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China Seen Ripe For Net Potential

More people probably will go online today in Des Moines than in all of China, but the potential of the mainland Chinese market has U.S.-based Internet companies like America Online and Netscape salivating.

Net access is expensive in China and out of the reach of most of its citizens. Yet, the groundwork is being laid. There are an estimated 100 Internet service providers licensed to connect people to the Net in China. reports on President Clinton's trip to China
Moreover, International Data Corp. says electronic commerce in China should reach $11.7 million this year, and it sees that sum jumping to $848 million in 2001.

Top that, Des Moines!

For many U.S. Internet companies, Hong Kong is becoming the foothold for an eventual foray into mainland China.

In February, America Online announced an alliance in the former British colony with China Internet Corp., in which China's official news agency will have a significant stake.

"At the present, we think Hong Kong is a good vantage point to monitor developments in mainland China," said Jack Davies, president of AOL's international division.

"Any market that has over a billion people has to be watched closely," he said. "China is still in its very early stages. We expect it to grow rapidly in the next two to three years."

There are some 600,000 Internet users in Hong Kong. Netscape and Yahoo! have launched Chinese language guides and services this year.

The question of how many Chinese in China are online often turns into a kind of "who's on first" conversation. Estimates vary from 600,000 to slightly over 200,000, and they can stream rapidly higher depending on whose talking.

Gene Sperling, special assistant to President Clinton for economic policy, said on Monday that he is expecting 4 million Chinese on the Internet by the year 2000.

What's clear is that the number of home Web users numbers in China today is very, very small. IDC, which some industry observers as having the best estimates on China, sees 119,484 home Web users in 1998 and 289,205 business users.

By the year 2000, IDC is estimating a total of 1.78 million Web users on the mainland, said analyst Lisa Cosmas. She notes that PC shipments to China, boosted by the ever-lower price points, are on the rise and that higher incomes are going to speed the rate of Net usage.

For now, AOL's Davies notes that the Internet market largely consists of academic and business users and is not the kind that makes up the company's core target audience of consumers. But, that is expected to change fast.

"It seems clear that the government is encouraging development of the Internet," he said. "I just think that in terms of their pronouncements hey recognize that the Internet is an important way for mainland China to be connected to the rest of the world."

That said, the Chinese government is clearly fully aware of the free speech issues that define the Net, and Beijing is screening and blocking some Web sites, according to IDC.

The government controls the pipeline to the Web via the Ministry of Post and Telecommunications. Most of the ISPs are run by the local PTTs, but close to 30 Beijing-based providers are independent companies, Cosmas said.

The largest ISP, China Net, is also the only ISP to offer flat rate pricing at the equivalent of $36 a month.

Cosmas is expecting American ISPs to start making their way in China through joint ventures with local companies. "There has to be a ton of deregulation first," she said. "It's going to take a while."

Written By Emily Church, CBS MarketWatch

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