by Dominic Swire

Despite the fact that China now boasts more internet users than the entire population of the United States, the country's online penetration rate still remains relatively low. This, coupled with the recent decision to allow internet domain names in Chinese characters, has got investors salivating rivers over the potential growth of this burgeoning sector.

Sound like deja vu? Not to insiders who refuse to accept a similarity with the "dot com" bubble of the late 90s. This time, they say, it's different.

China is now home to the largest number of internet users in the world - 338 million to be precise according to a report published July 2009 by the state-run China Internet Network Information Center (CNNIC). This figure is significantly higher than the population of the United States (which stands at 308 million) and is growing fast. Since late 2008 internet penetration in China has shot up 13.4%, increasing by 40 million within six months.

Yet despite such mind blowing figures, the spread of the internet in China remains relatively low with only 25.4% of the population having access to the web, way below the European Union's 63.2% or the United States at 74.1%. But many, including US-based venture capitalist Bill Li, believe this figure is set to rise very fast, very soon.

"The growth rate in the coming few years can quickly reach 40%. When this happens, the impact on culture and the way people live will be dramatic," says Li, who was one of Google's first employees when the internet giant first moved into China. 

Should Li's prediction come true, this would see the number of internet users in China balloon to over half a billion. If just a fraction of these people are attracted to one site, and just a small percentage of that group is enticed to spend a little money, it's conceivable that their actions could produce the next internet millionaire. At least, this is the dream that has been attracting scores of business leaders into China in a bid to tap into the mouth watering potential of the country's online sector. US businessman TR Harrington is one of them.

TR Harrington, founder of Shanghai-based internet marketing company Darwin Marketing. [Photo: CRIENGLISH.com/ Dominic Swire]

After initially visiting China in the early 90s he was so enamoured with the potential for business in the country, over the next few years he repeatedly returned, learnt the language and eventually set up the Shanghai-based internet marketing company Darwin Marketing in 2005. Harrington says in the early days before China's phenomenal economic growth started to hit the headlines, nobody understood why he chose to come to China.

"My parents asked me that question, my business school professor asked me that question, but nobody asks me that question any more," he says.

Harrington speaks passionately about the potential for future growth of China's internet sector, pointing out that many large companies here, such as travel agency Ctrip, or marketing firm Kuaizai, still do around 60% of their business over the phone. China's internet-savvy youth is another reason Harrington is convinced about the growth of this sector.

"The younger generation, who are now growing up online, they don't know what the world was like without being connected to the internet. They're very comfortable communicating, consuming entertainment," Harrington says. He cites the example of Chinese internet company Tencent and its QQ instant messaging service, which, through micro payments, has built up a 15 billion dollar market around 10 to 17 year olds. These companies "have been phenomenal at creating communities and monetizing them in ways that the western markets don't even understand," he tells CRIENGLISH.com.

But there's more.

Part of the reason China's internet penetration figures remains so low is because much of the population is made up of the uneducated rural poor who, in addition to having limited access to computers, also have difficulty accessing many sites because of the required basic knowledge of English to at least remember and type in the domain name. But this is likely to change due to two factors.

Firstly, the growth of the mobile internet sector is opening up the internet to many rural dwellers who haven't been able to afford a computer or install the necessary lines to get online. Connecting to the internet through mobile devices is not only cheaper but also easier than the traditional method of using a computer. According to the CNNIC report, there were 155 million mobile internet users in China in June 2009, up over 30% within the space of six months.