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Taobao captivates Chinese e tycoons

YIWU, Dec 7 – Ge Hongjun started a shop on – China’s answer to eBay – as a class project but he now sees it as his ticket to becoming a retail magnate after graduation.

Taobao’s growing popularity has captured the imagination of students like Ge, but also giants like Dell, Uniqlo, Procter and Gamble, and Chinese firms seeking to step out of the shadows after years of manufacturing for US and European labels.

The e-commerce site, whose name means "treasure hunt" in Chinese, is a source for everything from turkeys to televisions, with 80.9 billion yuan (11.8 billion dollars) in 2009 first-half sales.

That is double the same period last year and higher than’s over the same period.

Taobao mania has particularly gripped Yiwu, a city of two million about 300 kilometres (190 miles) south of Shanghai that is home to the world’s largest wholesale market for small consumer goods.

Ge attends Yiwu Industrial and Commercial College where more than a fifth of the school’s 8,800 students run Taobao shops from campus, selling products sourced from the market.

The students’ shops generated 25 million yuan in revenue last year, according to college officials who have embraced Taobao as a business teaching tool.

"When I graduate I will continue with my Taobao business," Ge said. "It’s easy to find a job in Yiwu, but once my business is on the right track, I can double or triple my salary compared to people who go work for companies."

In a shared office at the school’s start-up centre, Ge reached up to a shelf to pull down a range of products he was selling in the search for a winning formula.

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He began selling cosmetics, then expanded into children’s toys, underwear and fashion accessories.

Ge earns about 3,000 yuan (about 440 dollars) a month, but his business is young compared to those who have been operating for a year and make 10,000 yuan a month.

The school offers an annual 100,000 yuan prize to the most successful student business. Ge and his fellow students speak with admiration of last year’s winner, Yang Fugang, a 23-year-old who earned more than 75,000 dollars in his final year before graduating.

Taobao charges nothing to list items for sale and the site’s revenue comes from advertising.

It does not release turnover figures, but Goldman Sachs estimates revenue will likely hit 200 million dollars this year.

Taobao – a division of Hong Kong-listed, a business-to-business e-commerce company – launched in 2003 when eBay controlled 90 percent of the Chinese online shopping market after buying Shanghai-based EachNet.

But within two years, Taobao pushed eBay’s market share down to 30 percent and forced the US-based auction site to stop charging for listings in China. In 2006, eBay’s Chinese site shut down.

Taobao now controls 82.8 percent of China’s online shopping market, according to iResearch, a Chinese consultancy. E-commerce accounted for only 1.9 percent of all product sales in China, the firm said, but is growing fast.

Official data this week showed online sales in China nearly doubled in the first nine months of this year to 168.9 billion yuan as consumers become more confident about Internet shopping.

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China has at least 338 million Internet users, the most in the world.

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Taobao president Jonathan Lu said convenience and a greater price consciousness amid the economic crisis had boosted consumer acceptance of Taobao.

This year, for the first time, household goods became Taobao’s top selling category, Lu said.

"What is most interesting is the level of mainstream acceptance of using online retail channels to shop for everyday items, a trend both prominent global brands and small businesses have recognised," Lu said.

Procter and Gamble started selling Rejoice shampoo, Olay skin cream and Gillette shaving products on Taobao earlier this year at discounts of 20-30 percent to attract customers and build market share.

Japanese clothing retailer Uniqlo launched a Taobao shop in April, attracting 430,000 visitors and 4.1 million yuan in sales in the first 11 days.

Computer makers Dell and Lenovo also introduced Taobao sales channels.

Companies like Qilong Trading Company, a previously anonymous company that in the past only manufactured for international brands, are also using the site to develop their own labels, Taobao said in its latest trading update.

They see the site as a way to develop an identity and tap into rising Chinese consumer spending power, Taobao said.

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Ge and thousands of small Taobao vendors are riding that same wave.

"It is difficult to say how much I can earn because I just started and haven’t got a stable business model yet," Ge said, "but I am determined to succeed."

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