There's even higher potential ahead. Only 19.1 percent of all Chinese are Internet users, compared with 60 to 70 percent in the US, Japan and South Korea.

And the Beijing Olympics, which opens this weekend, provides even more good news. The Games are expected to fuel a surge in online advertising and cyber games, according to the report by iResearch.

The Internet economy will be powered by online advertising for the Beijing event and the advent of third-generation telecommunications services in the world's No. 1 mobile phone market, iResearch said.

The coming high-speed mobile network will allow handset users to enjoy new and faster data services, such as video conferences and film downloads.

Among the cyber-market segment, Baidu still leads in the search sector, with Alibaba.com dominating online auction services, followed by foreign players Google and eBay. Competition in online games is heating up as many newcomers have entered the fray. Only about 27 percent of China's online game revenue was contributed by major Internet portals such as Sohu and Sina, according to iResearch findings.

(Shanghai Daily August 5, 2008)