INTERNET COMPANIES, UNDERHANDED MARKETING AND POPULAR COMMERCIAL WEBSITES IN CHINA

INTERNET COMPANIES AND WEBSITES IN CHINA

The number of China-registered domain names rose from around 30,000 in 1997 to 115,000 in 2000 to around 800,000 in 2007. Even though China has a lot of restrictions, the Internet scene is very lively, varied and comprehensive and is far ahead of India, when there are more press freedoms.

In China, foreign Internet corporations seem to be much weaker than Chinese ones. Jian Junbo wrote in the Asian Times, “For instance, in place of YouTube there is Tudou or Youku, with instant access to Avatar or the latest episode of Lost. For every Google there is a Baidu that offers Lady Gaga's new hit or the Pink Floyd discography for download. Facebook has an alternative in Kaixin, Amazon has Taobao, Paypal has Alipay.

Many feel that China is experiencing a dot.com bubble like the one that struck the United States in the early 2000s. Hundreds of millions of dollars of venture capital and foreign investment have flowed into Chinese tech companies with only a handful of them making any money.

Even successful Internet companies like Sohu.com. Baidu.com and Ctrip.com don’t make that much money and have insane valuation dozens of times higher than their projected yearly earnings. Baidu.com’s price-to-earnings ratio, for instance, is 159 times than its 2007 earnings compared to 50 times for Google.

Web advertising is growing at rate of 60 to 70 percent a year and reached $1.7 billion in 2008.

According to Google less than 2 million of China’s 30 million to 40 million small and medium-sized companies are able to sell their products nline.

Good Websites and Sources on the Internet in China: Wikipedia article on Internet Censorship in China Wikipedia ; Open Net Initiative on the Internet in China opennet.net ; Great Firewall Website Test /www.websitepulse.com ; Harvard Law School Report on Internet Filtering cyber.law.harvard.edu ; China Internet Network Information Center cnnic.net.cn ;The Berkeley China Internet Project and China Digital Times chinadigitaltimes.net

Good Websites and Sources on the Chinese Media: Council of Foreign Relations on Media Censorship in China cfr.org ; Danwei.org, an English-language blog on the Chinese media danwei.org ; China Media Blog chinamediablog.com ; China Today chinatoday.com ; Freedom House Report freedomhouse.org ; List of Media in China media.mychinastart.com ; Modern Chinese Literature and Culture (MCLC) Media Bibliography Modern Chinese Literature and Culture (MCLC) ; News About China chinanews.bfn.org ; China Media Project cmp.hku.hk ;China Digital Times chinadigitaltimes.net

Links in this Website: CHINESE MEDIA Factsanddetails.com/China ; CHINESE TELEVISION AND RADIO Factsanddetails.com/China ; TELEVISION PROGRAMS Factsanddetails.com/China ; CHINESE NEWSPAPERS AND MAGAZINES Factsanddetails.com/China ; COMMUNICATIONS AND CELL PHONES IN CHINA Factsanddetails.com/China ; INTERNET IN CHINA Factsanddetails.com/China ; GOVERNMENT CONTROL OF THE INTERNET Factsanddetails.com/China ; INTERNET COMPANIES AND WEBSITES Factsanddetails.com/China

Internet Business and E-Commerce in China

There is a lot of money to be made in China's Internet industry now and especially in the future. According to projections from Hans Tung of Qiming Venture Partners Online ad revenue is expected to be about $4.4 billion in 2011, and Web games could bring in $5 billion — with projected annual growth rates of 50 percent and 30 percent, respectively — while e-commerce, estimated to generate $60 billion in 2010, is expanding 45 percent a year. One analyst said. "The stakes are so high — 430 million users in China — that you do whatever you can do to stop the other guy.”

