From our local office at Beijing, we are glad to release an introduction to the Chinese Internet Market. With the chinese economy still growing fast, the internet market has experimented an incredible growth in recent years. And what is more promising, every analysis foresee what is seems to be an unprecedented boom for the years to come.

1. The Chinese Internet market
2013

2. Index
1. Introduction
2. Internet in numbers
3. Demographics, devices and connectivity
4. Payment methods
5. Main players
6. Legal framework
7. Key takeaways
8. About The Cocktail
Visure / IRQA
Introduction to the chinese internet market 2

3. Introduction
Our local team at the office in Beijing has put together this brief introduction to how
internet works in China.
Presenting the habits, demographics and growth forecasts. But also providing a glimpse
about the tailored services that have made local internet so special and different from
the western online services.
Introduction to the chinese internet market 3

4. Index
1. Introduction
2. Internet in numbers
3. Demographics, devices and connectivity
4. Payment methods
5. Main players
6. Legal framework
7. Key takeaways
8. About The Cocktail
Visure / IRQA
Introduction to the chinese internet market 4

5. Internet in numbers
By early 2013 China has already 564 million Internet users(1).
That’s approximately 25% of all users online worldwide. More
than double the number of users in USA and by far more than all
European countries together. It is said that it could be around
750 million by 2015.
With a 39,9% penetration specialists says it will keep growing in
the track of developed countries as UK or USA with 84% and 78%
of penetration respectively.
The state development plans and the fast reaction of the local
industry has developed the Chinese internet to become a reality
in the daily life of Chinese citizens, specially in urban areas.
Considered to be a developed market this days in terms of time
invested online and average spend per user online, there are
still some concerns about the speed, stability and transparency
of communications.
(1) CNNI, statistic report http://cnnic.cn/
Introduction to the chinese internet market 5

6. Internet in numbers
With 242 million online buyers(1), ecommerce transactions
volume is growing steadily by 60% every 12 months.
Nearly 40% of internet users watch online TV content regularly.
Being a reasonable rate there is still room to grow compared
with other countries. The two main video platforms, Tudou and
Youku merged to unite forces during 2012 .
There are currently 309 million registered accounts in microblog
platforms like Twitter. 49% of internet users are registered in
some sort of social network.
40% of online buyers say they have read and posted customer
reviews, twice than in USA.
The new gold rush. Internet services and e-
commerce will continue to thrive as China
keep developing it’s domestic economy.
(1) CNNI, statistic report http://cnnic.cn/
Introduction to the chinese internet market 6

7. Index
1. Introduction
2. Internet in numbers
3. Demographics, devices and connectivity
4. Payment methods
5. Main players
6. Legal framework
7. Key takeaways
8. About The Cocktail
Visure / IRQA
Introduction to the chinese internet market 7

8. Demographics, devices and connectivity
The Internet population in China is young. Up to 25% of total
internet users are currently students, mostly at high school. Young
people identify internet their first source for reliable information
against TV and Newspapers. And they spend an hour more every
day online than US users.
According to CCNI1 90% of internet users earn just 5.000 RMB or
less (600 €). Despite this buyers don’t go online just for good prices
but willing to fill the absence of determinate products in their
surroundings.
Genres are equally represented and in terms of location, urban
areas represents 72,4% of the total, being the other 27,6% rural
population.
A significant rise of budget. By 2015 the
average shopper will spend $1000 online,
what US consumers are registering today.
(1) CNNI, statistic report http://cnnic.cn/
(2) New Media Trend Watch –
http://www.newmediatrendwatch.com/markets-by-country/11-long-
haul/49-china
Introduction to the chinese internet market 8

9. Demographics, devices and connectivity
China has become the first market for PC and mobile phones with
Lenovo leading worldwide computer sells.
Although western brands as Apple, Nokia or Dell are still well
recognized, local market is heavily price sensitive and local brands
usually play their cards at this level.
Smartphone sells were up 199% by 20121 in comparison with 2011. This
explain the big growth in app and games sells. Chinese people are know
to be enthusiast buyers of virtual goods.
Local players move fast. With plenty of resources
companies like Alibaba or Baidu are already
working on their own smartphones and cloud
services.
(1) Canalys - http://www.canalys.com/newsroom/stellar-growth-sees-china-
take-27-global-smart-phone-shipments-powered-domestic-vendors
By Heinecke, Flickr
Introduction to the chinese internet market 9

