In the spirit of previously published reports that set a framework for understanding the evolution of the Internet (The Internet Report - 1995, The Internet Advertising Report - 1996, The Internet Retailing Report -1997, The Online Classified Advertising Report: It's About Search, Find and Obtain [SFO] - 2002), Mary Meeker and a team of research analysts from China, Japan, Korea, Europe and the US have drilled down on the dynamics of the Internet in China. They focus on fourteen key themes - related to industry, competitive, and macro issues - that they believe are key indicators of the ongoing development of the dynamic Internet market in China.
The report is the first of its kind. "This is the report we wish we had been able to read before we began to dig into the market for the Internet in China," the team noted. Their summary follows:
• We maintain that investors still underestimate the impact the Internet will have in changing business process and consumer behavior on a global basis -- and we believe that China is emerging as a market that helps prove this point.
• China is the second largest market for Internet users (80MM as of year-end 2003) and will likely be the largest within five years. Historical constraints on media and communication have created an especially receptive environment for rapid growth in Internet usage.
• Already advanced in messaging and online gaming, China should enjoy increasing scale advantages in wireless messaging and other Internet data applications.
• Revenue generation from online advertising and eCommerce, while ramping nicely, are still in nascent stages in China in large part due to relatively low levels of GDP per capita and low levels of disposable income.
• The Chinese government, after a period of resistance, appears to support the Internet as a critical tool for local and global economic progress.
• While Morgan Stanley chief economist Steve Roach is concerned about China's slowing economy and China economist Andy Xie considers Chinese equity values, in general, to be overvalued, Steve and Andy remain optimistic about the long-term outlook for underlying economic growth and market capitalization appreciation.
• A balanced approach to investing in this especially early-stage market is key.