If you'd invested in China's tech sector leaders five years ago, you'd have done quite well. Since then, killer apps have emerged, retail has shifted online, and 208 million people have become internet users, creating a wave of user traffic that has propelled sector revenues and stock prices. But how confident can investors be about the outlook for the tech sector? Is it possible for Chinese tech firms to continue expanding? What if they have reached their growth ceiling? And if not, how high is the ceiling?
Many, if not most, of these questions are top of mind right now. But there are good reasons - three, in particular - to expect Chinese internet and tech companies to continue growing in the future.
#1: China's Online Universe Still Has Room for Growth
At 772 million (1), China's online user base is huge, but it's got room to grow - and that's going to create more user traffic and revenue for the sector. Only 54.6% of China's population are online (2), well behind the UK (94.8%), Japan (93.3%), and US (87.9%), according to Internet World Stats.
But we're expecting China to catch up. Why? Firstly, as China urbanises and millions more people move to cities, it's going to create lots more connected internet users. Secondly, because tech companies' new initiatives, like mobile payment, make it essential for those new users, and existing ones, to be online.
Exhibit 1: Internet Penetration, Countries Compared, 2017