CRI听力:Tech Bubble

Technology certainly seems to be hot right now. With smartphones, tablets, and social networking getting so much attention, one has to wonder if it's not too much.

And it's not just us. Looking at the recent initial public offerings of LinkedIn and Ren Ren, as well as the high valuations of companies like Facebook and Zygna, it certainly does seem that the technology sector is in a boom period.

But, can we accurately call it a bubble?

John Artman finds out.

In 1999 and 2000, many of China's biggest internet companies, including Sina, Sohu, and Netease chose the wrong time to go public on American stock exchanges. Through no real doing of their own, they started strong only see the price of each share fall to low as 60 US cents as in the case of Sohu.

Why was it a bad time? As these companies were going public, Nasdaq, the main tech exchange, had already started to decline. From what we know now, we can easily say that the very first dotcom bubble had burst.

And now, with impossibly high valuations and stunning initial public offerings, the question of whether we are again in a tech bubble is being asked. While, the last bubble involved mostly American companies, China now find itself right in the middle of it.

Most recently Ren Ren, a social networking site in China, debuted and saw amazing gains only to then see their share prices fall dramatically in the days following.

Frank Nazikian is founder and president of one of China's longest running tech conferences, CHINICT. According to him, some companies might have been overblown, but the Chinese market as a whole still has lots of room to grow.

"The Chinese tech scene isn't getting the respect it deserves. If you agree that the market is always right, the market is basically starting to give the Chinese tech scene the attention it deserves. And the media says "Oh innovation in China is impossible. These companies must be overhyped." I'm sorry that's not true."

Bill Bishop, an internet analyst based in Beijing, says that many of the recent China IPOs were priced too aggressively, thus explaining the quick drops in price. However, he also says that while short term prospects for these kinds of stocks might not be stellar, many of these companies will continue to have great returns and growth over the long term.

Valuations, or what a company is worth, are usually based upon how much money they can make in the future. The problem in the current boom, perhaps, is not with empty business models, but with overvalued share prices.

Ruby Lu is a general partner at DCM, a venture capital firm based in Beijing, Silicon Valley and Tokyo. She says that this so-called bubble is different and when it does pop, the effect for the tech market will actually be positive.

"I think currently we are in the midst of a bubble, however this is the bubble that's going to separate high quality companies from mediocre quality companies. So this will create flight to quality for institutional investors. More money will garner behind high quality companies and hence those companies will be able to grow into much larger companies, on scale."

The consensus in the tech and financial communities seems to hold that what we are currently seeing in China and around the world has very little in common with what we saw in the late 90s and early 2000s. However, if there is a downturn, we can expect even established and profitable internet businesses to be affected. As to how and when this will happen is a different question.

For CRI, I'm John Artman.