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October 30, 2006



"Will the growing need for businesses to focus on playing politics with regulators ... sap the innovative energies of China's entrepreneurs?"
Simple answer: Yes.
The larger internet companies will play along with whatever regulations are put in place, the smaller ones will have more difficulty. Speciality services such as Toudou and Bokee will have more difficulty dealing with whatever ad hoc regulations are put in place than Sohu or Sina.

More complex answer: Yes, but not as much as some of the more jurassic-era regulators would hope.
The more hopeful element is that China seems pretty incapable of following through on planned regulation. The proposed registering of video hosting sites by SARFT did not happen in September as they planned, I'm guessing that the 'real name' blog registeration will also fail.
Bureaucratic infighting has stalled and will stall a lot of proposed regs (MII probably didn't care for SARFT's planned incursion into its territory, and you can be sure there were multiple interests opposed to Xinhua's planned tarrif on Bloomberg and Reuters terminals).
And, of course, supply will emerge to meet demand. If there is a desire for lots of groovy webby stuff there is little the government can do to stop it. SARFT may control the airwaves and cinemas but it doesn't stop people from buying pirated DVDs, getting an illegal satellite hook-up, or getting material from P2P or streaming sites.
I've spoken with a couple of reglators who have been puzzled by western reports on various crackdowns. They don't understand the outrage because they are fully aware that their crackdowns are ineffective ("Who cares if Skype is being blocked? I just use Google talk! -- "Yes we ban satellite dishes, but we can't remove one from a private home unless it is poorly installed and looks like it will fall from its mounting. So what's the problem?")
Entrepreneurs will be frustrated but they won't be stopped. (Getting vc funding will be difficult if they are forced into the grey market -- so, yes, China is shooting itself in the foot.).


myrick, your comments remind me of prostitution. its technically illegal, but its everywhere. sometimes, there are crackdowns on prostitution in some major cities, but prostitution continue to exist despite these crackdowns.

Jack Q

Thanks, Becky, for this great update. I wished to go but couldn't. After reading your blog, I am still amazed how so much optimism can persist for so long. It must be one or several of these possibilities: (1) there's really so many great things going on, which you probably agree, but I don't fully concur; (2) these people do not do reality checks for things like real name registration or the threats of commercialization; (3) those who have fuller comprehension and/or more critical understanding do not go (if I go, I'll pretend I'm not one of them); (4) those who did go were so smart that they pretended to be all so harmless and nice, which we are getting from your writing as well.. but this is part of the whole strategy/conspiracy.

Without getting into any Erving Goffman stuff, where's Mu Zimei? And people like her? Were they there, or even invited at all?

Among the presenters, I'm particularly interested in finding out more about visually impaired people and blogging. I looked at the online program but couldn't find her/his name. Will appreciate it if you can give a clue.

China Law Blog

Fantastic post. I agree with Myrick. What he (Asia Pundit) says almost has to be the case.

David Li

"If one extrapolates China's future from this group of individuals, you see a peace-loving, compassionate, humanistic, globally minded, flexible, hard-working lot who are well poised to drive Chinese innovation.... and to drive it in directions that the entire world should certainly welcome. "

This is such a patronized statement. These are not a group of idealistic kids but new generation of business savvy Chinese entrepreneurs. Don't try to package them like the commune hippies.

I agree a lot about what myrick is saying about regulations, especially those symbolic ones. Remember the big talk about domain registration a while ago? It was hyped as much as the real name registration today. Companies simply compliant and life goes on.

Howeve, I disagree about VC and grey market. "Getting vc funding will be difficult if they are forced into the grey market -- so, yes, China is shooting itself in the foot."

The grey market and grey business has not deterred VC from investing in Chinese companies. Shanda, Ctrip and the9 all operate in grey market when they obtained their venture investment. Shanda operates online game while there was no regulation on online games. Ctrip didn't have a travel agent's license when it went public in the US. It had to purchase a travel agent in Shanghai to be compliant with the law. On top of these, the Chinese telecom regulation clearly state only fully domestic firms can operate online games but Shanda was not only invested by foreign venture capitals but now NASDAQ listed. Same goes for portals and search engine business. These companies didn't get their investment in a suitcase of unmark bills. The backers are reputable VCs like Softbank and Intel venture. I did argue that grey market attract VCs because it's potential large payback and VCs are basically in the business for crap shot anyway.

