Dotcoms Enamoured with Second Board

The pending second board stock market may be the last straw for capital thirsty dotcom companies, said a researcher with the China Academy of Social Sciences (CASS).

Among the first batch of high growth companies that are waiting for the second board listing, there are almost no pure dotcoms, said Wang Songqi, a senior researcher with CASS.

``The dotcoms are not favoured by the coming second board,'' Wang said.

Facing dwindling funds, China's dotcoms expect the planned second board to become a new money pool after they use up their first phase investment from foreign venture capitals.

Insiders predicted earlier this year that lack of money will force more than 70 per cent of China's dotcoms to shut down by the end of this year.

Although information technology as well as biotechnology will be major players in the second board, policy-makers tend to prefer companies such as software or hardware producers that produce ``real things'' instead of the abstract dotcoms who keep losing money, Wang said.

His words extinguished most dotcoms' hope for quick money via the second board stock market.

Wang said many of the present dotcoms are poor quality and are driven to the highest point by media and the dotcoms themselves.

Global investment bank Goldman Sachs also said that the sector is in poor basic infrastructure conditions which would force China to take longer time in becoming B2B (business-to-business) powered.

``The Chinese Government and Internet technology insiders should move their eyes from bubbling dotcoms to basic infrastructures as the doors of NASDAQ are closing for the Chinese dotcoms,'' said Rajeev Gupta, executive director and securities analyst of Asia-Pacific Investment Research with Goldman Sachs.

The investment bank has been recently very hesitant to invest in Chinese dotcoms.

In the past two years, dotcoms and e-commerce have become a panacea used to drive up stock prices of listed companies.

Whenever a company announced it had invested in the Internet or a dotcom company, its stock price jumped immediately.

``It is unhealthy and harmful,'' Wang said.

The owners of those dotcoms had not intended to raise healthy companies but only wanted to link up with listed companies to drive up the stock prices, he said.

As time passes, interests for dotcoms are declining. Investors are bored with concept, instead, they want to see real profits which the dotcoms cannot make at present, Wang said.

China's e-commerce and dotcoms will only switch to a rapid and healthy growth track after the establishment of a sound basic infrastructure base especially the payment system, the researcher said.

``Now is not the proper time for the explosion development of dotcoms,'' he said, adding that China's dotcoms are merely castles in the air. ``They have no fundamental support.''

Wang's words were echoed by Gupta, who said: ``The highway of Internet is supported by weak pillars like paper pokers.''

Gupta said China's infrastructure is ``poor but improving''.

A sound infrastructure foundation would require a sound payment system and comprehensive distribution system, he said.

The rapid development of dotcoms must rely on a far-reaching, well-organized payment system which is not available at present.

Wang said dotcoms could only achieve ideal growth after entered into long-term agreements with banks.

China's big four commercial banks - the Industrial and Commercial Bank of China, the China Construction Bank, the Agricultural Bank of China and the Bank of China - have yet to reach every corner of the country, Wang said, who estimated that the expansion work would be finished within the next five years.

The off-line cash payment which is currently quite popular as a substitute is to be soon outmoded and replaced by a modern online payment system, he said.

A logistics and distribution system is another barrier that has hindered the growth of dotcoms.

Wang said after 50 years development, a State-owned comprehensive logistic and distribution system has been set up with the participation of department stores, grocery stores and book stores.

The dotcoms could utilize the delivery capability of traditional businesses instead of setting up a new system by themselves.

As a virtual concept, dotcoms could only be expected to make profits after matching up with traditional industries, Wang said.

The co-operation between a traditional distribution system and dotcoms could benefit both in the long run.

Dotcoms do not devote much effort at present to fueling economy growth besides promoting information communication, he said.

Co-operation between the information-rich dotcoms and information-poor traditional businesses could be a match made in heaven.

Wang said the dotcoms should be patient as he estimates they could only reach the critical point of profit after 64 months of development on average.

Although dotcoms are not welcomed by the second board, which is scheduled to open early next year, Wang said the firms should still grow rapidly fueled by the powerful Internet.



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