Is a “dot.com” bubble looming in China?

http://online.wsj.com/article/BT-CO-20101220-710381.html?mod=WSJ_latestheadlines

The perceived Internet bubble in Silicon Valley seems to be a phenomenon in China, too.

Just like their counterparts in the U.S., venture capitalists in China are paying hefty sums for young Internet start-ups, lured by an increasingly Web-savvy population with rising incomes at their disposal. They’re also encouraged by a booming local stock market and surging demand in the U.S. for Chinese initial public offerings.

But some investors worry the market may become overheated as funding deals and valuations soar for young start-ups.

At the Zero2IPO China Venture Capital & Private Equity Annual Forum held this month in Shanghai, Feng Tao, president of growth capital firm New Margin Ventures, said that rising valuations “are like a tumor on the industry.”

“These high valuations are not sustainable,” Feng said.

Pricey deals have been the order of the day throughout much of the year in China, especially for fast-growing online retail companies. For instance, Beijing-based group-buying website Lashou Inc., whose business is similar to Groupon Inc.’s in the U.S., recently raised $50 million at a $500 million valuation, after getting only $10 million months before in its first round of funding. According to its founder, Lashou has reached an annual revenue run rate of $100 million, but some investors who looked at the deal said they backed off because it’s just too soon to tell if it can succeed in a crowded market. The company started up only last year.

Earlier in the year, Beijing-based clothing online retailer Vancl Technology Co. raised $100 million at a valuation of over $1 billion. That company told the state-run Shanghai Daily newspaper that it was on path to triple its revenue to $300 million by the end of the year, but it hasn’t discussed whether it’s profitable yet.

A number of other e-commerce companies have raised lofty funding rounds recently. In November, Light In The Box Ltd., a three-year-old seller of wholesale merchandise, raised $35 million, while two-year-old Vipshop gained $20 million in first-round funding to offer “flash sales” to its 1.5 million members. And two start-ups founded just last year, luxury products retailer Shangpin.com and group-buying company Manzou.com, each raised $10 million from U.S. investors in the past few months.

Some firms see the makings of a China investment bubble as more and more foreign investors move into the country and too many firms chase too few good deals.

“Most of the interest in private equity in China is in developed regions, in technology, alternative energy and media. Those businesses tend to be younger, with shorter track records, and it becomes very easy to overvalue them and value them too aggressively,” said Derek Sulger, an investor with the Beijing-based growth capital investment firm Lunar Capital. “While obviously there will be some winners, there will also be an awful lot of losers.”

Other investors believe the ebullience is justified, pointing to a country with the largest number of Internet users in the world and low penetration rates. Online retail sales in China are expected to more than triple by the year 2015, rocketing to $159.4 billion from $48.8 billion in 2010, according to a report by Forrester Research.

“This is a country that has a $100 billion apparel market right now, and of that 7% is being sold online versus 10% to 11% in the U.S., said Hans Tung, a partner with Qiming Venture Partners and an investor in Vancl. “In China you have even fewer selections offline so in theory the penetration rate could be even in higher in China versus the U.S.

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who knows..i really dont trust data coming out of china..i believe its open to manipulation..much like the western systems

401

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~ by seeker401 on December 31, 2010.