China’s Net users send wrong message

The semi-annual report from the China Internet Network Information Centre (CNNIC) is almost always a cause for exuberance. There are millions more Internet users in China! Yippee! Hooray! Now if we could just sell one (or one more) of something to every one of those 137 million users, we’ll be rich beyond our wildest dreams!

Unfortunately, anyone who reads the 122-page report (in Chinese, available here ) will realize that the news, especially for those looking to cash in on Chinese Internet growth, is not particularly good.

The raw numbers make China the world’s second-largest Internet market, although that’s been true for a while now. An overzealous China Daily, the country’s official English-language newspaper, claimed Thursday that China would surpass the United States by 2010 , even though current growth rates of about 23 percent per year does not support that. In fact, Internet growth has slowed slightly since its peak in 2001 and 2002.

That China’s current Internet population represents just over 10 percent of its total population shows that there is still significant room for growth. But to date, Internet penetration has failed to extend far beyond China’s most developed areas. Beijing and Shanghai alone account for over 50 percent of the total number of users; add in wealthy Guangdong province, which surrounds Hong Kong, and the number hovers around 75 percent.

By contrast, the Xizang Autonomous Region — the official name for Tibet — ranked last for Internet use, with only 160,000 Internet users, 0.1 percent of China’s total.

Chinese Internet users were previously viewed as a self-selecting, more highly educated and affluent group than their non-wired comrades. That doesn’t seem to be the case. The simple majority (52.4 percent) of Internet users are aged 24 and under. While this group, in many Western countries, especially the United States, disposes of much of its disposable income and therefore is a highly desirable demographic, that’s not the case in China.

As for Internet users being a viable market, 57 percent of users surveyed stated their monthly income was 1,500 renminbi ($193) or less (over 61 percent if you include users who said they had no income). That sounds to me like high school kids, college students, or young people in their first job. And if they’re living in Beijing, Shanghai, or Guangdong province, that meager income isn’t going to take them very far. If two-thirds of all Chinese Internet users are connecting via broadband, usually ADSL (asynchronous digital subscriber line), then 100 renminbi or so is going towards Internet access every month.

Only 5 percent of respondents said their income was 5,000 renminbi or more per month, usually a level associated with having reasonable disposable income. Five percent of 137 million [m] is still almost 7 million people, but it negates the idea that Chinese Internet user are, as a group, worth targeting.

Who stands to profit from Chinese Internet growth? As usual, the answer is Chinese companies, in this case Internet service providers such as China Network Communications Group Corp., and established Chinese Internet players such as Sohu.com Inc., who can push their customers towards value-added and mobile phone-based fee services. Still feeling exuberant about China’s Internet market?