By Paul Carsten
BEIJING (Reuters) - China had 649 million internet users by the end of 2014, with 557 million of those using handsets to go online, said a government report on Tuesday, as the world's biggest smartphone market continues its shift to mobile.
While growth is slowing, China's total internet population still rose by 31 million in 2014, said the report by the China Internet Network Information Center (CNNIC).
Growth in mobile internet users was faster, at 57 million.
Riding this wave are some of China's, and the world's, biggest technology companies. These include e-commerce groups Alibaba and JD.com Inc, social networking and video games firm Tencent Holdings Ltd, search giant Baidu Inc and smartphone maker Xiaomi Inc (XTC.UL).
For these companies a huge part of China's potential remains untapped, much of it in smaller cities and rural areas. The country's internet penetration rate is 47.9 percent and rural users only account for just over a quarter of China's total, said the CNNIC. By comparison, in the United States 74.4 percent of households reported internet use in 2013, according to the United States Census Bureau.
In good news for Alibaba and JD.com people shopping online increased by 20 percent in the year to the end of 2014. Users of online payment services, operated by Alibaba and Tencent, increased by 17 percent. Instant messaging, which is dominated by Tencent's WeChat and QQ, saw users increase by 10 percent.
However, microblog use, a market dominated in China by Weibo Corp, was down 11 percent. Last year, CNNIC reported a 9 percent decline in users, triggering a sell-off in shares of the then-unlisted company's parent, Sina Corp.
But smartphone sales are flagging. Shipments in China were 389 million phones in 2014, down from 423 million the previous year, according to China's Ministry of Industry and Information Technology.
Foreign internet companies have also been denied an opportunity to compete in China. Some of the world's biggest online services, like those run by Google Inc, Facebook Inc and Twitter Inc have been severely disrupted or simply blocked.
Nevertheless, domestic tech firms have weathered regulatory scrutiny and the onus of self-censorship to account for more than $600 billion in total share market values.