IT Players Yearn to Be Listed Abroad

What should Chinese high-tech companies expect as they move into foreign markets: Netease's dismal debut on the NASDAQ stock market or China Unicom's warm welcome to the New York Stock Exchange?

The performance of both these companies on the US stock markets will likely be a litmus test for other Chinese Internet and telecom operators who seek to go public abroad.

China's Internet portal Netease.com stumbled in its first trading day on the NASDAQ last month while China's second largest telecom operator Unicom achieved more than a 10 per cent surge in its New York and Hong Kong trading debuts.

"These two listings typically demonstrate the investors' taste for Chinese high-tech companies, which is shifting from the pure Internet euphoria to the concrete strength background," said a market analyst with China Guotai Securities Corp.

Chinese companies have been in hot pursuit to go public in US stock markets, ranging from traditional industry giants to the Internet start-ups.

After China Unicom's successful listing, the fixed-line operator China Telecom also plans to go public in the United States.

However, Internet start-ups yearn for listing on the NASDAQ even though the market has suffered setbacks since this March.

China's first Internet player Sohu.com is due to be listed on the NASDAQ today, becoming the fourth Chinese Internet portal on the US stock market after China.com, Sina.com and Netease.com.

Many market analysts, affected by the recent snag of Netease.com, are pessimistic about Sohu's market prospects.

Hugo Shong, vice-chairman of IDG Technology Venture Investment, acknowledged a declining investor interest in Internet portals from China.

"Investors will not always show interest in the same business mode targeting the same market, and they will normally mix up their stock choices," said Shong.

"However, a successful listing also partly relies on the capabilities of its underwriters."

Shong said the IDG, one of the largest venture capital investors in China, will not change its investment commitment of US$1 billion in China.

"We will continue to seek our investment targets in the areas of Internet application, software and application service providers," said Shong.

Given the hot pursuit for NASDAQ listing, Shong said China's Internet players should find other listing destinations since requirements and listing costs have surged on the NASDAQ.

Internet euphoria

China's dot.com rush was stimulated by the establishment of Sohu.com in 1997, the country's first Internet content provider.

Its founder Charles Zhang has been described as a legendary overseas MBA holder who gained venture capital support of millions of US dollars.

Sohu's debut also attracted foreign capital investors seeking Yahoo-like targets in China.

The number of Chinese Internet users quadrupled last year, fueling frenzy among foreign investors over the world's largest potential Internet market.

The total number of Internet users reached 8.9 million by December, more than four times the 2.1 million reported in December 1998, according to a report released by the China Internet Network Information Centre (CNNIC).

China's dot.com companies, like Sohu.com, Sina.com and Netease.com, initially focused on content services.

However, in an effort to attract venture capital investors, China's Internet content providers (ICPs), especially the country's leading portals, began to promote the concept of on-line shopping in the second half of last year.

To many Chinese, purchasing products through their personal computers seemed unreal, compared with traditional store shopping.

But now, increasing numbers of Chinese shoppers are choosing the variety of on-line commodities.

The CNNIC survey showed 8.79 per cent of the sample 200,000 people had bought on-line products last year.

"The year of 1999 can be really capped as the debut of electronic commerce in China," said Martin Wu, general manager of pAsia Inc, which operates the leading on-line shopping website Coolbid.com.cn.

Another popular website, 8848.net, has become a way for other Internet companies to join in e-commerce business.

Initially designed as an on-line supermarket, 8848.net tallied a surprising sales total of 500,000 yuan (US$60,200) in its debut month.

The on-line store became known for special software sales, benefiting from the dependence of its major shareholder Federal Software Chain Store on the sales network. Federal Software is the country's largest software retailer.

"Given China's soaring growth of Internet users, we have the market room to offer on-line shopping services for the specified Internet user pool," said Wu.

Wu's on-line store targets young white-collar workers and provides electronics-related commodities.

Internet portals also followed the market trend. Both Sina.com and Sohu.com opened their own on-line shops.

"It's not time to talk about competition. The more important thing currently is to gather our efforts to spread this new concept and cultivate the market," said Wang Juntao, chairman of 8848.net.

On-line auction services have become another hot item adopted by new Internet companies to provide price bidding for mass consumers.

