Tuesday 12th December 2000
Assistance for investing in China's internet may be at hand
In China there are big plans to develop the internet - yet a year which began with foreign investors throwing money at Chinese websites and Chinese firms listing on the Nasdaq, has ended with those companies stock value plummeting amid a sense of deep anxiety among venture capitalists.
Yet assistance for investors may be at hand - with a new book which dramatises the pitfalls and offers advice on how to avoid them.
When Chinese management consultant Jefferson Huang returns to Shanghai from the United States, he has big visions for the future of the internet.
With the encouragement of his uncle, who runs the Shanghai No. 2 Chairman Mao memorabilia factory, the would-be entrepreneur opens MaoPortal.com - an e-commerce site aimed at capitalising on interest in the late Chairman.
The future looks bright - but that is not quite how it turns out, according to Patrick Dransfield of Asia Law and Practice:
"He hires the wrong people, he spends far too much money, advertising on buses, did not necessarily spend enough time working out how this market was going to work, how to register his company so he would not be defrauded by people, and he is defrauded by everyone.
"There is a guy called Jackal Gao, who he hires, he is the marketing guy, manages to spend an awful lot of Jefferson’s venture capital money, then sets up on his own with a better, sleeker model."
But in case you are feeling too sorry for him, Jefferson Huang is not actually a real person. He is the fictional anti-hero of The Life and Death of a Dotcom in China - a new book, published by Asia Law and Practice - which aims to provide a simple guide to the pitfalls of investing in the internet in China, and suggest solutions:
"Rather than look at a case study where people cannot really be honest, if you make it fictitious it means people are able to follow the characters; and we have legal experts and also human resources experts who will go through the actual structure by which Jefferson Huang approaches creating a company in China, and then there is a checklist at the back which says well what he should have done was this, this and this."
On the streets of Shanghai the potential problems for Chinese internet firms are very visible - for months the city’s buses have been plastered with adverts for websites, though many experts believe such untargeted advertising is generally a waste of money.
Yin Zi of Shanghai website Chinanow.com, says it reflects a general lack of focus:
"Everyone says this website is the biggest or the best, but actually, they do not know what they are doing - it seems like they put every content in their website, but you cannot get any good content on some special topic - that is a big problem."
| "Everyone says this website is the biggest or the best, but actually, they do not know what they are doing ." | |
China’s complex internet regulations, changed several times this year, do not help - and with few websites breaking even, it is also getting harder to recruit the right staff, according to CJ Xu, who himself returned from the US to found business portal Tradetextile.com:
"A year ago everyone thought it was cool to work for a dotcom company. We were able to find a lot of people from the traditional consulting or investment banking background - these people are not available any more.
"The traditional companies try to compete with the Dotcoms to get the best talent, they have improved their benefits and compensation significantly; and also one of their advantages is training, everyone wants to get adequate training, and Dotcoms cannot afford that."
Nevertheless, CJ Xu says he believes a shake up of the internet market may ultimately produce fewer but better companies - and Patrick Dransfield of Asia Law and Practice says there are still signs that the venture capitalists have not left China’s dotcoms for dead:
"Things come in waves and there is always another wave following. There are a number of very significant funds, billion dollar funds even, which are as big as anything in Asia, let alone in China and they are committed to China and that money has to be spent.
At the moment, Patrick Dransfield says, some investors are waiting for China’s anticipated entry into the World Trade Organisation, while others are just looking around for the right deal.
But given recent experience he suggests, they would be well advised to read the book first.
| "There are billion dollar funds committed to China which has to be spent." | |
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