Yet Another Reason to Invest in China

China is now tops in the Internet world. The country’s Internet demand continues to grow at a staggering pace. According to a recent report released by the China Internet Network Information Center (CNNIC), the number of Internet users in China has surged to 253 million, making China the largest Internet market in the world and surpassing the United States. Given this, there continues to be excellent growth opportunities for investors and companies in China.

Pundits still view China as having more upside potential in the Internet space as the country’s current penetration rate of 16% of the population is lower versus the average of 19% worldwide, and the U.S. penetration rate at a whopping 71% (source: The Pew Internet and American Life Project). Given these comparisons and even discounting the fact that much of China is rural and poor, there are still excellent growth opportunities in China. According to BDA China Ltd., China’s Internet usage could grow at 18% annually and could reach a staggering 490 million by 2012.

The market for online shopping in China also continues to blossom, as shoppers flock to the Internet. Online sales were US$37.5 billion in the first half of 2008, up 60% year-over-year, according to the Data Center of China Internet. For 2008, online spending is projected to top $86.2 billion, up 50% year-over-year.

Another area for growth is the gaming sector in China, which is not unexpected given the high penetration rate of youth online in China. Keep an eye on Chinese online gaming stocks.

We favor China for growth investors looking for opportunities in the Internet space. We continue to like the longer-term situation in China and believe you should have some capital invested in China whether it is with large-cap, blue-chip Chinese companies or with small, emerging, higher-risk stocks. In spite of the risk in China- related stocks, we believe it would be an error to bypass the country. Investing outside of the U.S. helps to diversify returns and add some growth potential. The key to invest in China is to be diversified. Invest only a portion of your capital in China. Besides small-cap stocks, you can also buy large-cap Chinese stocks or major U.S. companies with an expanding presence in China.