Bloomberg, Reuters--and Xinhua?

XFN faces a long march toward credibility--and profitability

To anyone familiar with China, the word "Xinhua" is synonymous with official propaganda. For decades, it was through Xinhua News Agency, the official Communist news service, that the world heard about the crimes of those running dogs of capitalism.

While Xinhua still clings to the official party line, one offshoot of the agency now wants to be taken seriously by the world's capitalists. The Xinhua Financial Network, founded three years ago, aspires to be the Bloomberg or Dow Jones of China. Today, XFN offers credit ratings, stock indexes and analysis, financial news, and more.

The need for such a service grows more pressing daily. In March, China will for the first time allow qualified foreign institutional investors to trade in so-called A-shares, giving them access to the stock of nearly 1,200 companies previously restricted to domestic investors. Yet there's a dearth of reliable and timely financial data on those companies, which is what XFN aims to provide. "Our vision is to be the best we can be in indices, financial news, and ratings in China," says XFN's 42-year-old CEO, Fredy Bush.

XFN was the brainchild of Bush, an American expatriate who migrated to Asia in the mid-1980s. After working in the procurement office of the Taiwanese government buying grain and animal feed, Bush launched a consultancy that helped foreign companies looking into the region. Although she has no direct experience in either financial markets or journalism, admirers say Bush's networking abilities and contacts in Asia are impressive. "People automatically take to her," says John M. Williams, executive vice-president for global markets at PR Newswire Association LLC, an XFN partner.

Bush has racked up an impressive list of international partners for XFN. Based in Hong Kong, it jointly produces financial news and analysis on China with New York financial-research firm McCarthy, Crisanti & Maffei Inc. It has developed Chinese equity indexes with Britain's FTSE. One of them, the FTSE/Xinhua Hong Kong China 25 Index, will be the basis for a new exchange-traded fund to be offered later this year by Barclays Global Investors.

Ambitious stuff. But it has been slow going so far. Bush says about 150 institutional clients have bought various XFN services, making up 85% of sales. The rest of its income is from Bloomberg, Reuters, and Factiva, which carry its services and charge clients from $100 to $350 a month for access. Bush declines to provide sales figures but says XFN hopes to make an operating profit by 2004. Meanwhile, she is burning through $22 million in startup capital invested by herself, New York futures broker Repco, and Japan's Nippon Venture Capital, among others. Xinhua, though the largest shareholder, put up no capital.

The biggest challenge for XFN is to overcome the Xinhua stigma--and the suspicion by outsiders that XFN's data are untrustworthy. XFN Executive Vice-President Graham Earnshaw, a former Asia editor-in-chief of Reuters, says his news feeds meet the highest standards of journalism. "The proof is in the pudding," he says.

Still, XFN has a long way to go before becoming a serious threat to competitors. Most of its 150-plus stories a day are rewrites from the Chinese press. What's more, XFN lacks a media license in China because it isn't state-owned, so its reporters can't get official accreditation, severely handicapping their ability to get original stories.

XFN raised its credibility quotient in January, when it bought AFX-Asia, the financial-news service of Agence France-Presse. Although AFX hasn't made a cent since its 1995 launch, its 55 seasoned journalists have a solid reputation. Bush says combining the XFN and AFX news bureaus and sales teams will help both become profitable.

The question is, how soon? XFN is entering the financial-information market as established global giants such as Reuters are struggling to maintain margins. "Unless you have unique content at a very cheap price, it's difficult to compete," says Jeff Mays, London-based media analyst with UBS Warburg. Now that it's running with the capitalists, the old Communist news service is learning that a company must earn a profit or die trying.

By Frederik Balfour in Hong Kong

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