Shanghai-based Eachnet.com is typical of C2C (consumer-to-consumer) on-line auction services. The company has attracted a large number of registered consumers.

From B2C (business to consumer) to C2C, Chinese dotcom companies have put almost every commodity available on the Internet.

The hype over dotcom establishment in China is not expected to slow as more Internet players begin to look towards the mobile Internet, resulting in new competition in mobile phones.

Both China Mobile Communications Corp and China Unicom have established their own WAP (wireless application protocol) portals.

"The WAP portal is crucial for us to explore the mobile Internet market, and we will not lose the market opportunities in both the mobile phone user and portal markets," said Lu Xiangdong, vice-president of China Mobile, the country's largest mobile communications operator.

Internet bubbles

Although on-line shopping has been growing in popularity, Internet application, to many Chinese surfers, is still limited to accessing news and checking e-mail.

China lacks a standard credit system and an effective express network, two critical elements for the operation of e-commerce.

"There really exist problems ranging from infrastructure to service, but you can not depend only on the Internet companies to deal with them," said Wang.

"The whole society, especially the related government administrations, should also contribute to the e-commerce drive."

Chinese e-commerce players should improve payment and delivery systems to increase efficiency and become cost-effective, said analysts.

"More time is needed for China to improve its infrastructure's adaption to e-commerce applications," said Chris Wong, chief executive officer of iLastMile.com.

"But we cannot take an inactive attitude of 'wait and see.'"

Wong said the fast-changing Internet applications will contribute to the country's economic development if these applications are used to their full capacity on the basis of China's conditions.

The Shenzhen-based e-commerce operator, sponsored by the US Extant Corp, targets China's small and medium-sized enterprises (SMEs) by providing business opportunities on the Internet, especially using traditional methods of fax and mail for companies without Internet access.

In an effort to build profit-making prospects, e-commerce players are attempting to shift their business strategy from B2C (business to consumer) or C2C to the investor-favored B2B mode.

The country's e-commerce leader 8848.net, the "on-line supermarket," recently announced that it will adjust its business focus from B2C to B2B.

"We are due to establish an e-commerce application platform for Chinese enterprises," Wang said at a press conference.

Analysts show doubts about the ability of Internet start-up companies to provide e-commerce solutions which require a technology background.

The B2B mode also requires traditional distribution support from both vendors and distributors.

Listing pursuits

Whatever strategy adjustments made by domestic Internet companies, a main consideration is listing on stock markets where they can gain long-term capital support.

China.com, the first Chinese Internet portal to be listed on the NASDAQ stock market, more than doubled its IPO (initial public offering) price in its first trading day last July.

Although the Hong Kong-based ICP lost millions of US dollars before its listing, investors found the double attraction of China and the Internet irresistible.

"No investor can ignore China's market potential and Internet user pool, especially Internet-favouring investors abroad," said Liu Jidong, an IT analyst with China Cinda Trust and Investment Corp.

Investors' high expectations suffered a first blow from the listing of Sina.com, the country's top content provider.

Sina.com was listed on the NASDAQ in April as the market was shaken by a period of deep losses. The Cayman Islands-registered Sina only achieved 22 per cent growth in its first trading day.

However, the troubled performance of Netease.com exceeded many analysts' expectations after a NASDAQ rebound.

The debut failure was attributed to lack of originality and unclear Internet policies by the government.

Market analysts have begun to focus on China's e-commerce players who have not yet landed on the NASDAQ.

"Compared with the Internet portals, the e-commerce operators have the potential to make profits in the near future," said Liu.

The country's e-commerce leader 8848.net is preparing to go public on the NASDAQ later this year.

Analysts warned that new listing candidates should clearly plan their development and avoid imitating the early movers, otherwise, they will eventually lose capital support from investors.

"The reception of Netease.com, a native Chinese founder without overseas background, will add some motivation to other Chinese Internet players though its initial price was not satisfactory," said Shong.

He estimated that several Chinese Internet companies will be listed abroad later this year.

Despite the same risk of unclear government policies, foreign investors place higher expectations upon China Unicom, an emerging player in China's telecom service market.

Their investment decisions are based on the huge potentials of both China's telecom market and Unicom's expansion ability.

Market analysts say Unicom's success has built a good foundation for other Chinese telecom companies who seek listing in the United States.





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