Asia Bound; E-commerce: As growth slows at home, firms like eBay, Yahoo and Amazon head east.(Cover Story)

Byline: Karen Lowry Miller

In some ways, China is an unlikely hotbed for e-commerce. Only 38 percent of online buyers pay with credit or debit cards, using instead a cash-on-delivery system powered by armies of bicycle messengers. There's no good system for credit ratings and the postal service is not always reliable, so a number of the people who buy from online auctions still want to meet the seller in person to hand over the cash. Yet none of this deters America's e-commerce giants--Yahoo, Amazon and eBay. All are moving rapidly into China and the rest of Asia, driven by a rather startling fact of the digital age: the survivors of the Internet bubble in America are already mature businesses at home.

Consider: eBay is posting record profits, and Amazon is finally in the black for the first time in its eight-year history. Yet their U.S. growth rates are starting to slow down. Indeed this year eBay expects to post more sales outside its home market than within. Meanwhile the e-commerce market in Europe is belatedly starting to take off, and research house Forrester predicts an annual growth rate of 33 percent through 2009, compared with 14 percent in the United States. But the biggest potential still lies in Asia, according to researchers at IDC, who forecast annual Asian sales outside of Japan charging ahead at 38 percent a year through 2007, and topping 61 percent in China. "China is an extremely important market," says William Cobb, head of eBay's international business, adding that the country could outpace Germany and the U.K. to become eBay's biggest overseas market "sooner rather than later."

Chinese are still less likely to have Internet access than other Asians, but even so there are already 87 million Chinese online. Even if one assumes that the market for Internet shopping will be confined mainly to urban areas, that's 300 million people, slightly more than the U.S. population. That explains the action: last spring Yahoo teamed up with Sina.com, China's largest Internet portal, to break into the online-auction business. In August Amazon.com paid $72 million for Joyo.com, one of China's two main online retailers. And last month eBay fully plugged EachNet, the online-auction site it bought last year for $180 million, into its global network.

To maneuver in the Asian markets, American giants are seeking local partners. Microsoft has had a hard time cracking Chinese e-commerce on its own, and AOL had an ill-fated venture with computer-maker Legend. But now local entrepreneurs have built customer bases strong enough to entice global acquirers. Many of them, like Harvard-educated EachNet founder Bo Shao, copied the American e-commerce giants, meticulously setting out to be the eBay, Amazon or ...