff lines, 91% of imports. China will reduce the tariffs of the rice cookers, washing machines, refrigerators, medical equipment, appliance parts and other products to zero. South Korea will phase out the tariffs of motors and transformers, and phase out the tariffs of the handbags, golf clubs and other large household items imported from China in 15-20 years.

In manufacturing, automobiles and spare parts are not included in the tariff reduction or the object of long-term realization of the trade liberalization. In the field of Agriculture & Fisheries, Korean rice, pepper, garlic and squid, octopus and other aquatic projects are not included in the tariff reduction target.

There are many procedures to be done to make China-ROK FTA come into force. First, both sides need to translate the agreement into their own languages. China-ROK FTA text and list of tax cuts add up to 1077 pages, it will take a long time to translate them. After the translation work is completed, a series of domestic ratification procedures will be needed, and then both countries signed the English and the native language drafting agreements. South Korean media reported that the South Korean government planned to formally sign the agreement in the first half of this year. Finally, the FTA also needs to be approved by Congress, if it goes on smoothly, China-ROK FTA is expected to come into effect this year. (www.chinainout.com)

PWC: China to Become World's Largest Retail Market in 2018

On 12th Feb, PWC released a report "2015-2016 Asian retail and consumer goods industry outlook". It says, in the next two years, the annual growth rate of China's retail sales on average is still expected to reach 8.7%. In addition, China will become the world's largest retail market in 2008.

The report shows, although China's retail growth rate has slowed compared with that peak in 2009, for the global retail chain enterprises, China is still an irresistible market.

The report also shows that the retail sales in the Asia-Pacific region in 2014 is expected to grow by 4.1 percent, while this year's growth rate will reach 4.6%. Until 2018, retail sales continue to show an upward trend, while in 2018 the market size is estimated to reach $10.3 trillion. As a whole, the Asia-Pacific region remains the most preferred destination for global retail chain enterprises. Although China's economic growth has slowed down, the reform in India lack in momentum, the growth of the Asia-Pacific region will benefit from the two countries.

Wang Xiao, the supervisor of China's retail and consumer goods industries of PWC said, from 2015, the economy growth of US and the difficult recovery of EU will stimulate demand for Asian goods. In the next five years, Asia’s retail sales growth will be the world's fastest one. "

The report also focused on food safety issues. With the rapid development of emerging markets in Asia, people are increasingly concerned about food safety. based on concerns about food safety, the Asian food industry is subject to more stringent regulation. Asian food manufacturers have sought the expertise of overseas markets, wishing to establish partnership with trusted brands.

In the food and beverage sector, Chinese enterprises’ overseas M & A shows an upward trend. From 2010 to 2013, Chinese enterprises’ foreign investment in the food and beverage industry totaled $9,000,000,000. In the first half of 2014, M&A volumes in the food and beverage industry accounted for 17% of the total trading volume of China's outbound M&A.

For the future, the global retail industry is constantly changing, and the most rapidly changing market is the Asian market, particularly Chinese market. In Asia, the integration and innovation of e-commerce and mobile e-commerce channels make the important retail companies rethink their channel strategy. (www.chinainout.com)

In First Month of This Year, Imports and Exports Show Down, Multiple Factors Make Foreign Trade Opening Weak

General Administration of Customs on February 8 released data, in January 2015, China's import and export value was 2.09 trillion yuan, dropping by 10.8 percent. Among them, the export value was 1.23 trillion yuan, decreasing by 3.2 percent; the import value 0.86 trillion yuan, down 19.7%; trade surplus 366.9 billion yuan, expanding 87.5 percent.

According to statistics, soybean imports increased in January, while iron ore, coal, crude oil, refined oil and other main commodity imports volume decreased, and prices of major imported commodities generally fell.

The above data changes confirm the judgment of Ministry of Commerce Foreign Trade Institute Li Jian. He said that the current overall external demand market remains weak. Europe, Japan, and other developed economies remains sluggish. Compared with exports, imports dropped significantly, leading directly to the rapid expansion of trade surplus.

However, many experts said due to the Chinese New Year and other factors, before the holiday, import and export data in response to actual demand is relatively weak, generally monthly data does not accurately reflect the true state of the economy.

