A Financial Writer Who Hoped to "Provide a Methodology for an Age of Economic Enlightenment," in the Years the Internet Rose | 1999 Memoirs ③

"Does going through so much market turmoil mean that our market is still in a wild, untamed age?"

Xing Haiyang graduated from Peking University in 1990 with a degree in geography, worked first as a trainer at a futures company, then as an analyst at a securities consulting firm. In 1996 he quit the analyst job and joined Sanlian Lifeweek, which had just been relaunched, writing financial commentary and a personal-finance column. Soon after, he ran into "the Asian financial crisis hitting head-on, followed by the rise and burst of the internet bubble."

Both the economy and the investment climate were changing in important ways at that moment. "The New Economy" was the most fashionable phrase in the United States in the 1990s; people believed the old manufacturing economy would give way to a technology-driven one. Exhilarating evidence was everywhere. Xing Haiyang wrote a column about Priceline, the American airline-ticket booking site, whose market value had passed that of several airlines combined.

By 1998 and 1999 the New Economy craze had reached China. On the television stock-commentary shows that were just becoming popular, analysts could not open their mouths without saying "New Economy" or "internet." On May 19, 1999, People's Daily ran a commentary declaring that the stock market had enormous potential. The Shanghai Composite Index climbed from 1,047.83 points to 2,245.44 points, a gain of 114.3%.

But the most glamorous company of the moment, Lenovo, was listed on the Hong Kong Stock Exchange. Several internet startups that would later matter listed on Nasdaq. Xing Haiyang remembers that before 2000, almost no private companies were listed on China's A-share market. Following the securities market and following the internet in any real sense were, at that point, two different things. And most people had far fewer places to put their money than they do now — a new trend could not become a new investment option for them.

That shows in Xing Haiyang's columns too: rather than talk up new opportunities, they did more to teach basic economics. Zhu Wei, then editor-in-chief of Sanlian Lifeweek, said that Xing Haiyang's writing "constituted an advanced methodology for an age of economic enlightenment."

In 1999, Xing Haiyang left Sanlian Lifeweek to study in the United States. Americans were extremely optimistic about the economy at the time, but rising carbon dioxide levels and global warming left them deeply anxious. In New Mexico he studied soil science, researching how soil fixes nitrogen, and sent home what he saw in America, by mail.

The year 2000 also marked the 150th anniversary of the California Gold Rush. That year Xing Haiyang wrote "The Water Sellers Made the Real Money" (《卖水的赚了大钱》), setting the Gold Rush against the internet boom. In the rush more than a hundred years earlier, he pointed out, the people who made the real money were Samuel Brannan, who sold shovels, and Levi Strauss, who invented the coarse-cloth work trousers — blue jeans — that the miners wore, and founded Levi's. In 2000 the world's most valuable company was Cisco, an "internet equipment maker," and the richest man was Larry Ellison, founder of Oracle. "Both companies were in Silicon Valley, yet neither was a hot '.com' — one made only databases, the other focused on network hardware."

Young Americans back then wanted what internet entrepreneurs want now: a year of hard work in exchange for a lifetime of ease. Most of them left California destitute. Times have changed — young people coming out of the ".com" world today won't be as badly off as those pioneers, but for many the dream of becoming a millionaire overnight is bound to break. An electronic-toy site was last Christmas's most dazzling gift site; once it went public its share price reached seventy or eighty dollars, and within a few months it was down to five. Similar sites — online psychological counseling, women's community sites and the like — all crashed just as hard. There is usually a lock-up period before insiders can sell after an IPO, so the young people the internet drew in last year and this year are mostly holding a pile of worthless options.

His columns from this period also gave his view of eBay. eBay was extremely hot — its 1999 turnover was $9.3 billion — but Xing Haiyang thought it was still "very immature."

Economists say this kind of bidding, which brings buyers and sellers together, comes closest to the ideal of a market economy, where supply and demand set the price. ……In theory, with so many bidders gathered in one place, the final price ought to be reasonable no matter what. But the few car auctions I won all ended with the seller writing me a private letter asking whether I could pay another thousand or two. ……Doesn't that show this enormous market hasn't eliminated friction at all — that it is in fact inefficient?