E-commerce in China grew 100 percent in 2010 to $70 billion. Led by Internet giant Taobao, a sort of Chinese answer to EBay Inc. and Amazon.com Inc., the industry is expected to grow another 60 percent to 80 percent this year, according to China Market Research Group. [Source: Benjamin Haas, Los Angeles Times, May 05, 2011]

Popular Websites in China

Popular Web site portals include: Sina.com, Sohu.com, BabyTree, Baihe, Tudou, Ctrips.com, Tencent.com and Netease. Sohu. Com is China’s third largest Web portal. It has income of around $20 million a year on sales around $150 million. BabyTree is modeled after Facebook., Baihe is a matchmaking site similar to eHarmony and Tudou is a YouTube-style video sharing site (Tudou is potato, as in couch potato, in Chinese).

Sina.com is one of the most popular Chinese-language web sites It draws 20 million visitors a day, about 20 times as many hits as the Cayman-Island-based official Chinese propaganda site China.com. Many Chinese like to express their views on topical matters on chat lines and forums on Sina.com.

Sohu.com, one China’s two largest Internet portals. In 2008, it surpassed Sina.com in terms of revenue by beefing up its online gaming sector to optimally combine content, games and search engine. Charles Zhang, who founded and runs Sohu.com,, was educated at MIT and has hosted his own talk show.

Big video sites in Chinese include Youku, Tudou, KU6 and PPTVFanfou is a Twitter-like website. You.ku. Is a YouTube-like service. Dating sites include Jianyuan.com Popular online discussion groups include Tianya and KDNet. Tom Online has 75 million subscribers. It provides users with access to television, music stations and on line store through its popular web portal and over wireless networks.

Tencent is a popular site for social networking and gaming. It stock value in July 2008 was $15 billion, making it one of most valuable Internet companies in the world at that time. In comparison Amazon.com was worth $30 billion. QQ is a popular networking site offered by Tencent Technology founded by a man named Pony Ma. Time described it as network that “fundamentally changed the way China’s youth meet, share ideas and entertain themselves.” Essentially an online community, it allows users to chat, make friends, and play games. Its instant messaging service has cute animations for popular expressions. It had more than 100 million users in 2007. In China you are often more likely to get someone’s QQ number than their e-mail address.

Ipartment (www.i-part.com ) is popular site that allows users to create their own virtual living space for themselves and their boyfriend or girlfriend. As of February 2006, over half million Chinese had accessed the site.

A number of China-based website allow users to download music, movies, games and software for free and make money from advertising. The popular Chinese file-sharing website run by Xunley Networking Technology Co. Has been sued by the Motion Picture Association — a Hollywood group — for film piracy. The MPA seeks $1 million in damages from the site which allows uses to download hundreds of movies for free.

Chinese Pay Sites

Paid music downloads are virtually non-existent in China. Apple’s iTunes is not available. Google launched a music search service in 2008 called Music One Box that allows users to access music legally online in a forum backed by some record labels and supported by advertising revenues.

Access to iTunes was blocked in China in 2008 after the Art of Peace Foundation, a Tibetan activist group, invited Olympic athletes to download a free compilation called “Songs for Tibet” with songs by Sting, Alanis Morissette and others.

More and more Chinese are reading books via pay sites. Sites such as qidan.com charge readers about 1 cent per 1,000 characters to read books. The site says that it has more than 100 authors who earn more than $15,000 a year from their pay-online works. Some churn out new 9,000-character works every day because that is what their readers demand. As of 2008, qidian.com had 4,000 contracted authors and 2 million paying customers.

Dangdang.com is China biggest online bookseller. It was founded by a husband and wife team, Peggy Yu and Li Guoqing, two Chinese who survived the Cultural Revolution and met while studying in New York. All employees are required to read “E-Commerce Empire: The Legend of Amazon”. Dangdang.com has posted some profits. The company has gotten around the credit card problem by using 30 bicycle courier companies to deliver the books and collect payments, which are then wired to Dangdang. In August 2004, Amazon bought China’s then largest Internet bookseller Joyo.com. For $75 million.

A typical customers pays $7.31 a months to access a dozen or so book. That money is often paid out of respect to the writers because the same works are often available for free in file-sharing sites.

In 2004 online revenue — mostly from advertising and from Internet gaming and wireless services — grew 35 percent and reached $1.1 billion.

In the late 1990s there was a lot of Internet venture capital money floating around in China and investors were anxious investing Internet start-ups. By the early 2000s that money had all but disappeared.