"China's foreign trade enterprises always have a habit, that is “hush to export” before holiday and 'import first' after holiday, which led directly to the volatility of year on year growth of imports and exports in January and February." Customs Service spokesman Zheng Yuesheng said.

In addition to the Spring Festival, manufacturing orders diversion, changes in the RMB exchange rate and other factors also have an impact on the current import and export decline. Experts said that in March and later, the Spring Festival factors affecting imports and exports will gradually disappear, the size of exports will gradually return to normal.

Minister of Commerce Gao Hucheng said that this year the government will further promote foreign trade policy implementation, accelerate the trade relationship development with the nations along "one belt one road", promote the transformation and upgrading of foreign trade growth, base construction and foreign trade development, stabilize the source product import, encourage advanced technology equipment and key parts import, reasonably increase the imports of the general consumer goods, and cultivate cross-border e-commerce, market purchase trade, integrated foreign trade enterprises and other new business models.

"In the long run, China's foreign trade has entered a slow growth new normal, but the overall advantage still exists, a new competitive advantage is forming. With further measures to promote steady growth of foreign trade, foreign trade growth this year will be higher than last year’s." Zheng Yuesheng stressed. (www.chinainout.com)

German Media Hype up Chinese People Buy up Milk Powder

"Rush to the store, milk powder has almost been bought up by Chinese people!" On the 7th, the German "Munich Daily" on the 7th urged German mothers to take actions immediately. Recently "Chinese people buy up milk powder" is becoming a topic of some media hype in the Germany famous for machinery manufacturing industry.

In Essen Ruhr Germany, a young Chinese father went to a chain supermarket in the vicinity of the railway station to buy milk powder, but was told not to sell him. He angrily condemned and thought it was discrimination, while the supermarket manager denied. On January 30, "the new German newspaper" reported this event and wrote an article entitled "Do not sell milk powder to the Chinese people", attracting the German media recently on the "Chinese people buy up milk powder". German "Bild" reported on February 5 that Frankfurt supermarket milk powder was bought up by the Chinese people, then, "Hannover Allgemeine Zeitung", "Fulda Daily" and other local media reported there appeared milk powder crisis.

On the 7th "Munich Daily" published a photo, on which three Chinese people takes large boxes to buy milk powder and other products for baby, under the photo is the title "Chinese buyers are hoarding infant formula". As Europe's best-selling milk powder, Milupa has doubled its production, but still cannot meet the rapidly growing demand.

Cologne "Express" on the 8th claimed that Chinese people love to buy milk powder in Germany because the melamine incident in 2008 has reduced people's confidence in the domestic milk powder, many Chinese Germans also act as purchasing agent. Now the milk powder worth 10 euros, can be sold for 30 euros in China. The article said that on this year's Spring Festival, China's most popular gift among Chinese mothers is German milk powder. (www.chinainout.com)

Global Currency Volatility and Dollar Rising

First things first. We are not about to replay the 1930s. The world’s big economies are not deliberately indulging in “beggar thy neighbour” devaluations and protectionism is not poised for an ugly revival. As they say in the US: situation normal, all fouled up — or words to that effect.

Yet there are undertows we ignore at our risk. The US dollar is surging and export growth is slowing. The same applies to the widely forecast stampede of reshoring to the country, which is not really happening. Most US competitors are cutting interest rates and watching their currencies fall against the dollar. If these trends persist, and they will, US politics will react. A rising dollar is not the picnic it is made it out to be.

Yet it is hard to see what will stop it. The gap between North America’s growth, which is “solid”, in the words of Janet Yellen, US Fed chairman, and that of most other big economies is real. So, too, is the growing monetary divergence. US 10-year bond yields are historically low at just 1.7 per cent. But these are juicy compared to Germany (0.3 per cent), Japan (0.25 per cent) and even the UK (1.3 per cent). Investors will keep buying the dollar.

This will become more pronounced as the Fed moves towards its first rate rise in almost a decade. Most others are cutting theirs. In the past three weeks, Canada, India, and Singapore have all reduced their lending rates. Australia and Turkey are expected to follow suit. The European Central Bank and Denmark are moving into negative nominal territory. It is probably a matter of time before the euro reaches parity with the dollar.

These are not Great Depression-style devaluations. The Europeans and others are stepping up quantitative easing to revive growth, not to undercut the US. But the effect is the same.

