淘宝

What Alibaba Can Teach G20 Leaders — China Daily OpEd Commentary

Leave a Comment / August 12, 2020

China Daily

Rural Taobao

It’s been 740 years since Hangzhou could rightly claim to be the most important city on earth. Back then, it was the capital of the world’s wealthiest and most developed nation, China during the Southern Song Dynasty. This week Hangzhou will briefly again be the center of the world’s attention and admiration, as the leaders of twenty of the world’s most developed countries arrive in the city to participate in the two-day G20 Summit.

The world’s spotlight will fall both on Hangzhou’s most famous historical landmark, West Lake, as well as its most famous local company, Alibaba, which also happens to be the world’s largest e-commerce company. Alibaba’s founder and chairman Jack Ma, is a Hangzhou native. He has spoken often of his pride that the G20 will be held in his hometown, boasting “Hangzhou has become the driving force of China’s new economy.” He suggests G20 visitors might want to rise one morning at 5am to walk about West Lake, to see Hangzhou scenery ancient and modern.

Alibaba has changed Hangzhou and changed China. But, to really grasp the full and positive extent of that change, world leaders would need to venture out from Hangzhou and visit some of China’s smallest, poorest and most remote rural villages. Here Alibaba’s impact is perhaps the most transformational. That’s because Alibaba has made a special effort to bring the benefits and convenience of online shopping to China’s rural families, the 45% of China’s population that still live on the land.

Since Alibaba listed its shares on the New York Stock Exchange in 2014, the company announced plans to spend RMB 10 billion on rural e-commerce infrastructure, to make it possible for people in over 100,000 Chinese rural villages for the first time to buy and sell on Alibaba’s Taobao marketplace.

It’s impossible to overstate the importance of this effort. E-commerce now offers the fastest and most durable way to improve living standards among China’s traditional peasants. By getting online they can shop more widely and buy more cheaply a vast range of products never before available in village China. In addition, also for the first time, they can sell directly their farm products, both fresh and packaged, to tens of millions of customers living in cities across China.

I’m one of those urban dwellers in China who now does some of his food shopping from tiny rural family businesses on Taobao. In the last week I bought dried chili peppers from Sichuan, apple vinegar from Shanxi, goji berries from Qinghai and dried sweet potato chips from Shandong. Everything I buy from rural folks is great. But, for me and probably many others, the real enjoyment comes from knowing that, thanks to Alibaba, my money can go directly to the people working hard to build a better life for themselves and their families in rural China. This, in turn, helps narrow the income gap between rural and urban.

Unlike the two big US e-commerce companies, Amazon and eBay, Alibaba takes no commission on purchases made on Taobao. This is what economists call “frictionless trade”, where buyers and sellers can transact without any middlemen taking a cut. It’s a dream of farmers worldwide, to sell products directly to customers and so earn more for their hard work.

Online shopping in rural China is now growing far faster than in cities. And yet what’s most exciting, we’re still in the early days. In the future, farmers should be able to save significant money and improve harvests by buying seeds, fertilizer and tools on Taobao and other specialized online sales platforms.

To get there, Alibaba is paying for tens of thousands of “Village Taobao” centers across China. Here, farmers can get free help to buy and sell online. Nowhere else on the planet is e-commerce being as successfully introduced into the lives of small village farmers. The world should take note, and China should take pride.

This year marks the first time China has hosted a G20 summit. Looking at the agenda, the twenty world leaders will hold detailed discussion on trade, fostering innovation and eradicating poverty. Meantime, Alibaba is busy putting such talk into action. Its efforts to spread e-commerce in China’s countryside provide concrete proof of how tech innovation can be both inclusive and helpful to all of society.

By Peter Fuhrman

The author is chairman and CEO of China First Capital.

