Renren’s IPO: Are You Out of Your Minds?
May 10, 2011 Filed under Community, Yu Shanshan
(Beijing Today website’s blog section does not represent any view of Beijing Today or its reporter. Anyone interested about the story can find the original text from the link above the article. The Blogger column aims to introducing foreign media’s interesting stories and expat blogs in China to more Chinese readers, as 50 percent of Beijing Today readership remain young Chinese who have experience of living abroad, white colors or school students. Authors who does not want his or her story linked at Beijing Today’s website, please email to info@beijingtoday.com.cn to take down the stories.)
http://www.chinahearsay.com/renrens-ipo-are-you-out-of-your-minds/
The big story today was the listing of China social media firm Renren. Those of you familiar with mass hysteria phenomena will see some familiar elements here. The first thing that I think of is the Net boom ten years ago.
Is the same thing happening now? Sounds like Forbes’ Russell Flannery thinks so:
Chinese social media site Renren soared on its U.S. trading debut today, leaving the money-losing company with a valuation of several billion dollars and perhaps destined to enter the lore of mania akin to that of the U.S. Internet frenzy of the 1990s.
The company today listed at the New York Stock Exchange, where no doubt relatively few of its investors can even read Renren’s Chinese-language content.
Renren lost approximately a dollar for every dollar of business that it did last year. Revenue totaled $76 million, compared with a loss of $64 million, according to its prospectus.
I think he has some good points there. Aside from the legal/corporate structure issues that I always talk about, this is a company with some serious business-related question marks.
My favorite quote is from an FT article on the IPO:
“You can say it’s overvalued, but people are going to buy it anyway,” Darren Fabric, a Chicago-based managing director at IPOX Capital Management, told Bloomberg.
That does sum it up well, doesn’t it? Welcome to the new Net bubble. Revenue? Not to worry! It’s all about market share, number of users, traffic. And of course, it’s relatively easy to boast huge user numbers (I’m talking tens of millions for lots of sites, with Renren in the triple digits) in a country like China. But when you focus on the big numbers, you wind up with very two-dimensional advice like this.
Those huge numbers also help to divert attention away from what would otherwise be troubling revenue-per-user ratio (about 4 bucks for Facebook and eighty cents for Renren, according to the FT).
Of course, those aren’t the only things Renren is dealing with these days, as explained by the Wall Street Journal:
Renren seems to have some very serious questions surrounding it. As Lynn Cowan reported for Dow Jones Newswires on Tuesday:
Renren is coming to market amid a string of data and accounting-related issues raised in the past week. On Tuesday, Renren’s audit committee head said he had resigned, following Citron Research’s allegations last week of financial fraud at his own company, Longtop Financial Technologies Ltd. (LFT).
Renren last week also changed a key data point in its prospectus, saying its user base rose 19% in the first quarter, compared with a previously reported growth rate of 29%. The prospectus didn’t explain the reason for the change, but it came after some analysts and investors questioned the accuracy of its figures.
Renren also disclosed a material weakness related to insufficient accounting personnel, and a significant deficiency stemming from not having a formal policy for treasury functions and investment of its cash.
Shit, who wouldn’t want to invest in that?
So why did Renren do so well yesterday? Here’s my short list of explanations:
1. People are overconfident and always think they can bail out of a bubble before it pops.
2. Good investments are hard to come by.
3. Lots of people live in China.
4. Investors are sheep and easily manipulated by investment banks.
5. No one does enough research; why bother if you’re going to flip it quick anyway?
I’m sure there are other reasons. Those are my favorites, although let’s be honest, I could have just stopped at #1.
OK, but really, why is anyone buying this crap? The Wall Street Journal interviews Morningstar’s Bill Buhr:
“There’s been a lot of concern, and not just with Chinese IPOs, about the potential for fraud with these kinds of terms. But Chinese IPOs have had a really, really strong performance.”
Long-term investors might ultimately shun such companies over concerns about material weaknesses, but, for now, Chinese IPOs in the U.S. have had huge momentum with short-term traders. The last 20 Chinese IPOs to list on U.S. exchanges averaged returns of 22.1% on their first day of trading, according to data from Dealogic. And while many have made such disclosures, they have managed to keep up performance. Over three months of trading, the 15 most recent Chinese IPOs have averaged a return of 18% since their IPO — of course, the numbers varied widely from apparel maker China Xiniya Fashion’s decline of 53.3% to Internet television company Youku.com’s 236.7% gain.
