Is Another Chinese Tech Bubble In the Making??

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bubble-burst.jpgDang Dang and Youku are finally listed. Both performed very well in their IPO debut in Nasdaq. Share of Dang Dang, one of the largest online bookstore, jumped 87 percent to close at US$29.91 on Dec 8. Youku, the leading online video site, surged 161 percent to US$33.44 yesterday. Its surge was second only to the record set by Baidu.com, the most popular search engine in China, which soared 353 percent when it was first traded in August 2005.

For Youku’s CEO, Victor Koo, his effort in past 4 years has finally pay off. For Dangdang’s Peggy Yu, this is a day she and her husband have been waiting for over 10 years. In the last six months, many of the Chinese tech IPO in the U.S. also have done very well. Data complied by Bloomberg showed that the previous average first-day advance for four Chinese internet firms was 57 percent.

In a venture capitalists conference in Beijing, it is heard 40 more companies are in the pipeline, trying to get listed in such a good investment atmosphere.

But, while congratulating for their efforts, it is also worrying to see Youku has not broke even yet. And Dangdang’s profit is very thin. It seems back to the old days of internet bubble in 2000, when a company with no profit and unproven business model could fetch a ridiculous high valuation. At that time, investor were crazy about anything related to internet, and blinded to the fundamental of business.

Today, investors are enthusiastic over China’s economy and the country’s fast-growing Internet sector. But, at the end of the day, a company’s share price depends on its fundamentals – that is profit and profit growth.

Everything has to come down to the earth eventually. Mecox Lane, another Chinese e-commere firm which debuted on Nasdaq in October has tumbled almost 50 percent after a weak third-quarter report. It is facing a lawsuit by investors for violation of US securities laws.

[image via http://www.jgreghenderson.com/]

Author of Red Wired: China's Internet Revolution, the first book to completely survey the nature of China's internet. (http://redwiredrevolution.com/) She previously was the lead China technology reporter for South China Morning Post, one of Asia’s largest English-language daily newspapers. Her work allowed her to witness the rise of China’s Internet sector first hand and to talk to many of the entrepreneurs and industry experts. Currently she is an independent consultant and writer. She regularly writes on issues concerning China internet and technologies in Asia Times and Hong Kong Economic Journal. She graduated at the University of Hong Kong before earning a MBA at Hong Kong University of Science and Technology.