Technology innovation fuels online growth

When China entered the World Trade Organization (WTO) at the end of 2001, its Internet population was a little more than 50 million.

Ten years on, that number has grown tenfold. China recently surpassed half a billion online users, twice the number in the United States.

In 2001, Silicon Valley-based Internet companies paid little heed to China as they battled for their very survival amidst the trauma of the dotcom bust.

Despite the IPOs of three portals in 2000 - Sina Corp, Netease.com Inc and Sohu.com Inc - China itself remained an insignificant market in terms of advertising or e-commerce, a fact reflected at the time in those companies' depressed share prices.

Back then, Western companies remained mostly focused on China's infrastructure and telecommunications boom, as hopes ran high that the WTO would finally deliver the market access that global telecommunications carriers had sought for so long.

But those hopes have since been dashed as well-capitalized State-owned telecommunication companies such as China Mobile Ltd ultimately saw little need to partner with Western suitors in any meaningful sense and ultimately became so large as to be beyond their reach.

Technological innovations over the past decade have driven the Internet forward at a pace few could have imagined, generating massive opportunities for international institutional investors in China's booming online content and e-commerce sectors.

Even after the recent market turmoil, leading Chinese online players such as Tencent Holdings Ltd and Baidu Inc still command market capitalizations of several tens of billions of dollars and are both ranked among the top five global Internet players.

Dozens of other players in online games and e-commerce, including the massive but as yet unlisted Taobao.com, continue to grow and thrive.

Yet while overseas investors have profited handsomely from backing Chinese entrepreneurs, Western companies themselves have failed to garner leading Internet positions in China, in sharp contrast with markets such as the European Union or Japan.

The explanation lies in part in the impressive achievements of China’s Internet entrepreneurs, who, in the white heat of competition at home, have managed to humble the very Silicon Valley companies they initially set out to emulate.

But as value in the ICT (information and communications technology) sector shifts, rising competition may generate trade friction for China, an unwelcome development at a time of rising protectionist tendencies in the West.

Duncan Clark is the chairman of BDA China, an investment advisory company in Beijing. He is also a senior adviser at the Stanford Graduate School of Business' China 2.0 research initiative and vice-chair of the ICT Working Group of the European Chamber of Commerce in China.

(China Daily 12/07/2011 page16)