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Virtual world could make China an e-commerce juggernaut

Your favourite pants are fraying? You may soon be able to order replacements directly from the factory where they were made, according to the chief scientist of an ambitious Chinese internet project.

China's government is building a vast virtual world dubbed Beijing Cyber Recreation District, which founders say will help the manufacturing superpower evolve into an e-commerce juggernaut. Some supply-chain experts say the project is impossibly grandiose in its goal to provide direct links between tens of thousands of Chinese manufacturers and millions of individual customers around the world. But every "Made in China" label eventually could include a website where customers could order more - and Chinese factories would produce custom-made goods and send them directly to consumers' homes, mused Chi Tau Robert Lai, chief scientist of the virtual world.

The 3D world is supposed to be the online counterpart to the China Recreation District, a theme park, mall and playground being built in a former steel plant in Beijing for the 2008 Olympics. Some Chinese-language websites of the CRD are already up, but most of it - including the first direct links to manufacturers - won't come until the second half of next year at the earliest, Lai said.

In addition to connecting factories with people outside China, the project will allow businesses outside China to tap the nation's burgeoning middle class, he said. "This makes you have to think of China in a different way," Lai said Thursday evening at the Virtual Worlds Conference & Expo in San Jose. "We are stepping back and trying to blend the human and the computer to touch everything associated with people's lives."

The CRD's dream of eliminating middle men - brokers, shippers, purchasers, even retailers - is not new. Toyota Motor began experimenting with "just-in-time" manufacturing in the 1950s, though it took decades to refine the process.

But just-in-time manufacturing for less expensive items such as clothing, electronics and toys is still years away. The low cost of labour in China - and Sri Lanka, Vietnam and other developing countries - makes it cheaper to ship bulk items to retailers around the world and then sell overstock online or in discount stores.

China's plants - also grappling with quality concerns and US recalls over excessive lead and other toxins - are unlikely to deliver consumer goods to doorsteps abroad anytime soon, said Robert L. Bartlett, a retail industry consultant in San Rafael, California. "In the long run, the age of technology will allow us to do just-in-time responsive manufacturing based on consumer needs - but the superior customer experience in truth is still in a retail store," said Bartlett, consultant to Gap, Wal-Mart Stores and other major retailers.

"People shop online for convenience, and if your shirt isn't delivered for six weeks because it's being made in China, where's the value?" Lai acknowledged that Chinese manufacturers can't efficiently crank out just one custom-ordered shirt. But they can wait until numerous people and clothing shops around the world submit similar orders, then assemble 5,000 of the same blue, pinstriped button-down shirt and ship it within a day or two, he said. Lai said the CRD could eventually become a bigger version of eBay Inc., which connects buyers and sellers worldwide online in both auction and fixed-price formats.

EBay is now also creating social networks where registered users can discuss everything from shoes to Barbies. Just-in-time manufacturing is expected to generate the largest amount of revenue for the CRD, but the network also will host cultural exchanges, corporate meetings, educational classes and other events common in virtual worlds.

Registration will be free, Lai said. Users will buy virtual items with credit cards or micropayments in dozens of currencies. The CRD will be based on technology from Sweden's MindArk, maker of the Entropia Universe virtual world. Entropia built virtual "islands" from company templates. CRD's e-commerce transactions will go through Paynova, Sweden's equivalent of PayPal, and Germany's CryTek will provide some of the graphics. Everything in the CRD will live on servers in Beijing maintained by government programmers.

The government has dictated that there will be no pornography or online gambling on the CRD, which it is touting as a public-private partnership. China's communist regime promotes Internet use but filters out material it considers subversive. In the weeks leading up to the Communist Party Congress, which convenes on Monday, authorities have been deleting blogs about the death penalty or human rights, for example. Lai said the government would take a "hands-off" approach to taxing companies or individuals that do business through the CRD, however.

Christian Renaud, chief architect of Networked Virtual Environments at Cisco Systems, said Westerners would likely have an "immediate allergic reaction" to the CRD because it is state-owned. But a centrally controlled site could have unique advantages over World of Warcraft, Second Life, There.com, Kaneva and dozens of other Western virtual worlds, which appeal to different users and don't interact with each other.

"The beauty of it is they can create uniformity," Renaud said. "In the United States, if you tried to get all the virtual worlds together, you'd still have Senate meetings on it 15 years from now.