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Internet Challenges in China: An Overview
Understanding the Chinese Internet: Why Do Challenges Exist?
P.04
P.06
Internet Challenges & Solutions When Doing Business in China
P.09
P.11
Staying Connected: Solutions to Internet Problems in China
The Importance of Network Security in China
Issue 159 • Special Edition, October 2015
From Dezan Shira & Associates
www.china-briefing.com
2
Today’s opportunities for online investment in China cannot be questioned. The world’s second largest economy is currently experiencing huge growth in its e-commerce industry. With online retail volume increasing by 21.3 percent year on year in 2014 to US$1.98 trillion, China is now the world’s largest e-retailing market – a status it is likely to enjoy for years to come as more and more of its population gains internet access.
However, the rising fortunes of China’s e -commerce sector are not reflected in the quality of its internet; a fact that any foreign firm with a presence on the ground here will undoubtedly be aware. There are numerous problems with China’s internet that can either hinder or outright prevent various business operations, including digital marketing and data communication, and thus limit how effective a China operation can be.
In this special edition of China Briefing magazine, we highlight how and why foreign companies will be negatively affected by China’s internet, and provide methods to help solve these problems. We discuss ISP selection, internet connection types, CDNs and VPNs, and internal control
systems. Finally, we examine the importance of network s e c u r i t y i n C h i n a a n d how it can help augment a c o m p a n y ’s i n t e r n e t connection.
As internet penetration in China continues to spread, understanding the country’s internet systems and setting up structures to help boost online connectivity will be increasingly important. With
our specialized knowledge in IT services, Dezan Shira & Associates can help guide foreign companies through these processes.
This Month’s Cover Art雨後 by 王無邪 Chinese painting, 67.5x66.5cm Wan Fung Art [email protected] | +86 0760 88333www.wanfung.com.cn
For queries regarding the content of this magazine, please contact:[email protected]
All materials and contents © 2015 Asia Briefing Ltd.
ReferenceChina Briefing and related titles are produced by Asia Briefing Ltd., a wholly owned subsidiary of Dezan Shira Group.
Content is provided by Dezan Shira & Associates. No liability may be accepted for any of the contents of this publication. Readers are strongly advised to seek professional advice when actively looking to implement suggestions made within this publication.
Adam LivermorePartner
Dezan Shira & Associates
Introduction
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Kind regards,
Adam Livermore
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CreditsPublisher / Chris Devonshire-EllisSenior Editor / Samuel WrestEditor / Rainy YaoDesign / Jessica Huang & Estela Mi
Asia Briefing Ltd., Unit 1618, 16/F., Miramar Tower132 Nathan Road, Tsim Sha TsuiKowloon, Hong Kong SAR
Table of Contents
Internet Challenges in China:
An Overview
Understanding the Chinese Internet: Why Do Challenges Exist?
Staying Connected: Solutions to Internet Problems in China
The Importance of Network Security in China
P.04
P.06
P.09
P.11This Issue’s Topic
Internet Challenges & Solutions
When Doing Business in China
Online Resources on Emerging Asia
Employing Foreign Nationals in China
How to Restructure an Underperforming Business in China
A Comparison of China’s Top E-Commerce Platforms
Using Baidu: China’s Largest Search Engine
Information Technology-Based Solutions
ASIA BRIEFING The Cost of Doing Business in ASEAN Compared with China
New Internet Cable Boosts Myanmar’s Connectivity
INDIA BRIEFING Is India’s E-Commerce Industry Too Regulated for Foreign Investment?
Vietnam’s Internet Infrastructure Improving
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4
Common Internet Challenges in China: An OverviewBy Thomas Zhang, IT Director, Dezan Shira & Associates
Editor: Samuel Wrest
Foreign companies operating in China will inevitably
face challenges with internet connectivity. Over the
past five years, the country’s government has been
especially active in its control of the internet, with
all Google products, various social media channels,
and numerous other websites falling victim to its
extensive censorship program. In addition, the
Middle Kingdom has one of the worst average
internet speeds in Asia, ranking 84th in Akami’s 2015
State of the internet Report, and monitors access
to all non-domestic websites. The impact that this
has on foreign firms should not be underestimated.
