E-investors flock to China

Business Asia, March 3, 2000

Charles Zhang and Heidi Hsueh face the same dilemma as they seek to expand Internet businesses in China: They have no idea who's out there.

Hsueh, vice-president of pAsia Inc, an Internet auctioneer, reckons China has no more than about 6 million on-line users -- one-third less than the government's 9 million estimate.

For Zhang, chief executive of Sohu.com Inc, a Web portal with one million users, the true figure is anywhere between 5 and 10 million.

Undaunted, dozens of companies, including the likes of Intel Corp, have invested in China's fledgling Internet industry on a bet that growth -- not just absolute numbers -- is pretty much a sure thing in the world's most populous nation.

"As long as new users are added every day, I think people are pretty happy," said Joseph Chen, chief executive at ChinaRen Inc, which provides free e-mail and on-line chat rooms.

All that may be about to change. As companies begin charging customers for on-line services for the first time to recoup investments, they will increasingly need reliable figures to determine fair advertising rates, analysts said.

"It's becoming very important to the extent that advertisers and companies want to do business in China," said Lane Leskela, principal analyst at Gartner's E-Business Intelligence Services unit in Hong Kong.

The firm's own estimates put the number of paying Internet subscribers at 5 million, with another 2 million who log on at least once a week and may not have their own account.

Size hasn't brought profits. China.com Corp, the only China-focused Internet company listed on the Nasdaq stock market, said that registered users -- including the US as well as China, Hong Kong and Taiwan -- tripled to 2.2 million in the fourth quarter as its loss widened three-fold to US$13 million.

Sino-i.com Ltd, a Hong Kong-based Web content provider that plans to invest US$13 million over the next 18 months in its China business, doesn't get paid for posting advertisements on its Web site.

At the heart of the numbers game are on-line habits that reflect China's crowded living conditions.

In cramped college dormitories, students sharing a room often pool Internet accounts, suggesting that actual user numbers could be higher than subscriber figures.

International Data Corp, whose methodology includes counting installed personal computers, ISP accounts and the penetration of Internet user devices, estimates 4 million users now, growing to 7 million by year-end.

Even if total user numbers are considered more relevant by dot-coms seeking maximum Web page "hits" than the number of paying ISP account holders, the Chinese government's methodology for toting up the figures is viewed as suspect.

Sohu's Zhang said the data is collected from voluntary responses to on-line surveys. The accuracy of the data "depends on who has filled it in", he said.

Either way, the task is about to get more complicated. Though just one in 100 of China's 1.2 billion people own personal computers, one in 30 own mobile phones, many of which will soon access the Internet.

And guess what: sales are rising at an annual rate of as much as 60 per cent.