I’m not sure Youku is such a great example. Another company that is not only a money loser, but one that doesn’t even know how to get to profitability (my opinion – I’m sure they have an official answer to that question).
My problem as a lawyer is that I can’t really relate to a short-term strategy. Corporate lawyers don’t usually think that way, we try to assess risk regardless of timelines (although there are exceptions). I wouldn’t want to write a legal memo to a client and say “You might be royally screwed if you hold onto that for a while, but in the short term, you’ll probably be fine.”
So Chinese Net stocks are doing well in the short run because of mindless hysteria, and therefore folks looking for a quick wham-bam-thank-you-ma’am saw Renren as a good deal. There were also a lot of other folks who didn’t even think about the risk and just thought “China . . . Internet . . . millions of users . . . must buy . . . ”
I suppose the smart guys will get out in plenty of time. For the folks left holding the ball when the ceiling caves in (how’s that for a mixed metaphor?), it’ll be ugly.
Good luck!
China Internet market should not be treated differently: Exec
(Beijing Today website’s blog section does not represent any view of Beijing Today or its reporter. Anyone interested about the story can find the original text from the link above the article. The Blogger column aims to introducing foreign media’s interesting stories and expat blogs in China to more Chinese readers, as 50 percent of Beijing Today readership remain young Chinese who have experience of living abroad, white colors or school students. Authors who does not want his or her story linked at Beijing Today’s website, please email to info@beijingtoday.com.cn to take down the stories.)
To match Analysis GOOGLE-CHINA/
(Reuters) – China’s massive Internet market should not be singled out and treated differently from other Internet markets in the world, a Google China executive said on Tuesday.
Google, which partially pulled out of China last year after a tussle with the government over censorship and a serious hacking episode, has suffered market share losses in the world’s largest Internet market by users since then.
The firm entered China in 2006 after making concessions to China to self-censor politically sensitive keywords from its search results. In January last year, Google said it will stop censoring results.
“China should be part of the (global) market, why single out one market and say that things should be different,” John Liu, Google’s Global Vice President of Greater China Sales and Operations told an industry gathering.
Foreign Internet firms have struggled to find success in China as opaque and shifting Internet regulations confounded executives. Google was steadily gaining market share on home-grown search engine Baidu Inc before it dropped the bombshell announcement in January.
China says it needs to censor the Internet in order to maintain social stability.
Buddha Steel, VIEs and Legal Ethics: Part I, the Internet Years
April 8, 2011 Filed under Yu Shanshan
(Beijing Today website’s blog section does not represent any view of Beijing
Today or its reporter. Anyone interested about the story can find the original
text from the link above the article. The site’s blog section aims to introducing
expat blogs in China to more Chinese readers as 50 percent of Beijing Today
readership remain young Chinese who have experience of living abroad, white colors
or school students. Blogger who does not want his or her story linked at Beijing
Today’s website, please email to info@beijingtoday.com.cn to take down the
stories. )
http://www.chinahearsay.com/buddha-steel-vies-and-legal-ethics-part-i-the-internet-years/
This is Part I of maybe two or three posts that is ostensibly about the recent Buddha Steel case, in which a Chinese company with a US listing announced that part of its corporate structure was found to be unacceptable to Chinese regulators.
If you don’t plan on reading this series, my conclusion with Buddha Steel is that I don’t see a wave of similar actions from the PRC government for companies with variable interest equity (VIE) structures.
That being said, I’m going to use this an excuse to thoroughly explain exactly what these corporate structures are, why they are important to the practice of foreign investment law in China, and why I’ve been railing against these things for the past 12 years. In the meantime, if you want the quick and dirty on Buddha Steel, etc., you can to go China Accounting Blog (the author and another reader of mine clued me in to Buddha Steel in the first place), Pillsbury Winthrop law firm, and China Law Blog.
