Internet Development in China July, 2014

General situation Individual network application 01 02

China has had 632 million internet users, with more than 40% penetration rate. 632 million Internet users, 46.9% Internet penetration rate. By the middle of June 2014, China has had 632 million Internet users, and the number of new internet users during the previous half year is million. The Internet penetration rate has reached 46.9% in China, increasing 1.1% compared to that of last year. 632 million Internet users, 46.9% Internet penetration rate. By the middle of June 2014, China has had 632 million Internet users, and the number of new internet users during the previous half year is million. The Internet penetration rate has reached 46.9% in China, increasing 1.1% compared to that of last year.

Transformation of non-Internet-users is becoming more difficult obviously. People with low levels of education and high ages tend to have higher intention of Internet surfing. Intention of non-Internet-user population to surf the Internet is low

527 million mobile Internet users 手机网民发展进入新阶段： From device-pulling to demand-driven The replacement of functional mobile devices with smartphones was basically completed, and smartphones' pulling effects on the growth of Internet penetration were weakened. For a period of time in the future, the growth of mobile Internet users in China will mainly rely on innovative mobile applications which cater to the potential network demands of non-mobile Internet users. From device-pulling to demand-driven The replacement of functional mobile devices with smartphones was basically completed, and smartphones' pulling effects on the growth of Internet penetration were weakened. For a period of time in the future, the growth of mobile Internet users in China will mainly rely on innovative mobile applications which cater to the potential network demands of non-mobile Internet users.

Mobile phone exceeds PC for the first time, enhancing No.1 Internet terminal device role. desktop computer notebook computer mobile phone desktop computer notebook computer mobile phone PC Internet access devices of Internet users Internet access devices of Internet users

General situation Individual network application 01 02

Mobile business applications boosting, entertainment applications fast increasing Acquisition of information Communication Online Entertainment Business Transactions 11.2% 6.6% -4.0% -13.2% 16.6% 24.5% 21.8% 19.1% 16.9% 9.8% 42.0% 63.4% 56.4% 25.5% 65.4% Semiannual Growth Rate of Users Size  Overall mobile phone business applications grow fast.  Mobile payment breaks through mobile business applications, driving the whole mobile business market to thrive. .  With the continuous improvement of the network environment, high flow activities of users on the PC end shift to applications on mobile terminal at increasing speed.  Mobile music, video, games, growth rates appear faster growth  Mobile search is still growing rapidly.  Among mobile communication applications, social networking sites scale appear prominent shrink. Search Online news

Instant messaging is still ranked first in the network applications. Instant messaging users scale up to 564 million, with semiannual growth rate of 6.0%, and use the rate of 89.3%, which is the highest. Instant messaging users firmly occupy the throne of the No.1 usage, and increases steadily. Instant messaging users scale up to 564 million, with semiannual growth rate of 6.0%, and use the rate of 89.3%, which is the highest. Instant messaging users firmly occupy the throne of the No.1 usage, and increases steadily. Instant messaging use rate increases steadily Mobile instant messaging users is 459 million, with semiannual growth rate of 6.6%, and use rate of 87.1%. Mobile instant messaging usage has been lower than the PC instant messaging usage, along with constantly updating of low-end mobile phones by smart phones, and the obstacles of instant communication development have been disappearing. Mobile instant messaging users is 459 million, with semiannual growth rate of 6.6%, and use rate of 87.1%. Mobile instant messaging usage has been lower than the PC instant messaging usage, along with constantly updating of low-end mobile phones by smart phones, and the obstacles of instant communication development have been disappearing. Mobile instant messaging Usage low- land drives growth

Both users scale and usage of traditional social networking site continue to decline Development of traditional social networking sites is not optimistic By June 2014, the scale of China's traditional social networking site users is 257 million, presenting a reduction of million by the end of 2013, with a decrease of 7.4%. Use rate of Internet users who use social networking sites is 40.7%, with 4.3% decrease by the end of last year. Socio- elements Online shopping Online payment search Online game Online video  Development of traditional social networking sites is not optimistic, but the vertical segments of social networking sites gain a rapid development, among which, professional networking sites develop rapidly, expectably becoming the next capital competition field.  As a basic element of Internet applications, social communicaion, has been integrated with other applications, which has become normality.. Traditional ‘social networking sites’: Refers to narrow definition of the social networking site, similar to Facebook, based on the user's social relations so as to provide a communication and exchange platform. These sites encourage users to provide general factual information as possible.

