The Internet industry

Since 1994, when the Internet was introduced to China, it has developed at a rapid speed. According to the latest survey by China Internet Network Information Centre (CINIC), there were 45.8 million Internet users by the end of June 2002. A separate source from the Ministry of Information Industry (MII) reveals that the number of Internet users is increasing by 5 “6 per cent each month, making China the fastest growing Internet market in the world.

Internet access

According to CINIC, by the end of June 2002, the number of computers in China with Internet access had reached 16.13 million, of which 3.07 million (19 per cent) use leased lines, 12 million (74 per cent) use dialup connection, and the remaining 1.06 million (7 per cent) employ other means.

Compared with the figure at the beginning of 2002, the number of computers with Internet access has increased by 3.59 million units over six months, an absolute increase of 28.6 per cent and an increase of 61 per cent year-on-year. Of this total, the number of computers using leased lines has grown by 0.73 million in the six months between January and June 2002, an increase of 31.2 per cent. The number of dial-up computers grew by 1.8 million in the same period, an increase of 17.6 per cent.

Number of Internet users

By June 30th 2002, the number of Internet users in China had reached 45.8 million, representing a net increase of 12.1 million users or an increase of 35.9 per cent over the previous six months. Among these, 9.46 million (21 per cent) use leased lines and 26.82 million (58 per cent) have dial-up connections. Dial-up users constitute the main part of Chinese Internet usage. It is estimated that 3.15 million users are using ISDN connection and 2 million are connected with broadband access.

Although the number of Internet users is growing fast, they represent only about 3.6 per cent of the total population. There still remains considerable room for further development. According to the State Development Planning Commission, the total number of Internet users is expected to reach 8 per cent of the total population.

Domain names registered under .cn and number of websites

By the end of June 2002, the number of domain names registered under .cn totalled 126,146: 1,173 less than six months before and 2,216 less than at the end of the same period in 2001. The reduction of domain names is believed to be associated with the bursting of the Internet bubble around the world. While the number of domain names had declined in the first half of 2002, the number of domains registered under .gov.cn increased by 822 to a total of 6,686. This increase is a result of government efforts to increase transparency.

Despite the decline in the number of domain names registered under .cn in the period, the number of worldwide web sites in China saw an increase of 16,113 (5.8 per cent) to 293,213 in six months. Most of these websites are distributed in the developed areas of northern , eastern and southern China and they constitute about 85 per cent of total websites. The less developed areas in the north-east, south-east and north-west of China only account for a small proportion. The same pattern is also reflected in the distribution of .cn domain names.

User composition

The results of the CINIC survey show that by the end of June, 2002, male Internet users accounted for 60.9 per cent of the market. Compared with the first survey in October 1997, the gender distribution of Internet users has changed as follows :

• female users increased from 12.3 per cent to 39.1 per cent;

• the proportion of male users has decreased from 87.7 per cent in 1997;

• there are currently 27.89 million male Internet users (51 times the number five years ago) and 17.91 million female users (236 times the number five years ago);

• 4.2 per cent of the total male population and 2.9 per cent of the total female population are Internet users.

58.9 per cent of Internet users are single and 41.1 per cent married. Single Internet users account for 5.7 per cent of the whole single population and married Internet users for 2.3 per cent of the whole married population.

Internet users are predominantly young. 82 per cent are under 35 years of age and 18 per cent above 35. Among users of all ages, young people in the age group of 18 to 24 account for the highest proportion (37.2 per cent), followed by those aged between 25 and 30 (16.9 per cent) and under 18 (16.3 per cent).

The breakdown of Internet users by level of education indicates that the largest group of internet users, accounting for 30.5 per cent, have senior high school education or equivalent. Those with college degrees constitute the second largest group, accounting for 29.2 per cent of total Internet users, followed by those with junior college education.

However, in general, the higher the income, the smaller the incidence of Internet users. The CINIC survey found that 86.6 per cent of Internet users have monthly incomes of less than RMB2,000. Those with higher incomes account for only 13.4 per cent. In terms of occupation , student users account for the highest proportion (26.2 per cent), followed by technical specialists (17.5 per cent), office assistants (13.2 per cent), and trade and service sector personnel (12 per cent). Internet users from the military forces and rural sector (agriculture, forestry, husbandry and fishing ) account for the lowest proportion, each around 1 per cent.

E-commerce

Over recent years, the government of China has made a considerable effort to promote the development and use of information technologies at both government and business levels. As part of this effort, considerable investment has been made in improving the telecommunications infrastructure and this has laid the foundation for development of e-commerce. However, e-commerce cannot be developed solely by building hardware platforms. A host of other elements are required to make e- commerce work, the most important being customers, delivery systems and payment settlement systems. These also constitute the key obstacles to China's e-commerce development, however, as they are in an undeveloped state.

According to MII, the regulatory government authority, there were about 1,665 B2C online shopping sites at the beginning of 2000. By the end of 2000, only about 1,300 remained, and the number of sites reduced further to 1,188 by the end of 2001, a drop of almost 30 per cent over two years. This decline contrasted asymmetrically with the sharp increase in the total Internet population and number of websites.

The rapidly increasing Internet population has boosted revenue from Internet services, which grew from RMB 5.3 billion in 2000 to RMB7 billion in 2001, an increase of 32.08 per cent. It is believed that the trend of growth will continue to be dramatic for the next few years before it stabilises. The scenario for e- commerce looks as promising . While there are no new statistics for the total revenue of e-commerce in 2001, the decline in the number of online shopping sites during 2001 does not necessarily indicate future decline. In 2000, the total size of the e-commerce market was RMB77.16 billion, about US$9.3 billion. An overwhelming majority of e-commerce transactions were B2B, totalling RMB76.77 billion and accounting for 99.49 per cent of total e-commerce transactions. The remaining 0.51 per cent of B2C transactions only amount to RMB390 million, or about US$47.2 million. There were 667 B2C online shopping sites in 2000, and only 205 of these had been able to operate with a sustained stream of business. The number of B2B transaction sites was 370.

In this situation, it is not difficult to conclude that e-commerce in China is still in its infancy. Optimists anticipate a regrowth in e-commerce over the coming years. Pessimists argue that e-commerce at present still needs to struggle with fundamental problems such as the immaturity of its logistics and online payment issues, which will not be solved in the near future. However, the consensus is that China's entry into the WTO has injected a new development impetus and that e-commerce will experience major development.

In the process of its development there are still many obstacles to be overcome , such as infrastructure bottlenecks, lack of appropriate technology, disarticulation with the financial sector, logistical constraints, the small Internet population as a percentage of total population and relatively high cost of Internet access in terms of average disposable income. Together with other problems, China's e-commerce will still need time to reach maturity.