OK, so let’s get started. Let’s go back to the China mini Internet boom, which lasted about nine months or so in ‘99/’00. I teach this every year to my FDI students, and it’s a bit dry, so instead of the usual lawyer-speak, I’ll give you a short excerpt from the screenplay I wrote back in 2003 (was never picked up for some reason) about a couple of entrepreneurial Chinese kids making waves in a fast-paced new industry:
Narrator: In the beginning . . . [cue music][camera pans down from overhead shot - we see a small group of apes sitting on a bluff in a primeval setting looking down into a valley where a large black monolith has just appeared].
Well, in retrospect, that opening sequence was a bit overdone. In the interests of time, let’s fast forward to 1999.
We are now in Beijing, and our two heroes, Everyman Wang and his best friend Generic Zhang, have just graduated from the prestigious Tsinghua University. For 14 months now, they have struggled to get their Internet business off the ground, but they realize that they need capital to expand and have approached a Venture Capital firm from California called CEO Capital. We join the meeting in progress:
Wang & Zhang: So we’re very interested in bringing you on as an investor.
CEO: I’m sure you are. Tell me again about your company.
W&Z: We are currently the only company in China that offers cheese straightening services, and we do so through an online booking portal.
CEO: Wow, the only one?
W&Z: Correct. We were granted a monopoly license because of connections that we have with the Ministry of Silly Gadgets.
CEO: Amazing. So that means–
W&Z: Yep, if you are in China and need your cheese straightened, you have to come to www.ezcheez.cn.
CEO: Incredible. I mean, I know I’m just a Cock-Eyed Optimist, but if just half of the people in China need their cheese straightened on a regular basis . . .
W&Z: Yeah, we’re pumped. But we calculate we need 12 million dollars to expand.
CEO: With a monopoly position like that, I don’t think that will be a problem, guys. I’ll go talk to my lawyer.
W&Z (sotto voce, to each other): We just made 12 million bucks!
Rivals say Facebook could be tough sell in China
A woman works online in her cubicle at an office in Beijing.
(AFP) – Facebook may be eyeing a move into mainland China, but web firms there cast doubt on whether the social networking giant can tap the monster market — assuming authorities lift a ban on the site.
China has the world’s biggest internet population, with 420 million users and rising. It is a hugely lucrative landscape, but is also peppered with dominant domestic brands, technical hurdles and the threat of censorship.
Beijing has set up a vast online censorship system sometimes dubbed the “Great Firewall of China” that aggressively blocks sites and snuffs out Internet content on topics considered sensitive.
The system currently prevents most of the nation’s web users from accessing Facebook. The key role the website played in anti-government protests in Egypt and Tunisia will not have gone unnoticed by China’s communist rulers.
But Facebook last week said it had opened a Hong Kong office, its third in Asia, while founder Mark Zuckerberg visited China in December, prompting suggestions that Beijing may eventually welcome the California company.
Blake Chandlee, Facebook’s vice-president and commercial director for emerging markets, played down any imminent move into the country.
“We have no plans right now to talk about entering into mainland China and trying to be aggressive in that,” he told AFP at Hong Kong Social Media Week, which wrapped up Friday.
Still, Facebook already has an estimated 14 million Chinese-language users — mainly based in Taiwan, Singapore and Hong Kong — and the figure is expected to keep growing.
But even if Facebook got clearance for a China foray, some observers said it would have trouble adapting to local tastes.
“China is a different market,” said Jeffery Zheng, general manager of renren.com, a popular social networking site in China.
“A lot of companies like Yahoo! and Google tried unsuccessfully to penetrate the Chinese market. You have to satisfy local needs.”
Last year, search engine Google claimed it was the victim of a sophisticated cyber attack in 2009 that originated from China, apparently aiming to gain access to email accounts of Chinese human rights activists.
Google shut down its Chinese search engine, automatically re-routing mainland users to its uncensored site in Hong Kong, but later ended the automatic redirect to avoid having its Chinese licence suspended.
Zheng said his firm had notched up 170 million registered users by the end of 2010, a 400 percent increase from 2008, because of “unique” services such as letting customers choose their own wallpaper, background music and Chinese New Year-themed emoticons.
“Chinese netizens love to share their emotions indirectly… This is reflected in their profuse use of emoticons,” he added of the yellow “smiley” symbol.
