QQ craze holds key to China's internet market

Sometimes you wonder what people in China did before the mobile phone was invented. On the bus, in the restaurants and teahouses, everyone sits gazing at their screens, often in groups. Most of them are using QQ, an instant messaging system that is a little bit Facebook, a little bit YouTube, a little bit MySpace but utterly unique.

More than 100 million Chinese people are hooked on QQ and it has 80 per cent of the market. QQ users develop online personalities, or avatars, and spend the time on the increasingly lengthy commutes through China's cities buying clothes, choosing hairdos, even buying pets for their alter egos. Then they IM their friends to tell them how their avatar is doing.

"I use QQ to do all sorts of things: chatting, archiving photos, writing diaries, meeting new friends, shopping and playing games. It is very convenient. I spend two to three hours every day on QQ. It has taught me a lot of things," said Yu Cunyu, 34, who has a small business. "Because of our work, my wife and I need to be away from our home village all year round. We often chat with our daughter, our brothers and our parents through QQ. We watch them on video. With QQ it feels that we are no longer so apart."

QQ is the brainchild of Pony Ma, the high-profile internet entrepreneur behind Tencent, an internet portal which started life in the southern boom town of Shenzhen in 1998 and went public in Hong Kong two years ago. It is now a major player in China, where there are an estimated 160 million internet users, 70 per cent of whom are under 30.

In a sign of how dominant QQ has become, the Chinese central bank has launched an investigation into Q-coins, which allow users to shop online for games and music. The regulating bank was worried that the coins could pose a threat to the yuan, or be used to launder money.

The government, worried that QQ could be used to organise opposition to the Communist Party, also keeps a beady eye on the system.

In the West the main priority for web users is information, but in China, where the flow of information is strictly controlled, the main focus is on entertainment. And most of Tencent's earnings come from entertainment services sold through mobile phones.

Instant messaging and online gaming have become national obsessions. Chinese people are obsessive about downloading video games and songs on to their mobile phones, watching movies on their tiny screens, even reading novels, buying and selling virtual goods.

While Tencent and other domestic internet companies such as Baidu and Alibaba thrive in the world's second biggest internet market, big global players like Yahoo!, Google and eBay are struggling. Many foreign companies have failed to understand that China's internet market is geared towards entertainment and to mobile phones. And it is in that arena that companies like Tencent have proved themselves to be far more innovative than even the biggest Western stars. As with every new technology, the challenge will be keeping the QQ generation logged on.