Even in the US, VCs was flowing into P2P companies like Napster and RedSwoosh while RIAA was at full force litigate the P2P companies. Working on the margin carries big risk as well as big payback.


David, all fair points. VCs do have a high risk appetite and most private China internet and media operations -- including the very big ones -- do operate in very murky territory.

But, to clarify, I did say 'difficult' and not 'impossible.' Basically, fund raising would be easier for companies if the regulatory/legal environment were clearer.

Yes, VCs are willing to take risks, but a start-up firm could get a better deal for itself if political risks were limited.

For all the cash that is already here -- and there's a lot -- I expect more would be willing to come in if things were clearer.

David Li

Hi myrick, every named VCs have been sighted lurking around Shanghai looking for deal. And viable business plan would attract VCs like blood in the water for sharks. However, there are simply not enough good deals in China these days for the money already here. It has less to do with regulatory environment. VC takes high stake games betting on regulatory changes. One more example, UTStarcom went public in US while PHS was officially banned in China but passively allowed.

The main factor for VC in China is there are simply not enough talents. Every silicon valley boy wonder has a grey hair white man behind it dated back to the Markkula for two Steve of Apple, Clark for Andreessen, and Schmidt for Page and Brin. Boy wonder simply don't go out and get tens of millions in VC backing. As the "Management, Management, Management" mantra for the VCs, I don't think they are talking about the dime a dozen boy wonder hanging around Sand Hill road.

There are simply not enough 40/50 somethings experienced hands around in China to take on these boy wonder beyond the initial stage and that's why VCs are hesitated in China.

Also, contrary to public myth on VC funded start up, majority of companies even in silicon valley are funded by friends, families and max out credit cards. Only few of those get to the VC funded stage. However, quite a few of Chinese startups are expecting to get funded from day one which is totally unrealistic. Those startups actually get funded are mostly back by the third F in startup funding: FOOL!

The reason for not enough VC funded companies in China is certainly not lack of VCs or government regulatory. It's simply the lack of experienced hands to complete VC ecosystem.

One more point on the regulatory, the change represents the opportunity for startups and VCs. VCs can afford to bet on both sides of regulatory outcomes and startup can leverage the uncertainty against the established players. 30 years return analysis on VC against to other investments. VC only rank somewhere between Treasure Bond and Mutual Funds.

Mutual funds and private equality guys are doing much better then their VCs counterparts in China but who want story on dull bean counters with their Excel investing in bridges, roads and factories? We like story of VC on the cutting edge investing 20s something boy wonder in Web 2.0, Blogs and whatever new buzzwords.

moai x

Hi Rebecca, I've been following your blog and the GVO project for a while. Thanks for covering these important issues. Is there a way to find out more about how grassroot organizations use blogs to raise funds and inform the donors of how the funds are spent? I'm helping a friend build a human rights website and we'd like to expore how small NGOs in developing countries can best utilize internet to reach out to the world. Thanks!


"Bokee's Fang Xingdong warned in his speech that while the "invisible hand of the market" may have enabled China's blogosphere to reach its present stage"

That is hilarious and brash. If Wang really believes that it is time to divest, divest and divest....

The only reason Bokee has been successful has been because of central government censorship of foreign blogging platforms: namely blogger and blogspot. Bokee imported the business model and lined up foreign capital to fund a rollout. The company is stuck with a primitive revenue model (they don't even have contextual advertising!!!) and is basing their revenue model on the expectation that blogging will end up as centralized in China as news publishing (ie. Sina, Tom).

Bokee may sell themselves as "the market" but they are really just the dinosaur that will be cannibalized as soon as anything approaching a market in electronic publishing is allowed to take root in China.

That may never happen, but the market will have nothing to do with it regardless.

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