“The Internet has become a way for them to communicate in a relaxed way.”
Meg Lee, general manager of the Hong Kong version of Sina.com, a Chinese microblogging service similar to Twitter, said her firm has enabled Chinese users to blog by text messaging from their mobile phones.
“In China, people send a lot of SMS to family and friends,” she said.
“We provide a unique service in synchronising their SMS messages to their blogs. This is very popular as many people are still using basic mobile phones.”
Lee warned that any newcomer to the China market — where Twitter is also banned — would have to wrestle with the country’s strict censorship policies, although some regulations have been gradually relaxed.
“Every environment has game rules. Censorship is the policy in China that everyone has to follow,” she told AFP.
Added Zheng from renren.com: “I know that the government pays special attention to us because we are a social networking site so we might be considered to be stirring up trouble.
“If a blogger writes strong words against the government on our site, of course we will take it out.”
Still, many Chinese web users are relatively unconcerned about government censors — as long as they get their daily dose of entertainment gossip.
“Many people just want to follow movie stars and idols,” Lee said.
In fact, the biggest hurdle for Facebook and other firms may be China’s less-than-dependable Internet infrastructure and reams of bureaucratic red tape, said Li Lei, head of online start-up Wincasting.
“It is necessary to get approval from many different governmental departments,” Lei said.
China’s Internet Retailers Want You to Trust Them
September 8, 2010 Filed under Yu Shanshan
More than 1,000 suppliers, publishers, and Internet retailers, including Dangdang.com, Microsoft, Aigo, Wyeth, Lock & Lock, Commercial Press, and the People’s Literature Publishing House, have jointly published an “Internet Retailing Honesty Declaration” in China.
Under the declaration, Dangdang.com and its suppliers promise that following the basic principles of integrity, security, and responsibility, they will provide quality products and services to customers. The declaration calls for the authenticity of goods, honest advertising, complete after-sales services, and no leakages of registration information of users.
Li Guoqing, joint president of Dangdang.com, told local media that the honesty declaration is a self-discipline declaration promoted by Dangdang.com along with its suppliers. The company consistently adheres to the principles of no selling of fake goods and no fraud in online shopping, aiming to provide a safe Internet shopping environment for customers in China. (ChinaTechNews)
When companies do this sort of thing in the U.S., it usually means that they are afraid of government intervention. Afraid of being regulated, industries will preemptively engage in a bit of self-regulation (sometimes real, sometimes bullshit). When the government finally decides to check out consumer complaints, industry can respond with “we already took care of this problem, so you needn’t bother.”
China is different. It is doubtful that this move had anything at all to do with government regulations, which will happen here irrespective of some honesty pledge. That being said, I’m sure folks in the government felt a nice warm feeling when they were told about this little PR stunt. Sounds so harmonious, you know.
Here’s the deal. Online retail is growing by leaps and bounds here, but it has expanded so fast that a lot of questionable practices are being tolerated. Consumer complaints are mounting, and the reputations of enterprises are at stake, directly and indirectly. No one wants to see a loss of trust with respect to online transactions – it took a long time for people here to adopt the new tech in the first place.
I don’t think consumers are going to care one way or another about this honesty pledge. Frankly, I don’t see much value to this in the first place, although I assume a PR guy could explain how these things actually help enterprises (keep reading for one possible explanation).
What it does show, however, is that some folks out there in Net Commerce Land are sufficiently concerned about the problems associated with identity theft, counterfeit goods, privacy concerns, and outright fraud. That suggests to me that there is a widespread problem that is, in some ways, getting worse.
It also begs the question whether more firms will actually do something substantive about it. I suspect that at least some of the companies that signed that honesty pledge already have internal measures in place to protect their customers (the pledge is one way to advertise these measures), and they want to make sure that they are not automatically grouped together with the scoundrels out there. Whether more firms will follow suit remains to be seen.
China defends Internet ‘Great Firewall’
June 10, 2010 Filed under Ahen
China has defended its right to censor the Internet, saying it needed to do so to ensure state security
BEIJING (AFP) – China on Tuesday defended its right to censor the Internet, saying it needed to do so to ensure state security, and cautioned other nations to respect how it polices the world’s largest online population.
