Children of China Talk About a Revolution

(Boston) The young men and women who are changing the course of the Chinese economy and Chinese history were gathered yesterday in the sunlit ARCO Forum Auditorium of the JFK School of Government at Harvard University.

Up on the dais were Fang Xingdong, Julianna Yee, Jay Tian, William Lo, John Tse, Joe Zhang, and throughout the day a couple of dozen more American-educated Chinese students who have returned home and are revolutionizing China more profoundly than anyone since Deng Xiaoping.

Over the past three years, these young people have taken their graduate business degrees from Harvard, Stanford, Northwestern and other top U.S. graduate schools and started Internet companies in Beijing, Shanghai and other major cities, often with tens of millions of U.S. venture capital dollars.

They have started companies like eLong.com, Pacific Internet, Gongshee.com, TradeTextile.com, Sina.com, and ChinaRen.com. These companies are bringing not only the standard economic benefits of Internet commerce to China (more consumer choice, lower prices, etc.) but are also offering an unprecedented degree of free information to millions of Chinese.

Not a Bubble

"The situation is much better than most people on the outside think," said Fang Xingdong, the chairman of ChinaLabs, an Internet research and consulting company in Beijing. "The Internet provides so many opportunities for people in their 20's and 30's, which is unprecedented in Chinese history. This is reshaping the values of our society."

"Some say the Internet is a bubble, but it isn't really," he said. "It's the best path to integrate the Chinese economy with the global economy."

The number of Internet users in China is still about a tenth that of the United States - about 10 million, compared to 100 million in the U.S. But the Internet user growth rate is faster in China than anywhere in the world, doubling every six months, with most experts predicting it easily will be second only to the United States within three years.

In the very earliest days of the China Internet, say two or three years ago, most startup companies were brand new ideas started by lone wolf entrepreneurs - like Stockstar.com, a Shanghai-based online stock trading site, or Zhaopin.com, a job listings site built in Beijing. Nowadays, the young sons and daughters who ten years ago would have returned to China to take over a traditional family business are now returning to put the family business on the Web.

Quotas Will Disappear

One of those is Allan Cheung, who has put his University of Chicago MBA to work "dotcomming" his family's 20-year-old textile business that is run from Hong Kong, Guangzhou and Shanghai. His site, TradeTextile.com, bills itself as "the world's first textile vertical Web site" and offers online buyer-seller matching through auctions, direct trading, and requests for quotations on raw materials, yarns, and garments.

Started last January 6, TradeTextile.com is 25% owned by Entrade, the Illinois-based software solutions company that specializes in building business-to-business ("B2B") trading platforms. Last April 11, Cheung announced that TradeTextile had moved US$7.5 million worth of textile goods over its site in a US$85 billion a year textile industry in China.

"China is going to join the World Trade Organization within a few years," Cheung said. "At that time the textile quota system will disappear, and we are positioning ourselves to take advantage of that when it happens."

Lee Zhang, the CEO of eLong.com, is a Shanghai native and Harvard Business School graduate who returned to Beijing last year to found his Web site that offers entertainment, shopping, travel, and other listings services for China's nine biggest cities. The company, originally backed by U.S. venture investors including partners from the Kaufmann Fund, last month was sold to Mail.com, a U.S. messaging services company, for US$65.2 million.

The Truth in Asia

"Because of the underdevelopment of a delivery system between cities and online companies, we believe that e-commerce will start at the local level in China," Zhang said to the Harvard audience as he clicked through his PowerPoint presentation. "Because 80 percent of purchasing power and 55 percent of Internet users in China are in only nine cities, we are focusing our efforts there."

U.S.-trained mainland Chinese and Taiwanese returnees to China are sometimes joined by expatriate adventurers searching for the magic Internet formula to attract Chinese Web surfers by the millions. One of those is Christopher Justice, a former news executive at the South China Morning Post, the largest and most successful English-language newspaper in Asia. A year ago this month he started AsiaContent.com, which helps leading media companies in the West develop and distribute their editorial, advertising and e-commerce services to various Asian audiences.

The trick, Justice told the Harvard audience, was to understand each market before launching consumer services. For example, in Taiwan, consumers like to buy personal computers in components and assemble them into custom-made PC's - not unlike the way high-end stereo systems are sold in the U.S. In Hong Kong, however, they are sold as packaged systems.

In China, Justice said, market research showed that Web surfers were dying not just to buy, but to actively debate, the pros and cons of various technologies online. So in China the company has hired technology columnists to start and lead online discussions about the merits of operating systems, PCs, laptops, and other new technology devices.

Severe Restrictions

A recurring question thrown to the panelists concerned the Chinese government's obvious ambivalence over the explosive growth of the Internet in China. On the one hand, China's top government officials, including President Jiang Zemin and Premier Zhu Rhongi, have declared the development of the Internet to be a top priority to help China's economy leapfrog from undeveloped to developed status.

On the other hand, China has thus far completely failed to promulgate clear guidelines concerning such critical matters as the amount of foreign investment or operating influence acceptable in Internet companies, and whether and how Chinese companies can raise money on foreign stock exchanges.

In addition, top ministry officials such as Wu Jichuan, head of the powerful Ministry of Information Industry (MII), have frequently slowed down foreign interest in the China Internet by threatening severely restrictive policies concerning editorial content, encryption and operating systems technologies.

Qi Zhang, the Director General of the Department of Electronic and Information Technology Products of the MII, shared the dais with many of the thirtysomething Chinese returnees, and fielded several worried questions about the Chinese government's intentions concerning control of the Internet.

Rounds of Applause

She won the crowd's loud applause for two of her answers. One was in response to a query about rumors that new government regulations will soon restrict the activities of foreign-invested Internet content and service providers. "The cars and trucks are now moving on the information superhighway, and they will continue to move," Qi said to cheers.

Then, after pointedly declining to agree that U.S.-educated returnees to China were the prime movers of China's Internet revolution (the Chinese government started an Internet program in 1993, she said), Madame Qi drew her second round of applause with a coda to that answer.

"But I completely agree that the Internet belongs to the young generation," she said. "So I welcome all young Chinese people who are coming back."

To reach Douglas McGill email: dmcgill@virtualchina.com