In December 2006, China signed a web copyright deal with U.S. and British industry associations. The associations will provide China with lists of products they want to see protected and will hand over information about private cases.

Online Shopping in China

After a slow start, online buying has begun to take off in China. China’s large number of Internet users, many using Taobao, and Alibaba’s Paypal-like electronic payment system, Alipay, begun using the Internet to buy everything from fake Levis to pet fish to electronic bicycles, some of which are resold to foreigners for a profit. The low cost of delivery has made the system ideal for the sale and trade of all kinds of goods. [Source: The Economist, April 2010]

E-commerce accounted for only 1.9 per cent of all product sales in China, according to Taobao.com,, but is growing fast. Official government data has indicated that online sales in China nearly doubled in the first nine months of 2009 year to 168.9 billion yuan as consumers become more confident about Internet shopping.

A survey by Nielson in 2010 found that two thirds of Chinese households with Internet connections had bought an everyday item online in the past six months. Additional research has shown that nearly 10 percent of bay products are now sold online. Cosmetics and tea also sell well online. Among the greatest beneficiaries have been western companies. Well-known, trusted brands sell well online and Western firms market their goods through Chinese retailers and via their own sites. [The Economist, Op. Cit]

A survey by Credit Suisse found that goods sold online are an average of 21 percent cheaper than goods sold at conventional stores. The low prices are attributed to competition among Chinese entrepreneurs skilled at taking advantages of pricing inefficiencies. Online traders also take advantage of delivery services that will deliver most anything in Beijing or Shanghai for 75 cents or less and cheap warehousing schemes that avoid the high rents and real estate prices in these cities. [The Economist, Op. Cit]

E-commerce is slowly and surely catching n in China. About 55 million Chinese shopped online in 2007, spending $8.25 billion, according to the China Internet Research Centre in Beijing. This is up from 43 million shoppers spending $4.3 billion in 2006. By 2001 total sales is expected to reach $60 billion. Growth would be higher but Chinese shopper tend to spend little money on the Internet because of concerns about reliability, counterfeit products, payment methods and using credit cards.

E-sales does not have a lot of potential in China because not many Chinese have credit cards, which are essential for on-line shopping to take off. As of 2003, only 8 million of China’s 68 million Internet users had ever shopped online. Many of those who do shop online don’t use credit cards. They use debit cards, CODs and have money withdrawn from an account when they make a purchase.

Cutthroat Nature of the Internet Business in China

John Boudreau wrote in the San Jose Mercury News, “In China's young Internet industry, competitors draw blood. Competitors steal each others' employees, if not their intellectual property. They rat out competitors for violations of regulations to the Communist government, disable each other's websites and engage in other hardball tactics rarely seen in the valley. Established Internet companies copy business plans of startups — then set out to destroy the small companies. [Source: John Boudreau San Jose Mercury News, November 4, 2010]

"The cost of labor is cheap and there is no shame in copying," said Hans Tung, a partner at Shanghai-based Qiming Venture Partners, which backs a number of Internet companies, including Kaixin001. "The valley culture doesn't work in East Asia," said Jeremy Goldkorn, an Internet analyst who for years has operated a popular blog, Danwei.org, which the government began blocking during the summer. "There are no rules." There is, though, one rule everyone seems to agree on: Secrets don't remain secret.

Simply hiring employees can be perilous because "they could be spies for other companies," said Shen, CEO of PapayaMobile, an Android-based gaming platform. "They will steal your code and your interface. They don't even change the icons. This is how things go in China."

Silicon Valley is a pretty tough place to do business, as well. Corporate giants cooperate with other companies while simultaneously trying to eviscerate them. Company executives trade insults with rivals. Startups are constantly rising up and creating new markets and technology to destroy competitors. But Richard Lim, managing director of GSR Ventures with extensive experience in Asia and a backer of Lashou.com, admits that the "nature of competition is a little bit different" in China. Zhou Hongyi, founder of anti-virus software company Qihoo 360, puts it more bluntly: "The Internet in China is like a jungle."

