Focus: China yields to a brave new Web

"IF WE were making a profit already, I wouldn't be doing my job," says Lyric Hughes, chief executive of China Online, a one-year-old Internet company.

Yet after an initial scramble for funds, financing the new company is proving almost alarmingly easy. "To start with I would go to all sorts of lengths for a $100,000 investment, but recently people have been ringing up to offer tens of millions," she says. "I do return all the calls still," she adds.

This eagerness to invest in the Internet is expanding Ms Hughes's ambitions, and their range offers an insight into the almost endless possibilities still available to the pioneers of online business. Her original plan to bring news out of China to the world has expanded to include taking the world into China. Chinese Internet service providers are few and weak, yet there is huge demand for Chinese-language content. "I'm causing some alarm to my board. I had thought we would do this some years down the line, but this business moves incredibly quickly," she says. She is also considering expanding her Internet news service to other relatively unwired parts of the globe, such as Africa.

The genesis of China Online was her 20 years' experience working for an international marketing agency that served US companies in China. Her expertise and contacts allowed her to fax out information about events in the aftermath of the death of Deng Xiaoping earlier than anybody else - earlier even than the Chinese newspapers since they provided her with news before printing it themselves.

But it was the growth of the Internet as a means of distribution that allowed her to set up China Online. "We are a technology-enabled company," she says. "Without the Web as a distribution mechanism it would have taken us many years and much more money."

Most people assume that any online provider in China has a problem with state censorship, but Ms Hughes is vehement in her rejection of this idea. The authorities are extremely concerned about pornography, but otherwise regard the Internet as a useful means of free expression, she argues. Not once have they complained to her about any news item carried by the service, which Zhu Rongji, the Chinese premier, reads regularly. This contrasts sharply with the control freaks at Microsoft, for example, who exert considerably more effort than the Chinese government to dictate China Online's content.

Her new ambition is to create, in addition to the existing English language news service on China, a package of news, entertainment and sport in Chinese for China. The structure of local telecommunications costs has made it impossible for Internet service providers to thrive domestically. They are small and weak, so the market is effectively open to an outsider.

Ms Hughes approached Ark Capital, a Chicago-based venture capital firm specialising in ethnic minority businesses, to help to raise an initial $5m a year ago. She is the first female entrepreneur backed by Ark. Of the 1,800 venture capital-backed start-ups in the US last year, 50 are headed by women.

The company's financial plan envisages break-even point next year or soon after - but the timing depends on the choice of strategy. The more ambitious it is, the later the profits start to roll in. The point, she argues, is to build a brand name and ensure that the company is first in its field. That is what builds competitive strength in the fledgling Internet economy.

Ms Hughes is the absolute antithesis of the computer nerds who have founded so many other e-businesses. Her senior colleagues in the 28 person company include Doug McGill, who set up the Bloomberg operation in Hong Kong. The company's chairman is David Hale, the economic pundit at the Zurich Group in Chicago. Then there are the employees: "They are there when I get to work and I have to send them home at night," says Ms Hughes, who has two children. China Online has more than 300 consultants and analysts to call on.

There are three existing strands to the business. It is a news agency, which has customers such as Reuters and the Financial Times. It provides a proprietary database and information service to corporate customers, including giants such as AT&T, that do business in China.

Thirdly, and perhaps still most important for growth, China Online is setting up partnerships with e-commerce companies, which will allow them to crack the enormous Chinese market. China already has 4 million Internet users, more than the UK. This is forecast to grow to 10 million by next year and overtake the US online market by about 2006.

"People in China don't really have access to shops and goods at all. They don't have banks as we know them," she says, arguing that the country might well skip the stage of having high street shops and banks.

Ms Hughes clearly has a vision of almost infinite possibilities for her business, combined with a sense of urgency about the need to grow. As with so many net entrepreneurs, whose enthusiasm is perhaps the most convincing argument for believing the US economy does have new fundamental strength, Ms Hughes sees a bright future for her China Online. "Perhaps we will hit a brick wall, but if you're not running so fast that you might crash into the wall, you're not running fast enough," she says.

http://www.chinaonline.com