Here, we discuss some of the key challenges that
foreign companies face.
Slow international internet speedFor Chinese citizens who access domestic websites
and participate in China’s massive e-commerce
market, the country’s internet can appear fantastic.
Users can purchase a 100Mb optic fiber DSL internet
line in their home, or can get 4G mobile network on
their phone. This is in stark contrast to 10 years ago,
when Chinese citizens could only use 2G mobile
network and MMS was largely unaffordable.
That said, for foreign companies who need to
access cloud computing networks or non-domestic
websites, China’s internet has hardly changed —
the speed is slow, connections are unstable and
latency is high. Technically speaking, there is a
very small network bandwidth between China and
overseas countries, and links have a high packet lost
rate. This is largely why Akami, in their 2015 State of
the internet Report, ranked China 84th in the world.
For foreign businesses in China, one obvious
ramification of having slow international internet
is the accessibility of application systems when
transferring real-time data, such as on production
monitoring systems or ERP systems. At Dezan
Shira & Associates, we have serviced many U.S.
and Europeans companies with offices or factories
in China that experience operational problems
precisely for this reason.
Many popular services are not availableNumerous social media websites and applications
are not available in China, including Facebook,
Twitter, and WhatsApp. With many Western
companies relying on these channels for marketing
and client services, the impact on their business
can be huge.
In addition, cloud file sharing and transfer platforms
such as Dropbox and SendIt do not function well in
China. This inevitably leads to data communication
problems between operations in China and the
overseas HQ, particularly those companies who
deal in production and order data.
The complexity of Internet connectionsWhile there are only a limited amount of internet
Service Providers in China – namely China Telecom,
China Unicom, China Mobile and Great Wall
Broadband – selecting a suitable provider is still not
an easy option. There are different product lines
for family or business, different product types (ADSL
based on telephone line, and ADSL based on optic
fiber, shared leased line, or dedicated leased line),
and different product definitions and prices. Some
products will need to be paid monthly, while others
will need to be paid yearly.
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Issue 159 • Special Edition, October 2015 • China Briefing
Quick Facts About China's Internet
Peak hours and non-peak hours speed comparison
National connection speed by province
The amount of Chinese internet users today is more than double that of 2008
Heilongjiang
Jilin
Jiangxi
Zhejiang
ShanghaiAnhui
Henan
Hubei
Hunan
Yunnan
Tibet
Xinjiang Inner Mongolia
Gansu
Qinghai
Hebei
Shandong
Jiangsu
Guangxi
Guizhou
NingxiaShanxi
Shaanxi
Guangdong
Fujian
Sichuan
Liaoning
BeijingTianjin
Chongqing
Hainan
2.74 mb/s
Non-peak Peak
1.69 mb/s
12am
Internet Speed (mb/s)
3am 6am 12pm 7pm 10pm 12am
BROADBANDSPEEDS
Slowest2mb/s
Average3 .5mb/s
Fastest6mb/s
668 million2015
303 million2008
6
Understanding the Chinese Internet: Why Do Challenges Exist? By Thomas Zhang, IT Director, Dezan Shira & Associates
Editor: Samuel Wrest
Not-enough international bandwidthChina has the largest population of netizens in the
world. The latest data from China internet network
Information (CNNIC) shows that there were 668
million internet users by the end of June 2015 –
more than double the entire population of the
United States. Nevertheless, the country’s current
internet penetration rate is 48.8 percent – an
increase of 0.9 percent compared to 2014, but still
nowhere near the penetration rate of developed
Western economies such as the U.S. and UK,
which have rates of 84.2 percent and 89.8 percent
respectively. However, given China’s rapidly rising
urbanization rate, we anticipate that the country’s
already massive population of netizens will increase
further over the next decade.
