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China’s Online Market: Growing Up Too Fast?

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December 6th 2005

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by Jaime Gottlieb  |

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What topical chatter has been setting our Web universe ablaze recently? The buzz about China. Right now everyone wants a piece of that action, and action is exactly what we’re seeing. Acquisitions are taking place left and right; China’s ecommerce, search, gaming and wireless industries have exploded; and investment dollars are flying every which way but loose to collect the payoffs as soon as the markets close each day.

Between Yahoo’s billion dollar, 40% stake in Alibaba, China’s leading e-commerce company, and Google’s recent launch of a research and development facility in China—not to mention eBay’s acquisition of its Chinese counterpart, Eachnet, for $150 million in 2003 and the Big Three Internet portals Sohu, Netease and Sina, who made their IPO offerings in 2000—there’s no denying that there’s much afoot in the East. And who can forget Baidu? China’s leading search company (they account for 37% of China’s search pie) made an IPO splash big enough to send its stock price soaring 353 percent in just one day.

But is all this motion more than just hype? What makes everyone so sure that China is the next big thing? To help us answer those questions, all you have to do is take a look at the numbers.

According to the CIA’s World Factbook, the total Chinese population sits at about 1.31 billion inhabitants (versus the U.S.’s roughly 295.73 million). Of those 1.31 billion people in China, 99.8 million can be counted as internet users. In the U.S. that number sits at 185.55 million. As a percentage of total population, internet usage in the US is still far in the lead (63% of our population are internet users versus just under 8% of China’s), but no matter how you slice it, an audience of almost 100 million users—with a breeding ground for many more—offers a broad and alluring marketplace for any investor. And plenty of people are optimistic about the future.

“There isn’t any question that Internet use is already huge in China, largely because the country itself is so populous,” offered Ezra Palmer, Managing Editor of eMarketer. “We estimate that there are more than 23 million broadband households in China—making it the second largest broadband market in the world, behind only the U.S. Not just pokey cable and DSL lines, either—there are plenty of urban centers that are surfing via optical fiber.

Palmer isn’t hedging his bets on where China’s market is headed. “It will soon be the largest Internet market in the world, at least as measured by users,” he offers confidently. The statistics seem to back him up: by iResearch’s tally, the number of search users in China will top 186 million by 2007—almost double the 2005 estimates. Though this number would still leave them trailing the U.S. in total search users (219m this year, growing to 251m in 2007), based on its findings iResearch seems to believe the Chinese could easily catch up—and soon.