Sunday, August 19, 2007

Context Kit: China, Internet

One of the goals of Consumers Conspicuous is to provide context for reportage on the consumer landscape. Up-to-the-minute news is a fantastic luxury in the Internet world, but a lot of the value of that information gets left on the table because people don’t have the background information they need to understand the individual stories that rise of the background noise. These Context Kits are meant to provide our readers with the means to fill-in-the-blanks. We include web resources, some historical context, important metrics, some popular products/ideas, and will even dabble in some analysis.

China is a big country with a lot going on. One long post isn’t going to provide context for an entire country. So, I’ve bitten off a slightly smaller piece. As time goes by, we hope to cover more of the changes wracking and restructuring the place. In the meantime, take a night and go see Manufactured Landscapes, Jennifer Baichwal’s beautiful documentary about industrial China via Ed Burtynsky’s photography.

Basics: China Has a Lot of People

When looking at a market, you need to know the basics. That usually begins with how many people might be interested. At the most basic level, we mean the raw number of people who live somewhere. For that type of information, it is hard to beat the Population Reference Bureau.

Resource: Population Reference Bureau, www.prb.org

Most of us know that China has 1.3 billion people in a landmass about the same size as the United States. But really, when we talk about the Internet space, we’re talking about the non-agricultural workers of China, who effectively comprise an urbanized country-within-a-country. The PRB tells us that only 37% of China’s population is urban. (The US and UK, for comparison, are 79% and 89% urban.) So, excluding economic/cultural factors, we could say that about 500 million Chinese actually form the possible Internet market.

Of course, the Internet is limited to those with the money, time, inclination, and actual access, so one would expect the Internet population to be much smaller. The Chinese government has a research bureau, the China Internet Network Information Center (CNNIC), dedicated to tracking Internet population. According to their survey work, the Chinese Internet population has grown like this:

So, we know how many people we are talking about. Seeing as we’re talking consumers, we want to know how much money they have to spend. China does have a National Bureau of Statistics (www.stats.gov.cn) but English language updates are not an especial priority. The Chinese government also runs the China Economic Information Network (www1.cei.gov.cn/ce/) but the statistical information costs money there too.

Luckily, many scholars are also interested in this information, so we can find reprints of much of the information that above resources charge you for. So we can thank Shi Dong of the People’s Bank of China for the following chart:


We can also find out where the Chinese government thinks its headed via the National Development and Reform Commission. This agency has posted the 11th 5 year Plan for Economic & Social Development, which lays out the Chinese economic agenda and has excellent data snapshots, like this one.

Resource: National Development and Reform Commission (NDRC) People’s Republic of China, http://en.ndrc.gov.cn/

It should be noted that Chinese government statistics have drawn all sorts of criticism. But, we do know that the the Chinese economy is growing at some staggering rate that probably is near the 10% a year that we often hear. Though the population scale is new, sustained national economic expansions have occurred many times, often for 20 years or more. Most European countries experienced this kind of growth after World War II. See, for example, Spain’s El Milagro Español, Germany’s Wirtschaftswunder, France’s Les Trente Glorieuses, or the Japanese post-war economic miracle.

Chinese Media: They Love Idol Too!

All the dry stats, leave us wanting some juicier tidbits, like say, what’s on (or off) Chinese television. Luckily, there is a canonical resource on all things Chinese media.

Resource: Danwei.org, Chinese media, advertising, and urban life

You can get started with the Danwei Media Guide, which will guide you through rapidly proliferating Chinese newspapers, magazines, websites, TV stations, and government regulators. Danwei tends to focus more on the fun, cultural studies type news items. For more pointed business news, nothing beats Pacific Epoch.

Resource: Pacific Epoch, pacificepoch.com

Pacific Epoch covers telecom, tech, media, and has done a great job being all over most Chinese Internet phenomena early on.

There are two blogs of special interest to us. The first is billsdue, which focuses on China’s Internet and media. Its author, Bill Bishop, runs a Chinese game company called Red Mushroom, but he is also a closet scholar and the co-founder of (now CBS) Marketwatch. EastSouthWestNorth, a wide-ranging blog run by Roland Soong, a long-time journalist raised in Hong Kong. He’s got edge and he’s very smart.

Resource: billsude, bbb.typepad.com
Resource
: EastSouthWestNorth, www.zonaeuropa.com

Metrics

We tend to measure Western internet sites in terms of subscribers and/or unique users. Similar metrics are used in China, perhaps because of the prevalence of pay-to-play games in the Internet experience, which were charged by the hour, other metrics are sometimes used like Peak Concurrent Users (PCU) or Average Concurrent Users(ACU). Sadly, the usually wildly misleading Total Registered Users is still a common metric. Active Registered Users is sometimes used, but its meaning can vary depending on the company’s definition of “active”.

With the increase in free-to-use products (spearheaded by Shanda) that incorporate the sale of digital assets, a new metric has come into being: Active Paying Accounts. It just denotes the number of consumers purchasing one or more digital items. Combined with the standard ARPU and a conversion rate, When it comes to money, there are many publicly listed companies, so actual revenue (the preferred metric) is often available.

China’s Internet Players: The More Things Change

All things considered, the major players in the Chinese Internet space are not that different from what they were several years ago. Sina, Netease, Shanda, Tencent, and Sohu have all been around for years. Excellent coverage is provided, along with conference calls and other financial information at Seeking Alpha. We provide a table of the major Chinese Internet companies here. Revenue numbers are in millions and corollaries are obviously pretty loose.

Resource: Seeking Alpha, china.seekingalpha.com

It should also be noted that, as in the US, there are literally thousands of start-ups looking to take out the big guys. Pacific Epoch is a great resource for following smaller companies like 9you. Another great resource is to look at publicly listed Korean Internet companies like CJ Internet, NHN, Daum, Cyworld, and Naver. They are often interested and/or invested in the Chinese market and can be great market data sources.

Quick Context Kit: China, Internet
Basics
Population Resource Bureau, www.prb.org
China Internet Network Information Center,
www.cnnic.net.cn/en/index/index.htm
Table : Urban Dweller Disposable Income
Table : Chinese Internet Users Chart

CNNIC, www.cnnic.net.cn/en/index/index.htm
Media
Danwei, Danwei.org
Pacific Epoch,
pacificepoch.com
EastSouthWestNorth, http://www.zonaeuropa.com/weblog.htm
Bill Bishop’s Blog, http://bbb.typepad.com
Metrics
Chinese Internet Companies

Seeking Alpha, china.seekingalpha.com
Table: Major Chinese Internet Players

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