–

http://www.chinadaily.com.cn/opinion/2016-09/06/content_26709314.htm

–

–

Government cyber-surveillance is the norm in China — and it’s popular: Washington Post

Leave a Comment / June 24, 2016

–Washpo2

Opinions

Government cyber-surveillance is the norm in China — and it’s popular

–

Xi photo

 

 

 

 

 

 

 

 

 

 

 

–

—

–

–

–

–

 

SHENZHEN, China

When they met most recently, President Obama extracted from his Chinese counterpart, Xi Jinping, a solemn pledge to rein in Chinese surveillance and hacking of U.S. government agencies, companies and individuals. The backsliding seems to have begun almost immediately , with new reports of attacks by Chinese hackers in the United States. This conflict is not only a matter of competing national interests. At its heart are radically opposed conceptions of personal privacy and the legality of government monitoring.

Within China, government monitoring of private communication is not only common, but it is also explicit, institutionalized and generally quite popular. How much so? Just about every time I get an international phone call on my Chinese mobile phone, I’m pinged within seconds by a text message. It’s an automated message from the anti-fraud department of the city of Shenzhen’s Public Security Bureau (PSB), China’s version of the FBI.

This message informs me in polite Chinese that the PSB knows I’m on the phone with someone calling from outside China, and so I should be especially vigilant, because the caller could be part of some scheme to steal my money or otherwise cheat me. The phone number for the anti-fraud hotline is included. International fraud is, as of now, the only criminal activity that China’s government uses the mobile network to warn me about.

I do like knowing the Chinese police are on the job, warning and protecting the innocent. But I find it a little unsettling that they know immediately when I get an international call and are eager to inform me that they are keeping tabs. There’s also the fact that I get these messages every time my 83-year-old father calls from Florida. Does the Chinese security apparatus know something about him that I don’t?

China Mobile is the world’s largest mobile phone company, with more than 800 million customers. To generate that automatic anti-fraud text message, international calls routed across the network in all likelihood pass through a server layer controlled and monitored by the PSB; calls from certain countries get flagged, and the text message is dispatched as the call is taking place. This isn’t cyberspying. This is a deep integration.

It’s not only the PSB. Upon landing on a trip to another country, I usually get an automatic Chinese-language text message from the Chinese Ministry of Foreign Affairs reminding me to behave politely and providing me with emergency contact numbers. It’s a neat bit of coding. China Mobile reports to the foreign ministry, and perhaps other departments as well, when a user’s phone begins seeking a roaming signal outside China. The system then generates the text welcoming the user to that country and populating the message with the number for the nearest Chinese embassy and consulate.

The U.S. National Security Agency has ways, if Edward Snowden’s revelations are to be believed, to detect when a U.S. mobile phone is being used anywhere in the world. But it goes to a lot of trouble to keep a user from knowing that. Not so the Chinese state.

I’ve asked Chinese friends about this, and none expressed the slightest quibble about their government knowing where they travel or when they receive international calls. The government is just trying to be helpful, they explain. There’s no real civil liberties debate about it, not even in the online channels where criticisms of Chinese policy are voiced.

In contrast, the United States has gone through a particularly bitter and protracted national debate over whether and how mobile phone companies, along with email providers, should share information and communications metadata with the NSA. It’s not certain how much U.S. companies actively assisted the NSA in its domestic surveillance. But it’s beyond doubt that none cooperates to the extent China Mobile evidently does with the PSB.

In the past several years, China has introduced some of the world’s toughest laws, regulations and guidelines on data privacy. These tightly circumscribe what data companies can collect and introduce strict penalties for privacy breaches. Xi cites the laws as evidence that China has zero tolerance for hacking.

The quizzical result is: E-commerce giant Alibaba must not share anything about my Taobao account and is legally and financially responsible if my account gets hacked. But state-owned China Mobile (along with its two state-owned rivals, China Unicom and China Telecom) will freely share my private data with government departments at the national, provincial and local levels.

According to China’s latest cybersecurity law, all companies operating in China, foreign and domestic, must share private data with the government to aid in official investigations. No specific mention is made of state-owned enterprises such as China Mobile. So, we don’t know if China Mobile is required, encouraged or expected to share data that isn’t part of any official investigation — such as who is getting international calls or traveling outside the country.

Some U.S. companies, including Apple, have introduced encryption techniques that make it harder for the NSA to access user data and conversations. No such effort is underway in China, nor, as far as I can tell, is anyone seriously suggesting it.

