Why China's Rapid Online Growth Won't Help U.S. Firms

Chinese internet usersChina now has 485 million Internet users, which is 52% more than the entire population of the U.S. The China Internet Network Information Center reported the figure based on numbers as of the end of June. Extraordinarily enough, only 36% of China's population uses the Internet now. Internet penetration in the U.S. is more than 76%.

Those numbers helps justify the extremely high valuations of many China-based Internet companies, and show why U.S. firms like Google (GOOG), Microsoft (MSFT), Facebook, and Twitter are so anxious to gain market share in the People's Republic. China's No. 1 search engine, Baidu (BIDU), has a market cap of nearly $52 billion, more than twice that of Yahoo. (YHOO). Yahoo's revenue last quarter was $1.2 billion, while Baidu's was $372 million. But, while Yahoo's ad sales are barely growing, Baidu's were up 88% in the first quarter. Baidu's share of the search business in its home market is 75.9%, according to research operation Analysys International. Baidu's rapid expansion in the world's most populous nation helped drive its brand value up 141% to $22.6 billion in the latest BrandZ report.

The size of China's online population has driven shares of Sina (SINA), Sohu (SOHU), and Tencent higher as well. The presence of these portals and microblogging operations are likely make it harder for U.S. companies to successfully compete in the market. Another hurdle is the Chinese government. Google found this out the hard way when it battled the central government in Beijing over hacking and censorship issues. The People's Republic also blocks access to Facebook and Twitter.

Given the relatively low penetration of the Internet in China, it's population of users is bound to grow rapidly, especially as people relocate from rural areas to cities to find work. That will help local Internet companies, while U.S. firms, impeded by an authoritarian regime on one hand and rapidly expanding local competition on the other, will look on helplessly as a great opportunity passes them by.

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someoneole

Maybe we should just get out of China, and restore the US (our) economy.

July 19 2011 at 5:01 PM Report abuse -3 rate up rate down Reply
LEE Resolution

China's economy ranks second in the world, behind ours. Per population capita they rank 77th.

The greater majority of Chinese still live in poverty.

July 19 2011 at 3:43 PM Report abuse +1 rate up rate down Reply
2 replies to LEE Resolution's comment
someoneole

Hey there, chicken wing

July 19 2011 at 8:28 PM Report abuse rate up rate down Reply
goldaxe

China has to grow very fast.They are the T rex of populations. If they dont they starve,and take us all down with them.

July 19 2011 at 3:35 PM Report abuse rate up rate down Reply
imbb@aol.com

Wheat

July 19 2011 at 3:21 PM Report abuse rate up rate down Reply
Gumby

Invest in ALCOA!!! China uses 6 times as much aluminium as we do here in America! We will use more aluminium for car bodies and solar thermal energy... Right now, there is an excess inventory of idle aluminium lying around and the price is too low at $1.20 a pound. Copper had gone to $5 a pound... Aluminium will catch up soon!

July 19 2011 at 1:50 PM Report abuse rate up rate down Reply
dodie1990

China will conquer the world. they have already(with Wal-Mart) ruined the American middle class by destroying small businesses and small manufacturers. They have destroyed tax bases in small communities. They pay poorly and treat their employees like slaves. We Americans have helped them by ignoring our local stores and manufacturers and buying all that imported trash. Now we have no choice as American manufacturing is gone and the good jobs with it. Our future is poor for those who would have been middle class, now with minimum wage part=time jobs they are facing a declining standard of living.

July 19 2011 at 1:21 PM Report abuse rate up rate down Reply
eriemoon21

We need to watch out for China. we should NOT trust them one bit

July 19 2011 at 12:59 PM Report abuse +1 rate up rate down Reply
cmax383666

chinas growth will not nhelp us firms for one reason and one reason only,they are only interested in helping themselves. They are not concerned with world policies or human rights or air pollution they want on top maybe in the future the other maybe be a concern but for now they just want on top .They want what we had.

July 19 2011 at 12:05 PM Report abuse rate up rate down Reply