The Rise of a Billion Consumers

Despite a slow start, will China fulfill its promise and become the victor in the race for online and wireless domination?

International trends suggest yes. Today, more than half of the world’s people live outside of North America, and 49 percent of all Internet users do not speak English as a first language, according to Global Reach. Although the PC/Internet penetration rate is fairly low in China, and only 4 percent of Web pages are currently written in Chinese, China, with 1.3 billion people, is by far the world’s most populous country. Mandarin is the first language of more than 880 million people, far ahead of Spanish and English, each of which is the first language of fewer than 350 million.

China’s continuing rapid economic growth and expanding involvement in global affairs, as well as its future entry into the World Trade Organization, are strong indicators of China’s desire to become a dominant player in all facets of the global economy. Some 50 years since the founding of the People’s Republic of China, the country has begun to make great advancements and has opened the gates wide for international trade. The national economy continues to show a rapid and sustained growth, thanks to the adoption of policies to encourage and support the development of privately owned and other nonpublic sectors of the economy.

China’s GDP in 2000 amounted to more than $1 trillion dollars, ranking it behind the United States (with $9,038 billion), Japan, Germany, France, Britain, and Italy. To more accurately and fully assess the significance of China’s emergence in the digital world, it is necessary to gain a more complete understanding of current trends.

On a Highway Going Where?

Tell some Chinese officials that you want to help them build the information superhighway, and they may send you to local civil engineering and heavy construction companies. Despite its great potential, China is still showing weakness in online business and e-commerce growth. China’s State Economic and Trade Commission recently concluded that investment in information technology accounts for less than half a percent of total assets, far less than the average 10 percent in developed countries. Only 3 percent of China’s 15 million enterprises have engaged in e-commerce or online marketing.

However, the country is moving fast and in the right direction. China will be infusing $500 billion into the IT sector in the next four years. The China E-Commerce Association and Network Evaluation Center forecast that B2B revenue will amount to $12.2 billion this year and $51.4 billion in 2004. While B2C revenue will total a fairly modest $190 million this year, it is predicted to reach more than $3 billion in 2004. China Telecom alone reported more than 1.5 million e-commerce customers and $9.6 million in e-commerce revenue last year.

And wireless is also growing exponentially: Shanghai Mobile recently launched a wireless stock-trading service that enables GSM (global system for mobile communications) phone users to check quotations, transfer funds, and make trades. Heilongjiang’s Welfare Lottery Bureau also began selling prepaid cards allowing mobile phone users to make lottery bets using an SMS (short message service) system. China, with Japan, is poised to play a lead role in the international standardization of new-generation cellular phones that can transmit dynamic images.

Looking at the Numbers

The number of Internet users in China reached more than 22 million by the end of 2000, according to the China Internet Network Information Center, and many analysts forecast that the number of Internet users will double every six months. The Yankee Group projects that China will have more than 40 million Internet users by the end of 2001 and predicts that by the end of 2005 China could surpass the United States as the leader in the number of Internet users. Interestingly, China would need to have only about 10 percent of its population online (compared to its current 1 percent) to become the uncontested Internet leader in number of users.

China also consumes a huge share of the world’s cell phones: Despite a low — 4 percent — penetration rate, China has more than 50 million wireless subscribers in China — second in the world after Japan — as of 2Q 2000. By some estimates, wireless subscribers could number 300 million by 2010.

Who is online? This group is largely young, male, and educated, but trends suggest that the online audience is diversifying. Why is China still experiencing a low Internet penetration rate compared to other developed countries? First and foremost, PC penetration rates per inhabitant remain very low, mostly due to the rural nature of the economy. Second, Chinese Internet users have consistently complained of high usage fees, slow Internet-access speed, and the lack of Chinese-language information.

China Telecom, the national monopoly operator, charges Internet service providers (ISPs) — www.sina.com, www.sohu.com, and www.163.com are the most popular in the country — high costs, thus forcing them to maintain high access fees. But these roadblocks haven’t stopped a recent surge in online businesses targeting the region with native-language content and services. Companies such as China.com (backed by America Online and introduced on the Nasdaq in 1999) are aggressively building customer value and awareness by addressing one of the major issues: the lack of Web content available in Chinese.

Email Marketers Dive In

Being successful in the Chinese Internet market requires a thorough understanding of market conditions. International email marketing companies have to partner with local players to overcome geographic, technological, and regulatory issues. FloNetwork Inc. and impiric, a Young & Rubicam subsidiary, announced recently that they have formed an alliance to deliver permission-based email in Singapore, East Asia, and China. And last September, yesmail.com announced a strategic alliance with madeforchina, one of China’s leading interactive marketing agencies. As part of the agreement, yesmail.com provides technology support and campaign expertise to assist madeforchina in building and expanding a permission-email marketing network in the country.

Launched in 1997, Beijing-based madeforchina offers access to an opt-in database of more than 600,000 people who have decided to receive commercial offers and information via email in a range of interest categories to a client base of multinational corporations that includes Ericsson, IBM, Motorola, and Intel. An opt-in email campaign for Apple targeting 100,000-plus consumers who had previously expressed interest in receiving information on computer-related products generated, in less than 5 days, a response rate of more than 10 percent from 22 or so cities.

Though China still has far to go in the global race for online dominance, it is well positioned to take the lead. So keep your eye on the sleeping dragon: The country that has had the largest population and the most advanced economy in the world for 48 of the last 50 centuries could surge to the fore in the new economy.