After the Skype Ban: China's Changing Online Landscape

Chinese Internet cafe

China has banned Skype, but the country still loves the Internet—the latest numbers reveal that 450 million Chinese are online, or a whopping 33.39 percent of the population. In Beijing alone, 11.6 million people use the Internet, which is 66.1 percent of the population.

Business opportunities for domestic and foreign companies are also expanding. PayPal announced it's setting up an e-commerce hub in Chongqing. Even local farmers are using the Internet to sell their goods domestically.

Microblogging is also on the rise—a reported 125.2 million people are now using microblogging services in China.

The Chinese government is joining the bandwagon too. The government has announced that it's putting the entire country's worth of marriage registrations onto an online database in an effort to prevent polygamy. Though it's illegal, some Chinese citizens are trying to get away with more than one husband or wife. The online database is meant to keep track of partners, to ensure at least virtual monogamy.

Internet pornography is still wildly popular, as evidenced by the Chinese government's persistent crackdowns. Last week the government announced that it has shut down over 60,000 porn sites this year, investigated 2,197 criminal cases, punished 4,965, and sentenced 58 offenders to jail.

Despite persistent concerns about hacking, companies like PayPal are charging ahead. Using its new international e-commerce hub, customers will be able to initiate cross-border transactions. An additional four PayPal e-commerce centers are to be set up around China. And Analysys International reports that online sales may hit $151 billion for the year.

It would seem that the way forward for foreign companies is through partnerships with local entities, as both PayPal and Skype did. In Skype's case, of course, that was not enough. Skype's carrier, Tom.com, is also a private carrier, and is thus now banned in China after the government abruptly announced that only the state-run China Unicom and China Telecom are allowed to operate and all other carriers are now illegal.

So as the Internet climate continues to evolve in China, one thing is clear—online business there is still risky. Local partners or not—and hacking protection or not—regulations are unpredictable. Sure, the number of people who use the internet in China is soaring, increasing at a rate of 20% per year, and ultimately that will be an important customer segment to tap into. But proceed with caution.

Related Story: Skype Banned in China in State-Run Carrier Crackdown

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[Image: Flickr user Robert Scoble]

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