[registrars] Internet Cafe fire sends three Chinese to prison, one for life; DotCom comeback in China.

["Robert F. Connelly" <rconnell@psi-japan.com>]

Chinese Court Rules on Internet Cafe Fire

A Chinese court sentenced two Internet cafe operators to prison Monday for 
running the Beijing business without a license last June when arsonists 
torched the shop and killed 25 people.

The blaze at the Blue Speed Cyber Cafe prompted a nationwide safety 
crackdown on Internet cafes - many of which were operated illegally. Iron 
bars over the windows trapped the screaming victims in the packed cafe in 
the northwestern Haidian university district.

Under the verdict handed down by the Beijing No. 1 Intermediate People's 
Court, one of the cafe's operators, Zheng Wenjing, was sentenced to three 
years in prison and fined 300,000 yuan ($36,145), Xinhua reported.

The other operator, Zhang Minmin, was sentenced to one year and six months 
in prison and fined 200,000 yuan ($24,100).

Last August, a Beijing court sentenced two boys to life in prison for 
setting the pre-dawn fire at the 24-hour cafe. The youths allegedly torched 
the business to get revenge after arguing with employees.

(Source: Xinhua News Agency)

China Mobile Expands in Fixed-line Arena

China Mobile has quietly built out a nationwide fixed-line backbone 
network, including national Internet protocol (IP) backbone CMNet, pending 
the grant of a full telecommunication license by the industry regulator. 
The fixed-line network is said to enable the cellular carrier to compete 
with wired carriers on the domestic local voice and data access front. The 
carrier leased lines within cities linking high-traffic base stations and 
even international bandwidth.

In January, the then-minister of information industry Wu Jichuan said China 
was planning to develop four integrated telecoms carriers to provide a full 
range of telecoms services, ranging from local wireline services to 
cellular services to ensure sufficient competition in the industry.

China United Telecommunications Corp Group, the parent of red-chip China 
Unicom, is the only fully integrated telecoms carrier on the mainland 
although it generates about 85% of revenue from mobile services.

China Mobile is the dominant cellular operator, and China United and China 
Netcom Corp Group offer wireless services in southern and northern China 
respectively.

Investors had sold down China Mobile's shares following the comments of Wu 
Jichun because they were wary of the wireless carrier's earnings being 
dampened if it was forced to provide lesser wireless services, coupled with 
an expected increase in competition from fixed-line carriers with wireless 
licences.

Despite China Mobile executives repeatedly insisting it would focus on the 
wireless business and was not interested in a fixed-line business, its 
aggressive build out of nationwide fixed network and IP backbone indicates 
the carrier is doing otherwise.

China Mobile management told analysts at last week's meeting that these 
fixed-line networks were built to support rapidly increasing voice wireless 
network traffic and to make savings on leased line and interconnection costs.

The mobile operator saw its interconnection fees, on a pro-forma basis, 
decrease by 1.5 billion yuan (about HK$ 1.4 billion) or 9.2% to 14.84 
billion yuan last year, while it recorded a 6.9% or 440 million yuan saving 
in leased line fees last year.

(Source: South China Morning Post)


China's Dotcom Comeback

It is perhaps time for dotcoms to be making their comeback in the world's 
most dynamic economy. In China, Internet start-ups are getting a second 
lease on life.

Shares of Sohu.com and other Nasdaq-listed Chinese Internet companies are 
booming. Sohu's stock is up more than 119% this year, while shares of Sina 
Corp gained more than 57%. Netease.com, the best-performing stock on the 
Nasdaq last year, is up 81%.

Is China merely experiencing an Internet bubble akin to the one that burst 
in the US in 2000? After all, China's three biggest Internet portals went 
public in mid-2000, at the height of excitement over companies that would 
use the Web to generate revenue and profit. Not necessarily.

The reasons for China's dotcom boom are many- on one hand, its growth is 
roaring along at a time when the world's biggest economies are stumbling. 
On the other, the nation's 1.3 billion-person market and demographic trends 
generally point towards exponential growth in Internet usage for years to 
come.

But the main reason is profits. China's dotcoms are doing what much bigger 
and better known ones like Amazon.com Inc never did - turning in annual 
profits.

China's Internet outfits learned from dotcom disasters a few years back. A 
key mistake made by Silicon Valley's dotcoms was taking on too many 
staffers and relying on funding sources and income streams that never 
materialized. In most cases, all bets were on advertising revenue that 
never came.

So instead of relying on advertisers, Chinese start-ups are focusing on 
offering services consumers were willing to pay for, like so-called short 
messaging services and multiplayer on-line games.

The nation's 216 million cellphone users, for example, are paying to send 
news, pictures, music and romantic prospects to their handsets. The message 
traffic skyrocketed during last year's World Cup, and China's Internet 
companies haven't looked back.

More recent events, like war in Iraq, also have given a boost to companies 
such as Sohu, Sina and NetEase. Users signed up to receive instant message 
updates on the war, boosting profits. Moreover, the phenomenon highlights 
the decreasing influence of China's state-controlled media that control 
information.

Dotcoms also look at steady increases in the number of users thanks to 
China's infrastructure challenges. Fixed-line phones, for example, can be 
harder to come by than mobile ones. Considering that more than a billion 
Chinese have yet to use these services, exponential growth seems virtually 
guaranteed.

Investors searching for the next big thing in a world of weak growth and 
falling stocks are noticing China's promise. It has six of the world's 10 
best-performing stock indexes this year, even though it also has the most 
cases of a deadly virus that has hurt businesses and markets around Asia.

Now the dark side of all this is China's economy. It is indeed ironic that 
the very thing investors like most about China - its impressive growth 
rates - should also be their biggest worry. Beijing claims 9.9% growth in 
the first quarter, the fastest pace in seven years.

Problem lies in China's growth comes from two sources: public spending and 
foreign direct investment. If Beijing stops spending or investment dries 
up, the economy shrinks.

The rising number of bad loans at the four state-run banks raises questions 
about how much longer it can finance the boom. And China's manner in 
handling SARS has damaged the nation's global standing. According to 
reports, its efforts to hide the magnitude of its epidemic and putting the 
economy before the safety of people is causing a global backlash, causing 
serious dent to foreign investment.

Investors are concern that if Beijing do not properly report a 
non-ideological public health issue like SARS, how can investors expect to 
get reliable information on companies and the economy? How can economists 
trust China's GDP figures?

Yet many investors are willing to take their chances, if the performance of 
China's stocks is any guide. Buyers do not seem troubled that rallies are 
coming amidst Beijing's efforts to play down SARS and its effects on the 
country's still-closed financial system. Investors belief that it's 
business as usual and that SARS is not a big deal for China, seems overly 
optimistic.

Still, dotcoms such as Sohu, Sina and NetEase are making profits and share 
prices began at a low base. They are also listed on the Nasdaq, which, in 
theory, makes them more transparent than most Chinese companies. The fact 
their shares are traded on an international exchange may give investors 
more confidence in owning them.

China's Internet outfits certainly have had corporate governance problems. 
NetEase, for example, was nearly delisted by Nasdaq for not reporting 
quarterly results on time in May 2001. The company also admitted to 
"misrepresentations" in its reporting. Its shares were suspended for four 
months.

A cautionary tale for sure, NetEase's experience also set an example in 
China that may convince executives of the importance of credible reporting. 
Nasdaq-listed companies now know more than ever that what they do and say 
will be watched carefully, a dynamic that should hearten investors.

China may just prove that dotcoms were not such a dismal idea after all.

(Source: New Straits Times (Malaysia))