Partly as a result of the sheer amount of internet
users in the country, China has very limited
international internet bandwidth. As the country’s
internet penetration rate continues to expand, this
particular challenge will only intensify in the future.
Limited international internet exit locationsThere are three landing places for ocean optic
fiber cabling systems in China: Qingdao of
Shandong province, Shanghai, and Shantou of
Guangdong province. Accordingly, there are three
international internet exits in China: Beijing (using
Qingdao’s ocean optic fiber cable), Shanghai (using
Shanghai’s), and Guangzhou (using Shantou’s).
As a result, the whole country’s international
network traffic comes in and leaves exclusively
through these three locations, creating a veritable
bottleneck.
China’s individual ISPs tend to be dominant in
particular parts of the country. China Unicom,
for example, is used most widely in the north of
China. Considering the huge amount of investment
required for telecommunication infrastructure,
as well as the control of the market that exists
in certain areas (ISPs have many exclusivity
agreements in place with various office buildings),
Locations where Internet users access WiFi
88.9% 44.6% 8.5% 42.4%
Home O�ce School Public locations
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Issue 159 • Special Edition, October 2015 • China Briefing
this divide in the market share is likely to remain
unchanged for some time.
This situation exacerbates network latency, as
ISPs have to “route” their network traffic through
resources at different internet exits. In our research
at Dezan Shira & Associates, we have noted that
network traffic from China Unicom’s network in
Shenzhen to its equivalent in Hong Kong needs
to be routed via the Beijing exit (around 3000KMs
away), though the best optimized router path
should be via Guangzhou (only around 100KM
away). This occurs because the south of China is
dominated by China Telecom; China Unicom has
very limited international internet bandwidth there,
and so have to send their data via the Beijing exit,
where they have enough bandwidth for handling
the network traffic.
This situation is common for all ISPs in China and
is a primary reason behind the country’s limited
international bandwidth.
ISPs’ regional monopolyChina’s three biggest ISPs (China Telecom, China
Unicom, and China Mobile) are actually all owned
by the same state-owned company. As mentioned
previously, the three are split according to physical
location and service scope, creating a market
monopoly across China.
China’s telecommunications industry is not fully
open to foreign investment—foreign companies
wishing to participate in the industry can only do
so through a joint venture with a domestic firm,
and only with a minority share. It is also difficult for
foreign firms to obtain the value-added telecom
service license necessary for such a venture.
As a result, the existing monopoly in China’s ISP market
is likely to stay the same for some time, and because
of their dominant and secure position in the market,
China’s ISPs do not have any incentive to increase their
service level or extend their service content.
Network screeningThe Great Firewall of China (GFW ), officially
known as the Golden Shield Project, is a digital
surveillance system that screens all network traffic
in the country. Set up on all three of the country’s
international internet exits, the firewall is not only
International broadbandin China and its growth rate
Source: CNNIC Statistical Report on Internet Development in China (July of 2015)
1,099
Mbp5,600,000
4,900,000
4,200,000
3,500,000
2,800,000
2,100,000
1,400,000
700,000
0
100%.0
80.0%
60.0%
40.0%
20.0%
0.0%
1,182 1,3891,548
1,8992,098
3,4063,776
4,118
4,717
2010.12
International Internet gateway boradband Growth rate
2011.6 2011.12 2012.6 2012.12 2013.6 2013.12 2014.6 2014.12 2015.6
10.1%
7.6%
17.5%
11.5%
22.7%
62.4%
10.9% 9.0%
14.5%
10.4%
Quantity of mobile internet users in China
65.5%
Unit: Million750
600
450
300
150
0
100%.0
80.0%
60.0%
40.0%
20.0%
0.0%
69.3%72.2% 74.5%
78.5% 81.0% 83.4% 85.8%88.9%
2011.6
Mobile internet users QTY Mobile users as percentage of Internet users
2011.12 2012.6 2012.12 2013.6 2013.12 2014.6 2014.12 2015.6
Average weekly online duration of Internet users in China
Hours30.0
20.0
10.0
0.0
30.0
20.0
10.0
0.02011.12 2012.6 2012.12 2013.6 2013.12 2014.6 2014.12 2015.6
8
China Briefing • Issue 159 • Special Edition, October 2015
a key cause of network latency, but also the reason
why numerous websites and cloud networks are
unavailable in China.