Mobile phone game drives whole game market growth Mobile phone game driving whole game market growth Developing directions: With the relaxation of the policy, and somatosensory games, video games, wearable gaming devices and other new forms of game development and introduction, game industry in China will present a more diverse development pattern. The number of mobile phone game users is 368 million, half year growth is million, with usage increasing from 43.1% to 47.8%. According to the overall development trend of China's game industry, it has gradually walk away from the period when online game dominates. Due to further deregulation of game policies, networks improvement and gaming devices diversification, as well as combination of games, television, literature and other industries, the game industry will develop further in future..

Online shopping penetration rate over 50%, mobile end shopping achieving explosive growth. online shopping market has developed rapidly, with mobile online shopping expanding the growth space. By June 2014, China's online shopping users reached 332 million people, online shopping usage increased to 48.9% from 52.5%. Mobile shopping users reached 205 million, with semi-annual growth rate of 42%, reaching 4.3 times the size of the overall online shopping user is online shopping growth rate, and mobile phone shopping usage increased from 28.9% to 38.9%. Number of users and use rate of online shopping driving forces of online shopping growth Honesty environmental improved The government and enterprise to rectify the market, the fight against fake Online shopping security efforts strengthened "New consumption" law claims no reason to return within 7 days Awareness of online transaction increasing Online shopping penetration rate over 50% Logistics efficiency Competition of who deliver the farthest or fastest services to consumers Promote mobile terminal Convenient payment function and more margins of preference than PC end. Application mode innovation Based on big data applications launching C2B customized pattern matching personalized demands. Basic development environment Service level

Mobile terminal drives online payment into rapid development channels. Mobile payment user scale growth rate is 5.2 times of that of the overall market. By June 2014, the user scale of China's online payment has risen up to 292 million, with a semiannual growth rate of 12.3%, and the use rate has increased from 42.1% to 46.2%. Online payment is the fastest growing network application. Mobile phone payment users scale up to 205 million, the semi annual growth rate of 63.4%, the use rate increased from 25.1% to 38.9%. Mobile phone online payment is the fastest growing mobile phone network application. Mobile payment user scale growth rate is 5.2 times of that of the overall market. By June 2014, the user scale of China's online payment has risen up to 292 million, with a semiannual growth rate of 12.3%, and the use rate has increased from 42.1% to 46.2%. Online payment is the fastest growing network application. Mobile phone payment users scale up to 205 million, the semi annual growth rate of 63.4%, the use rate increased from 25.1% to 38.9%. Mobile phone online payment is the fastest growing mobile phone network application. Number of users and use rate of online payment Online shopping and travel booking drives the rapid growth of online payment development. The rapid development of mobile payment substitutes the offline payment. Secure environment and secure performance of payment tools have been promoted to further enhance safety. Linkage effectSubstitution effect Psychological effects Main driving forces of online payment growth

China encourages enterprises to use cloud computing technology, Internet / mobile Internet, intelligent terminal and other advanced means to enhance user experience. Social capital / industry mergers and acquisitions to enhance the overall service level. A large number of offline bookings have been transferred to online services, due to tourism products improvement, stronger enterprise promotion efforts, and spreading APP applications. Due to release of leisure travel potential, online trips booking achieves rapid growth. +4.9% Number of users and use rate of online travel booking By the end of June 2014, the number of netizens who have experiences of online booking of train tickets, air tickets, hotel rooms or trips has reached 190 million, increasing 8.83 million during a half year, with a growth rate of 4.9%. Comparison of classified online travel booking applicaions rates -0.7% +1.8% Main driving forces of travel booking Scale of netizens who book trips online has fastest growing

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