America Online Enters Hong Kong With Eye on Mainland
By MARK LANDLER
ONG KONG -- Stephen M. Case has planted his flag in Hong Kong, but his gaze is fixed on the Chinese mainland.
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Case, the founder and chairman of America Online Inc., was here this week to introduce his company's newest Internet service, AOL Hong Kong. The service -- a partnership with a highflying local Internet provider, the China.com Corporation -- will offer the usual menu of AOL services, plus a dollop of home-grown features like Cantonese pop music, Chinese cooking tips and horse-racing forums.
But Internet analysts said AOL Hong Kong is most intriguing as a starting point for future expansion into China. With an online market that is projected to quadruple from 3.8 million users this year to 16.1 million in 2003, China beckons Internet providers the way it used to attract detergent makers.
"AOL is definitely a force to be reckoned with," said Hanson Cheah, executive director of Asia Tech Ventures, a venture capital firm here that specializes in Internet companies. "They can use their marketing prowess and brand name to blanket the market. But China presents big challenges."
In an interview, Case acknowledged that Hong Kong was "a logical staging area for China." But he added: "First things first. We want to launch Hong Kong, and then we'll see what happens."
Case may be wise to temper his ambitions. Beijing recently alarmed foreign investors when a top official seemed to slam the door on foreign investment in Internet companies. The official, Wu Jichuan, the Information Industry Minister, later softened his tone, saying: "We will open these areas sooner or later. The question is, we have to have the proper rules in place."
Beijing's mixed signals have left foreigners scratching their heads. Shares of China-related companies like China.com have taken a drubbing. But Yahoo, the Internet portal service, recently went ahead with plans for a venture with Founder, a Beijing electronics company.
Case said he planned to meet with Wu in Beijing on Thursday and hoped to get a better understanding of the Government's position.
"I think this is being debated within the Chinese Government as well," Case said. "I have little doubt that when the dust settles, the Chinese will embrace foreign investment in the Internet."
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Beijing is carefully guarding its control over the Internet franchise.
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Analysts here generally share his optimism. They note that Wu is being pulled by competing interests: telecommunications executives, who want to retain monopoly control of China's network, and technology executives, who want to open the network to stimulate equipment sales.
Beijing is also torn between wanting to harness the power of the Internet and wanting to restrict potentially provocative information about issues like Tibet and Taiwan. Despite all this, China's President, Jiang Zemin, has said that he wants the Internet to become an engine of economic growth.
"Clearly, there is going to be resistance to pure, unfettered access," said Duncan Clark, a partner at BDA China, an Internet consulting firm in Beijing. "But China knows that it needs to develop the Internet."
China's ambivalence may be dispelled later this year when Beijing is expected to issue new rules governing foreign investment in the Internet. The current ban derives from a 1993 law that prohibits foreign companies from owning or managing telephone networks in the country.
If China did open up its market, America Online would have a well-connected partner in China.com. Among the company's original investors is Xinhua, the official Chinese news agency. Xinhua still owns a 13.6 percent stake. America Online bought 10 percent of China.com for $25 million in June and has an option to increase its holdings to 25 percent.
At a news conference to introduce AOL Hong Kong, Case emphasized the strong local flavor of its programming. In addition to local pop stars and stock quotations, the service will offer Chinese-language news from Sing Tao, a Hong Kong newspaper, and e-mail in Chinese and English.
Peter Yip, the chief executive of China.com, said Hong Kong was an impressive Internet market on its own. He said the territory would have 940,000 online users by the end of the year and 1.6 million by 2001. Currently, the market is dominated by the local phone company, Cable and Wireless HKT.
Yip said his company and America Online hoped to turn Hong Kong into both a regional Internet hub and a gateway to China. Lest there be any doubt about their good intentions, he added: "They're opening their markets at a Chinese pace. We have to be sensitive to the pace of reform in China." |