10. Demographics, devices and connectivity
By penetration and frequency of usage, China is already the
largest market for mobile services and applications. 75% of the
online population access internet through mobile phones.
The old idea that chinese consumers don’t pay for apps is
vanishing with 2 from every 3 smartphone user having purchased a
paid aplication during 2012.
Google Play not able to accept payments in China for apps is
giving plenty of space to local app markets: Baidu App Store,
China Mobile’s Market, Tencent App Gem and many others.
Surprisingly many users are still connected to internet through
2.5G devices. The market for services and contents adapted to low
profile phones is still hot and represent a significant industry.
Android, the king. It’s currently the unbeatable
leader with 90% of market share in mobile OS.
Introduction to the chinese internet market 10

11. Index
1. Introduction
2. Internet in numbers
3. Demographics, devices and connectivity
4. Payment methods
5. Main players
6. Legal framework
7. Key takeaways
8. About The Cocktail
Visure / IRQA
Introduction to the chinese internet market 11

12. Payment methods
The Chinese society strongly rely on cash but regarding ecommerce
cash on delivery payments have been gradually replaced by
electronic methods in recent years.
Today up to 73,9% of ecommerce payments are processed online.
Being paid on delivery just 11,6% of purchases. (1) But far from
what it could be expected Paypal don’t play a major role in China.
More than 100 companies have currently licenses for third party
payment operations, but the market is mostly shared by 5 big
players(2):
-Alipay
-Tenpay
-China Unionpay
-99Bill
-China PnR
(1) Online Payment and E-Commerce in China 2012. Maverick China Research
(2) Online payments report 2012 by Innopay BV http://bit.ly/NjnYkX
Introduction to the chinese internet market 12

13. Index
1. Introduction
2. Internet in numbers
3. Demographics, devices and connectivity
4. Payment methods
5. Main players
6. Legal framework
7. Final advice
8. About The Cocktail
Visure / IRQA
Introduction to the chinese internet market 13

14. Main players
Tencent
Tencent is the fourth internet company
by market capitalization, right behind
Google, Amazon and Ebay.
QQ a desktop messenger application is
currently the most used communication
tool in China, far more used than email.
QQ.com, a generalist portal is also one
of the top 10 most used websites
worldwide.
Wechat the new promising child, an
instant message application for
smartphones similar to Whatsapp, has
already 200 million users.
Introduction to the chinese internet market 14

15. Main players
Alipay
Property of Alibaba Group, Alipay
represents around 50% of market
share.
Claiming to have over 500 million
registered accounts(1) offers credit
card and banking account payments.
The company provides also the ability
to pay for basic home utilities as
water, electricity, mobile bills, etc.
Already in conversations with
Mastercard(2), is aiming to expand it
reach globally in the following years.
(1) Online payments report 2012 by Innopay BV
http://bit.ly/NjnYkX
(2) Tech in Asia http://bit.ly/WDNP7s
Introduction to the chinese internet market 15

16. Main players
Alibaba Group
Alibaba group, with Taobao and Tmall is
the ecommerce giant in China.
Around 800 millions articles are
available in Taobao(1).
More than 60% of buying searches by
chinese internet users starts directly in
Taobao homepage.
During 11/11/12, a big discount day,
Alibaba’s platforms sold US$3.06
billions in just 24h.
(1) Taobao company overview http://bit.ly/2iLgcP
Introduction to the chinese internet market 16

17. Main players
Ctrip
Founded in 1999 is the leader in online
travel booking with 42% of market
share, followed in the distance by
elong.net with a 13%.
With an year on year growth of 15%,
Ctrip registered US$198 million of total
revenues in Q3 of 2012.
The company reinforces the online
service with 24h free call service and
sales offices in 45 cities across the
country.
Introduction to the chinese internet market 17

18. Main players
Netease Inc.
One of the earliest internet portals in
China, founded in 1997 has evolved to
offer many services. From email
accounts, and classifieds to multi-player
online role-playing games (MMORPGs).
Today keeps being one of the most
used online services, having recorded
US$129.2 million of net profit last Q3
2012.
(1) Netease corporate website http://ir.netease.com/
Introduction to the chinese internet market 18

