Updated from 10:42 a.m. EDT

The Internet is one of the fastest-growing industries and China is one of the fastest-growing economies. Put them together and what do you get?

You might think you'd get the fastest-growing industry of them all. And someday, you may be right. But for now, the mythical land of hyper-growth known as China's Internet sector remains a distant prospect -- and the road leading there is proving to be a bumpy one indeed.

As the leading Chinese Internet companies report earnings for the first three months of 2005, a frustratingly familiar pattern is emerging: Ad-supported content and wireless services, areas where many believe the greatest long-term potential lies, continue to suffer from regulatory setbacks and relatively slow growth. Other areas, like games and online travel, are performing much better, but the stocks are trading at dizzying valuations.

And hints from companies indicate the second quarter will bring more of the same. As a result, many of these names are down for the year. Among Chinese portals, Sina ( SINA - Get Report) is down 12% and Sohu.com ( SOHU - Get Report) is off 5%. Shanda Interactive Entertainment and NetEase.com ( NTES - Get Report), two leaders in Chinese Internet games, are down 22% and 5%, respectively. Travel site Ctrip ( CTRP - Get Report) has fallen 8%. Wireless company Tom Online has lost 23%, while jobs site 51Job ( JOBS) is the worst performer of them all, dropping 74%.

A series of obstacles kept revenue and profit from rising at most of these companies, ranging from government hobbling of emerging wireless services, slower-than-expected growth in new Internet users, and a bottleneck of Internet access points in cafes and elsewhere (commonplace as many Internet users can't afford PCs).

Sina, perhaps the most closely watched of Chinese stocks and, at more than $2 billion, the one with the largest market cap, posted its first year-on-year profit decline since it first posted a profit in late 2002. Sina's first-quarter net income fell 36% after the Chinese government banned television and radio ads promoting Sina's fortune-telling service through text messaging. The fortune-telling service had been one of Sina's most promising lines of business.

Meanwhile, at Sohu, which is often translated into English as "search fox," earnings continued to be hounded by government crackdowns in the past year on spam, pornography and phantom charges for text-messaging -- moves that have slowed the growth of new media in China. Sohu's profit slid 44% to $5.7 million, in line with what analysts had been bracing for, but the company did indicate that wireless revenue and ad spending could improve in 2005.

Companies have spent the past few quarters working around the regulatory barriers and focusing on new areas of growth less likely to face them. "Wireless business has turned the corner," Sohu CEO Charles Zhang said in a conference call announcing first-quarter earnings, "indicating we have left last year's transitional and regulatory issues behind us."

Analysts are cautiously embracing that optimistic view. Safa Rashtchy, an analyst at Piper Jaffray, says he's sensing that the wireless business, an important one in a country where phones and handhelds far outnumber PCs, is on the upswing already. "The wireless sector is continuing to become more stable," Rashtchy says. "We are hearing increasingly positive buzz about the sector." Piper has no underwriting business with Sina or Sohu.

Others, while anticipating a recovery in wireless, are more enthusiastic about Sohu over Sina. Pacific Growth Equities' Jason Brueschke, who has an overweight rating on Sohu and an equal weight on Sina, believes the days of declining revenue and declining profit are over for Sohu because of its strong positioning in the wireless market. Pacific Growth does not have a banking relationship with either firm.

Sina, Brueschke says, is another matter. "For the next quarter or two, it is very hard to own Sina for its wireless business, for its portal business, for its search business or for its gaming business." In other words, for any reason, really.

So, why even hold Sina? Because it remains ripe for a takeover by another company, most likely Shanda, which owns nearly a fifth of Sina and which has been seeing impressive growth from the burgeoning online gaming industry. Sina's stock took a dive in January amid concerns of yet another crackdown, this one on gambling sites.

But analysts like Rashtchy regard the selloff as a buying opportunity, especially because the company nimbly responded by branching into music offerings, partnering with Universal Music to offer the giant label's songs to Shanda's users. The move also added subtle pressure on Sina, indicating that a poison pill provision Sina introduced to stave off a full-blown takeover by Shanda wouldn't keep the aggressive upstart from moving further into content.

Shanda is scheduled to post earnings on May 16. But if the first-quarter report from NetEase is any indication, online gaming was robust during the period. NetEase, which relies on games for more than three-fourths of its total revenue, saw gaming revenue jump by 26% in the first quarter, helping to push up total revenue 18% to $37.3 million. As a result, earnings per share climbed to 66 cents from 50 cents a year before.

But just as analysts are expecting China's wireless sector to recover, some are anticipating the sole bright spot in China's Internet sector, online games, to be vulnerable to a slowdown. Mark Argento, an analyst at ThinkEquity Partners, warns that NetEase could suffer from the fickleness inherent in the gaming industry.

"While the development of new games remains several quarters out for NetEase, on the competitive front the number of new entrants to the market continues to grow," says Argento.

Other parts of the Internet and wireless business remain volatile in China. 51Job saw its revenue and profit rise in the first quarter, then saw its stock tumble as the company warned in its earnings call of softness in new job listings. Tom Online reported a rise in wireless business, but it was offset by higher operating costs.

One of the few companies to deliver a strong earnings report was travel site Ctrip.com, which said profit rose 82% in the first quarter to 30 cents a share, beating analyst estimates by a healthy 6 cents a share. "These results are all the more impressive given that the first quarter is the weakest quarter of the year for Ctrip," Brueschke says. Pacific Growth has a banking relationship with Ctrip, and Brueschke rates the firm overweight.

Ctrip said that strong ticket sales and hotel bookings propelled the rise. It could well be that the sudden travel activity came as foreign fund managers flocked to China to figure out why their other Internet investments are taking so long to pan out.