1. China’s Internet Market
Executive Summary
The Most Up-To-Date Insights To
Help Understand The World’s
Most Important Internet Market
#cim12
#internet
Lange & Manes
#growth
#china2012

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11/29/2012
Sources
1. Asia Digital Marketing Yearbook 2012
2. CNNIC: China Internet Report No. 30 (July 2012)
3. Individual Research by the authors

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China Is An Unbelievably Large And Dynamic
Internet Market
• 537 million Internet users in June 2012, representing an increase of
53 million from June 2011
• Internet penetration rate of only 38.3%
▫ Huge upside potential in the future
• China’s Internet population is expected to exceed 700 million by
2016
• The Chinese e-commerce market grew to USD 1.113 trillion in 2011
▫ 46% y-o-y increase
• Total revenues from online shopping reached USD 123 billion in
2011
▫ 68% y-o-y increase

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China Has Almost Doubled Its Internet Users Since 2008
Development of Internet Penetration
in million Users
800 50%
45%
700 39.9%
38.3%
36.2% 40%
600 34.3%
31.8% 537.0 35%
513.0
28.9% 485.0
500 457.0 30%
25.5% 420.0
22.6% 384.0
400 25%
338.0
298.0 20%
300
15%
200
10%
100
5%
0 0%
2008/12 2009/06 2009/12 2010/06 2010/12 2011/6 2011/12 2012/06
Internet User Penetration Rate

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Sadly Enough, Most Internet Companies
Fail In China
• They lose against Chinese competitors, because they know less
about…
...why Chinese customers go online
…what Chinese customers expect from their products
…where Chinese customers buy online
…how Chinese customers make buying decisions
…what determines Chinese customers’ buying decisions
…what advertising channels are most effective for reaching their target groups
…how Chinese customers perceive online advertisements

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Companies Need To Begin Understanding The
Market
We have put together the most up-to-date insights for the Chinese Internet
market in…
Demographics
User Behavior
Online Advertising
E-Commerce
Mobile
Social
…to help companies
better understand China’s unique market characteristics and increase the
likelihood of success.

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Demographical Key Facts
• Low purchasing power: more than 90% of all Chinese Internet Users
earn less than RMB 5.000 (USD 790) per month
• Almost as much Internet users access the Internet via mobile
devices (69.3%), compared to PCs (73.4%)
• China’s Internet users are young: almost one third are students
(30.2%)
• Only 36% of all Internet users shop or have at least shopped once
online (estimated to increase to 47% in 2015)1
• Only 20.8% of the total e-commerce transaction volume has been
generated through e-payment solutions in 20102 (cash-on-delivery
still the most popular paying method in China)
1. Boston Consulting Group (2012)
2. iResearch (2012)

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User Behavior Key Facts
• As of June 2012, an average Chinese Internet user spends 19.9 hours per week
online (USA: ca. 9 hours)
• 415 million Chinese Internet users go online to chat, 325 million to watch videos
• 41.3% of all online video viewers in China watched 4 hours or more of online
videos per day (on the weekend)
• In 2011, 324 million Internet users went online to play games
• More than 50% of China’s Internet users have played games via their mobile
devices
• Only 21% find consumer product reviews on company websites trustworthy
• People between 18 and 27 represent the heaviest user group in China, averaging
on 5 hours or more daily for surfing the Internet

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Online Advertising Key Facts
• China’s online advertising spend reached USD 8.11 billion in 2011
▫ 57.3% y-o-y increase
• In 2011, online for the first time exceeded print in terms of advertising spend
generated
• By 2015, China’s online advertising market is expected to be worth USD 11.3
billion
• Online video advertising has generated more than USD 260 million in Q4 2011
alone
• Youku and Tudou, the two biggest online video portals, together account for
35.5% of total market share (now merged to Youku Tudou)
• The search market was worth USD 3 billion in 2011
▫ 70% y.o.y growth

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E-Commerce Key Facts
• Today the average Chinese online shopper spends about USD 500 annually; it is
expected that this number doubles within 5 years to USD 1.000, which equals
the number of US spend
• At the end of 2011, online retail accounted for 3.3% to the total retail market
(2015: 7.4%)
• The number of online shoppers is expected to increase to 329 million by 2015
• B2C transactions generated USD 38.03 billion in 2011
▫ 130% y-o-y increase
• The online gaming market was worth more than USD 1.5 billion in Q4 2011
alone
• E-commerce sales are expected to generate a transaction volume of USD 2.86
trillion by 2015

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Mobile Key Facts
• 1.013 billion mobile subscribers at the end of March 2012
• 356 million mobile Internet users in 2011, marking a mobile Internet
penetration rate of 36.5%
• 90% of mobile Internet users access the Internet only via mobile devices
• At the end of November 2011, the number of 3G subscribers reached 118
million
• Taobao, the #1 e-commerce company in China, generated USD 1.9
billion in turnover through mobile in 2011
• The number of mobile Internet users is expected to reach 712 million in
2015

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Social Media Key Facts
• Social network services in China are highly diversified, several
platforms serve different customer segments (e.g. Kaixini001 
white collars; Renren  students; 51.com  rural; Qzone 
teenagers)
• The online video market is also very fragmented, but about to
consolidate (started with the merger of Tudou and Youku)
• Chinese Internet users mostly watch longer form content, such as
news reports and TV series (especially due to the distrust against
state-produced content!)
• The average Chinese spends about 1 hour on online video platforms
(USA: 15mins)
• 70% of online video content in China is professionally produced

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Lessons Learned
• Chinese customers are young, educated and mobile
• Mobile is very popular in China (especially in rural areas, where smartphones
substitute laptops and PC’s)
• Mobile shopping and mobile payment have increased heavily during the last six
months
• Online shopping acceptance is still low but steadily rising, so is the acceptance
for e-payment solutions
• Because Chinese customers don’t trust unfamiliar online shops, referral from
friends and existing customers is even more important than in Western markets
• Chinese Internet users consume more online video content than in Western
markets; mostly because they see such content as another, more
reliable, information source compared to state-owned media

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What Does This Mean For Your China Business?
• Understand how and where Chinese customers perceive your ads
▫ Internet firms reach their customers in China through different channels than in
the West; this includes for example a higher focus on mobile and portals
• Make referral marketing your top priority
▫ Chinese customers are extremely cautious when buying online; make use of happy
existing customers to show you are trustworthy
• Offer the right payment methods
▫ Although online shopping rates are lower in China, the right payment methods
help to increase sales on your platform; researching the e-payment market is
essential in China
• Employ local staff - also in top-level management
▫ It is a mistake to believe that Western management expertise can offset lesser
local market knowledge; there are enough Chinese young professionals with
diplomas from the US or UK by now anyway

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About Us
David Lange
• B.A. in Chinese Studies, M.A. in Corporate Management &
Economics
• 1.5 years of academic and professional experience in China
• Advises e-commerce startups on expanding to China
Steffen Manes
• Fund Manager @cfpff - venturecapital.de
• 2-times Entrepreneur
• Specialized in business development for start ups
• about.me/manes