The big picture: Chinese domain market

This is the first article in an ongoing series by Kassey Lee regarding the market for domain names in China.

Backed by a massive population of digital consumers, China is positioned to become the largest domain market in the world. In a series of articles, I plan to analyze the Chinese domain market and try to identify opportunities for domain investment. Let’s start by looking at the big picture first.

Consider these numbers: 829 million internet users, 59.6% penetration rate, 610 million internet shoppers, 583 million mobile payment clients. They point to an enormous digital economy which will expand tremendously when 5G is fully deployed to provide an even more enjoyable shopping experience for consumers.

Source: CNNIC

A growing economy drives the formation of more firms. In 2017, there were 92 million firms in China, as stated by the National Development and Reform Commission (国家发改委). On the other hand, last year Sisy’s World News noted 140 million entrepreneurs in China. With a vibrant VC community and also strong backing from the national government, the number of Chinese firms will rise significantly over the long term.

Every firm needs a website, which in turn needs a domain – eventually. Still, there are right now only 5.2 million websites in China as stated by the 43rd Statistical Note on the Internet Development in China published by CNNIC in February this year. Compare the 92 million firms (or the 140 million entrepreneurs) with the 5.2 million websites and you can see there is a massive potential demand for domains in China.

Source: CNNIC

The note also indicates 38 million domains right now registered in China. The market experienced double-digit growth in the early years, but shrunk drastically in 2010 and 2011 when many .cn domains were discarded. (I’ll cover this issue when analyzing the .cn extension.) The market has also shrunk in the last two years, which may be due to a weaker economy and also the China-USA trade dispute.

Source: CNNIC

Again, compare the 92 million firms (or the 140 million entrepreneurs) with the 38 million domains and you’ll arrive at the same conclusion regarding the tremendous opportunity in domains for China. This also suggests that a lot of domains are likely still in the hands of investors waiting to be passed on to end users.

When I look at the big picture by following the line of thinking of digital economy -> firms -> websites -> domains, I must conclude that there are tremendous opportunities in selling domains to China.