Tech Market WatchBy Perry Wu
Jack Ma's held a symposium this past week where the chiefs from China's major Internet companies met with Bill Clinton and other world business leaders to chat about how they could all make more money. And while chatting about how to make more money, three of China's top tech titans dismissed the markets on which their shares are sold and the analysts who watch their companies.

An article yesterday reported that Zhang Chaoyang, CEO of (SOHU); Ding Lei, CEO of (NTES); and Ma Huateng, CEO of (0700.HK), said many analysts on Wall Street do not know anything about China's Internet industry, so when they judge a Chinese business, their judgment is only 10% accurate, at best.

Gentlemen, I agree with the three of you. I would hazard to even say many analysts and reporters know less than 5% about China's Internet universe, but when you get to these low numbers, 5% seems just as good as 15%.

However, gentlemen, I think for your benefit it is great that they do not know much about your industry and working environment, lest they offer troubled guidance and negative growth expectations for your companies. It's good to keep them in the dark.

Five years ago I attended Warren Buffett's annual meeting of Berkshire Hathaway. That was back in 2000 when the tech bubble had not fully burst but was beginning to show signs; equity prices were still at ridiculous highs. Amid this, several Berkshire shareholders asked Buffett how prices could remain at such astronomical levels. To which Buffett said, "markets can do crazy things over extended periods of time."

Now, you may have learned in school that there are certain immutable laws of capitalist-based finance such as "a dollar today is worth more than a dollar tomorrow", or "long-term interest rates are the product of long-term inflation expectations." But I think Buffett's simple comment is surely the most valuable to remember.

By now, many Chinese Internet stocks are selling at nose-bleed levels, but what makes it more interesting is that these stocks have remained at high levels for the better part of the last two years. One investor emailed me a couple months ago that I "must be bullish on China and the Internet!!!" Well, I think you have to be more like a patient cow who walks around for a while before finding a perfect patch of grass to eat.

Investors are beginning to think these high levels just might be permanent. These stock prices are not permanent. Believing that these companies are really worth that much is not bullish–it's just bull. now has a market value of well above US$2 billion, but this company has so many competitors, and it lacks any firm hold on any slice of the China Internet pie. And for the last six years there have been some brief periods where either its portal was censored by the government or it lost wireless revenue because of poor operations. It is difficult to fathom why it is valued so mightily high. By the outburst at the summit, it would suggest that Ding Lei unabashedly expects an even higher multiple for his company's valuation.

But he should be thankful that the armchair Sinologists working the big boards in New York only see 13 billion fingers typing out URLs in China. If they really knew that bootlegged versions of games like "Counter Strike" are still winning legions of fans on the mainland, they might downgrade Netease's chances of beating entrenched game competitors like Atari, Electronic Arts, and Microsoft. If they saw how relatively easy users move between Sohu, Sina (SINA), Netease, and the second-tier portals, analysts might not believe Netease's own press releases anymore.

The list goes on for Netease, Sohu, and others, but the prices will eventually not go on.

Chinese Internet CEOs should be very happy that only about 25% of the world speaks Chinese. And they should relish that there are almost no English-language technology news websites devoted to China. If Chinese Internet companies operated in a kiss-and-tell business journalism environment like New York, someone might have already uncovered a number of Enrons in China's tech sector.

But for now, Chinese CEOs should be happy that many foreign analysts and reporters focused on China's technology industries still believe the hype. Gentlemen, do not rock the boat or it might capsize.

About the author:
Perry Wu is a writer and correspondent for and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.


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