I’m no civil-liberties purist, so I don’t particularly mind getting these text messages from the Chinese government. But it does serve as a vivid reminder that while living in China I’m subject to a set of rules and an official mind-set that are the obverse of those in the United States. Online and mobile communication privacy as we Americans understand it simply does not exist here.

–

https://www.washingtonpost.com/opinions/cyber-surveillance-is-a-way-of-life-in-china/2016/01/29/e4e856dc-c476-11e5-a4aa-f25866ba0dc6_story.html

Download PDF version.

–

Tencent Stalks Alibaba — China’s Number Two Internet Company Quietly Takes Lethal Aim at its Number One

Leave a Comment / January 8, 2015
China's two most successful internet entrepreneurs share a last name but have very different strategies for mobile e-commerce. The future belongs to which?
China’s two most successful internet entrepreneurs share a last name but have very different strategies for mobile e-commerce. The future belongs to which Ma?

–

China’s second-largest private sector company Tencent is aiming a cannon at China’s largest private sector company and new darling of the US stock markets Alibaba. Will Tencent fire? There’s a vast amount of money at stake: these two companies, cumulatively, have market cap of $400 billion, Tencent’s $140bn and Alibaba’s $260bn.

Alibaba, as most now know,  currently has China’s e-commerce market in a stranglehold, processing orders worth over $300 billion a year, or about 80% of all Chinese online sales by China’s 300 million online shoppers. Meanwhile, Tencent is no less dominant in online chat and messaging, with over 400mn users for its mobile chat application WeChat, aka “Weixin” (微信).

The two businesses appear worlds apart. And yet, they are now on a collision course. The reason is social selling, that is, using a mobile phone chat app to sell stuff to one’s friends and contacts. It’s based on the simple, indisputable notion it’s more reliable and trustworthy to buy from people you know. Facebook, Twitter, Linkedin are all quite keen on social selling in the US. But, nowhere is as fertile a market as China, because nowhere else is the trust level from buying through unknown online merchants as low.

Alibaba has accumulated most of its riches from this low-trust model at Taobao’s huge online bazaar. It is a collection of thirty million small-time individual peddlers that Alibaba can’t directly control. The result, especially in a country with no real enforceable consumer protection laws or litigation, Taobao can be a haven for people selling stuff of dubious quality and authenticity.

Chinese know this, and don’t much care for it. It’s one reason both US-listed JD.com and Amazon China both seem to be gaining some ground on Alibaba. Their strategies are similar:  to be the “anti-Taobao”, selling brand-name stuff directly, using their own buying power and inventory, their own delivery people, and a no-questions-asked return policy. Their range of merchandise, however, is far more limited than Taobao’s. Tencent in 2014 bought a significant minority stake in JD.com.

Thanks to Weixin, Tencent now has the capability directly to become Alibaba’s most potent competitor and steal away billions of dollars in transactions. Will it?

As of now, Tencent seems oddly reluctant. Even as millions of Weixin users have started using the app to buy and sell goods directly with their friends, Tencent has countered by making it more difficult. Tencent introduced limits on the number of contacts each Weixin user can add, has made sending money tricky, and has more or less banned users to include price quotes in their mobile messages. For now, Weixin users appear undaunted, and are using various ruses to get around Tencent’s unexplained efforts to limit their profit-making activities. One common one: using the character for “rice” (米） instead of the symbol for the Chinese Renminbi （元）.

This social selling through Weixin is called “Weishang” (微商) in Chinese, literally “commerce on Weixin”. It is without doubt the hottest thing in online selling now in China.

It’s hard to understand why Tencent wouldn’t passionately embrace social selling on Weixin. For now, Weixin looks to be an enormous money sink for Tencent. The Weixin app is free to download and use. What money it earns from it comes mainly from promoting pay-to-play online games. That’s small change compared to the tens of millions of dollars Tencent spends on maintaining the server infrastructure to facilitate and store the hundreds of millions of text, voice, photo and video messages sent daily on the network.

