China Feels Like 1996, Says Jerry Yang of Yahoo!

By JONAH GREENBERG

(Los Angeles, May 6) The recent violent swings in China-related stock prices are the result of a premature market, with China's Internet industry still in its early stages, according to Jerry Yang, the co-founder of Yahoo!.

"In China it feels more like 1996 than the year 2000," Yang told a crowded audience at the 11th annual conference here of the Committee of 100, a New York-based group that promotes better understanding of China in the United States.

Pointing to gaps in the country's network infrastructure, Yang confirmed looming fears among investors that China still lacks certain preconditions of a smoothly functioning market.

Yang, who received a Pioneer in Media award from the Committee, spoke in a panel discussing the future of the Internet in Asia. He was joined by Chinadotcom chairman Raymond Ch'ien, as well as executives of other influential Web companies with interests in China.

Asia Overvalued?

"When people say they expect the same growth in Asia that we have in the U.S. today, I don't think that's healthy for the markets," Yang said. He suggested that many stocks in Asia's tech sector were overvalued. Like many other U.S. Internet stocks, China-focused tech stocks on the NASDAQ exchange have fallen from great heights over the last two months.

The pan-Asian portal and e-commerce developer Chinadotcom (ticker: CHINA) had climbed to $156 in early March, and then suffered a steady decline, closing Friday at $57 1/8. Systems integrator AsiaInfo (ticker: ASIA) lost over 50 percent since its dazzling IPO on March 3.

The parent company of the highly-trafficked mainland China portal Sina.com (ticker: SINA), however, has maintained a steady crawl upward since its IPO on April 13, and closed Friday at $29 3/4. Among the missing pieces in China crucial to a healthy Internet industry are network capacity, the availability of Internet access, and the sophisticated hardware needed to access the Internet, according to Yang.

These infrastructural shortcomings are generally recognized by the Chinese government which, despite being wary of the unchecked flow of information over the Web, has agreed this year to spend US$1 billion building new Internet backbone networks and upgrading the connectivity between existing ones.

The Janitor Knows

Yang said that China lacked a minimum level of Web savvy among its industrial leaders, especially when compared to their counterparts in the U.S.

In a Silicon Valley company, for instance, "everyone from the board members to the janitor knows how a startup works," Yang said. "That may not be so clear in Beijing, or Hong Kong, or even Singapore yet."

Human capital is the key to the future of China's Internet industry, Yang said, pointing out that the country's growing number of tech-savvy programmers and engineers are more likely than foreign specialists to create technologies and solutions suited to the needs of the region.

Yang advised Internet entrepreneurs and investors to "find where the technology pockets are, and take the long-term approach."

Other speakers on the panel were openly optimistic about the region's Internet industry, but most agreed that the investment climate in China had been heating up -- perhaps too much.

"Money moves from Silicon Valley to Beijing in a nano-second," said Pehong Chan, president and CEO of BroadVision Inc. (ticker: BVSN), a Redwood City, Calif.-based e-commerce solutions provider. "Hopefully in the next couple of months prices in China will come down," he said. Currently, China is home to about 10 million Internet users, according to the most recent government survey, representing 100 percent growth every six months.

Digital Divide

According to Los Angeles Times reporter Evelyn Iritani, who moderated Friday's panel discussion, China is forecast to have the second largest online population in the world by 2005.

Chinadotcom's Raymond Ch'ien conceded that mainland China has not yet matured into a reliable modern economy like Hong Kong, Taiwan, and Singapore. With increased exposure to the free flow of information, though, China is more likely to see the rise of a capitalist mentality, he said.

Chinese citizens are beginning to enjoy what Ch'ien called the "unimpeded horizontal flow of information," whereas before the introduction of the World Wide Web, information in China only flowed "vertically," he said.

"In trying to become a knowledge-based economy, they're turning the whole Marxist-based society on its head," Ch'ien said, referring to policy-makers in China.

Near the end of the discussion, Yang urged people to beware the growing gap between those people who have access to the Internet and those who don't. Otherwise known as the "digital divide," this phenomenon is particularly relevant in China, where less than one percent of the population is online.

"One of the things about the Internet we must keep in mind is affordability and accessibility," Yang said. Privileges and luxuries now enjoyed by a select fraction of people around the world, should become educational, social, and creative resources available to everyone, he said.

To reach Jonah Greenberg email: jgreenberg@virtualchina.com