E-commerce in Asia is expected to grow by 23% annually within the next decade and China will replace Japan as the largest online shopping market in the Asia Pacific – with 480 million internet shoppers spending close to 10 trillion yuan (1.46 trillion USD) by 2010, according to MasterCard.

When the Beijing municipal government decides it wants to step in and start imposing tax on internet shopping starting August 1st, you can almost sniff out that the numbers are getting significant enough to warrant attention.

In the first half of this year, internet users in China spent 256.1 billion yuan (37.5 billion USD), up 58.2% from the corresponding period in 2007, reported the Data Centre of China Internet, DCCI. Online expenditure for 2008 may exceed 587.4 billion yuan (86.2 billion USD), up 47.3% from last year.

Total online spending in China soared 90.4% year-on-year to hit 59.4 billion yuan (8.6 billion US dollars) in 2007. The Beijing-based China Internet Research Center said that there were 55 million domestic online shoppers who spent an average of 1000 yuan each .

Still this is a rather humble figure by global standards. The Boston Consulting Group found that 615 million Chinese, or almost half of China’s population, used digital devices such as mobile phones and personal computers in 2007. Only 28% of Chinese were willing to shop online, compared with 71% in the United States.

However, with China’s growing middle class and rising levels of disposable income in the world’s most populous region, the opportunity to take that higher is enormous.

Now that China has a population of over 220 million internet users, and growing, e-commerce will be further driven by a generation of technology-savvy young Chinese consumers who are increasingly familiarized with the internet, empowered by relative ease of access to credit cards and more motivated to buy online.

Despite a huge increase in the national CPI, most urban residents, especially young people, got lower prices on their daily non-food purchases in the first half of 2008, as surveyed by Shanghai-based iResearch and a price index compiled by Taobao.com. The China Internet Network Information Center reported that online shopping transactions amounted to 16.2 billion yuan (2.36 bilion USD) in 19 affluent cities over the same period.

An internet shopping report by Beijing-based IT consulting firm, China IntelliConsulting Corp., has found that Shanghai had 4.08 million online shoppers, the highest penetration rate of all cities in China. On average, every Shanghainese spent 634 yuan (US$91.37) last year on online shopping sites compared to 453 yuan in Beijing.

Shanghai, Beijing, Guangzhou, and Shenzhen had a total of 10.5 million people who have purchased products online, with a penetration rate of 41.7%. In comparison, the four 2nd-tier cities of Wuhan, Chengdu, Shenyang and Xi’an, there were 2.53 million online buyers and a penetration rate of 29.3%.