Chinese of all ages are glued to Weixin at all hours of the day. It can be hard for anyone outside China to quite fathom how deeply-woven into daily life Weixin has become in the four years since its launch. Peak Weixin usage can exceed 10mn messages per minute. With only slight exaggeration, Tencent’s founder and chairman Pony Ma explains Weixin has become like a  “vital organ” to Chinese.

It’s not just young kids. I took part in a meeting recently with a partner from KKR and the chairman of a large Chinese publicly-traded company At the end of the discussion, they eagerly swapped Weixin accounts to continue their confidential M&A dialogue.

My office is in the building next to Tencent’s headquarters in Shenzhen. I know quite a few of the senior executives. But, no one can or will articulate why Tencent, at least for now, is unwilling to use Weishang take on Alibaba. Some who claim to know say it’s because the Chinese government is holding them back, not wanting to have Tencent steal Alibaba’s spotlight so soon after its most-successful-in-history Chinese IPO in the US.

The two have sparred before. Tencent years ago launched its own copycat version of Taobao, now called Paipai. But it failed to put a dent in Alibaba’s franchise. Alibaba, in turn,  launched its own online message system to compete with Weixin. But, it’s sunk from sight as quickly as a heavy stone dropped in a deep pond.

Seen from a seller’s perspective, Weishang is fundamentally more attractive than selling on Taobao. Margins are higher, not only because Tencent charges no fees, but it’s getting much harder and more expensive to get noticed on Taobao. That’s good for Alibaba’s all-important ad revenues, but bad for merchants.

How does Weishang work? A woman, for example, buys twenty sweaters at a wholesale price, then takes a selfie wearing one. She sends this out to her 300 contacts on Weixin. Though the message includes neither the price nor much of a sales pitch, since both may be monitored by Tencent, she will often get back replies asking how to buy and how much. The sales are closed either by phone call, or through voice messaging over Weixin, with payment sent direct to the seller’s bank account.

Tencent knows Weixin is being used more and more like this, but because it’s driven the commerce somewhat underground, Tencent has no idea on the exact scale of Weishang. My guess is aggregate Weishang sales are already in the tens, if not hundreds, of millions of dollars.

Alibaba has clearly noticed. But, social selling isn’t something its Taobao e-commerce marketplace can do. Its mobile e-commerce strategy amounts to making it easy to scroll through Taobao items on a small screen. Social selling in China is and will remain Tencent’s natural monopoly.

For anyone wondering, Alibaba’s IPO prospectus from a few months ago did not mention Weishang and Weixin, and Tencent gets a single nod as one of many possible competitors. Weishang really began to gain traction only during the second half of 2014, after the main draft of the Alibaba prospectus was completed.

To those outside China especially on Wall Street, Alibaba seems to be on the top of the world, as well as the top of its game. In the last four months, it’s collected $25 billion from the IPO and another $8 billion in a bond offering. Its share price price is up 50% since the IPO. For a lot of us living here in China, the boundless enthusiasm in the US for “Ali” (as the company is universally known here) can sometimes seem a bit unhinged.

When will Tencent make its move? Why is it now so reticent to promote Weishang, or discuss its plans with the investment community? Is it busy next door to me readying a dedicated secure payment system and warranty program for Weishang purchases?

I don’t have the answer, but this being China, I do know where to look for guidance. Sun Tzu’s “The Art of War”, written 2,500 years ago, remains the country’s main strategic handbook, used as often in business as in combat. The pertinent passage, in Chinese, goes “微乎微乎，至于无形；神乎神乎，至于无声；故能为敌之司命.” In English, you can translate it as “be extremely subtle, even to the point of formlessness. Be extremely mysterious, even to the point of soundlessness. “

In other words, don’t let your competitor see or hear you coming until its already too late.

–

Alibaba’s Taobao and Other Online Shopping Sites are Pushing Traditional Retailers in China Toward Extinction

2 Comments / April 10, 2014

–

Welcome to the desolate future of mall retailing in China.

