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Thursday, 8 November 2012

What's happening in China?

The growth story of mobile and internet in India is always closely compared with China. Both markets have seen huge growth trajectories in the recent past, and both have a similar trend of growth fuelled by low-cost handsets, access to mobile internet and rapid adoption of technology by the younger generation. As interesting as the common factors, are the key differences between the two markets.

First, let's look at market sizes. India has 125 million internet users according to the latest ComScore/ ASSOCHAM estimates, and approximately 60 million mobile internet users, on a base of 698 million 'active' mobile users. China on the other hand, crossed 500 million internet users in July 2012, with an estimated 356 million users accessing the net through mobile devices. As of mid 2012, there were an estimated 50 million smartphone users in China; while approximately 27 million Indians have smartphones.

Let's look at some of the key differentiating factors between the two markets that have played a role in internet adoption.

1. Literacy levels

Literacy in China is 92%, while the 2011 census showed that literacy in India is at 74%. The quality of literacy is also an important factor to consider here. In India, the focus on higher education has been strong while access to quality primary level education has lagged behind. Therefore we see on one hand a surfeit of highly qualified professionals like doctors and engineers, and on the other hand, a large base of people who could not attend primary school. China has been able to provide wide access to good quality primary and secondary education creating a literate labor class. 

The internet demographic graphs of China show a telling pattern. Internet usage is pretty evenly distributed across age groups and gender while a respectable number of 136 million rural users access the internet. For me, this is a leading indicator that literacy has played a role in addition to access and growing affluence.

When literacy level and the quality of literacy improve in India, we will see faster adoption of the internet. 

2. Vernacular language content and platforms

China like India, has a diversity of languages, with 9 major language families and many different dialects. Try navigating to any Chinese website and chances are, it will open in a Chinese language. Whereas the majority of websites in India are in English, though they are increasingly offering vernacular options.

India is estimated to have at least 100 million English 'speakers' (who can read and speak) and  approximately 250 million English users (who can read but not speak English fluently). This is not a small number but it still represents less than 30% of the population. Also bear in mind that whether you are an English speaker or user, you might still prefer to read and converse in the vernacular.

The story of growth of vernacular language internet platforms in China is an interesting one. Wikipedia says that China has officially blocked 2600 international sites including Twitter, Facebook and YouTube. However, this provided a great impetus for home grown alternatives to develop. Baidu (search), Tencent's QQ (instant messaging), 163 (email) and Weibo (Microblogging) have flourished and rank among the top accessed Chinese sites. Social networking, sharing and content creation has become a key part of the internet users' lives - they experience a freedom and empowerment that perhaps they cannot under an authoritarian regime. 

The growth of vernacular sites cannot be attributed only to the ban on international sites. Clearly the people who create Chinese language content are themselves comfortable in the vernacular. I wonder if content in India is largely created by people who think in English. Vernacular content is going to be key to unlocking internet growth in India

3. Telecom and handset manufacturer initiative

China has three major operators - state owned China Mobile, China Telecom and China Unicom. China Mobile with 683 million subscribers is the biggest telco in the world and has driven growth through subsidised handsets and cheap data plans. The company has lost out in the 3G growth to competition as it uses a proprietary 3G standard which is incompatible with handsets like the iPhone. This has benefited the other two carriers who especially China Unicom which had an exclusive deal with Apple until the launch of iPhone 4S. China Unicom currently has 63 million 3G subscribers and expects the 3G customer base to soon overtake 2G user base.

The smartphone market in China is poised for a huge shift. A report states that smartphone manufacturers and telcos are partnering to launch budget smartphones at 600-700 yuan (under USD $110), while international brand smartphones continue to be subsidised. The move is likely to stimulate upgrades from China's vast feature phone user base, especially middle income. Interestingly, Indian brands like Karbonn and Micromax are creating a similar market trend in India. 

We are definitely lagging behind China in development of mobile internet infrastructure. In 2009, the Chinese government completed allocating spectrum to major operators, and charged a useage fee  rather than a license fee. The operators have invested in upgrading networks and are already preparing for 4G/LTE. Whereas in India, the infamous spectrum auctions forced operators to pay huge licence fees for additional spectrum, and the high cost is being passed onto customers, slowing adoption.

If smartphone migration is to accelerate in India, it stands to reason that mobile broadband needs to grow alongside. 

Sources : The NextWebEast-West ConnectWatchChina Times