Zhou, who used to head up Yahoo's China operations before a falling out with the company, is known as much for his brilliance as his warlike tactics. Qihoo 360 is locked in a battle with a former partner, another anti-virus company called Kingsoft. After their alliance ended earlier this year, the companies began targeting each other's software as malware. Each has filed a lawsuit against the other. "This kind of warfare is interminable," said Kaiser Kuo, spokesman for Baidu. It is not uncommon, he added, for companies to pay local reporters to write something bad about competitors.

The cutthroat nature of the industry has historic roots, said Kai-Fu Lee, the former head of Google China who now heads up a Beijing-based early-stage venture fund, Innovation Works. "People here want money more than people in the United States," he said. "Many families have been poor 100, 200 years and this is their big chance. It's that strong desire for materialism." It's survival of the hungriest — and fastest.

Spurring the frenetic fighting is the fact that it's not easy to sell services to several hundred million Internet users in a culture that expects most things to be free online, Kaixin001's Chu said. "We are like groups of armies fighting," Lashou.com's Wu said of the 50 or so deal-of-the-day sites in Beijing alone. Not long ago, he learned at midnight that a competing site launched a campaign that promised a secret prize to users. Wu, "shaking" with competitive drive, called a 3 a.m. meeting at company headquarters to devise a counterstrategy to be deployed immediately — a drawing for a free iPhone for those using Lashou, which effectively blunted the competitor's move. "If you want to do something, you have to do it fast," Wu said. "In Silicon Valley, people shut their cell phones off after 10 p.m. But that slows you down."

Internet Promotion in China

He Fei said, “It is not easy to become an Internet promoter. A good promoter must have broad knowledge as well as understand netizen psychology; he must have good planning skills as well as write well; he must have good media resources.” After several years of involvement in this area, He Fei realizes that this is not an easy business. “Unless you have powerful Internet appeal, your posts will be drowned out and never be picked up.” [Source: Southern Metropolis Daily, EastSouthWestNorth, April 18, 2010]

“There are about 1,000 Internet promotion companies in mainland China, employing at least 100,000 persons.”Internet promotion is a nascent business which has many problems.” A private company owner who had asked an Internet promoter to market his services said frankly: There are no standards for the price and quality of Internet promotion, so that one can spend big money and fail to achieve the desired results.

According to information, certain unethical Internet promoters not only hype brands, sell products and handle public relations crises, but they will also run massive campaigns to malign and libel their clients' competitors and even control public opinion to affect court decisions. This phenomenon is known as “Internet triad society.

“When these Internet promoters work for a company, they will analyze group psychology and customize their messages to factors such as “angry young people,” “hatred of wealthy people,” “sympathy for the weak and vulnerable,” etc. When they write posts, they make sure that they make some spelling and/or grammatical errors somewhere to prove authenticity. They will also hire a “navy fleet” consisting of university students and unemployed idlers -- usually, each team consists of 100 persons and each company worker manages 10 teams; if five company workers work on a project, that means the “navy fleet” may consists of fifty teams totaling 5,000 persons. Some companies usually have the addresses of tens of thousands of forums. So a single post is liable to show up at several thousand forums.”

Since Internet libel is hard to prove and posters are hard to track down, companies find it hard to seek legal redress. Thus, some companies are calling for legal reform to make the posters liable.

Deleting Comments and Other Underhanded Internet Marketing Tactics in China

“Posting negative comments on the Web about products and services is fast becoming the most popular channel for Chinese consumers to vent their spleen. Yet, behind this veneer of free expression lies a murky world of cyber bullies and unscrupulous webmasters who are manipulating the media to either promote or smear a company's image for profit. “[Source: Duan Yan, China Daily, June 17, 2010]

Among the services of Internet public relations agencies are removing any negative feedback they find. “Real estate, cars, electronics: These are usually the most lucrative when it comes to deleting negative posts,” Ma Mingdong, a 25-year-old Beijing blogger and online marketer, told the China Daily. “Many people think it's complicated to delete posts but it isn't.”