A key component of high network latency in China
is GFW’s censorship of Google’s analysis service,
which is widely used by many websites to collect
users’ access data. Because Google products are not
available in China, users trying to access one of the
many websites that use this service have to wait
until the loading of Google analysis fails. Users can
observe this with the “Waiting for Google analysis”
message, which appears in the browser status bar.
Staff abusing the Internet For all companies in China, staff abusing the office
internet is a rising concern. Based on the latest
CNNIC report, of China’s 668 million internet users,
44.6 percent will access Wi-Fi in their office.
There are many free Wi-Fi tools in China that can
bypass a company’s Wi-Fi connection controls to
allow personal devices, such as a smart phone or
iPad, to connect to a company’s network. Our
network monitor has shown that, on these devices,
one office user can produce as much as 1GB of data
within a couple of hours. We have also found that
some employees will use free cloud storage
platform such as Baidu Yun for syncing personal
data via a company’s network. These kinds of cloud
storage platforms will “bite” at the available internet
bandwidth of the office.
Related Reading
For more information on how to obtain a visa to work in China, please see our related
magazine on the subject.
DOWNLOAD
A Brief History of China’s ISPs
• In 1998, the Post and Telecommunication
Department of China was divided into China
Post and China Telecom. From then on, China
Telecom was the sole company for operating
all telecommunication business in China.
China Unicom was founded later, but was
only responsible for fixed-networks in specific
industries, and not for public services.
• Later, China mobile was created to handle the
mobile business of China Telecom, from which
point there were three companies in China’s
telecommunication industry: China Telecom
for fixed-network; China Mobile for mobile
network (GSM); and China Unicom for CDMA
mobile networks.
• In 2002, China Telecom was split into two
companies due to its monopoly in fixed
networks: China Network Communication
(CNC), which inherited China Telecom’s assets
and networks in the north of China (a total 10
provinces); and the new China Telecom, which
inherited the assets and networks in the south
of China.
• In 2008, CNC was combined with China Unicom,
which became one full-service operator in
both fixed-network and mobile network. China
Telecom also obtained a mobile service license,
while China Mobile acquired China Railway
Telecom, which provides fixed-network services.
There are therefore three ISPs in China, with
each able to provide full services in both fixed-
network and mobile-networks.
International internet gateways
Provider Bandwidth (Mbps)
China Telecom 2,428,803
China Unicom 922,875
China Mobile 337,629
China Education and Research Network 65,000
China Seice and Technolog Network 22,600
China International Economy and Trade Net 2
Total 3,776,909
9
Staying Connected: Solutions to Internet Problems in ChinaBy Thomas Zhang, IT Director, Dezan Shira & Associates
Editor: Samuel Wrest
Suitable ISP selectionIt is critical that foreign companies in China select
the ISP best suited to their location. Companies
located in the north of China – namely in Liaoning,
Jilin, Heilongjiang, Beijing, Hebei, Tianjin, Shandong,
Inner Mongolia, Henan, and Shanxi – should select
China Unicom as their ISP. Those in the south, such
as Guangdong or Shenzhen, should select China
Telecom, while those located in the east, such as in
Shanghai or Hangzhou, can choose between either
based on bandwidth availability and cost.
