China soon to lead Internet use

One of the more striking end-of-year statistics pumped out by the Chinese government was that the number of Internet users in the country had reached 210 million in 2007.

That's up by more than 50 percent from 2006 and more than three times the number for India, the emerging Asian giant with which China is most often compared. Within a few months, according to investment bank Morgan Stanley, China will have more Internet users than America, the current leader. And because the proportion of the Chinese population using the Internet is so low -- just 16 percent -- rapid growth is likely to continue.

That such a big, increasingly wealthy and technologically adept country has embraced the Internet is no surprise, but it has done so in a very different way from other countries, largely because of the government's repressive approach toward information and entertainment. News is censored, television is controlled by the state, and bookshops and cinemas, closed during the Cultural Revolution, still are scarce.

The Internet also is tightly controlled. Access to many foreign websites (such as Wikipedia) is restricted, and Google's Chinese site filters its results to exclude politically sensitive material. New rules governing online video came into force last week. Electronic retailing is in its infancy, thanks to an unwieldy government-controlled payment system, so most shopping still is done in person. The attempt by eBay to enter the Chinese market was a flop. Alibaba, a site often described as the eBay of China, is in fact more an electronic yellow pages, helping buyers find sellers, than an online auction room.

Yet it is all these limitations, paradoxically, that make the Internet so popular in China. In the West, online activities have transformed existing businesses and created new ones; in China, by contrast, the Internet fills gaps and provides what is unavailable elsewhere, particularly for young people. More than 70 percent of Chinese Internet users are under 30, precisely the opposite of America, and there is enormous pent-up demand for entertainment, amusement and social interaction, said Richard Ji, an analyst at Morgan Stanley.

Rich rewards await Internet companies able to meet that demand and establish themselves in the market: operating margins for leading Internet firms are 28 percent in China, compared with 15 percent in America. And Internet companies' share prices have shot up, their collective market capitalization nearly doubling every year since 2003 to reach more than $50 billion today.

So what is the Internet used for in China? Its most obvious use is to distribute free pirated films, television shows and music. Even though China's censors do an excellent job of restricting access to content that might cause political problems, they are strangely unable to stem the flow of pirated foreign media. On Dec. 30, an appeals court in Beijing ruled in favor of Baidu, China's leading search engine, which had been accused by the world's big record companies of copyright violation by providing links to pirated music files.

When it comes to making money online, the biggest market involves the delivery of Internet content to mobile phones. With over half a billion mobile-phone users, China has more subscribers than America, Japan, Germany and Britain combined.

Another big field is online multiplayer games, which have become so popular that the government has started to worry about their impact on adults' productivity and children's education.

Amid tight constraints on the provision of hard news, Internet sites such as Sina and Sohu provide a steady supply of gossip, features, dabs of propaganda and slightly salacious stories and photos, and are constantly testing the boundaries of what is permissible.

The most dynamic area, and the hardest for outsiders to understand, is that of online communities, many of which are run by a company named Tencent. Its site offers an instant-messaging service and a MySpace-like social networking site. Morgan Stanley's Ji said the members of these communities are people who, because of the single-child policy, have no siblings and are searching for virtual friendships.