Explosive Growth in Internet Use Changing China's Economy, says BCG

Internet users in China spend about 1 billion hours online each day, more than double the daily total in the United States—and that number will grow to well over 2 billion hours a day by 2015, according to a new report by The Boston Consulting Group (BCG).


The report, titled "China’s Digital Generations 2.0: Digital Media and Commerce Go Mainstream," reveals the explosive growth taking place in China’s e-commerce arena. In 2009, business-to-consumer and consumer-to-consumer transactions in China clocked in at a total of $37 billion, and BCG forecasts that they will surpass $100 billion in just three years. Many of the new industry giants of China’s online marketplace—Alibaba.com, Tencent, and Ctrip.com, among others—are homegrown players that have fended off tough competition from established multinationals.


Some 8% of the Chinese population shopped online in 2009, compared with just 3% in 2006.

“We’re at a tipping point in China in which consumers are crossing the threshold of trust and convenience—and each incremental transaction further entrenches the e-commerce impulse,” says David Michael, senior partner in BCG's Beijing office and lead author of the report. “As disposable incomes increase, the potential for growth will rise dramatically.” But even for those consumers who are skittish about online-payment systems or seller fraud, e-commerce platforms are increasingly becoming a clearinghouse for product information. E-commerce adoption is estimated to jump to 19% of the population by 2012.


The report highlights the fundamental structural characteristics of the Chinese e-commerce market. Chief among them are the prevalence of consumer-to-consumer transactions, many of which take place at Taobao, an online auction site that is part of Alibaba Group. Consumers in China still prefer cash transactions, with only 20% using online payment systems. “The potential impact of these structural characteristics on conventional retailers should not be understated,” says Michael. “Many conventional retailers are starting to discover the plethora of Taobao sellers looking to compete with lower price points, or reaching out to different geographic regions, such as lower-tier cities and rural areas, that conventional retailers have difficulty serving today.”


The report also examines the booming popularity of social-networking sites in China, and the opportunities in online advertising. Throughout 2008, social-networking sites in China rapidly gained hold among university students and young professionals, and by 2009 Chinese Internet users of all backgrounds and age groups were active in their use. Meanwhile, as consumption of online news and other portal-based information has continued to climb, so too has the growth potential of China’s online-advertising market. Online advertising is taking share from magazines, newspapers, and TV, and will hit a projected 20% of total advertising in 2012, up from 8% in 2008.




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