Investors Should Look Online in China

In past commentaries, I discussed the vast investment opportunities that lie in China. Whether we’re talking about industrial, technology, or medical devices, the country is clearly becoming a hub of innovation and extraordinary growth.

An area that I like in this country of 1.3 billion people is the Internet. The recent statistics reflect the growth of the Internet in China. In 2000, only about 1.7% of the population surfed the Internet, but this figure surged to 10.4% in 2006, according to the China Internet Network Information Centre (CNNIC). During this period, the number of Internet users grew at a compound annual growth rate (CAGR) of 33% to about 132 million Internet users by the end of 2006. The numbers are impressive, and I believe there is still ample room for growth as the penetration rate of 10.4% remains well below western numbers.

Two key factors will drive the penetration rate higher: (1) the growth of the middle class with money to spend; and (2) the strong growth of broadband in China.

The size and potential of the Internet in China is a main reason why companies like Google Inc. (NASDAQ/GOOG) and Yahoo Inc. (NASDAQ/YHOO) are expanding there. The Chinese love being online! The number of Internet bloggers in China was about 20.8 million at the end of 2006, according to data from the China Internet Survey Report 2007. The report said that the average amount spent by Chinese Internet surfers was about $22 every month. Online gaming is also huge in China.

Yahoo China announced that it would become a business-oriented search engine. Yahoo China is managed by Jack Ma, CEO of Alibaba, a leading Internet e-commerce firm in China. The change was due to high competition in the search area.

The reality is that the Internet will be an area of explosive opportunities as more services are offered to Chinese Internet surfers.