The dangers are two-fold. First, there is an increasingly strong effect on the corporate bottom line. Almost half of the revenues of US S&P 500 companies come from overseas, and an even higher share of net profits. The stronger the dollar, the weaker their earnings growth.

In the last quarter of 2014, many big companies reported declining profits. Caterpillar’s fell by 25 per cent. Proctor & Gamble forecasts zero growth in 2015 because of the strong dollar. Even Apple and Google warned of “strong currency headwinds”. This helps explain why US equity markets dropped by 5 per cent in January, while the dollar rose.

Second, the political backlash is growing. Last week, Republicans and Democrats pressed Mike Froman, the US chief trade negotiator, to include a currency manipulation clause in the Transpacific Partnership trade deal — with Japan the focus. Though China is not part of the TPP, the remininbi was their real target. Mr Froman re-directed their questions to Jack Lew, the Treasury secretary, who insists a strong dollar is in America’s interests.

Mr Lew’s mantra is formulaic, and arguably misleading. But as my colleague Alan Beattie has pointed out, currency shenanigans are in the eye of the beholder. One person’s devaluation is another’s monetary policy. Rules against it are impossible to enforce. Insisting on them would wreck chances of a Pacific trade deal.

Yet, as exports stall and manufacturing jobs fail to return to the US, the political debate is likely to grow louder. Last month, Lawrence Summers, the former US Treasury secretary, and Ed Balls, the UK shadow chancellor, came out with a report on inclusive prosperity at the Center for American Progress. It offers a clear set of policies to reverse the declining incomes of the western middle class. These include broadening employee ownership, improving parental leave, raising the minimum wage and stepping up vocational training. Its findings are seen as a blueprint for Hillary Clinton’s presidential campaign. Astonishingly, given that Mr Summers has long opposed such clauses, it also recommends “new trade agreements should explicitly include enforceable disciplines against currency manipulation”. With such cover, it is little wonder both left and right are clamouring for their inclusion.

What, then, will become of the strong dollar? The upside is that Ms Yellen can afford to keep interest rates at zero for longer than expected. There is scant sign of wage growth and inflation is nowher on the horizon. The stronger the dollar, the lower the cost of imports. Falling oil prices also help.

By Europe’s standards, the US is grappling with a high-class problem. The bad news is that its recovery is based on the familiar model of rising consumption. In the last quarter of 2014, growth of 2.6 per cent was driven by household spending, rather than investment. American companies are actually cutting domestic outlays.

Since rising US consumer spending is driven by cheap borrowing costs rather than growing middle class earnings, it is vulnerable to a turn in the interest rate cycle. Most Americans are still cautious about the strength of the recovery. With 30-year mortgages available at less than 3 per cent, it is striking how few are buying homes. It is hard to believe more will do so when Ms Yellen finally acts.

In one respect, Mr Lew is right. The strong dollar reflects America’s success. It may also be a case of being careful what you wish for. (www.chinainout.com)

South Korea Confiscates Fake Masks with Excessive Preservatives, Masks Specially Made and Sold to China

The South Korean YTN news and "Asia Economic Net" reported on Feb. 4th, South Korean mask branded Leaders was very popular in China, but the Korean Patent Office recently raided a factory manufacturing counterfeiting Leaders mask, this factory has made more than 100 thousand masks, which have been sold to China.

Reportedly, this factory has made 266,000 masks of Leaders Insolution, the market price 4.5 million yuan, suspected person manufacturing and circulating counterfeit mask Cai (45 years old), and other three people have been placed on file investigation. The police at the scene confiscated 158,000 masks, presumably, the rest 100 thousand masks have been sold to China.

It’s learned that Cai and his partners built a factory in a lonely place in Paju, Gyeonggi South Korea and employed foreign workers to produce fake Leaders masks, which are as same as the genuine masks in packaging, but contains phenoxyethanol preservatives and other ingredients harmful to human and excludes anti-wrinkle adenosine( included in the genuine one) .

It’s reported that authentic mask businesses are worried about the counterfeit goods into the market, which is expected to cause some adverse impact on the company's brand reputation. Currently, in order to minimize the damage of cooperate image and prevent counterfeiting mask from continuing into China, the Korea China Patent Office has applied for co-promoter of the Chinese judiciary.

