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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story
Is It That Easy?
A bunch of Internet companies think they can outdo China.com

By Tim Healy and Assif Shameen

Coming to a stock exchange near you


David G. McIntyre - Black Star for Asiaweek
THE NEXT BATTER: Sina.com chairman Chiang wants to take his company public in six months

AMONG THE MANY PEOPLE who were thrilled and amazed by the performance of China.com when it went public in New York nearly a fortnight ago was Daniel Chiang, Chairman of Sina.com. You see, Sina.com is the largest China portal - Internet entry point to sites and information about China. And while Chiang is dismissive of China.com as a competitor - it is only the 39th most-frequently visited China portal, he points out - he is not about to underplay the initial success of its stock listing. "The fact that a small portal was received like that on Wall Street is tremendous," he says. "It really has given us a lot of encouragement and hope. If they can list at such a high valuation, then we, as the No.1 player in China, have a lot to celebrate."

China.com launched its initial public offering on the Nasdaq exchange July 13. A portal like Sina, China.com counts among its best assets its stable of domain names (which include "Hongkong.com" and "Taiwan.com". Its offering prospectus warned that the company "had a history of losses" and anticipated "future losses." Nevertheless, the company attracted U.S. giant America Online as a 10% owner two weeks before the listing. That and the fact that Xinhua, China's official news service, was also an investor, helped persuade Wall Street it was a strong player. China.com closed its first day of trading at $67 per share after opening at $20. And though it has since fallen, it is still well more than twice the opening price. But this is not entirely good news, even for Chiang. He says he is worried that dozens of Internet companies from China and elsewhere in Asia will now rush to be listed. "Some may be good ones and some may not be as good. For the big players, too many second-rate listings might cause a problem later."

But telling some of these netrepreneurs to wait is like telling a gold prospector to spend a few months sharpening his axe before heading to the hills. He who hesitates could lose. In the past year, Internet-mania has created nearly 50 paper billionaires in the U.S. China.com was seeking $84 million from its IPO on Nasdaq, the over-the-counter exchange that has become home for many technology companies. In the grand scheme of things, the company was out to raise an insignificant amount. But being first helped. By the end of the opening day, China.com was capitalized at $1.5 billion, which was more than, for example, ShinCorp. (formerly Shinawatra), the Thai cellular company with a million customers and half the domestic market. "China.com is not the greatest portal in Asia or even in China," says Greg Feldberg, Internet analyst at ABN-Amro Asia in Hong Kong. "Indeed it is probably not among the top 200 portals in Asia. But it is the first to list on Nasdaq, and that's what counts."

Next comes the deluge. Rajeev Gupta, Internet analyst for Goldman Sachs in Hong Kong, says China.com's stunning debut raised a lot of hopes. "Every other person now wants to become an Internet entrepreneur and list his company on Nasdaq at ridiculous valuations. Everyone from venture capitalists to investment bankers to entrepreneurs believes the China.com story can be imitated." Chong Huai Seng, vice chairman and owner of Singapore's Panpac Media.com, who turned a small magazine publishing company into Singapore's hottest stock, believes the Internet has enabled "dreamers to turn their vision into reality. It has created a level playing field for entrepreneurs who are starting from scratch." (See INVESTING.)

The founders of Sina.com would beg to differ. They are convinced that their head start gives them a solid lead that will be difficult for latecomers to catch. Says Chiang, the Sina.com chairman: "Remember, even Microsoft with all its money and clout couldn't beat America Online (AOL) in creating a portal." Gupta of Goldman Sachs thinks Chiang is right. "The key is to have the traffic," he says. "Portal revenues must come from two streams - advertising and e-commerce. If you are No. 1 or among the top two or three you are going to do well." And the race is especially tense because the Internet is growing so fast. There are currently an estimated 4 million Internet users in China. Another 3 million are expected to be online in a year. The potential for a nation with 1.2 billion people is obvious.

Chiang can tout Sina.com's advantages of size and experience - big and broad by Asian Internet standards - to argue that it will capture many of these new viewers. Sina.com was born out of the merger of two companies last December - one from China and the other from the U.S. Sina.com's co-founder, Zhidong Wang (Wang is his surname; he prefers this name order) ran SRS.Net, a software company that produced a program that allowed computers to read and write Chinese characters. Chinese-American Chiang ran the original Sina.net as a China portal out of the U.S. "It made sense to pool together because we were both trying to reach global Chinese communities - not just in China, but also in Hong Kong, Taiwan, Southeast Asia and North America," says Chiang.

Sohu.com, China's second-biggest portal, was the brainchild of a single man. A Beijing native, Charles Zhang studied physics at the Massachusetts Institute of Technology. A business plan he wrote for a China portal attracted the notice of digital guru Nicholas Negroponte, who heads MIT's world-famous Media Lab. Negroponte was so impressed with the business plan that he introduced Zhang to some venture capitalists. A company was born. Two years ago, Zhang returned to China to launch Sohu.com and pursue his dream. He is, perhaps surprisingly, not in an obvious hurry to strike it rich by taking his portal public: "It is important to focus on building the business rather than trying to be first in the queue for a listing."

A more eager IPO candidate is 28-year-old William Ding, president and owner of Netease, which is, depending on which survey you believe, the fourth or fifth largest portal in China. Ding studied Telecom Engineering at Chengdu University and worked briefly at China Telecom. Three years ago, he developed and sold some software. He then took the proceeds and his life savings, which totalled about $60,000, and launched Netease. He appears certain to recoup his investment - and much more. In the days following China.com's launch, Netease has been quite vocal in promising that it would go public on Nasdaq within a year. Up to now, Ding has been cautious about taking on venture capital partners. By contrast, both Sina.com and Sohu.com have raised about $50 million each from such angels.

Feldberg elaborates on the advantage to China.com in being first. "Those guys raised $80 million. They may be No. 39 in China but now they can buy market share with the most valuable currency they have - Nasdaq shares. Netease or Sohu may have several times the market share but they don't have the listing." Says Gupta: "Investors in Europe or the U.S. who wanted to ride Asia's or China's Internet wave had no options. They would have loved to buy something like Sina or Sohu or Netease. But unfortunately only China.com was available." He notes that the entrepreneurs who started Sina, Sohu and Netease each had science and computer backgrounds. "But China.com is run by entrepreneurs whose real expertise is in marketing. They were first off the track even though they didn't quite have the numbers just yet." Peter Yip in fact does have technology experience having started and sold several tech companies while living in the U.S. for 20 years. He moved to Hong Kong in 1989. But he has also been a terrific salesman for China.com. In today's wild and woolly world of Internet financing, that is a critical skill.

COMING TO A STOCK EXCHANGE NEAR YOU
Address www.sina.com www.sohu.com www.netease.com
Features Chinese characters. A jumping-off point for multiple other sites, it also has its own collection of news, features, sports, finance and business, and science sites Chinese characters. A collection of news, sports, entertainment and business links. Also offers suggested sites for kids to learn about the Internet and browse the Web. Includes links to download useful software Chinese characters. It is a grouping of virtual communities that includes chat rooms, interactive discussion groups on topics like poetry, health and social affairs - but not politics
Partnerships Walden International
Goldman Sachs
Softbank
Dow Jones
Intel
Founder William Ding has declined to accept partners
Page Views 2.8 million average per day 2.3 million average per day Not available
Plans to list Within six months Between six to 12 months Within one year



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