Chinese Internet giants such as Tencent and Baidu are looking to cyber-savvy but cash-poor rural youth in China's smaller cities as the next frontier to keep up their explosive growth.

Compared with Japan and South Korea, two of Asia's most wired countries with more than 70 percent Internet penetration, China has a modest national penetration rate of 30 percent, despite its status as the world's biggest Internet market with 420 million users.

Internet use is particularly low, around 20-40 percent, in the country's populous but relatively low-income central and western provinces such as Henan, Sichuan and Hubei, where analysts see the biggest chances for huge growth.

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Companies such as Tencent, Baidu and Perfect World, whose products use less bandwidth and cater to simpler tastes of users in smaller markets, could be best placed to cash in on the spread of Internet access to those areas, analysts said.

"If you look at absolute dollars (current Internet revenue) is coming from coastal cities," said Jin Yoon, a Hong Kong based analyst with Nomura. "But if you look at central and western China ... that's where the growth is coming from."

Official data show about 30 percent of China's current Internet users, or about 126 million, live in rural areas, or about half the penetration rates for big cities including Shanghai.

In the third quarter, China's Internet economy was worth 41.4 billion yuan ($6.2 billion), a third of which was e-commerce, data from iResearch shows.

Lower incomes aside, another major factor limiting Internet growth in the countryside is less developed telecommunications, with broadband relatively scarce.

That could start to change, however, as China promotes a project starting in 2013, aimed at delivering TV, telephone and Internet networks over sophisticated broadband networks to reach more homes faster.

"Once the infrastructure is in place, we will see competition in broadband heat up," said Mirae Asset analyst Eric Wen.

Taobao, a unit of China's largest e-commerce firm Alibaba Group and operator of China's largest service targeting sales to consumers, also sees huge growth in smaller cities and rural areas. The firm said half its transactions now come from such markets, with the fastest growth in central and western China.