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2HRS2GO: Not a good time for China&#039s Net offerings

COMMENTARY --I doubt many people were surprised by the lack of bidders in China's auction of Internet companies. But what made the sponsors think this was a good idea in the first place?

A Reuters story on the flop noted the lack of information provided for the companies offering shares, and that's bad enough. Institutional and individual investors alike would throw money at any Internet idea last year without doing the least bit of research, but that was before the Internet sector soured. Now an Internet firm has to present a compelling story just to attract attention, let alone money.

Not that a lack of information is anything new for that part of the world.

Some companies offer data on the Web. (Nasdaq: SINA) has 10Q and 10K reports on the Internet, and another publicly-traded Chinese Internet firm, (Nasdaq: SOHU), seems to submit all its SEC documents online.

Yet a search on various databases such as FreeEDGAR turns up zero electronic copies of's prospectus. And the veteran (if there is such a thing in such a young market) of publicly-traded Chinese Internet companies, Chinadotcom (Nasdaq: CHINA), has no publicly available electronic filings, save for Form 144 notices of stock sales.

Overseas companies don't have to file electronically with the SEC, and don't have to file many of the financial reports required of domestic firms. It would be unfair to single out China's online ventures solely on that basis.

Sadly, it doesn't stop there. China's totalitarian rulership has consistently fretted about Internet subversion, and today the government gave voice to those fears: new rules on content surveillance, limited foreign investment and shutdowns of unlicensed companies.

Chinese's overseers seem to believe that the lure of a large population is enough to draw investors. It's not. No one these days will invest in a questionable business, 1.6 billion people or not. Even shareholders of Qualcomm (Nasdaq: QCOM), China-crazed though they are, believe in CDMA as a worldwide standard, not merely a China play.

This isn't a moral issue. Many people forget about their consciences when it comes to their investments.

But Internet crackdowns are simply bad business. Only the foolhardy would buy into a restricted market for the Internet, a medium whose strength comes from its fundamentally open nature.

Perhaps that wouldn't matter if the Internet market remained where it was a year ago, but it hasn't. The industry isn't in an investment mode anymore, it's shakedown time, and Chinese companies have tumbled with the rest of the field. Shares of chinadotcom now sit below their first-day closing price from July of last year, and are nearing their all-time low. is in the same situation. had a mediocre debut at best this summer and is now barely above penny stock levels.

Even were the Internet market still hot, the auction still would have flopped, because most investors prefer old-fashioned means of buying, such as an initial public offering. The fact that these companies chose what amounts to an open auction makes people wonder why these firms don't file for IPOs.

An organizer told Reuters he couldn't release information about the firms. Buyers had to set up their own discussions, which makes the event sound like a tent show for private placements. Just throw in tables and signs: "Invest Here!"

But a combination of no information and a poor market environment would keep anyone away. China's economic planners ought to realize that. 22GO>