The government’s white paper on the Internet in China — where more than 400 million people are now online — comes after a very public row with Google over web freedoms which prompted the US firm to shut down its Chinese search engine.
The Google spat over censorship and cyberattacks touched off a war of words with the United States over Internet freedom, at a time when ties were already suffering over US arms sales to Taiwan and a host of trade and currency issues.
China “advocates the exertion of technical means” in line with existing laws and international norms “to prevent and curb the harmful effects of illegal information on state security, the public interest and minors”, it said.
Such laws and regulations allow the curbing of content on everything from “instigating racial hatred or discrimination and jeopardising ethnic unity” to gambling, violence and obscenity, the government noted.
“Effectively protecting Internet security is an important part of China’s Internet administration, and an indispensable requirement for protecting state security and the public interest,” it said.
Beijing operates a vast system of web censorship, sometimes referred to as the “Great Firewall of China”. It blocks access to any content the government deems unacceptable, ranging from pornography to political dissent.
http://news.yahoo.com/s/afp/20100608/wl_asia_afp/chinapoliticsitinternetcensorship_20100608064133
China angry as Google stops censoring search results
Google has stopped censoring results through its Chinese search engine Photo: REUTERS
(Telegraph)-Google has stopped censoring its search results in China in defiance of the country’s authorities, sparking a furious response from Beijing.
The internet giant said yesterday it was closing its China-based search engine and redirecting visitors to an uncensored site based in Hong Kong.
The move follows a long stand-off with Chinese regulators over censorship and hacking and sets up a showdown which could see Google turn its back on the world’s biggest internet market.
Google’s announcement came amid heightened diplomatic tensions between China and the United States over a range of issues from internet freedom to the yuan exchange rate, economic sanctions on Iran and US weapons sales to Taiwan.
Speculation had been mounting that Google would pull out of China entirely since it said on Jan 12 that it had detected a sophisticated cyber attack on its computers, aimed at email accounts of Chinese human rights activists, Instead, the San Francisco-based company announced last night that it was closing its China-based search engine google.cn and began redirecting visitors to the Hong Kong-based google.com.hk
Hong Kong is a special administrative region of China and enjoys more freedom than mainland China, including an uncensored internet.
China said it was “dissatisfied and angered” by the decision. It said Google had violated a “written promise” and was “totally wrong” to end censorship.
Google informed the White House National Security Council of its decision before the announcement.
An NSC spokesman, Mike Hammer, said it was “disappointing” that Google and the Chinese government had failed to reach an agreement.
Age of E-congress – Debate over future takes flight on Internet
March 15, 2010 Filed under Outlook
What big steps should China take in the next few years? As the two annual parliamentary sessions continue, a parallel gathering is also debating the country’s future.
This is the online discussion among the country’s 380 million Internet users, many of whom offered proposals to the country’s leader.
Online congress
While the Internet can be utilized to disrupt social stability, it is also a valuable way of gauging public opinion.
The People’s Daily e-congress – a forum where netizens can share their thoughts as the National People’s Congress (NPC) and the National Committee of the Chinese People’s Political Consultative Conference (CPPCC) sessions unfold – is part of the latter effort.
The most popular proposal on the site, from among 4,500 voted on, called for a crackdown on property speculators, a reflection of public anger over rising real-estate prices in metropolises such as Beijing and Shanghai.
The second most popular was a proposal to expand the use of the death penalty in dealing with corrupt government officials. Both suggestions drew several thousand votes.
Delegates taking part in the proceedings at the Great Hall of the People agreed that the online community has become a significant player in the political arena.
“All their concerns have been heard and are being discussed by the government. But there are certainly some differences between what concern netizens most and what concerns the government most,” Xin Yi, a deputy from Jiangsu Province, said.
Mao Shoulong, a professor of public administration at Renmin University, said netizens’ influence has palpably increased this year. “The Premier didn’t meet NPC delegates or journalists ahead of [last Friday’s] meeting, but he talked to netizens,” Mao said.
“The leaders are trying to gather information from the Internet and at the same time make adjustments to meet the needs of the Internet age, he said.
China’s President Hu signs up for microblogging
File photo of Chinese President Hu Jintao, who has set up a microblogging account that has drawn thousands of followers as of Monday, in a country where social networking sites remain tightly controlled.