“He said it costs just a few hundred yuan to bribe staff at a website or forum to delete posts, and if that fails, “paid posters” — netizens hired to leave fake comments and delete genuine ones - can use software to copy the official documents and identification that websites need before they agree to remove a comment.” “Several chat groups on QQ, the instant messaging service, have even become mini-trading centers where PR firms regularly advertise for paid posters, otherwise known as shuijun, the “water army”. However, industry experts argue that the use of shuijun undermines consumer trust in the Web, as well as underlines the need for stricter policies to protect the rights of netizens and ensure fair competition.”

Fake Comments on the Web in China

More worrying, perhaps, is the growing use of fake negative comments by websites to pressure businesses into advertising with them. Wang Yu (not his real name) worked as a Web editor for a property website in Jiangsu province after graduating from college in 2007. He said his job involved copying various articles about real estate agents from other sites and then leaving fake complaints about them under any number of pre-registered user names. [Source: Duan Yan, China Daily, June 17, 2010]

“Negative comments are like intangible assets,” the 26-year-old told the China Daily , before explaining that the companies usually responded to his comments “about poor service and bad construction” by offering to advertise with the site - on condition that the posts are deleted. It is a common problem faced by many Chinese businesses, and can be particularly hard on small, family-run firms that cannot afford to hire a PR firm to protect their reputation.

“Deleting news articles is difficult, but deleting posts from online forums is very common nowadays, only the price changes,” said Li Haigang, founder of Caogen PR, an Internet marketing company. “If one of my clients gets negative posts on certain online forum, everyone would say, 'Oh, they are in trouble' - but only because this forum charges more than the others.

Although arguably ethically wrong, there is no law stopping this practice and is deemed legitimate if both sides reach an agreement. On top of that a recent online survey by sina.com, a Chinese news website, found that one-third of the 783 netizens polled see the media as the most efficient way to solve a dispute.

For those people who have noticed their posts being deleted, however, they say they have already lost faith in what they read on the Web. “I don't trust websites anymore,” said blogger Ma Mingdong, who has given up posting negative articles. “My posts are just tools for these websites to make money.”

Internet Wars in China and Foreign Companies

Hiroko Tabuchi wrote in New York Times, “China has been a notoriously difficult market to crack for overseas Web companies. Google, eBay and Yahoo, not to mention social networking sites like Facebook, MySpace and Twitter, have all struggled there, because of strong domestic competition as well as government blocking and censorship. American companies also complain that the country is not a level playing field; foreign companies must operate through locally owned firms, creating a cumbersome ownership structure that limits their flexibility. And some critics say foreign companies have failed to grasp the needs of local Internet users. [Source: Hiroko Tabuchi, New York Times, May 30, 2010]

John Boudreau wrote in the San Jose Mercury News, “China's Communist government censorship rules — and behind-the-scenes moves long suspected by valley executives to help local companies edge out foreign ones — are major obstacles. Google, which never gained large market share in China, stopped blocking sensitive search results earlier this year, triggering a clash with officials and a further drop in usage among the Chinese. Other valley companies, such as Twitter and Facebook, are blocked by China's Great Firewall. [Source: John Boudreau San Jose Mercury News, November 4, 2010]

But it would be wrong to blame the failures of valley companies here just on government interference, those in China's Internet industry say. The intense — some would say ruthless and even at times unethical — competition in China, and the speed at which companies are started and change, creates a business climate few Westerners are prepared for.

"It's like a gladiatorial, no-holds-barred fight to the death," said Dan Brody, Google's first employee in China who now runs an Internet investment company in Beijing. It took Bo Wu, founder of Lashou.com, a Groupon-type deal-of-the-day site, five years to learn how to do business in China after returning from Silicon Valley in 2000. "When I talk with a customer or a partner, I have to ask myself, 'Is his 'yes' really a 'yes'? Or is it 60 percent 'no'? Is it 'yes-no'?"

“While the robust competition creates survival-of-the-fittest companies, some in the industry worry that it could in the long run squelch innovation. In the United States, giants like Google and Cisco regularly acquire startups with fresh ideas and technology, which in turn encourages other entrepreneurs to create new companies.