–

China shopping mall–

This seven-story skylit shopping mall occupies a premier spot in a high-rent commercial district in booming Shenzhen’s main shopping street, with a huge underground parking lot and entrances that link it directly with a busy Metro stop. And yet,  everywhere you walk, floor after floor, retail shop fronts are boarded up, with most stores closed down. Only the ground floor supermarket, top floor Multiplex movie theater, basement chain restaurants and a large Starbucks are thriving. Thousands of square meters of retail space, fully rented as recently as twelve months ago at some of the highest commercial rents in the world, are silent and vacant. No customers, no tenants, no rent income.

Malls are starting to empty out in China, but Chinese are richer, and spending like never before. Overall, retail sales rose 13% in 2013. The paradox can be explained by a single word: Taobao.  It is China’s largest online shopping business, and the anchor asset of Alibaba Group, now preparing for one of the world’s richest-ever IPOs on the US stock market. Taobao, along with its sister site TMall, and a host of smaller online retailers including Jingdong, Amazon China and Wal-Mart-controlled Yihaodian, have landed like an asteroid, and are wiping out the ecosystem supporting traditional retail in China, especially brand-name clothing shops.

The impact of online shopping in China is already far more wide-ranging than anything seen in the US or elsewhere. The reason is price. Taobao and others sell the same brand-name products available in shopping malls, but at prices often 30%-50% cheaper.  More even than rising incomes, online shopping is the most powerful force in China for raising ordinary Chinese living standards and purchasing power.

Online shopping is everywhere in the world, at its heart, a price discovery tool. And Chinese are now discovering, in their hundreds of millions, they have been getting seriously ripped off by traditional stores, especially those selling foreign and domestic brand-name clothing and consumer electronics. They usually occupy 70% or more of a mall’s retail floor space.

Alibaba and other online merchants are joyously surfing a tidal wave of dissatisfaction with the high price of store shopping in China. Not only are brick-and-mortar stores’ prices much higher than buying online, they are also often more expensive, in dollar-terms, than the same or similar Made-in-China products sold at Wal-Mart or Target in the US.

Those two giant chains have fought back against online retailers in the US by using their buying power to offer brand name products at low prices. No retailer in China is really attempting this. Retailing in China is both fragmented and uncreative. As dynamic and innovative as China is in many industries, I’ve yet to see even one great home-grown retailing business here in China.

There’s also a big problem in the way Chinese shopping malls, especially high-end ones, are operated. Chinese mall owners are mainly a motley assortment of one-off developers who used government contacts to nab a valuable piece of commercially-zoned downtown land at a fraction of its market value. They then mortgaged the property, built a fancy shopping palace, and now take a cut of sales, along with a baseline rent. This revenue-sharing discourages retailers from cutting prices. If they do, they will fail to meet the landlord’s minimum monthly turnover figure.

Compounding the pressure on traditional retailers, mall owners often give the best ground-floor locations to global brands like Louis Vuitton or Prada, who pay little or no rent, but are meant to give the mall a high-class ambiance. The big luxury brands’ China outlets seem to have rather anemic sales, but use their China stores as a form of brand promotion richly subsidized by mall owners. Domestic brands are shunted to higher floors. Fewer shoppers venture up there, and so the stores will often end up failing.

The result, as in the photo above taken on a recent Sunday, floor after floor of vacant space. China is creating an entire new retail landscape – a glamorously-appointed mall in a nice part of town whose upper floors resemble downtown Detroit after a riot, with boarded-up shop fronts and scarcely a soul.

Anywhere else in the world, a mall with so much vacant space would either need to cut rents drastically or hand the property over to the banks that lent the money. Neither is happening. For now, the banks can often afford to be patient. Malls that have been around for a few years have probably already paid off the loan principal. Newer loans look far shakier. There are hundreds of bank-financed high-end malls now under construction or opening this year across China.

The stampede away from malls is only just beginning. Though China has already overtaken the US in dollar terms as largest online shopping market, there is every sign that the shift to buying online is accelerating and irreversible. Online sales in China should reach 10% of total retail sales this year, well above the US level of 6%. We project this percentage will rise to over 15% within the next decade. That’s because more Chinese will shop online, especially using their mobile phones, and because the range of items that are cheaper to buy online is so much larger in China than anywhere else.

