DATE=4/26/2000 TYPE=BACKGROUND REPORT TITLE=CHINA INTERNET - HURDLES NUMBER=5-46201 BYLINE=STEPHANIE MANN DATELINE=WASHINGTON INTERNET=YES CONTENT= VOICED AT: INTRO: In many industrialized countries, the Internet has been an active part of the economy for a few years. But in China, the on-line economy has taken off just in the last six months, and new Internet companies are starting up each week. Correspondent Stephanie Mann recently spent time in Beijing looking into the Internet phenomenon, and (in this second of four reports) she reports on some of the obstacles faced by companies trying to join the on-line frenzy. TEXT: One of the first obstacles that new entrepreneurs face is raising money - finding investors willing to risk their capital in a new venture. That is especially true for start-up companies in a new sector of the economy, such as the Internet, which does not have a long proven track record. In March last year, Tom Lasater launched Vertical Asia - a Hong Kong based company that sets up portals - Internet websites that help people search for specific information or products. The company is active in Beijing, Shanghai and Guangzhou and plans to expand to more Chinese cities. Mr. Lasater, an American businessman, says his first challenges in China involved fund raising and hiring competent staff. /// LASATER ACT /// I think the main hurdle is raising money in the face of unclear government regulations. But, other than that, it's been fairly smooth. Hiring technical talent is easy, but technical talent that has web experience is a little bit more difficult, so that's a factor also. /// END ACT /// So far, Mr. Lasater says Vertical Asia is not making a profit. He expects the company will begin offering its stock to the public in the next 12 to 18 months. Another Internet entrepreneur in China, Peggy Yu, encountered different obstacles when she decided to start an online Chinese bookstore. Dangdang-dot-com began selling books on the Internet in November, but Ms. Yu says that happened only after she and her staff spent years building a database of information on book titles and authors. /// YU ACT ONE /// Western countries have been doing books-in-print kind of database for over a century, and we never had a database of title information in China. So, we had to start from scratch. We spent over two years building the database that we are putting on line today. So the lack of database, title information is the first obstacle we overcame. /// END ACT /// Ms. Yu says another challenge to running an Internet bookstore is the lack of nationwide express delivery companies in China. /// YU ACT TWO /// We don't have the Chinese equivalent of FedEx or U-P-S, so we have to rely on the government-run mail postal service to serve our readers all over the country. And we have to come up with our own innovation, like doing bicycle delivery in certain metropolitan areas. /// END ACT /// Ms. Yu says China does not have its own express delivery companies because until now there has been no demand for them. In the United States, she says, there was a long tradition of mail-order sales, which prompted the creation of delivery services. She hopes the success of on-line e-commerce in China will encourage the creation of such delivery companies. The head of a publishing and consulting company in Beijing, Anne Stevenson-Yang, says e-commerce provides a new avenue for trade, an alternative to traditional methods of retailing. But in China, because the support infrastructure - such as express delivery systems - is not yet available, Ms. Stevenson-Yang says e-commerce is not as efficient in China as it is elsewhere. /// STEVENSON-YANG ACT /// To pretend that you can set up an e-commerce site and sell inter-provincially something, like hotel bookings or travel packages or whatever, that you couldn't sell from an office in Beijing is simply, it's a trick really. It's a very complicated structure, a layered structure that people put together to do e-commerce that is actually less efficient for the business, perhaps a little more efficient for the customer, but less efficient all taken together than the conventional means of doing business. /// END ACT /// /// OPT /// And Ms. Stevenson-Yang says Chinese Internet companies hope there will be enough demand and momentum to prompt the creation of new products and services that will improve the efficiency and convenience of on-line commerce in China. So far, she says, that has not happened. // END OPT // Another obstacle to conducting e-commerce in China is the banking system. Peggy Yu says the low rate of credit card use and the lengthy bank process for approving credit card purchases has prompted her company to offers its customers four payment options. /// YU ACT THREE /// Those bicycle boys ship the books, collect the money, and get the money back to the company. That's one way. And another way is people go to the post office to mail us the money for the orders they placed on line. And the third is, people use credit cards to pay on line, and the clearance of that can take two weeks, sometimes. And the fourth method is people transfer money from their bank cards to our bank cards. /// END ACT /// Ms. Yu understands that with only a few Internet companies in China last year, it was not economically feasible for banks to launch on-line banking services. But she hopes that with more Chinese companies selling products on-line, the country's financial system will improve and provide the services needed to support a vibrant Internet economy. (Signed) NEB/SMN/KL 26-Apr-2000 14:09 PM EDT (26-Apr-2000 1809 UTC) NNNN Source: Voice of America .