19. Main players
Baidu.com
Unbeatable since it beginning in the
search engine industry, Baidu has nearly
80% of market share offering many
other services including “Zhidao” a
competitor of Wikipedia and “Wangpan”
a rival of Dropbox.
Baidu recently revealed that is building a
cloud computing center aimed on mobile
market. Working in the same direction
than it’s branded smartphone made by
TCL.
The company declared US$858.8
millions in revenue(1) from online
advertising in Q2 2012. That’s 60%
more than the previous year.
(1) Baidu Investor relations http://bit.ly/cRSzPd
Introduction to the chinese internet market 19

20. Main players
Sohu Inc.
Similar to Netease, but with around half
it revenues comes Sohu. Also an
internet company offering news, links
directory, online games and many other
services.
As it happens with Tencent and
Netease, the main revenue source are
online games(1).
Sogou, a search engine service
developed by Sohu have been the main
competitor to Baidu until it was recently
surpassed by Qihoo 360 search tool(2).
(1) Tech in Asia http://www.techinasia.com/comparing-revenue-chinas-
major-internet-portals-tencent-kicking-ass-sina-872/
(2) http://hao.360.cn/so/index.html
Introduction to the chinese internet market 20

21. Main players
Youku Tudou Inc.
Youku.com and Tudou.com, two of the
main video platforms merged last
August.
The new company called “Youku Tudou”
have 310 million users and 1.6 billion
hours of video are served monthly.
Together they account for 80% of total
online video demand in China.
The company forecast a revenue around
$100 million for Q4 2012(1).
(1) AP - Yahoo News http://yhoo.it/Ubgv5F
Introduction to the chinese internet market 21

22. Main players
Renren.com
Renren is the leader “facebook alike”
social network in China. Formerly known
as Xiaonei (on-campus network) has
over 172 million registered users.
From $50 million earnings in 3Q 2012,
almost half came from online game
revenues(1).
(1) Renren 3Q 2012 Financial Results - http://ir.renren-
inc.com/phoenix.zhtml?c=244796&p=irol-
newsArticle&ID=1758393&highlight=
Introduction to the chinese internet market 22

23. Main players
Shanda Interactive Entertainment
Shanda, stablished in 1999, is the main
online game player in China.
With over 70 game products is listed in
NASDAQ stock market since 2009.
With 90 million active users Shanda
recently declared $170.4 million in net
sales during Q3 of 2012(1).
(1) Shanda games report Q3 2012
http://ir.shandagames.com/releasedetail.cfm?Rel
easeID=723214
Introduction to the chinese internet market 23

24. Main players
Weibo.com
Sina Weibo is the main microblog
platform in China, a Twitter equivalent.
Recently announced to achieve 400
million account registered, by business
and individuals, doubling it nearest
competitor Tencent Weibo.
Up to 72% of the user base access Sina
Weibo through mobile devices.
Revenue in last Q2 reported to be US
$22 million from a total of $152 in all
Sina services. With 15% of advertising
coming from mobile access.
Introduction to the chinese internet market 24

25. Main players
Douban.com
Douban is one of the most popular user
generated content website in China.
This service of opinion sharing on
books, movies and music recently
declared to have 100 million unique
visitors a month(1). And it’s ranked by
Alexa in the top 20th of chinese
websites.
(1) The next web
http://thenextweb.com/asia/2012/08/17/chinese-social-
network-douban-almost-profitable-expected-2012-
revenues-13m-100m-monthly-visitors/
Introduction to the chinese internet market 25

26. Index
1. Introduction
2. Internet in numbers
3. Demographics, devices and connectivity
4. Payment methods
5. Main players
6. Legal framework
7. Final advice
8. About The Cocktail
Visure / IRQA
Introduction to the chinese internet market 26