For that, online merchants must also thank the country’s parcel delivery businesses, led by Shunfeng Express. They charge so little (about one-tenth the price of Fedex or UPS) and are so efficient in getting your parcel into your hands quickly that it makes economic sense not only to buy higher-priced apparel and consumer electronics, but also packaged food, soap, personal care items, even knickknacks that sell for less than $1.

The retail stores that remain in shopping malls are increasingly being used as free showrooms to facilitate sales by online competitors. Chinese shoppers go to stores to find what they like, try it on, check the price, then go home and buy direct from Taobao. That’s one reason malls are still drawing crowds.

Online shopping is not only cheaper, customer service is usually much better. Most merchants selling on Taobao manage and run their own online shops. Taobao is nothing more than an aggregation of millions of motivated individual entrepreneurs. They are available just about any time, day or night, by phone or online chat to answer questions, or even, when asked, offer an additional discount. They are, in my experience, smart, self-confident, friendly, competent.

Sales help in stores are often poorly-paid younger women who cling together behind the cash register. They clearly don’t much enjoy what they are doing, nor are they there to enhance the shopping experience. Often just the opposite.

So what’s going to happen to all the malls in China? There are over 2,500 across the country, already more than double the number of enclosed malls in the US. More are opening around China every week. Who will fill up all the space? There’s serious money to be made by investors or operators who can take advantage of the large disruptions now underway in traditional retailing.

Restaurants in malls are still doing well, and they don’t have anything to fear from Taobao. But, food outlets generally pay lower rent, per square foot, than retail stores and occupy either the top or basement floors. Premium office space is also still in demand in the downtown areas where many malls are located. Should malls be turned into food and entertainment centers? Or converted to commercial offices? Neither path looks easy.

The US went through a large wave of shopping mall bankruptcies in the 1990s, as large operators like DeBartolo and Campeau failed, and better ones like Simon Property Group and Westfield Group thrived. The good operators lowered costs, improved the economics and did well as newer retailers like Victoria’s Secret, Abercrombie & Fitch, Hollister, Juicy Couture, H&M, Apple, Papyruys, Teavana, Nordstrom honed retail formulas that could withstand online competition.

Retailers in China are in such peril because they charge too much, never innovate and do so little to win the loyalty of their customers. Alibaba and other online sellers are hastening them towards extinction.

 

 

 

China’s Logistical Nightmare

1 Comment / November 14, 2013

China First Capital blog logistics in China

–

China is modeling itself after the wrong part of the American economy. The money, the rhetoric and the policies are all focused on trying to replicate America’s lead in high-technology and innovation. Instead, China would be long-term much better off and its citizens enjoy immediate higher living standards if it copied something far more mundane from the US,  its distribution and logistics.  If China’s $9 trillion economy has an Achilles Heel, this is it. It simply costs too much to get things into consumers’ hands.

Wholesale layer is piled onto wholesale layer, with margin and fees extracted at every step. Fixers, expediters, overlookers all take a cut. Trucks are too small, tolls too high, warehouses too small, and road traffic too congested in major cities. Commercial and retail rents are high, relative to per capita income level. In China, there is enough “friction” in every retail transaction to start a bonfire.

Logistical costs and bottlenecks are the single biggest reason why so many goods made in China are sold at higher prices than in the US. This has more real-world consequences for average Chinese consumers than the level of the dollar-Renminbi exchange rate. It is logistics costs, all the stickiness and expense of getting products to market, that is most to blame for holding back the buying power, and so spending impulses, of Chinese consumers. Middlemen live well in China. Consumers less so.

It is cheaper, in many cases, to get a product made in China onto a container ship in Shanghai, offload it in Long Beach, truck it across the US, and then stock it on a shelf at a Wal-Mart in Georgia then it is to put the same product in front of Chinese consumers in a Wal-Mart in China. High taxes don’t help. China’s VAT, applied to most things sold at retail,  is set at a higher level than most sales taxes in the US. Another factor: retail competition as Americans know it is also largely absent in China. Stores don’t compete much on price in China. Wal-Mart won’t say, but it’s a fair assumption its margins in China are at least double those in the US.