Internet connection type selectionAfter selecting an ISP, a foreign company’s next
step should be to compare all the internet types
that the ISP can provide in the city in question and
choose the most appropriate one. ISPs can normally
provide the following options:
• Dedicated leased line in MAN: This is usually one
optic fiber cable connection. The ISP will provide
an optical transmitter and receiver device to
convert the optic signal to an electronic signal,
which the company can use as a traditional RJ45
Ethernet cable to connect their network device.
This kind of link connects a company’s office
network to the backbone of the metropolitan
area network (MAN) and is the most reliable
internet connection that companies can have
in China. The network bandwidth for this kind
of link is symmetric, which means users have
the same download speed and upload speed.
The minimum speed is approximately 2MB
and can be increased per MB. In bigger cities
such as Beijing, Shanghai and Shenzhen, the
speed can reach as 10MB, 20MB, or even the
50MB level. The cost of a dedicated leased line is
quite expensive – around RMB300-400/Mb per
month – meaning that a 10MB link costs between
RMB3000 and RMB4000 per month. This kind
of link is usually assigned to a fixed public IP
address, and users get five available IPs to use
in addition to a network gateway and network
broadcast address.
• Shared leased line in MAN: This kind of link is
similar to a dedicated leased line, but with the
key difference that the bandwidth would be
shared with other users in the same building.
The actual available bandwidth would be less
than the claimed bandwidth, especially during a
period of peak network traffic. Of course, the cost
is also much lower than the cost of a dedicated
leased line.
• Optic fiber ADSL link: Optic fiber ADSL links are
an especially popular option in tier 2 & tier 3 cities.
The ISP usually provides one EON device and,
sometimes, even the router, enabling users to
connect their network switch directly and share
the internet throughout the office. This kind of
link has higher network latency compared to a
leased line. There is no fixed public IP assigned,
but this can be provided for an extra cost if
the chosen ISP offers this resource. The link’s
download and upload speeds are asymmetric,
with a distribution of 10MB/1MB (download/
upload), 20MB/2MB, 50MB/4MB, and 100MB/4MB
or 8MB. In certain cities like Shanghai, the ISP can
also provide a symmetric optic fiber ADSL link.
The cost of this kind of link is much cheaper when
10
China Briefing • Issue 159 • Special Edition, October 2015
compared to a leased line – around RMB3000
to 5000 – but this figure will vary according to
location and the ISP.
• Telephone line ADSL link: This is a rather old
internet connection link that uses a traditional
telephone line for transferring data. It is mainly
used in old buildings where no optic fiber
connection is available. The speed of this link is
4MB/512KB, which is hardly enough to sufficiently
meet office requirements. The cost is usually less
than RMB2000/year, but might still be considered
expensive in less affluent areas of China.
• Peer to Peer dedicated data link (DDN Line): This
kind of link is typically used to connect separate
networks in two cities to speed up data transfers,
including domestic dedicated data links and
international data links. The cost is very expensive
– usually around several thousand RMB per MB per
month - and is mainly used by big companies for
key application systems, such as ERPs.
Route optimization – CDNs and VPNsIn addition to selecting an appropriate ISP and
internet link, there are some other “add-on” options
that can further augment an office’s internet
connection in China.
Certain ISPs can provide international internet
optimization services, such as China Telecom’s
“international express” service and China Unicom’s
“optimized IP” service. With these services, the ISP
selects a different route path to certain countries
in order to reduce network latency.
Besides traditional ISPs, there are some other value-
added internet service providers on the market
that can help speed up an internet connection.
An example is CDN, which can accelerate website
access with data caches through their website.
However, it is mainly used for static data, such as
web pages, and is not helpful for dynamic data,
such as application system access.
There are some other “tier 2” ISPs which rent internet
bandwidth from traditional ISPs to build a backbone
network across several major cities (usually big cities
like Beijing, Shanghai, Guangzhou, and Shenzhen),
and then provide a VPN service via their backbone
network. The network latency will be lower than usual.
