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Are China's Web Stocks Set For A Rebound?

25 January 2013 in Trading Ideas

Despite the famous ambivalence on the part of the Chinese government, internet use in the country continues to explode. As far as the web is concerned, China’s best years appear to be still ahead.

Final figures for 2012 showed another double-digit annual increase of 10% in the number of Chinese citizens online. There were 51 million new Chinese using the web last year, for a country total of 564 million.

Much of that increase was due to smart phones and tablet computers, which are as popular in China as they are everywhere else in the world. Usage of mobile devices grew more than 18 percent in 2012, reports the China Internet Network Information Centre, meaning that 420 million people were connecting to the web wirelessly.

China, of course, censors its internet through a complex system of technologies known as the “Great Firewall.” Material critical of the government is often off-limits, at least in theory, since many Chinese successfully play an ongoing cat-and-mouse game with authorities to get around the censors.

The government ramped up its pressure last year with a new regulation requiring that all residents use their real name when operating online. The move was seen as targeting China’s thriving social media scene, where criticisms of the government had flourished under the veil of anonymity. A site called Weibo is China’s version of Twitter, and already has more then 300 million users.

What excites many observers of the China internet scene is that for all its hundreds of millions of users, China’s internet still has plenty of room to grow — web penetration is now only 40%.

China’s Ministry of Industry and Information Technology estimates that in two years, another 240 million Chinese will go online. The country already has a billion cell phone users, and an ever-increasing percentage of them are using internet-capable smart phones for searching, video and social media.
The question, of course, is what all this means for Chinese internet stocks. The markets have started the year on a decidedly bullish note; the China Internet motif is up 15% during the last 30 days.

Many of the big names of the internet economy in China, such as the search engine Baidu, had an off-year in 2012. Bears worry that even with its economic growth, much of China remains too poor to go online; they also worry about business transparency issues.  Bulls say these stocks are due for a rebound, especially if internet usage continues to grow in line with everyone’s expectations.


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