Despite Hype, China.com Still Risky

Penetrating China’s great walls and tapping into its huge marketplace has been the dream of Westerners since the days of Marco Polo. Perhaps this explains the investor buying frenzy that took place last week, when China.com made its debut on Wall Street.

The first day out, China.com’s initial public offering soared from a modest $20 per share to a close at a stratospheric $62.75 per share — raising $84 million (US$). This is 40 percent more than some analysts predicted.

So why all the hype?

When companies look at China’s 1.2 billion population, their top executives become fixated on a “what if” proposition that goes like this: What if we just sold our product to a modest percentage of this massive pool of consumers? Wouldn’t it be instant marketing nirvana?

The problem with this scenario can be understood by a simple history lesson: Throughout the ages, foreigners who tried to force their way into a business relationship with China either were tossed out — or eventually absorbed.

A strictly controlled portal

The first big negative about China.com is that it is strongly linked to Xinhua News Agency, China’s government new service. This means China.com’s content is heavily censored — or “edited” as it’s described by Xinhua. This flies in the face of the basic principle that makes the Internet the Internet: Unfiltered information. Once a portal’s content is known to be simply propaganda, its eyeball count plummets — even, or especially, in a Communist society. Perhaps this explains why some industry estimates have China.com receiving a paltry 100,000 hits per day. That’s less than 5 percent of the 2.1 million estimated hits recorded by Sina.com, a glitzy site modeled after U.S. portals.

In addition, two other factors weight heavily against the success of China.com:

There were only a meager 2.3 million Internet users in China in 1998 and analysts say that number will probably only grow to 16.1 million by 2,003 — not much for 1.2 billion people.

The per-capita-income for average Chinese citizen in the mainland is so low that e-commerce is only a fantasy in a Western banker’s mind. New Marco Polos

Nonetheless, such heavyweights as America Online Inc. — which owns 8 percent — and CMC Magnetics Corp. have pumped their stockholders’ capital into China.com. Joining them last week were thousands of individual and institutional investors, who apparently were sleeping in class when world history was being taught. Their investments in China.com could destine them to become known centuries from now as the new Marco Polos.