One reason large Chinese companies are hesitant to buy startups is the persistent question of the loyalty of their employees who, even if they don't steal intellectual property, could jump to a competitor in a heartbeat, said Shen Haoyu, senior vice president of operations at search giant Baidu, which has acquired new companies. "People poach employees from each other," he said. "So it gives acquirers a lot less security. What exactly are you acquiring?"

VoIP Decision Means Skype to Be Illegal

A Chinese regulator has declared Internet phone services other than those provided by China Telecom and China Unicom as illegal, the Shanghai Daily reported, which is expected to make services like Skype unavailable in the country. The decision was criticized as a measure to protect the duopoly of state-owned telecom carriers, media reports said. [Source: Zhu Shenshen, Shanghai Daily, December 30, 2010]

The Ministry of Industry and Information Technology said all VoIP (voice over Internet protocol) phone services are illegal on the Chinese mainland, except those provided by telecommunications carriers China Telecom and China Unicom. VoIP is an Internet-based service that helps people save on phone calls. For example, a call to Japan or South Korea costs about 3.99 yuan (60 US cents) a minute, compared with 10 US cents a minute or even free for Skype users.

The decision is expected to make Skype, UUCall and other similar services unavailable in China. "It's ridiculous," said Kan Kaili, a professor at Beijing University of Posts and Telecommunications. "VoIP is a popular technology worldwide."

Group Buying Sites in China

Benjamin Haas wrote in the Los Angeles Times, "Known as group buying sites, operations such as Groupon generally work like this: The companies partner with local businesses to offer products and services at deep discounts, marketing the deals through emails sent to subscribers daily. Some sites require a minimum number of buyers to respond before they'll make good on the offer. Buyers typically have 24 hours to purchase the deals, which can be downloaded and printed as coupons that merchants will honor for weeks or months. [Source: Benjamin Haas, Los Angeles Times, May 05, 2011]

China's 450 million Internet users can find bargains on a wide variety of offerings including massages, hotpot dinners, Japanese condoms, doctor visits, infant formula and bridal photos. In September, 200 Mercedes-Benz Smart cars discounted by 33 percent to about $20,000 sold out in three and a half hours.

Zhao Yajie is one of the millions of Chinese consumers who have bought into the trend. She obsessively scours group buying websites for the latest deals, focusing on neighborhood restaurants and Japanese lingerie. When she finds a particularly good bargain, she emails it around or sends it to people over QQ, China's most popular instant messaging service. "And sometimes my friends send me deals too," said the 28-year-old investment manager. "Recently, a friend bought me a coupon to a lobster restaurant."

Zhao even sends deals to her boss. In a country where haggling for almost everything is the norm, this isn't considered unprofessional or embarrassing. "If you take away the technology behind group buying, this isn't new," said Kevin Lee, chief operating officer of China Youthology, a research and consulting firm that focuses on Chinese youth trends. "The motivation has always been there, trying to get the best deal, talking down the price, using coupons." Benjamin Haas wrote in the Los Angeles Times, “In December, the Ministry of Commerce singled out the industry for being too chaotic and in need of tighter regulation. Recently, for example, a daily deals website based in Zhejiang province in eastern China allegedly defrauded more than 500 people by offering deeply discounted movie tickets that a local theater never agreed to honor, according to a report in the Qianjiang Evening News. [Source: Benjamin Haas, Los Angeles Times, May 05, 2011]

But some Chinese said the deals are so good that they're worth the risk. Zou Shuang, 24, scored big on a large karaoke room and brought 14 family members along for hours of entertainment. The cost: about $3. "My parents were pretty impressed," she said.

But the deals may not last. Like their U.S. counterparts, some Chinese business owners complain that bargain hunters rarely become repeat customers. "When we don't offer a discount the number of people drops by 80 percent," said Ji Hongmei, a marketing manager at Stellar International Cineplex in Beijing. Consumers such as Zhao, the investment manager, readily admit to such behavior. "I wouldn't go back to 80 percent of the restaurants I've been to because of group buying discounts," she said. "Most of them are just so mediocre."

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

Last updated October 2011


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