In 2001, China’s Internet related stocks lingered as junk on the NASDAQ no matter what companies did. For this reason, Zhang Chaoyang, founder and CEO of Sohu.com has had cause for concern for quite some time. He had to keep telling people, “Foreign investors don’t realize the potential of China’s Internet industry."

However, the situation has changed this year. Stocks for three large Chinese websites including Sina.com.cn, Netease.com, and Sohu.com no longer drift with tide of the current NASDAQ market. Netease.com’s stock price has risen from US$0.95, when it restarted trading at the beginning of the year, to US$8.26, making it one of the NASDAQ’s best performing stocks for 2002. On December 10, the closing price for Sina was US$5.17, Sohu was at US$5.45 and Netease at US$8.26. The three large gateway companies themselves, didn’t anticipate such strong performances.

The Wall Street Journal attributed the large profits of the three websites to mobile phones, saying that sending SMSs (Short Message Service) is becoming increasingly popular among China’s 180 million mobile phone users. Is it really that simple?

Good News Keeps on Coming

SMS capable mobile phones alone can’t possibly save China’s Internet industry. The real reasons behind China’s Internet revival lie in the gradual maturity of China’s Internet industry and the continuous expansion of the market. Hu Qiheng, chairman of Internet Society of China (ISC) said: "I don’t think that the situation in China’s Internet industry is so severe." Liu He, vice minister of China’s State Council Informatization Office also considered that "China’s Internet industry is not drifting with the current tide." Actually, China’s informatization has only just got under way while developed countries are trying to digest trillions of dollars invested in telecommunication networks during the economic bubble. As a result, the "bubble effect" in China has not been as obvious as in many developed nations.

China’s Internet industry is still showing rapid signs of development. By October 31, the number of Internet users in China reached 58 million, with the number of computers connected to Internet reaching 23 million. Over the past year, China has published successive Regulations on Web Information Service Management and Decisions of the Standing Committee of the National People's Congress on the Safety of the Internet. Meanwhile, China’s opening-up policy, the founding of a market economy as well as China’s accession into World Trade Organization have all promoted demand for the Internet. The 16th National Congress of Communist Party of China attached great importance to the information industry, which has further enhanced the confidence of practitioners and investors. During the closing period of the 16th National Congress, Netease.com’s stock price reached US$10.

Being Alert to Dangers in Times of Peace

An important strategy for commercial websites this year has been to start charging for the services they provide including e-mail, SMS, news, information and games. Once netizens got used to be charged by websites, a complete pricing structure was quickly formed, leading to a boom of services on the Internet this year.

However, as mentioned by Netease.com in their financial report, some risks and uncertainties will also influence the development of Internet, including China’s online advertising and online gaming market which may face the danger of stagnancy and fierce competition; websites which cannot successfully transform visitors into income; the risk that e-commerce and other charged services may stop increasing. The present interest in SMS may lose popularity as other technologies take the place of the short messaging service and websites lose the ability to provide other attractive products and services; the risk of poor control over future expenditure; the risk that enhancements to safety, reliability and confidentiality on the Internet may also affect the use of e-commerce and other services on the Net.

(china.org.cn by Wang Qian, December 14, 2002)