Industry Note September 2, 2004 Safa Rashtchy, Senior Research Analyst Technology 650 838-1347, [email protected] The China Analyst: e-Commerce Gets A Boost Aaron M. Kessler, Sr Research Analyst 650 838-1434, [email protected] KEY POINTS: The China Analyst is our weekly report on the Chinese and technology Reason for Report: market. Our commentaries are based on data we collect daily in China using our Industry Overview staff and consultants as well as industry contacts in Mainland China and Hong Related Companies: Kong. Our goal is not to summarize news, but to analyze the most important CTRP 31.60 developments in Internet, online games, wireless services, economy, technology, CHINA 6.73 consumer behavior, corporate activities, and government regulations, and to NTES 35.98 discuss how these trends impact both our existing coverage companies in China as SINA 20.94 well as the broader, long-term development of the Chinese Internet market. 14.58 SNDA 21.45 AMZN 38.24 Summary of Internet Activity in China (MM) Jun-04 Jan-04 Jun-03 Y/Y % Total active users 87 80 68 28% Dial-up subscribers 52 49 47 11% ISDN subscribers 6 6 5 20% ADSL subscribers 31 17 10 210% Source: China Internet Network Information Center, Piper Jaffray China Research

Summary of Telecom Activity in China (MM) Jul-04 Jun-04 Jul-03 M/M % Y/Y % Fixed line subscribers 299 295 241 1.4% 24% Penetration rate 24% 24% 19% - - Mobile users 310 305 239 1.6% 30% Penetration rate 24% 24% 18% - -

Source: Ministry of Information Industry of China, Piper Jaffray China Research

Industry Commentary – e-Commerce sector got a boost with an announcement that the government will recognize digital signatures, and with 's acquisition of Joyo.com Industry News - China Mobile to offer wireless wallet services; acquires Hao123.com; Digital Signatures approved. China Stocks This Week - Update on company performance. Company Updates - Our latest thoughts on Sina, Sohu, NetEase, Ctrip, and Shanda.

Piper Jaffray China Internet Index (PJCII) Index Last Week YTD LTM Piper Jaffray China Internet Index -4.3% -38.6% -46.6% NASDAQ -0.6% -7.6% 0.5%

Risks - Include the volatility of wireless revenues, investor sentiment toward a young and new sector, the potential of government intervention, and the potential of decline or volatility of economic growth. The unique corporate structure of the Chinese Internet companies also poses additional risk factors for investors.

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Industry Commentary Moving Along On the e-Commerce Front. While volatility in the wireless sector continues and the government focus on inappropriate content remains an issue for the media companies, advertising has remained strong in China and now there are encouraging signs that search and e-Commerce will pick up momentum in the next two years. The latest news confirming this was the announcement that starting April 1, 2005, the