(COMTEX) B: ANALYSIS - DOTCOM IN CHINA - HOPE OR HOAX?
B: ANALYSIS - DOTCOM IN CHINA - HOPE OR HOAX?
BEIJING, Apr 27, 2000 (AsiaPulse via COMTEX) -- A keen debate on high-tech
stocks versus traditional industry shares between economists and network wizards
has been going on in China for some time.
Prof. Wu Jinglian, a noted economist, has warned against the bubble in the
high-tech shares, which have been transacted on the net. "Do we need
systemization or the bubble in the new economy?" he asked.
Two young scholars on the digital tribune have retorted: "Don't pour cold water
on the network, Mr. Wu! It's a revolution!"
News media across the country are focusing their attention on the debate, as it
is vitally important to the trends of China's economic development at a time
when China is crossing into the new century, which is expected to be even more
challenging than the outgoing millennium.
Prof. Wu was quoted by the South Weekend based in Guangzhou on March 17, 2000,
as saying that hyping up the high-tech shares would lead to a bubble to the
detriment of the high-tech industries and the mass media should stop adding fuel
to the flames.
"I do not agree to the assertion that the bubble of the stock market benefits
the high-tech industries and that the bubble will never blow up in the age of
the 'new economy'," he added. "What I mean by bubble is that the price of the
stock shares is divorced from their basic value."
Invoking the tulip mania of 1634 in The Netherlands, the Depression of 1929 in
the United States, and the crash of the real estate and stock markets in Hong
Kong in 1997 during the financial crisis, the professor advised guarding against
the bubble on the high-tech board in the bourse.
He also reminded people in China that Bill Gates had admitted to the bubble in
the network stocks in America and that Alan Greenspan of the U.S. Federal
Reserve Board had time and again appealed to people for reason in investment.
"It is imperative to create the essential organizational structures and related
social and cultural environments to give scope to China's human capital," he
said. "These mean clearly defining property rights, improving the talent market
(covering technicians and managerial staff), encouraging a new enterprise
culture, and making private investment the main body of venture capital."
The two network whizzes, Jiang Qiping and Fang Xingdong, blamed the economist
for separating the new economy and the network, jumping to a conclusion hastily,
and ignoring the worldwide recognition of the network economy, to mention just a
few. They quoted the Andersen consulting agency in the U.S. as showing that the
network industry in Latin America netted US$4.4 billion in 1999. One-third of
the companies in Brazil, Argentine, Mexico, Colombia and Venezuela would earn
20% of their revenues from the web in the next five years.
"Why must you keep China from the trends toward networking?" they demanded. "You
are too rash in meting out a death penalty to 'a majority of the companies'
while Texas University's research report says the network economy in the U.S.
grew 68% to reach an annual product value of US$507 billion in 1999."
"Our conviction is that the new economy is an inevitable revolution, in which
the value of information will supersede the value of industry eventually," Mr.
Jiang and Mr. Fang declared.
Harry H. Huang, chief representative of NASDAQ China, agreed. Interviewed by
China Business, a newspaper in Beijing, on April 11 about the 7.6% fall of the
NASDAQ composite index, he insisted that a bubble in the new economy was out of
the question and that the network would definitely play a decisive role in
transforming the traditional economy.
Such was the enthusiasm for starting websites that Jiang Feng, vice-president of
a net, reported some 15,000 Chinese language sites that had mushroomed by the
end of 1999.
While the online company proprietors were congratulating themselves, NYSE and
NASDAQ crashed on April 14, sending the high-tech stocks into a free fall and
smarting for a loss of 5.6% and 9.67% respectively. US$2,000 billion vanished in
the twinkling of an eye. Yahoo! shrank by 50%, and Amazon 60%. Bill Gates
personally lost US$11.1 billion, Amazon's chairman lost $2.4 billion, Michael
Dell of Dell Computer Corp. $2.3 billion, and Jerry Yang of Yahoo! $1.6 billion.
The Chinese companies did not escape unscathed. China.com, the first to go
public on NASDAQ, saw its record share price of US$150 drop to US$30. Sina
opened at US$17, touched US$29 briefly and now hovered around US$20. Some other
Chinese Internet portals waiting for listing on the NASDAQ stock market may have
second thoughts at the news.
Mr. Huang from NASDAQ China remained optimistic, saying: "NASDAQ rose over 80%
last year and now we lost just about 25%." He estimated that the NASDAQ
composite index would not fall under 3,200 points and might zoom to 4,000 points
by the end of the year.
But the American press asserted that the NASDAQ carnival could not remain
magnificent forever. All the unbridled prosperous markets would ultimately fall
under Newton's law of universal gravitation, a newspaper claimed.
The Washington Post said on April 15 that the feast was over, according to
William Frankenstein, manager of a hedge fund based in Seattle. He said it was
impossible for speculation to start a storm anymore. Susanna Richardson, general
manager of FBR.com, said it would be very difficult to create a company, and
even more so to get it listed.
Xu Xiaonian, general manager of the China International Finance Company's
research department, drew attention to the high commercial value and high risks
of high-tech stocks and cautioned against the bubble in the new economy. The
actual purpose of venture funds was to help enterprises expand and improve their
management, marketing, finance and other sectors so that they would mature
quickly, he added.
Zhai Minglei, another economist, stressed that the network would not create
wealth by itself but only save the expenses of the traditional industries. He
admonished the websites in China of the need to be honest and sincere and follow
a business model that would satisfy the consumers' demands rather than just aim
at raking in the dough.
E-commerce was still a long way to go in China because a credit system had not
been completed and the central bank still did not have a system for certifying
the retailers on the web, he said.
Joseph Tong, global CEO of MeetChina.com, said it was still possible to do B2B
(business to business) and B2C (business to consumer) in China by integrating
the facilities on the web and those off the web. The conditions included
provision of information, verification of quality, settlement of accounts and
transportation, he noted.
China Daily, an English language newspaper based in Beijing, quoted Frank Zarb,
chairman of the US-based NASDAQ, as saying on April 15 that the bursting of the
high-tech bubble and the plummeting of the NASDAQ stock market was a "market
correction, which is healthy."
"A prerequisite for that healthy growth is plenty of market transparency and the
availability of information investors can use to assess risks and the
performance of listed companies," Zarb said.
Despite the latest rebound of the stock market, it was far off from the previous
bull run and remained bearish. However, the blue chip stocks on the old economy
board, such as DuPont, Wal-mart, J.P. Morgan, Cisco, Dell, DEC, Intel, Eastman
Kodak, P&G and Citicorp went up.
Commenting on the relations between the new and old economies, many economists
argued that these two would become interactive and develop a new pattern and
that the enterprises had to take into consideration of both so as to avoid the
fate of getting eliminated.
Many Chinese newspapers and magazines have been referring to Prof. Wu's advice
lately. His most frequently cited warning was: "We must be sober in assessing
our high-tech industries. Should we think they are approaching the United States
and other such countries and beginning to play a dominant role in our economic
development without stupendous efforts, that would be just an unrealistic
illusion. When the people, who hold this idea, refuse to work in a down-to-earth
manner but hype up the high-tech and network stocks to lure people into the
bourse with sky-rocketing stock prices, I cannot but suspect their ulterior
motives."
(XIC)
(C) 2000 Asia Pulse Pte Ltd
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INDUSTRY KEYWORD: Internet
Financial Markets
Economy
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