(AFP) – China’s President Hu Jintao has set up a microblogging account that has drawn thousands of followers as of Monday, in a country where social networking sites remain tightly controlled.
The account was set up on a microblogging platform operated by the People’s Daily, the main print media mouthpiece of the ruling Communist Party, which Hu heads.
Hu’s profile contained no message, photo or information other than his name and official titles.
The state-controlled Global Times newspaper said the People’s Daily had set up its microblogging site on February 1.
It said it had confirmed with the site that Hu’s account was genuine.
It was not clear when the account was set up, but more than 14,000 web users had signed on to follow the account by Monday morning, allowing them to receive updates by email, Windows Messenger, or Google’s Talk service.
“I am looking forward to communicating with the Secretary General (of the Party),” said one user.
Another expressed disappointment, saying, “It’s a pity he hasn’t written anything yet.”
Hu’s microblogging presence has emerged in the middle of a row between China and the United States over Beijing’s restrictions on the Internet and Google’s presence in China.
Google threatened last month to abandon its Chinese-language search engine google.cn, and perhaps end all operations in the country, over censorship and cyberattacks it says targeted the email accounts of Chinese rights activists.
The New York Times reported last week that the hack attacks had been traced to two elite Chinese schools, but both have denied any involvement.
China’s government has recently walked a tightrope on the Internet, with leaders saying they were committed to developing the Chinese web even as Beijing operates a huge censorship system dubbed the “Great Firewall of China.”
Authorities attempt to strictly control exploding use of the Internet in the country — restrictions that include stifling foreign social media sites like Facebook, Twitter and Google-owned YouTube.
http://news.yahoo.com/s/afp/20100222/tc_afp/chinapoliticsitinternethu_20100222062939
New report finds Internet a force of justice
December 25, 2009 Filed under News
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Residents take to the streets to fight a government decision to seize their homes and give them to a real estate mogul in Changsha, Hunan Province. CFP Photo
By Zhao Hongyi
Media used to be the watchdog of the government and defender of society. But today, that role is being assumed by the Internet.
The Web now breaks more stories of abuse and mistreatment than anywhere else, according to the “Blue Paper on Social Affairs” published Monday by the Chinese Academy of Social Sciences, the central government’s think tank.
Researched concluded that 30 percent of the most serious social abuses broke online. Most of these went on to become top news stories in traditional media and to find legal defense.
As the Internet further integrates with mobile devices, it is becoming a powerful medium for change. Netizens are using words, photos and videos – usually under the veil of anonymity – to expose the misdeeds around them.
As of June 30, 26 percent of the population regularly visited cyberspace. Twenty-three of the year’s 77 worst social issues broke online, the paper said.
The paper named a number of shameful issues, including the case of Deng Yujiao, a hotel worker in Badong county, Hubei Province, who killed a county official who attempted to force her to engage in sex for money. The court found Deng not guilty of murder.
The ongoing battle against Chongqing’s nderworld also broke online. And “more importantly, inside news were also first exposed online,” according to the paper.
Netizens have also been responsible for the spread of news-inspired memes into the everyday vernacular: phrases like “duo maomao,” taken from the story of a Yunnan inmate killed by correctional officers and whose death was blamed on a game of hide-and-seek gone horribly wrong.
“It’s a nice way for people to vent thr frustrations and to discuss major issues that are too sensitive for traditional media,” Zhu Huaxin, an analyst at thePeople’s Dail, said. “It’s also critically important in exposing problems so that the government d legal bodies can improve the system.”
This year, micro-blogs via mobile phone was the latest trend. Users post short updates and photos from their phones. “It has installed supervising eyes at the grassroots level to revent corrupt officials and uniformed hooligans from brutalizing the public,” Hu Jiangchun, a media analyst, said.
The paper said most reports deal with three problems: the uneven distribution of wealth, economic insecurity and the competition of special interests with the common good.
The central government has ordered all government bodies to assign pokespeople to respond to appeals for help and justice over the Internet. However, it cautioned that online whistleblowers must be reliable and objective, or they could face libel charges.
Analysts called on local officials to stop deleting the words and photos of whistleblowers and jailing them without due process.
