Go West, young man - the WTO Column

The famous saying "Go west, young man", minted during the Gold Rush in the United States, is now often used (Go East) when talking about the new gold rush, the rush to China. So, for a few of the foreign gold-diggers in China it must be rather disturbing to see that the motto for Chinese and Chinese companies is again "Go West, young men and women". I'm not only talking about the Chinese who go abroad to pick up an education they cannot get at home, and often stay there. There is a new rush developing, especially among the internet companies, to refocus their attention at the US market. On the internet there are only two relevant markets, the Chinese and the US markets because of their relative size.

First, the Chinese internet companies learned how to beat the US competitors on their own home markets. Global winner Google has been kept on a second place in China by domestic search engine Baidu. China's Alibaba gave Ebay a run for its money and took over Yahoo's China operation. Giant Tencent from Shenzhen kept Microsofts' MSN and its webhosting services out of reach of a topposition.

Now, there are rather concrete rumors in the market that Chinese internet companies are not happy with their domestic successes but, with Sun Tze under their belt, will continue the hot pursuit.

There is still a world to win for those companies in China - Tencent only recently moved into video-sharing - but there are a growing number of signs that indicate that Chinese internet companies are ready to jump for global markets. Those initiatives involve smaller players like Anothr.com, still in beta and delivering rss-feeds to Skype and Gmail. But also the bigger companies are moving. Tencent is preparing a major upgrade of its English IM-system , suggesting it is going after Microsoft's home market. Second Life's clone HiPiHi will launch this summer, most likely both in Chinese and in English. And the market rumor suggest more similar moves.

There is a good reason for this strategic move, because the Chinese companies know better than their foreign competitors that the hype about the Chinese middle-class is just that: a hype. According to macro-economist Arthur Kroeber, editor of the China Economic Quarterly, as an economic category the middle class in China will only have the size of the current US middle-class of 280 million people in ten years time. Then the spending power of the Chinese middle-class will still be only a quarter of the US middle-class.
Chinese consumers do not only have less money to spend, they are most likely going to spend it differently. Consumer spending as a percentage of the national GDP in China has actually reduced over the years, argued professor Tan Kong Yam of the business school at Nanyang University in Singapore recently. Because as a percentage of the GDP China's government spends very little on health care, education and social security, the citizens have to spend that money themselves, leaving even less room for consumer spending.
Then, there are a few industry-specific reasons for internet companies to look for greener fields. Because of the way the industry is regulated much of the freedom is also limited, although it is much better than under the traditional media. But with gatekeepers like China Mobile, literally curtailing the ability to make money, it is no wonder that companies start to look west.

Fons Tuinstra