Internet development: China's conundrum
Internet development: China's conundrum
By Sherman So and J Christopher Westland | Nov 24, 2009
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PrintIn October 2009, the market value of the largest Chinese Internet company—Tencent, at US$31 billion— had surpassed that of Yahoo ($24 billion) and was rapidly approaching that of eBay ($32 billion). Many Chinese Internet entrepreneurs have expanded from their niche markets to become major players in the industry. But how did this rag-tag band of entrepreneurs grow so successful?
Surprisingly, because the Chinese government—long characterized as an overbearing, doctrinaire monolith—actually took a step back when the Internet took off in 1995. Of course, it expressed concerns about politically sensitive news and discourse, which at times led to blatant censorship. But when it comes to commercially important issues, the government knows when to get out of the way.
Selective regulation
“While regulating the Internet is important, government’s role is also to provide a healthy environment for the industry to grow,” said Kou Xiaowei, a deputy director of the General Administration of Press and Publication (GAPP). Compared to other industrial sectors in China, the Internet is handled with kid gloves. In telecoms and heavy industry, government entities are both regulators and players through state-owned enterprises—China’s Internet sector has more freedom, is more dynamic and successful.
All the major Internet players in China are private companies, many of which are listed on foreign stock exchanges. Major companies such as Sina, Ctrip, Baidu, Shanda, Alibaba, Tencent received their original investment through venture capitalists, ultimately going public on either the NASDAQ or Hong Kong stock exchanges.
“There were no incumbent state-owned enterprises in the Internet industry,” said Kou. “Besides, the nature of Internet business is risky, [making it] less suitable for state-owned enterprises to operate. Private companies, together with venture capital investment, are perhaps more suitable.”
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