Dateline: HONG KONGAfter years of losses, China's three biggest Internet portals are making a sharp turnaround, posting their first profits and turning into a rare bright spot for investors on the slumping Nasdaq.
They can thank China's love affair with the mobile phone.
The services still have to contend with China's low incomes and slow adoption of online commerce. But the turning point came when China Mobile, its biggest mobile-phone company, introduced a system last year called micropayment that lets portals share in revenues for wireless Internet access.
Now NetEast.com Inc., Sina.com Inc. and Sohu.com Inc. can charge users who visit their Web sites via short message services, or SMS _ brief text messages sent on mobile phones. The portals get about 1.5 yuan (20 US cents) each time a mobile user downloads information or games.
"These guys are getting fat off the crumbs off China Mobile's table," said Steven Schwankert, an industry expert in Beijing. "China Mobile is quite an innovator when it comes to mobile content and micropayments."
NetEase became the first major Chinese portal to report a profit, though a tiny one _ US$4,600 eked out for the three months that ended in June.
Sohu said it made US$112,000 for the three months ending in September, its first under U.S. accounting standards. Sina says it expects to report a profit for the year.
And analysts say that unlike Western markets, which are considered saturated, China still has plenty of room for more fast growth.
China had 200 million mobile phone subscribers by the end of December, and the number is rising by 4 million a month, the government says.
Investors have responded by driving up the stock prices of the Chinese dot-coms.
NetEase was the Nasdaq's biggest gainer last year as its share price skyrocketed to US$11.45 from its nadir of 69 US cents in October, 2001.
Sohu was Nasdaq's fifth biggest gainer, soaring to US$6.40 a share. It had traded as low as 87 US cents in April, 2002.
Sina leapt from a low of US$1.40 in April to US$8.43 by early January.
By contrast, Nasdaq's main index plunged 614 points, or 31 percent in 2002 _ its second-worst year ever. Online giant Yahoo! is down 90 percent from its peak price.
Hu Xiaodong, manager of a Chinese investment fund, said he started to notice the turnaround last year, at about the time that China made its debut appearance in the soccer World Cup in South Korea.
Soccer fans piled into sports sites to follow the team.
"It was pretty much by chance that we realized they have found a good way of making money and, more importantly, of collecting money," said Hu, the Shanghai-based managing director of Heartland Investment Consulting Co., which is affiliated with Chinese brokerage Huaxia Securities.
China's Internet startups listed on Nasdaq in mid-2000 at the height of the Internet boom, raising a huge pile of cash.
But all saw their share prices plummet as losses mounted. At one point, NetEase was threatened with removal from Nasdaq after it missed financial reporting deadlines.
Now the companies are exploring new options, such as online dating services and stock trading.
"SMS is still growing and there's no indication it will slow down. But the companies are all looking for ways to branch out beyond SMS," said Nathan Midler, an analyst with International Data Corp. in Beijing.
Sina has announced a joint venture with South Korean online game company NC Soft Corp. and bought a mobile phone service provider in Guangzhou, China's prosperous southern commercial capital.
A safety crackdown on Internet cafes also has increased the importance of wireless access. Chinese authorities have closed more than 3,300 cybercafes this year for failing to meet fire codes or lacking required licenses.
That has forced many online gamers to switch to mobile phones.
"Let's face it, this is not an efficient society," said Schwankert. "Riding buses and subways, stuck in traffic, there's a lot of downtime. There's ample opportunity to use mobile phones to play online games and send messages."
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On the Net:
Nasdaq: http://www.nasdaq.com
NetEase: http://www.163.com
Sina: http://www.sina.com
Sohu: http://www.sohu.com
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