27. Legal framework
China has an old history of laws and rules. Traditionally based
in the Confucian approach of social control through moral
education, it’s nowadays similar to western style legal
systems.
Current regulation on internet contents and services is tight.
The government considers that within Chinese territory the
internet is under the jurisdiction of Chinese sovereignty(1).
Topics such as violence, critics to the social system, spreading
rumors or injuring the reputation of state organizations are
forbidden. Service providers are legally responsible for
customer activities so in order to avoid sanctions they tend
to assume an editorial role over content published by users.
Since 2010 individuals and businesses willing to register a .cn
domain are required to provide their respective national ID and
license.
Starting in 2012, also users of microblogs (Twitter
equivalent) are required to identify themselves with ID
number and mobile phone to use these services.
(1) Chinese Government´s official Web Portalhttp://english.gov.cn/2010-
06/08/content_1622956_7.htm
Introduction to the chinese internet market 27

28. Legal framework
Foreign companies looking to open a local branch in China
have mainly three options:
-Find a local partner for a joint venture. A good option so your
partner can access local resources for you. However, stories
of joint ventures between foreign and local companies in China
are frequently problematic and taking advantage of foreigner’s
knowledge or financial resources does not necessarily go
against local work ethics.
-Create a Wholly Owned Foreign Enterprise (WOFE) in China
mainland. Been there by your own is probably a conservative
and more reliable way to start operations. Be aware that the
bureaucracy of the process can be exhausting. It’s good to find
a proper local advisor.
-Establish in Hong Kong. The fastest way to become fully
operational and the clear option for many foreign companies.
Introduction to the chinese internet market 28

29. Index
1. Introduction
2. Internet in numbers
3. Demographics, devices and connectivity
4. Payment methods
5. Main players
6. Legal framework
7. Key takeaways
8. About The Cocktail
Visure / IRQA
Introduction to the chinese internet market 29

30. Key takeaways
1 Domestic team and resources are vital. They have a first hand understanding of how
everything works and what’s happening in the middle country.
2 Being small in China usually equals to be really big by western standards. Don’t think it
twice.
3 Mobile is key. Mobile phones have never been the second screen in China.
4 Take advantage of the early adopters. The internet user base is among the youngest
worldwide.
5 Fill the quality gap. Many local services lack of quality due to excessive focus on growth.
6 Don’t underestimate Chinese culture. It affects everything in unpredictable ways.
Introduction to the chinese internet market 30

31. Index
1. Introduction
2. Internet in numbers
3. Demographics, devices and connectivity
4. Payment methods
5. Main players
6. Legal framework
7. Key takeaways
8. About The Cocktail
Visure / IRQA
Introduction to the chinese internet market 31

32. About The Cocktail
• Founded in 2003, The Cocktail has fast developed to
become one of the most known digital consultancy
southern Europe.
• More than a hundred employees giving shape to an unique
innovation culture. From design, business, marketing and
programming to research passionate specialists.
• We’ve being fortunate to define and develop some of the
most complex and challenging services in internet.
• We deeply understand the digital business, our clients
accounted 7000 daily transactions and 100€ million in sells
last year.
• We are proud of our rock solid methods and own
technology. Great results, in time.
• Some of our clients includes: Mercedes-Benz, L'Oréal,
MTV, Google, Microsoft, Paypal, Real Madrid, Movistar,
AEGON .
Introduction to the chinese internet market 32

33. About The Cocktail
We know it’s hard to move abroad. If you are considering
China as an option for your digital business we can give you
support with:
•Research and competitor analysis.
•Cultural adaptation of your digital service and products.
•Strategy, development and management of online presence,
ecommerce businesses and mobile apps.
•Getting support for local implantation for your digital company.
Introduction to the chinese internet market 33

34. Want to known more?
Madrid México D.F. Beijing Bogotá
C/ Salamanca 17 Av. Sonora, 166. No.1. No.4 Daxue Alley Cra 11 Nº 81-26 Oficina 301
28020 Madrid (Spain) Colonia Condesa Dongcheng District Bogotá, Colombia
Delegación Cuauhtémoc 100009 Beijing, China
06100 - Mexico D.F.
+34 91 567 06 05 +52 55 55013299 +86 010 6407 4392 +57 3108776790
info@the-cocktail.com mexico@the-cocktail.com beijing@the-cocktail.com colombia@the-cocktail.com
Introduction to the chinese internet market 34

35. March, 2013
http://www.the-cocktail.com