Virtual China: Information Technology - Press Reviews, July 26, 1999

Weekly Press Review

July 26, 1999

Deals, deals, deals. Last week, China.com sold public shares at a spectacular NASDAQ offering that raised US$84 million for the company.

This week, a much smaller but in the long run perhaps equally interesting deal was announced that appeared to show a good working relationship between the government agency that runs China's only authorized financial services site, and group of Western internet investors.

On Wednesday, SEEC Investment, a subsidiary of the Securities and Exchange Executive Council of China (SEEC), announced the sale of a "strategic stake" in China Web Ltd. to the Western group, led by the U.S. company Talisman Capital. The group also included the South China Morning Post in Hong Kong, and an unnamed Singapore company.

China Web is the majority shareholder of Homeway, set up by the SEEC in 1995 as one of China's first Internet content providers. Its website, at www.homeway.com.cn, provides a range of information about the Chinese economy and financial markets. It has been ranked as the one of the top five financial web sites in China by the China National Network International Center (CNNIC), the government's main Internet tracking agency.

Last year, Homeway, which may also be accessed via a dial-up internet service through China Telecom, a state-run monopoly, became the first and only ICP in China to be authorized by the Chinese Securities Regulatory Commission as an online financial advisory company.

"SEEC and ChinaWeb are honored to have attracted such a prestigious and experienced investor group as strategic partners," China Web said in a press statement. Neither the exact amount of the investment made nor the amount of the company that the investment totaled were divulged.

Increasing numbers of foreign investors are taking stakes in Chinese internet enterprises, and the runaway success of the China.com IPO two weeks ago prove that the words 'China' and 'internet' in combination are an irresistible lure to foreign investors.

So far, those companies have not done terribly well. Sohu.com, partly owned by Dow Jones, and ChinaByte, started by Rupert Murdoch's News Corp., have fallen in the CNNIC polls over the past six months.

This deal, so far, looks different. While several Western companies, including China.com, have announced close relations with various Chinese government agencies as part of their press material, none that we know of have actually got the Chinese government to do that very Western thing in return - write a press release saying how glad they were to do the deal.

Now that's good guanxi.

China Web was definitely the most interesting deal of the week, but China.com continued to make news in the week after its NASDAQ debut.

Virtually no employees below the highest rank of executives at the company received stock options, so had no stake in the company's remarkably successful sale of shares, the South China Morning Post reported.

Even the company's top management teams received only tiny amounts of stock, the paper said, with the lion's share going to Peter Yip, the company's CEO, Raymond Ch'ien, the board chairman, and five other directors.

A 14.8 percent stake in the company is held by a company owned by Nicola Yu, Peter Yip's wife, according to the paper.

Two factoids also emerged last week that demonstrated the inexorable rise and rise of the Internet in China.

First, the U.S. investment bank Goldman Sachs released a report that said electronic commerce revenues across Asia would generate US$32 billion by the year 2003, when the region will have about 63 million internet users.

Internet users in China have doubled since January, from 2.1 to 4 million, the Chinese government announced last week. In its report, Goldman Sachs said that China, South Korea, India and Australia will have 70 percent of Internet users in Asia by 2003, with e-commerce growing by 145 percent a year from the US$700 million in e-commerce reported in 1998.

And finally, news that the Chinese government may further cut ISP connection fees is evidence that Beijing realizes the importance to the whole country of a flourishing Internet sector.

Until now, in government surveys, many Chinese have said they would like to log on to the Internet but have not for one main reason: price.

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