The Internet in China: Looking Back (2010) and Forward (2011)

What happened in 2010? By the end of November 2010, the number of Chinese Internet users had reached 450 million, up 17% from 384 million at the end of 2009. During the same period, China's Internet penetration rate had increased five pencentage points to 33.9%. The strong growth in user base has driven the number of publicly traded Chinese Internet companies to increase by 42% Y/Y to 37 (chart below).

Fueled by China's strong economic growth, online advertising stocks were the best-performing segment within the industry, with an average gain of 58.2% for the year. Among the 12 Chinese Internet stocks that were up for 2010, six of them were online advertising stocks. Due to slower user growth, lack of innovation, and a tougher competitive environment, online game stocks were the worst-performing segment, with an average loss of 20.4% for the year. Ten of the 14 declining China Internet stocks in 2010 were in the online game business, and the five worst-performing stocks in the industry were all online game stocks.