China Exclusive: Business boon as Internet embraces manufacturing

When Mou Bin stepped into the offices of a venture capital company in 2014, he held a short list of business proposals on what was viewed by many as a "sunset" industry -- plastic.

But "Internet," a key word in his proposal, got the attention of the investors and he walked out with an investment of 10 million yuan (1.6 mln U.S. dollars) for his startup business.

Mou now runs zhaosuliao.com, a major website for plastic trade in China. Factories and companies from across the country gather here to trade plastics. Deals can be inked within minutes via online payment, while loans and logistics services are also available.

The Internet has reinvented urban life and unlocked a business bonanza by pooling everything from restaurants to masseurs to gym instructors. Now it's the manufacturing sector's turn, with Mou's startup heralding a trend for deeper integration with the Internet to raise efficiency and cut costs.

In China's steel sector, there are already more than 200 Internet companies offering business-to-business (B2B) services. Online steel transactions now make up 10 percent of China's total steel trade.

B2B platforms may be new in plastic trade, but business is already booming. Monthly transactions on Mou's website have surpassed 2 billion yuan and investment keeps flowing in amid expectations for more demand.

Mou said e-commerce has helped China's manufacturing sector address long-existing issues like high transaction costs and excessive reliance on intermediary dealers.

"Small companies used to get plastic by phoning just one or two dealers they knew," he said. The limited channels often prevent the buyers from getting bargains.

Decades of exponential growth used to cover these problems, but not any more in the post-crisis years characterized by waning global demand and rising labor costs that shrank profit margins for many Chinese producers.

"Big companies can cut costs by buying in large amounts, but medium and small businesses must find other ways out or risk going bankrupt," Mou said.

Such problems are not limited to the manufacturing sector. The calls for greater information transparency and larger markets in other sectors like agriculture have also brought opportunities to e-commerce providers.

"A Chinese farmer often encounters dull sales after expanding production as his distribution channels are still limited to a few dealers," said Gao Haiyan, vice president of yimutian.com, a platform for trading agricultural products.

"Moreover, often a farmer did not know how much a vegetable is sold for in markets only several kilometers away, and sells his products at whatever prices the dealers claim," Gao said.

Meanwhile, the country's Internet has finally got itself ready to answer the industrial call with advances in online payment and information security.

Xiao Yaofei, economics professor with Guangdong University of Foreign Trade, said the unparalleled level of integration between China's Internet and traditional manufacturing sectors was a result of improved online payment services, government supports and accelerated industrial upgrading.

Earlier this month, China unveiled its "Internet Plus" action plan, which promises to boost integration of the Internet with traditional sectors like manufacturing, agriculture, finance and logistics.

Xiao Min, a partner with Matrix Partners China, a venture capital firm, predicted more business startups in online B2B platforms.

"From steel to plastics to lumber to leather, innovative Internet ideas are sprouting in dozens of such traditional sectors," he said.

Industry observers say material-sourcing websites are only a start for the Internet-manufacturing integration. As such businesses grow, more services on logistics, storage and finance will be moved online, making such websites a comprehensive service provider. Endi