BCG - The Boston Consulting Group

• Executive Summary
• China's Digital Landscape
• China's Digital Generations: From Teenagers to Middle-Agers
• The Rise of the Digital Giants
• The E-Commerce Revolution
• The Consumer Connection
• Appendix: Researching China's Digital Generations
• For Further Reading
• Note to the Reader

In the last three years, China’s digital generations have undergone a dramatic transformation, with rapid adoption of digital devices and the Internet across different city tiers and in rural areas. Yet there is still significant room for growth as the Internet penetrates further into China’s less-developed regions—the number of Chinese digital consumers is expected to top 650 million by 2015. Internet penetration is forecast to increase from its current 29 percent to nearly 50 percent by 2015 and to reach almost 40 percent of China’s vast rural population.

Not only are more Chinese people using the Internet, but they use the Internet more than do consumers in the United States or in major emerging markets. Moreover, far more Chinese people use the Internet to communicate and seek entertainment than in the other major emerging markets. This includes unusually heavy usage of instant messaging and online music, video, and games.

This latest report offers a comprehensive study of online behavior in China based on quantitative data as well as interviews with nearly 2,000 people from 12 cities in 11 of China’s 22 provinces. The study identified six segments of the Chinese Internet user population. Among these, young professionals, who represent 6 percent of Chinese Internet users, have a remarkable 99 percent penetration. They are also the heaviest users, averaging more than 4.0 hours a day online.

The report also reveals the explosive growth taking place in China’s e-commerce arena. In 2009, business-to-consumer and consumer-to-consumer transactions in China clocked in at a total of $37 billion, and BCG forecasts that they will surpass $100 billion in just three years. Many of the new industry giants of China’s online marketplace—Alibaba.com, Tencent, and Ctrip.com, among others—are homegrown players that have fended off tough competition from established multinationals.

The rise of the digital giants—which have transformed themselves from start-ups to multibillion-dollar companies—helps explain how monetizing Chinese consumer behavior can work. The most successful local companies outperformed multinationals in every category of the Internet industry in China, driven by a deep understanding of Chinese consumers and by innovative approaches to meeting their needs. Any company committed to engaging Chinese consumers will need to grasp the trends and implications of the country’s Internet-usage patterns. Understanding the underlying needs and tastes of the different segments of Chinese digital consumers is vital for crafting an effective approach to engaging them.

David C. Michael is a senior partner and managing director in the Beijing office of The Boston Consulting Group and leads the Global Advantage practice.

Yvonne Zhou is a principal in the Beijing office of The Boston Consulting Group.