It’s reported that many Korean local goods become famous with the "Korean wave" tide, but counterfeit goods confiscated by the Korean Patent Office are increasing every year. The Korean Patent Office said it would develop a local brand protection countermeasures, and strengthen the protection of intellectual property rights of domestic brands.（ｗｗｗ．ｃｈｉｎａｉｎｏｕｔ．ｃｏｍ）

RMB against USD Exchange Rate Plunges Recently, Why RMB Does Not Appreciate Any More

After nearly a decade in which robust trade surpluses underpinned reliable appreciation of China’s currency, the renminbi is under pressure from a bout of capital outflow and the knock-on effects of falls in the euro, yen and emerging market currencies.

The renminbi has fallen 0.7 per cent so far this year to about Rmb6.25 per US dollar, following a dro of 2.4 per cent in 2014 — its first full year of significant depreciation since the central bank ended its strict dollar peg in 2005.
Yet the fall has occurred in spite of a swelling of China’s trade surplus, which propelled the renminbi’s 37 per cent rise between 2005 and 2013.

In December China posted its second-biggest monthly trade surplus on record, but foreign exchange purchases by its banks — a rough proxy for capital inflows — fell Rmb118bn ($19bn), the largest monthly decline on record.

Ordinarily a trade surplus leads to larger bank forex purchases, as exporters swap dollars from overseas customers for local currency. But exporters expect the renminbi to fall and are no longer converting dollar receipts, analysts say. In addition investment-linked forex outflows are offsetting the impact of inflows from trade.

According to currency traders the trade surplus is no longer the driving force behind exchange rate movements and capital flows. Instead expectations of rising US interest rates, combined with quantitative easing by European and Japanese central banks, have propelled outflows from emerging markets and into dollar assets.

“It used to be everyone just looked at trade data. Now people are looking at the interest rates and the euro,” says a trader at a small Chinese commercial bank in Shanghai.
Indeed the latest bout of weakness shows that in spite of strict capital controls, which limit the ability of short-term funds to slosh in and out of the country, China is not immune to the forces that have battered other emerging market currencies.
After years in which investors clamoured to find ways to circumvent controls and bring money into the country, funds are flowing in the opposite direction. Outbound foreign direct investment outstripped inbound FDI for the first time last year, a trend that is set to accelerate as Chinese companies increase overseas acquisitions.

Financial outflows are also picking up. China posted a combined $25bn deficit on the financial account in the second and third quarters, balance of payments data show. Fourth-quarter data are expected to show further outflows.
“Renminbi weakness has further to run,” says Wang Yifeng, head of investment at Yaozhi Asset Management in Shanghai. “Europe, China and emerging markets are all showing economic weakness, while the US is outperforming. The link to the dollar’s global strength is very intimate.”

Consensus forecasts have the renminbi at 6.4 to 6.5 by the year-end, a fall of 3-5 per cent from last year’s close.

Analysts say the reversal of expectations for the currency partially explains the lack of enthusiasm for the much-vaunted Shanghai-Hong Kong Stock Connect. Two months after the launch of a programme that offers foreign investors unprecedented access to the Shanghai stock market — and in spite of the world-beating performance of mainland shares — less than a third of the Rmb300bn quota has been used.

To be sure, the renminbi’s fall is tiny compared with other currencies such as the euro, yen and Singapore dollar. Indeed, in spite of the renminbi’s decline against the dollar, its nominal effective exchange rate — a gauge of its value against a trade-weighted basket of currencies — rose 10 per cent in the second half of last year, data from the Bank for International Settlements show.
Some analysts consider the renminbi’s fall an intentional act by the People’s Bank of China, which is marching into a currency war to defend export competitiveness. But the dro in foreign exchange reserves in the fourth quarter last year suggests that the central bank may have intervened to prop up the currency, rather than drive it down.

The PBoC has consistently set its daily midpoint price stronger than the spot rate, a further signal that authorities do not want the currency to fall sharply.
Andrew Tilton, chief Asia economist at Goldman Sachs, says policy makers are unlikely to pursue a weaker currency because of the knock-on effects such a move would have on Beijing’s reform efforts.

