China's Internet Investment to Get Returns

China's Internet industry is expected to get its economic returns in the current decade, thanks to its effort to invest in the telecommunications and information technology infrastructure in the 1990s.

Although China lags behind the United States in e-commerce applications, it is a fast follower and is catching up quickly, according to the on-going investors' forum hosted in Hong Kong by the Credit Lyonnais Securities (Asia) Ltd. (CLSA).

E-commerce, which appeared in China only in the past two years, is starting to accelerate with its revenue rising fivefold to US$42 million in 1999.

Business-to-business (B2B) e-commerce, including government and educational expenditures, accounted for over 85 percent of that amount, with business-to-consumer (B2C) home use contributing the rest, according to the International Data Group.

"The Internet in China is bigger and getting bigger," Jing Ulrich, managing director of the CLSA, said at the forum. "Net users now over 10 million strong are doubling every six months." "By 2005, China probably will have more net users than any other country in the world with the exception of the United States, " she predicted.

China's leadership has long recognized the role of telecommunications and information in economic growth and had pushed an aggressive deployment of fixed-line and wireless infrastructure through the 1990s.

The wired infrastructure in China has a much higher percentage of newer digital lines, which will favor the introduction of new technologies associated with the Internet.

The ability to use wireless to forego deploying much more expensive and cumbersome landlines in undeveloped areas will also make China's move into the wireless application protocol (WAP) more aggressive than elsewhere. The year 2000 promises to be the first time that more new cell phone subscribers are added than landline users in China.

China's Internet market is expanding largely due to the demand for online communications with friends and relatives, in addition to the greater availability and quality of Chinese-language content, the increasing scope of applications and expected improvements in transactions and security. China's addressable market, defined as the number of persons with sufficient income to afford Internet access, is on the rise rapidly and has got its returns, according to economists attending the forum.

"The basic fact is that there are that many people in China with a lot of money in the pocket to spend on online goods and purchases," said Eric Rosenblum, founder of the Chinanow.com, a bilingual online living and traveling resource for China.

Rosenblum said his company sees transaction base revenue in providing a sort of low-tech version of e-commerce, although the cost of Internet technology and marketing is currently relatively high in China.

"We provide a platform for local merchants to put on their stores. They can partner stores and maintain themselves and do business quite efficiently," he said.

Rosenblum said his company has targeted the profits from the local merchants to do online transactions, in addition to selling advertisements.

The Internet can be also used as a channel to complement media and entertainment, Eric said, noting that the profitable business is extremely weak in China.

Chinadotcom, the only NASDAQ-listed Internet firm in China, reported total revenues for the first quarter of the year 2000 of US$20 million, an 84-percent increase over a year earlier. Advertising revenue for the quarter was US$9.3 million and e-business revenue US$10.2 millions.

Announcing the financial results, Peter Yip, CEO of chinadotcom, stated, "Each dimension of our core businesses -- e-business solutions, online advertising and our integrated portal network -- is realizing continued rapid growth and increasing gross margins, and decreasing operating cash losses."

"The effective execution of our focused business plan has once again produced results ahead of internal and external projections, demonstrating that we are growing strong and are well down the path to profitability," he added.



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