But, high consumer prices in China are mainly the product of the high handling charges. A simple example. I eat a lot of fruit.  Most fresh fruit grown in China costs as much or more in supermarkets here than the same fruit grown and sold in the US.

Apples sell for around Rmb 6 (95 cents) per pound and up in China. The apple farmer gets around Rmb 1 per pound. The rest is liberally spread among all those standing between apple tree and my mouth.

Adjusted for purchasing power, Chinese average income levels are around 1/6th the US’s. So, that Chinese apple sells for equivalent, in US terms, of $6 a pound. That amounts to a lot of money per apple being shared by people other than the grower and the eater. How much? Chinese eat a lot of apples. In fact, almost half of all apples grown in the world are eaten in China, ten times more than total US consumption.

I met the boss of one of China’s largest apple shipping and packaging companies. Outside of China, this is a razor-thin margin business. But, the Chinese apple packer and shipper has profit margins well above 10%.

One of the most expensive links in the Chinese domestic supply chain are road tolls. China’s are among the most costly, per kilometer traveled, anywhere in the world. Trucks carrying agricultural products don’t pay tolls. Anything else moving along China’s highway system pays full freight. Depending where you are in the country, tolls run as high as 25 cents a mile for passenger cars. Trucks pay triple that. It all, of course, ends up being passed along to consumers.

To amortize the tolls, truckers overload their vehicles. This burns more fuel, degrades roadways (justifying still higher tolls), and makes loading and unloading more time-consuming and so more costly. According to the boss of a large long-distance shipping company I talked to, his trucks are routinely pulled over by traffic police and made to pay various on-the-spot fines. This can double the amount paid in tolls.

Everything about the logistics industry in China acts as a sponge soaking up consumers’ cash. The one exception: Shunfeng Express （顺丰快递）.  Little known outside China, Shunfeng Express is China’s most successful private shipping and delivery companies. It alone proves that logistics in China doesn’t need to be wasteful, expensive and inefficient.

Shunfeng is modeled after Fedex, DHL and UPS, but operates on a scale, and at prices, that would be unimaginable to these global giants. Shunfeng is a secretive outfit. Not much is publicly disclosed. The founder lives in Hong Kong, but comes originally from the mainland.  It was started in 1993, and according to some media reports, its net income in 2010 of Rmb 13 billion ($2.1 billion). That may be a stretch, but Shunfeng is doing a lot right and deserves whatever profit it keeps.

Shunfeng picks up and delivers documents, packages and some bulk freight between cities in China. It charges a fraction of what Fedex or UPS do in the US. These US companies are mainly prohibited to operate in China’s domestic delivery market. I’m not sure they’d be so eager. For next-day document delivery within a city, Shunfeng charges under $2. Delivery to other cities: $3. If you want to move a few kilos of freight, Shunfeng not only ship it, but will come and package it for you. That part is free. The shipping usually works out to less than $5 a kilo.

One of the main reasons Alibaba’s Taobao has become so successful in China is that Shunfeng ships Taobao purchases cheaply and efficiently across China. Taobao, which operates like a cross between Amazon Marketplace and eBay, will likely facilitate transactions worth around USD$100 billion this year. A lot of that will get shipped and delivered by Shunfeng.

They have an army of delivery guys. Most larger office buildings in major cities have one permanently stationed inside. You call for a pickup and the Shunfeng guy arrives within minutes. Most letters and packages get moved around by either electric motorcycle or jet. It leases its own aircraft to fly stuff around within China.

Shunfeng doesn’t do cross-country trucking. This is one big reason Shunfeng are so efficient and so cheap. Anything that moves by truck in China is going to have multiple hands in the till, and so end up costing consumers too much.

Shunfeng has achieved its massive scale and now well-known brand in China without raising capital from the stock market, or bringing in outside professional investors until three months ago. There are few private companies in China I admire more, and who are doing more to benefit the average consumer in China. I wish I could invest. For the good of every consumer in China, Shunfeng should continue to grow, continue to expand the range of what it handles in China. That will do a lot to unstick China’s logistical logjam.