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MAY 15, 2000 VOL. 156 NO. 19

China's Online Future
Five leaders of the country's wired revolution talk about how the Web is inspiring entrepreneurs, transforming the economy and testing official attitudes toward information

The Internet is about to take off in China. As many as 9 million people are online, a number that is estimated to hit 20 million by the end of 2000. This phenomenal growth presents huge opportunities for entrepreneurs. It also creates tough challenges for the government--to keep pace with the technology and to cope with an erosion of its control over information. To understand where China is heading, Time reporters Isabella Ng and Mia Turner recently met in Beijing with five individuals who are leading the rush to develop the Internet in China. Excerpts from their roundtable discussion:

TIME: Is the Internet developing too fast for China's infrastructure to handle?
Tan Haiyin, chief operating officer, Eachnet.com:
Actually, there aren't many regulations now covering the Internet or e-commerce. We are already helping the government--the regulator--figure out what's important and what should be done.
Jack Ma, chief executive, Alibaba.com: We never wait for the infrastructure to be ready. No rule is good news. Life is like a box of chocolates: you never know what you're going to get. Better just to move ahead.
Edward Tian, chief executive, China Netcom: In China, the key issue is the telecommunications infrastructure. In the U.S., competitive telecommunications lowers the barriers to Internet access. China's telecom infrastructure is either too slow or too expensive. That's why my company is building an IP-based [for Internet Protocol] infrastructure covering 8,000 km, 17 coastal cities and 60% of China's population.

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With the Internet set to take off across the country, Time speaks with five individuals who are leading the charge

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TIME: What about political constraints?
Charlie Shi, partner, Softbank China Venture Capital: No government, not even the U.S., is fully prepared to cope with the changes. The question is, Are you embracing it or rejecting it? But whatever you do, I don't care if it's the Old Economy or the New Economy, there are certain limits. Imagine if I come to your house, bringing the most expensive things from Paris, London and New York. If you don't want them, I have to respect that I am your guest. I have to understand your viewpoint before I can be fully welcomed by you.
Ma: I was surprised to hear that people outside China still think of it as a very bad country. Foreigners always ask about Internet censorship. Give China a chance. Officials don't come to me and say, "Jack, don't do this" and "don't do that." Let China grow and encourage it. Like a baby, it is learning to walk.
The Chinese government also needs encouragement. No local government in China today will say the Internet is rubbish. Everybody thinks it's going to help society. Unless you make people really unhappy, they will listen and help. Five years ago, when I started the company, people just found us annoying.

TIME: Other than creating wealth, what benefits will the Internet bring to China?
Tian: Technology offers China the chance to catch up and solve many problems. Consider pollution. The Internet is an environment-friendly technology. We save energy, inventory, transportation. It's about survival in the long term. I think the government has already recognized that.
Tan: And there are advantages for entrepreneurs. They really have the freedom to start their businesses.
Tian: I agree with you. If you go through traditional industries, you need a lot of government approval. You need lots of cash. But here all you need is an idea and a little capital. Entrepreneurs can really make their dreams come true in China.

TIME: What will China's Internet scene look like in five years?
Tian: We are going to see a very different landscape. A large percentage of the GDP is going to come from the Internet industry. It's going to be a different China. The Internet age--new infrastructure, new entrepreneurs, new companies, new business models, new products. In five years, all Internet access is going to be broadband, truly interactive broadband. We are going to see interactive TVs, 3-D technology.
Tan: I am also bullish. In five or 10 years, the Internet is going to be in every corner, for business or information.
Ma: Five years from now, there won't be as many Internet companies. A lot will disappear--that's the way of life. But the infrastructure will grow up. Twenty years ago, people did not have telephones. Now, everybody has cellular phones. We can skip the intermediate stage. In Europe, people still use VCRs. They think, "My VCR is still good, why should I change it?" But in China, people skipped the VCR period. Everybody uses DVDs.

TIME: Given the roller-coaster nature of NASDAQ, are you guys worried about volatility in the stock market?
Shi: A lot of companies expect to face volatility. An Internet company needs cash flow. In China, where the Internet business is still in its infancy, you can't count on enough cash flow to sustain normal operations. And there is only so much equity funding you can get. So you need to take your company public to raise funds. I think you will probably see more volatility. A lot of companies think about going public much earlier than they should, which is unhealthy.
Anthony Yip, chief executive, Myrice.com: If you want to get access to the public market, you have to expect risk. You have to bear the ups and downs. Hold on when it gets bad. All you can do is focus on the fundamentals because you can't control the market.

TIME: Is B2B [business-to-business] the hottest model in China these days?
Shi: It's hard to say. You can have B2B, B2C, B2B2C, C2B2C, whatever. They are all part of the industry. But who knows what's next. Wireless? Broadband? It might be something else.
Ma: For B2C--selling books and other things online--I'm skeptical. In my company, 85% of the employees do not have credit cards and don't want them. Shopping habits in China are very different from those in the West. Cities in the U.S. are spread out; people go shopping once a week and buy a lot of things. In China, the shops are always full. People walk around and touch things, and they buy. B2B is different. The government is supportive because B2B can cut a lot of corruption. And we can reduce costs to enhance efficiency. I believe China's B2B sector can grow bigger than that of the U.S. or Europe.

TIME: Is an Internet culture developing in China?
Shi: We need to create a culture of responsible Netizens, not just to make money but to help improve the culture. I have seen some disturbing trends: people who always fly first class, for example. I travel back and forth between Shanghai, Beijing, Hong Kong. I sit in economy, while all those I've invested in are in first. This is bad. When Jack Ma started his first company, they all shared a hotel room.
Tan: Even now at Eachnet, we share rooms. We don't want to lose the entrepreneurial spirit. It's easy to slip into more and more luxury. But in this industry, if you don't keep developing and progressing, you die. And all these passionate people who work with you, who follow you because you share a common goal, they will feel betrayed.
Ma: I always tell my employees that we are a very cheap company. We are cheap on everything except three things: we are never cheap on our customers, never cheap on our products, never cheap on our investors.
Shi: We want people to stop calling us "movers and shakers." We'd rather be called "movers and shapers" of the right culture.

TIME: In the U.S., people who fail in their entrepreneurial start-ups are still respected. Can that happen in China?
Shi: Failure is O.K., if you fail for the right reasons. We have invested in people who have failed before. We are investing in people who did not do well in the past, like Jack Ma. As long as they fail with somebody else's money, that's fine [laughs].

TIME: How will China's entry into the World Trade Organization affect the Internet business?
Shi: Expect China to become more open. Obviously, you will still have certain regulations over the industry. But that's normal. You see that in Europe and elsewhere in Asia. But WTO membership should result in more-flexible regulations on foreign investors in the Internet as well as more flexibility in terms of Chinese Internet players going abroad.
Ma: When wto comes, China will not be able to rely on its traditional way of doing business: low cost, cheap stuff. It won't work. The country will need a new tool, and IT [information technology] will help it change.

TIME: Can the Internet help save China's big state-owned enterprises?

Ma: It may help reform them, but it won't save them. Some of the old companies are going to die. Let them. It's like a tape recorder: you get a new one and throw away the old one. The Internet is a revolution, especially for these poor, old state enterprises. They are looking for partners. They are looking for ways out. But not everybody is going to make it. China will change fundamentally in the next five years because of the New Economy. The government will support the New Economy much more than the U.S. does. China is going to be really fast.


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