The once-lucrative business of Internet cafes in China is now at cross-road, though it boasts the largest size in the world, with a total of 120,000 outlets and more than 1 million employees, according to business sources.

A total of 6 million computers are installed in the country's netbars, accounting for 90 percent of the total number of computers in internet cafes throughout the world.

Currently, the whole industry's annual sale stands at 100 billion yuan, but the majority of local netbar owners complain they are losing money, due to excessive expansion and competition in the sector.

Nowadays, the averaged service charge of netbars in China has plunged to the current 1.5 yuan per hour, compared with two yuan in the past. Generally, 1.5 yuan is nothing but the average per-hour cost for the business, according to Li Hongli, president of the Star Netbar Chain, the largest in Hubei Province.

Li, whose franchise network owns over 160 Internet parlors across the central China province, is quite annoyed with the increasingly fierce competition in the business. Netbars have to run at loss if they strictly abide by law and they hardly cover the cost even if they operate with some irregularities, he says.

Li claimed that Netbar owners are trying to survive by purchasing computers of latest types and luxury equipment like elevators, and employing as many attendants as possible. Thus, the per-computer investment has increased to 12,000 yuan, doubling the previous 6,000 yuan.

According to Li, merely 20 percent of netbars are making profits, 40 percent manage to run at par, and the rest 40 percent are losing money.

In 1997, game parlors appeared in cities to provide surfers, mostly young game players, with dial-up services, and thus, netbars are widely regarded as a recreational business among Chinese.

Between 1999-2002, Internet cafes mushroomed in the country and lured large flocks of young people, thanks to a government crack-down on illegal electronic game business as well as the emerging of broad-band service and the reduction in connection cost of the Internet services.

Now, the netbar business has met its Waterloo, due to the sharp increase of home-use computers and the rapid expansion of broad-band networks, according to some local analyzer.

The 19th national survey on the development of Internet business in China, which was published early this year shows that 76 percent of Chinese now surf the Internet at home, comparing to 70.5 percent in 2005.

Because youngsters from families with computer are no longer visiting netbars, Internet cafes have to attract clients from low-income families.

Meanwhile, the declining of netbar business is also attributed to the revival of electronic gamerooms and the fast development of home-use game machines and new-generation handle game players like mp4 and cellphones armed with sophisticated game software.

The president of the Star Netbar Chain complains that generally, a period of 10 years is well enough for any industry to become mature, but China's netbar business is still at its initial stage.

Li urged the government to shut down unlicensed operators and prohibit Internet cafes from accepting underaged customers and operating overtime.

At the end of 2006, China had 137 million Internet users, accounting for over 10 percent of the country's total population.