“It is inconsistent with some of the other policy goals they have, such as wanting the renminbi to be used more broadly as an international currency, and wanting foreigners to invest in the stock market,” he says.（ｗｗｗ．ｃｈｉｎａｉｎｏｕｔ．ｃｏｍ） 

Implement of Mandatory Inspection of Import and Export Safety Seats

Recently, the Administration of Quality Supervision，Inspection and Quarantine(AQSIQ) and the General Administration of Customs jointly issued "the entry and exit goods catalog inspected and quarantined by CIQ" adjustment and Product Number linkage adjustment. The Notice adjusts the entry / exit inspection and quarantine regulatory requirements for the child car safety seat to "A / B", namely to implement of import / export commodities statutory inspection, this adjustment started from February 1, 2015.

Back in January 2014, AQSIQ and CNCA jointly made an announcement to implement compulsory product certification on child car safety seats. The Notice pointed out that, since September 1, 2015, without the mandatory product certification or mandatory product certification mark, child car safety seats shall not leave the factory, not be sold, imported or used in other business activities. That’s to say, since September 1 this year, all child car safety seat products on market shall be approved by CCC certificate.

China's imports ports of child safety seats are mainly concentrated in Ningbo, Guangdong, Shanghai, Beijing and other ports, there are more than 20 major importers of child safety seats and part of child safety seats are imported through cross-border e-commerce platform.（ｗｗｗ．ｃｈｉｎａｉｎｏｕｔ．ｃｏｍ）

Jingdong Goes Its Own Way and Challenges Alibaba

BEIJING — Just about every June, on the anniversary of his company’s founding, Richard Liu dons a big motorcycle helmet and red uniform, hops on a three-wheeled electric bike and makes home deliveries for his e-commerce company JD.com.

It is in part a publicity stunt for Mr. Liu, the 41-year-old billionaire who is the company’s chairman and chief executive. But it is also a way to better understand the technical and logistical challenges facing JD, which is in a pitched battle for e-commerce supremacy in the world’s second-biggest economy after the United States.

Long overshadowed by its rival Alibaba, JD has emerged as China’s other online goliath by carving out its own distinct identity.

While Alibaba’s marketplace serves as a platform to connect buyers and sellers, JD buys goods from manufacturers and distributors and holds the inventory in its own warehouses, in a model that echoes Amazon’s. It then arranges for quick delivery of virtually everything from television sets and refrigerators to socks and T-shirts, using motorbikes that weave in and out of traffic in some of the country’s biggest cities.

Like Amazon, JD has invested heavily in infrastructure, pumping more than $1.5 billion into building and leasing warehouses and order-fulfillment centers around China. But JD has gone even further, venturing into home delivery with its own fleet of trucks and more than 20,000 couriers, all in the hope of capturing what is projected to be a $1 trillion Chinese e-commerce market by 2020.

JD, which is publicly traded in the United States, is now China’s biggest direct-sales retailer, with 46 million active users and an estimated $20 billion in revenue last year.

“This isn’t a business model for everyone, but they were smart to build it,” said Elinor Leung, a Hong Kong-based Internet analyst at CLSA, an investment bank. “Now, their traffic is exploding.”

And yet this costly approach to building an online retailer has worried some analysts, who say that JD could be weighed down by its physical assets and mounting debt. Several analysts say the company won’t turn a profit before 2017. Competitors like Jack Ma, chairman of Alibaba, have even disparaged the company’s business model, calling it tragically flawed.

“It’s not that we are better,” Mr. Ma said in a recently published interview. “It’s an issue of direction. So, I tell my people: Definitely do not get involved with JD.com. Don’t come blaming us if you die one day.” He later apologized for his comments.

Executives at JD, which is based in Beijing, insist they are building a company that will eventually have a commanding advantage in e-commerce, with strong customer service, speedy delivery and assurances that the products it ships are authentic, not counterfeit. Among the biggest challenges now, they say, is keeping up with an enormous volume of online orders, which have doubled in each of the last three years.

“If we wanted, we could be profitable right now,” said Shen Haoyu, chief executive of JD Mall, the company’s biggest division. “But our immediate goal is to grow our customer base.”

JD is a product of its founder’s ambitions. The son of a cargo shipowner, Mr. Liu grew up in one of the poorest parts of east China’s Jiangsu Province, before arriving in Beijing to study sociology at Renmin University.

