China’s top-level domain has now surpassed .net as the web’s third most popular top-level and second most popular country-specific domain, according to a study by VeriSign says the Associated Press. VeriSign said that registrations of .cn domains had surged 23% in the first quarter of this year, and tripled year-over-year. China’s domain boom is a sign of the country’s growing importance on the web and rapidly expanding Internet user base.

The VeriSign report didn’t break down domain numbers, but the running total from Germany’s DENIC shows that China’s .cn domain has about 11.8 million active registrations — good enough for 3rd place and 230,000 more than fourth place .net domains. Germany’s .de extension is in second place, about a quarter million registrations ahead of China, and the grand daddy of all domain extensions, .com, is comfortably in first place with 76.5 million domain registrations.

It’s not surprising that China’s web site ecosystem is seeing such huge growth — their Internet user population is as well. In February, the Chinese Ministry of Industry and Information reported that the country had 221 million Internet users, which means that it has effectively passed the United States as the world’s largest net population. And there’s still a lot of room to grow — China only has about 16% of its population on the Internet, according to Internet World Stats, compared to 71.4% of Americans who are online.

In our 2008 web predictions, Richard MacManus predicted that this would be a break out year for China on the Internet. “The most interesting innovations on the Web in 2008 won’t happen in Silicon Valley, but in Asia (China, Japan, Korea),” wrote MacManus. “At least one startup from China will break through in the US market with Twitter-like success in 2008 – and it will almost certainly be a Mobile Web app.”

We haven’t had a Twitter-like success come out of China year (it’s still early in 2008, though), but China is definitely experiencing a web boom. Doing business in China, however, can be very tricky. Jerry Yang, CEO of Yahoo!, a company that has had a tough go in China, said that doing business in other countries was difficult because of legal “gray areas.” Google has also taken heat for cooperating with Chinese censors.