Internal controlIn preventing staff from abusing the internet, an
effective internal control is essential. A company’s
internal control can broadly be divided into two
categories: technical and non-technical.
Technically speaking, a company’s IT department
needs to employ control methods in order to
monitor and limit staff from abusing the office’s
internet bandwidth. Common ways to achieve
this include:
• Not sharing the company Wi-Fi password and
only allowing the IT department to configure
it for staff;
• Set up a MAC access control list on Wi-Fi devices,
through which only authorized devices can
connect to the company network;
• Set up controls on the DHCP server and only
allow authorized devices to obtain an IP address
to access the internet;
• Record and itemize all company authorized
devices with specific systems such as PRTG, Spice
Works, etc.;
• Set up a network monitoring tool to monitor
network usage. It is also important to create an
office network usage base line, which will allow
IT staff to easily determine the network usage
status at any given time.
Non-technically speaking, companies should have
a comprehensive policy in place that determines to
what extent, or if at all, staff are able to use personal
devices to connect to the office network. This
includes how BYOD (“bring your own devices”) is
defined, and which types of online behavior
(watching videos, downloading, etc.) are not allowed.
Companies should further grant permission to their
IT department for network monitoring and allow
them to maintain the office network. These policies
should be approved by senior management and be
reflected in the staff manual.
Professional Services
Dezan Shira & Associates has extensive experience setting up and maintaining efficient information systems and networks for foreign companies in China. For more information on the services that we can offer, please contact us at [email protected]
EXPLORE DETAILS
11
Issue 159 • Special Edition, October 2015 • China Briefing
The Importance of Network Security in ChinaBy Adam Livermore, Dezan Shira & Associates
Adam LivermorePartner
Dezan Shira & Associates
Dalian office
A sound network security system is an important
component within the operations of any foreign
company in China, as it is in any other country.
Especially for small and medium-sized companies
(SMEs), who often lack the IT resources of larger
companies, to protect a business from today’s
sophisticated internet threats can be a challenging
task. As a network security system usually consists
of many parts, investors need to make sure that all
components work together in order to minimize
maintenance and improve the overall security level.
Physical securityWhen it comes to network securities, people usually
pay more attention to the IT side of the equation
such as firewalls, encryption and computer virus
protection. The importance of physical security on
the network, however, is often underestimated.
Physical security, simply speaking, is to ensure that
only authorized people have physical access to
the company’s equipment and computer systems.
Different from cyberterrorism, breaches of physical
security can be carried out by normal employees
with no technical knowledge. Please note that
the ability to gain physical access to servers and
network equipment not only allows a “hacker” to
download all the company’s information stored on
those servers, but can also create an opening that
may continue to be used for years.
Wi-Fi accessWhile every business needs fast WiFi connectivity,
the routers used by a company can be extremely
unsafe if the password or the username haven’t
been reset. Investors are suggested to set up a
guest WiFi network and change the company’s WiFi
password regularly to make sure that ex-employees
won’t be able to connect to the company’s internet
as they used to.
Network security The IT security system covers all types of software
and technology that a company may use to guard
its customers’ data, such as firewalls, anti-virus
and anti-spyware, intrusion prevention systems
(IPS) and virtual private networks (VPNs). Serving
as the electronic gatekeeper, an internet firewall
protects the computer system from unexpected
viruses and hackers and keeps confidential business
information secure at the same time. Investors also
need to be aware of the importance of getting a
static IP address, which enables other computers/
routers to locate the company easily.
IT department and internal IT policyLastly, a good IT department with administrative
support, as well as cooperation between a
company’s high-level managers and its IT team, will
undoubtedly help improve network security. IT
professionals should be in full control of the
company’s network system and be able to
recognize all the computers and devices that are
connected to the network. Employers must make
sure that there is a written IT security policy in place,
which will help facilitate IT security procedures and
make IT staff more aware of potential security
threats, as well as associated business risks.
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