During his spare time in college, he wrote software code and earned enough money to buy a small restaurant near campus. He says the restaurant failed after staff members embezzled large sums of money.

After college, Mr. Liu, whose Chinese name is Liu Qiangdong, worked briefly for a Japanese company before going into business for himself. He rented space at an electronics market in the city’s high-tech zone, called Zhongguancun, to sell software and electronics, including compact disc burners. Within a few years, he owned brick-and-mortar electronics shops in three cities.

In 2004, when his stores began selling goods on the web, online shopping was just beginning to take shape in China, led by start-ups like Dangdang, Joyo and Alibaba’s Taobao site. JD, whose English name at the time was 360Buy.com, thrived on low prices and fast delivery, part of its motto today.

With money running low in 2006, Mr. Liu sought $2 million from a Hong Kong venture capital firm. The firm, Capital Today, put up $10 million instead, for a large minority stake. The stake is now worth close to $2.4 billion, even after the firm sold some of its shares.

The capital injection helped JD expand its product offering beyond electronics and develop new systems and software. The expansion, in turn, helped lure bigger investors, such as Tiger Global, the Russian billionaire Yuri Milner, Prince Alwaleed bin Talal of Saudi Arabia and the Waltons, the family behind Walmart Stores.

“The first time I met him, I knew he was smart and trustworthy, and that he had a killer instinct,” said Kathy Xu, the partner who led the Capital Today investment.

Investors bought into Mr. Liu’s vision for a full-service online retailer.

At the time, China’s package delivery services were terrible. The country had new roads and bridges, but truck shipments were hampered by poor service, toll roads and other bottlenecks. With no Chinese equivalent of FedEx or UPS, packages often arrived late, in dented boxes.

“Back then, 70 percent of our complaints were about deliveries, and everything was very slow,” Mr. Liu said during an interview at the company’s headquarters. “We realized logistics is related to user experience.”

So beginning in 2007, JD did something no other Chinese e-commerce company was willing to do then or since. It started building an integrated logistics network from scratch, promising to cater to customers from click to dro-off.

Today, the company boasts seven fulfillment centers and 118 warehouses in 39 cities. There are also 1,045 smaller pickup centers in about 500 cities. And since 2010, the company has pledged that most online orders placed before 11 at night will be delivered by 3 p.m. the next day.

Morgan Stanley calls JD’s business model a combination of Amazon and UPS; other analysts say the company is beginning to look like Walmart, steeped in logistics and infrastructure and backed by a website.

JD “has made it clear they will not only be a retailer but also an online supply chain and finance company," said Lu Jianping, who teaches e-commerce at East China Normal University in Shanghai. “Retail is not profitable but it offers trading volume and cash flow. In the future, the main profits will come from finance and the supply chain."

By following its own path, JD has sought to make online shopping easier for China’s growing consumer class, promising authentic goods, delivered on time, for little or no delivery fee — and with a receipt, something hard to come by in a country wher tax evasion is rampant.

Today, traffic to its website is exploding and the company is filling more than two million orders a day. No other direct sales retailer in the world has seen its revenue grow as quickly as JD, not even Amazon.

American Internet start-ups have struggled in China. Amazon made its big foray into China in 2004, when it paid $75 million to acquire Joyo.com, then one of China’s biggest e-commerce start-ups. A decade later, Amazon’s China operation has less than 2 percent of the online shopping market, according to iResearch Consulting.

And though Alibaba is better known in the United States, Mr. Liu, JD’s biggest shareholder, is finding a warm reception. He led the company’s public stock offering on the Nasdaq early last year, which raised $1.78 billion.

Around the same time, he also struck a deal with China’s social media and mobile gaming giant Tencent, which allows JD to tap into Tencent’s huge user base. Tencent now owns about 20 percent of JD.

Mr. Liu is also pushing JD into online groceries and finance, and lending to his vendors the way Alibaba does. But unlike Alibaba and Amazon, he says he has little interest in developing film or entertainment divisions.

“We don’t want to produce films or TV shows, but finance, yes,” Mr. Liu said, before returning to his thoughts on infrastructure. “And every few years we’ll invest in new warehouses. We need some temperature-controlled warehouses.” (www.chinainout.com)