Let A Million Netizens Bloom

CIC gives China the Web--with a touch of Beijing censorship

It was another coup for China Internet Corp. In late June, CIC announced a deal with CyberSource, a Silicon Valley company that specializes in E-commerce applications. CyberSource will offer products such as secure electronic software delivery to users of CIC's service, the biggest and fastest-growing online operation in China. CyberSource isn't the only high-tech highflier to ink a deal with Hong Kong-based CIC. In the last six months, America Online Inc. and Netscape Communications Corp. have forged alliances with CIC, all with an eye on China's Internet market, which has expanded by 70% in the past eight months. CIC's vice-chairman, Peter Yip, points out that his other partners include Sun Microsystems, Bay Networks, and Japan's Mitsui.

Yip's goal is to make CIC the premier gateway to the Internet for China and Hong Kong by offering Net surfers everything from World Cup updates to Yahoo!-style search engines to electronic shopping malls. CIC is something else, too--a kind of intermediary between the freewheeling, anarchic world of Silicon Valley and the rigid, controlled market of Chinese media. Yip's majority partner is Xinhua, the official Beijing news agency, occasional Hong Kong proxy for the Communist Party--and a target of Beijing critics, who bash the agency as a propaganda machine. Yip isn't apologizing for anything: "When it comes to understanding what content is, how to interpret it, and deciding whether it complies with Chinese law, no one else is on the same level as Xinhua," he says.

NO POLITICS, PLEASE. Foreign investors always have looked for Chinese partners with good connections, or guanxi. CIC is trying to bring that model to the new economy of the Net. With $25 million raised from international investors with the help of Merrill Lynch & Co. and Alex. Brown & Sons Inc., Yip has built CIC into the dominant player in China's Internet market. Its main site, cww.com, provides access to wire stories, Shanghai and Shenzhen stock exchange quotes, and articles from Chinese newspapers and magazines--all provided by Xinhua. Subscribers who want to pay more can read reports from Bloomberg, Nikkei, Agence France-Presse, and Dun & Bradstreet.

To make sure that no taboo political subjects make their way onto the CIC site, Xinhua has dispatched a top editor, Guo Guorong, to Hong Kong. Guo carves out a distinction between the business, sports, and entertainment news that CIC provides and the political stories that parent Xinhua offers. "CIC isn't a news organization," explains Guo. "Xinhua is news. CIC is information."

Yip says Xinhua's censorship has not held back business. Since CIC is privately held, he won't reveal revenues. He has just 10,000 subscribers to his premium service but predicts 100,000 by yearend. He says that his World Cup site is the most popular in China, with more than a million hits a day. His advertisers include Motorola, Nokia, Ray Ban, McDonald's, Reebok, and Compaq. The paucity of information about the Chinese Internet should help CIC as multinationals look to Yip's guanxi to provide some surety.

But not even a powerful partner like Xinhua can squelch all competition in today's China. Yahoo! Inc., for instance, launched a Chinese-language version of its popular Internet-search and -service provider in May that directly competes with the site developed by CIC and Netscape. Chinese ministries are setting up alternatives to CIC's sites, too. And CIC has had its setbacks. A deal with PointCast collapsed last month. The Silicon Valley provider of "push" content wanted to launch an Asian service through CIC, but Yip broke off the deal in a disagreement over costs.

For now, the market is growing so fast that CIC can afford some missteps. By the end of May, there were 1 million Internet users in the country, according to the China National Information Center, and that's a conservative estimate. At the same time, the number of Chinese-based content providers has reached 7,300. Their offerings range from government sites to cool stuff like video games and dating services--and CIC is there to help viewers enjoy them. "No one comes close to our ability to [amass] content," he says. And no one else has a big brother like Xinhua.