Demographics and behavior of Internet users in China

Abstract

This empirical study concerning the demographic and behavioral trends of Chinese Internet users will help both researchers and practitioners to understand the changing nature of Chinese Internet use. After China's accession to the World Trade Organization (WTO), Internet service markets opened to foreign investment. Today an increasing number of Chinese people and organizations use the Internet for varying purposes. Thus, understanding the relations between demographic data and behavioral patterns of Internet users in China is essential. This study also discusses how to guide IS practitioners to develop effective strategies and tactics to penetrate highly competitive, developing cyber-markets. The findings presented here will facilitate the development and construction of websites capable of reaching millions of existing Web users.

Introduction

Because China's economy is developing so quickly, and more people are using the Internet, it is critical to understand the demographics and behavioral patterns of Chinese Internet users. This research seeks to accomplish two primary objectives. The first is to analyze and identify patterns among Chinese Internet users. These patterns may delineate the changing nature of the users’ demographics and online behavioral patterns. The second objective is to explore the implications of the patterns discovered. It is hoped that this study will enhance the readers’ and IS professionals’ understanding of Chinese Internet users and open up a discussion of the implications that will help guide IS practitioners as they develop effective strategies and tactics to penetrate the highly competitive cyber-markets. Our findings may also help Web designers develop and construct websites that must compete with millions of other sites already on the Web.

Section 2 provides a review of the current literature on the demographics and behavior of Internet users in general. Section 3 focuses on the demographics and patterns of Internet users, as well as identified trends. In Section 4, we provide background about the data source. Section 5 summarizes key findings and observations from the study. Finally, Section 6 describes the limitations of this study and offers useful suggestions for conducting further research.

This study contributes to the literature on the demographics and behavioral trends of Internet users in China. Previous studies have reached differing conclusions in part because of differences in survey strategies, including differences in timeframes, specific questions asked, and countries studied. This study utilizes several different data sets to examine the consistency and trends of the results across surveys. In addition, the study uses data through 2004, thereby bringing the literature up to date with the most recent data available. This study also examines several dimensions of Internet users and usages to give a more complete picture of Chinese Internet users’ demographics and behavioral trends, based on per capita GDP, income increases, and deviations across the various geographical locations.

The adoption of economic reforms and an “open door” policy in China resulted in substantial economic growth within the Chinese population of 1.3 billion. Fig. 1 illustrates economic growth in terms of annual per capita GDP, annual per capita disposable income of urban households, and annual per capita net income of rural households.

The 1999 Sino-US agreement paved the way for China's successful entry into the World Trade Organization (WTO), which will further accelerate China's economic development and, as a result, create huge demand for telecom products and services. In this bilateral accord, the Chinese government made a significant concession by agreeing to open China's telecom market to the outside world, and promised to make more efforts to open the telecommunications service sector as well. This agreement phases out many restrictions on foreign investment in this sector and will result in implementing the pro-competitive regulatory principles outlined in the WTO Basic Telecom Agreement. Lifting import restrictions offers tremendous business opportunities for foreign companies in China's vast telecom market.

China's accession to the WTO forced the Chinese government to open its Internet service market to worldwide foreign investors, with the result that the country's dominant telecommunication service markets in Beijing, Shanghai, and Guangzhou (representing about 75% of all domestic traffic) were opened immediately. China proposed allowing an initial 49% foreign equity investment in all telecommunication services, but China eventually will allow up to 51% foreign ownership for all associated value-added services after 4 years [1].

China's accession to the WTO facilitates diversification of the ownership structure in China. The so-called “new institutional economics” (NIE) offer insight into the incentive effects of differing types of ownership structures. Based on the NIE literature (e.g., [2], [3]), type of ownership has a significant effect on technical efficiency because changes in property rights affect the incentives for business decision makers. Efficiency improvements as a result of privatization occurred primarily because of changes in the principal agent relationship (e.g., a shift from state as agent to private agents) and resulting changes in the transaction costs associated with supervision.

Increased foreign investment will undoubtedly bring Western management and production expertise to China's telecommunications industry, which has prompted China to consider privatizing its state-owned telecommunications enterprises. The hope is that privatization will intensify competition among, and thus improve the performance of China's telecommunications firms. A study by Samarajiva [4] provides answers to the question of whether telecommunication-sector performance would be improved in an environment of multiple competing providers or one with a reformed incumbent. The experience of Sri Lanka supports a competition-based strategy. Based on data from 23 countries, Ros and Banerjee [5] found a positive and statistically significant relationship between privatization and network expansion in Latin America. In addition, a study of the financial and operating performance of 31 national telecommunication companies from 25 countries indicates that the financial and operating performance of the companies actually improved after privatization [6]. Finally, another study shows gains in the quality and range of service as a result of privatization in the telecommunications area [7].

Internet use in China has increased substantially since 1997. Specifically, as Fig. 2 illustrates, the total bandwidth of leased international connections, total number of Internet users, and total number of websites have increased dramatically. Online population, for example, has skyrocketed from 630,000 in early 1997–1987 million in July 2004. More and more organizations in China are using the Internet to access and retrieve information, disseminate knowledge, and provide online services to improve the organization's efficiency, effectiveness, and productivity. For instance, the number of Internet hosts in China has increased steadily, from 1004 in January 1997 to 126,146 in July 2004 [8].

Entry into the WTO put pressure on China to crack down on copyright infringement and sales of goods illegally or in “gray markets.” The division of the US Trade Representative (USTR) is currently engaged in full-time “China watching” on behalf of aggrieved US corporations. Online copyright violations have been a major problem in recent years. Internet piracy is also a major concern of the recording and music industry. In the past websites in China, such as www.9sky.com and www.chinaMP3.com were giving away or offering links that enabled users to access thousands of pirated songs, and many publishers noticed alarming increases in the piracy of electronic journals [9].

To improve copyright protection, China is ready to join two conventions sponsored by the World Intellectual Property Organization (WIPO): the WIPO Copyright Treaty, and the WIPO Performance and Phonograms Treaty. In addition, a draft of the “Regulations for Protecting Copyrights on the Internet” will be formulated and completed in late 2005, with the goal of better protecting copyrights of online works [10].

These rapid developments in China's telecommunications market greatly facilitated the advancement of China's economy. In 2003, China's foreign trade volume was $851.2 billion, with imports of $412.8 billion and exports of $438.4 billion [11]. Out of 17,833 Internet users surveyed in June 2004, 37.8% reported they had some online purchasing experience over the last 12 months compared to only 9.79% in a similar survey in 2000 [12].