China, US Online Populations Neck and Neck

The figure, reported Thursday by the Xinhua News Agency, reflects China's explosive growth in Internet use despite government efforts to block access to material considered subversive or pornographic. It was a 61 percent increase over the 137 million Internet users reported at the start of 2007.

However, the numbers alone can be deceiving.

Home Surfers or Cyber Cafes?

Nielsen Online estimates the U.S. online population at 221 million as well, but it counts only those with home or work access, as the vast majority of U.S. Internet users do. By contrast, one-third of Chinese Internet users surf through cyber cafes.

China's Internet penetration is still low, with 16 percent of people online, compared with a world average of 19 percent, Xinhua said. The Pew Internet and American Life Project places U.S. online penetration at 71 percent.

China still lags the United States, South Korea and other markets in online commerce and other financial measures, though e-commerce, video-sharing and other businesses are growing quickly, and companies have raised millions of dollars from investors.

"We'll see this growth continuing," said Duncan Clark, chairman of BDA China, a Beijing technology company. "Even though China might overtake the United States in total [Internet] population, it still lags in the size of its Internet industries, and there will be a lot more opportunities."

Strict Net Censorship

Beijing promotes Internet use for business and education but operates extensive online censorship. Web surfers have been jailed for posting or e-mailing material that criticizes Communist rule or is deemed a violation of vague national security laws.

Most recently, Chinese Web surfers have been blocked from seeing Google's (Nasdaq: GOOG) YouTube and other foreign sites with videos about protests in Tibet and the security crackdown there. In March, the government said it would shut down 25 Chinese video sites and punish 32 others for violating new rules against carrying content that is deemed pornographic, violent or a threat to national security.

The Xinhua report cited February data from the government's China Internet Network Information Center. An agency spokesperson, who would give only her surname, Zhang, declined to give more details. She said the agency would release a report in July.

The U.S. online population has largely stabilized, meaning that when March figures for China are released they may show that the country has already overtaken the United States.

Net Boom

BDA's Clark said the Chinese online population should keep growing by 18 percent annually, reaching 490 million by 2012 -- a number larger than the entire U.S. population.

The boom has produced Chinese success stories such as games site Tencent.com and search engine Baidu.com, which are competing with foreign rivals for market share.

The Internet's mushrooming popularity has been driven in part by a regulatory quirk: Fixed-line phone companies are losing potential new customers to mobile phone services but are barred from getting into that market themselves. So they are trying instead to bring in new revenues by promoting low-cost broadband Internet access, which has brought high-speed service to millions of homes. Phone companies also are experimenting with Internet-based cable television.

Web businesses are looking for another boost when Beijing takes the long-anticipated step of issuing licenses for third-generation, or 3G , mobile technology to support video, Web surfing and other services. No date has been set.

With the world's largest mobile phone market, at 520 million accounts, China has a vast potential pool of wireless Internet users.

"There will be a lot more opportunity to move online," Clark said.