50 Cool China Investment Ideas (Totally)

By Douglas C. McGill

(Virtual China, June 7) How do great companies start? With a cool idea.

Obviously, it's not enough to look only at a company's great business ideas before deciding to invest. Yet it's not a bad way to start, especially when trying to size up where the action is in a sector and to determine which companies have a better crack at success than others.

There are hundreds of companies springing up these days, many of them with great ideas for doing business with China. They are boldly going where few companies have gone before. It will be a long time before we can tell which of these enterprises will succeed, but there's one question we can ask of them right away: how cool is their business idea?

Enter the Virtual China 50. It's a list of microcap, small cap and mid cap companies, each of whose main distinguishing feature is a cool idea. In many cases, the ideas are just about all the company has in its asset column. Each of them captures the imagination and has figured out some method of attack, some discreet angle of opportunity, to pursue.

The company types in the VC-50 look like this:

Internet	23
Software	13
Telecom	5
Goods Mfg	1
Truck Mfg	1
Tire Mfg	1
Utilities	1
Toll Roads	1
Rubber	1
Health Care	1
Rare Earths	1

Within Internet companies the breakdown is:

ISP/Portal	6
B2B	4
Broadband	3
IP Telephony	3
Incubators	3
B2C	1
Content	1
Gambling	1
Domain Names	1

Within software companies the breakdown is:

ASP	3
Broadband	2
Handwriting	2
IP Telephony	2
OS	1
Education	1
Travel	1
e-Business	1
Interface	1

A cool idea that's got a lot of investor attention is that of a Chinese operating system. Most people who surf the net in China today are students, many of whom harbor a lingering resentment of Microsoft for its heavy-handed treatment of struggling Chinese software houses. Also, Windows is seen as a flying wedge designed to steal the OS market in China during its infant stage. Enter BluePoint Linux (OTCBB: BLPT), an all-Chinese company based in Shenzhen that's trying to design the Windows-killer of all time.

If B2B sounds like a good idea in the United States, make that double for China, where chaotic distribution systems layered with middlemen obstruct fast and efficient service in nearly every industry. China Premium Food Corporation (OTCBB: CHPF) has started a B2B food portal that attempts to address this problem in the food industry. At Intermost Corporation (OTCBB: IMOT), reality is starting to keep pace with management's promises of greatness as the company develops a strong B2B platform across many industries. As if to cover its bets - there are many who believe that multi-industry B2B sites will eventually succumb to single industry ones - Intermost also recently signed a contract with the powerful Hong Kong conglomerate Sun Hung Kai to develop an textile industry B2B.

If the Internet is really going to catch on in China, the language problem is going to have to be solved. While most of the early adopters in China speak at least some English, to reach the really big numbers of Internet penetration, solutions will have to be found to get Chinese-speakers only online. Two companies in the VC-50 are tackling that problem. Zi Corporation (Nasdaq: ZICA) makes software that allows people to create Chinese characters by typing on an eight-character keypad. And Communication Intelligence Corp. (OTCBB: CICI) of Redwood Shores, CA is in a joint venture that makes handwriting recognition software that accomplishes the same trick.

Several companies are taking aim at another bottleneck in China's developing economy: the high cost of making telephone calls, especially overseas. For this, Internet telephony is made to order. (There are enormous regulatory obstacles to overcome here, but that's for another story.) Companies including Galaxy Online (CDN: GOLI); iBasis (Nasdaq: IBAS), RADVision (Nasdaq: RVSN), and Wherever.net (Nasdaq: WNET) are all developing innovative ways to bring Internet telephony to China.

Not that "old economy" companies are being left out in this latest flush of entrepreneurism and openness to foreign joint ventures. Rare earths, for example, are a mineral used in countless electronic devices from tape recorders and color TVs to electromagnets and brain scanners. The Baiyuenbo Mines in Inner Mongolia are thought to contain as much as half of the world's known commercial grade deposits of rare earths. Energy Conversion Devices (Nasdaq: ENER) of Troy, Michigan, provides equipment to processing plants in China that convert the raw rare earths into commercial uses, mainly batteries.

Speaking of selling picks and shovels to gold miners, what's the first piece of equipment that most Chinese entrepreneurs think to acquire before setting out to make their first million? The English language, natch. Alpha Communications Corp. (CDNX: ZCX), a Canadian publisher of ESL (English as a Second Language) textbooks, has signed a ten-year co-publishing deal with a leading University Press in China. Then there is Composite Automobile Research Ltd. (OTCBB: CARH), which makes a pickup truck-like "utility vehicle" for only $7,000. They've taken one look at China and decided it is their future. Ditto Venture Tech Inc. (OTCBB: VTEH) and Vertical Computer Systems Inc. (OTCBB: VCSY), the first of which runs an online casino designed for Chinese, and the second of which has one under development. Both GraphOn Corporation (Nasdaq: GOJO) and Tengtu International Corp. (OTCB: TNTU) have computer and multimedia products aimed at China's 300 million schoolchildren (more than the entire population of the U.S.). Tengtu makes educational software, and GraphOn writes "thin client" software that allows school kids using old computers (which the schools can't afford to upgrade) to access the very latest application programs hosted on remote servers.

Cool ideas, each and every one.

Winners? Stay tuned.

Here is the full list of the Virtual China 50.

To reach Douglas C. McGill: dmcgill@virtualchina.com