Xing Haiyang was in the United States when the internet bubble burst. Before that he had noticed a large number of Chinese and Indian students in New Mexico planning to switch into computer science, hoping to land a job in Silicon Valley. But as the Nasdaq plunged, the media began comparing the America of the moment to the Great Depression of the 1930s, and opinion swung to the opposite extreme: "Any company whose finances looked good was suspected of cooking the books, so that even signals of a full economic recovery couldn't stop tech stocks from retreating step by step on Wall Street." American college students went through the toughest job market in ten years in 2002. Every industry was the same.

Still, Xing Haiyang recalls, the people set on switching into the internet industry all found jobs and stayed.

Quite a few also went home because of the turmoil in the American economy — "plane tickets back to China went up by several hundred yuan."

Striking gold was not easy, and perhaps a different path was needed; but once the rush passed, things were not as bad as they looked. That was Xing Haiyang's view at the time. In one column he compared the internet industry to Britain's railway investment mania and canal-digging boom, arguing that the belief that "computing, telecommunications and the internet had lost all room to grow in one stroke — with even software's return to double-digit growth this year written off as misleading" showed how poorly investors understood the way a technological revolution unfolds. Britain's railways included: "historically, after a round of speculation, a technological revolution develops in a steadier way, until it seeps into every corner of life."

In the 2002 holiday season, Xing Haiyang reported the strong results of American internet retailers: "Over the eight-week holiday period, growth was 15% higher than the year before, with $13.8 billion of goods sold online."

Not long after, Xing Haiyang went home. By then the Nasdaq share prices of NetEase, Sohu and Sina had recovered somewhat. "On the homepages of Sina or Sohu, headlines like 'China concept stocks surge' kept appearing." NetEase had gone public at $15.50 and later fell as low as $0.51, but had since climbed back to $12 — which made Ding Lei the richest man on that year's Hurun Rich List.

New internet players appeared, Taobao among them. People also seemed to have gained more feel for wealth, and grown more alert to new places to invest. Xing Haiyang returned to Sanlian Lifeweek and kept writing his column, now across a wider range: the art market, the housing market, the stock market, gold.

Having taken up painting, Xing Haiyang moved to Xiaopu Village in Songzhuang, a town on the outskirts of Beijing. He bought the house of the artist Ma Yue and found that the town government had set up an arts-promotion association and a "culture builds the town" office; oil-painting prices had shot up within a single year, so Songzhuang was suddenly packed with all sorts of people and property prices had roughly doubled. In "Oil Painting's Tulip Journey" (《油画的郁金香之旅》), Xing Haiyang wrote: "The oil-painting market used to have a very small, stable group of investors, and precisely because of that there were no fakes here and no endless chatter. Now everyone knows oil paintings can make money, and the market has gone mass and turned noisy."

Just like the internet industry.

In the afterword to his 2009 essay collection Investment Tales (《投资物语》), Xing Haiyang set down his bewilderment at the Chinese market: "Does going through so much market turmoil mean that our market is still in a wild, untamed age?" Opening an age of economic enlightenment turned out to be harder than it looked. In May 2007, A-shares surged, and reports at the time counted two to three hundred thousand new brokerage accounts opened in a single day.

The unfortunate thing is that over more than a decade, nearly every internet company that emerged in China, large or small, went abroad to list. Because of strict profitability thresholds, the companies that did list on the A-share market were left behind by those that had raised capital overseas first, and fell into a trap where the winner takes everything and the loser gets nothing. …………Because there are no good stocks, long-term investors with an eye on the future have stayed away from A-shares. And because stable investors are scarce, good stocks are unwilling to stay either. This is a textbook case of ecological degradation, and examples of this kind of vicious circle are everywhere in the world.

We interviewed Xing Haiyang at a café in Changying, Beijing. Near the end, a gentleman at the next table suddenly joined the conversation. He had studied theoretical computer science at Carnegie Mellon in the mid-to-late 1990s, and added some interesting background on the years around 1999. What stood out most was that starting a company was not, then, something everyone chased. When this gentleman announced he was going to build web pages, his classmates were contemptuous: "That's what F2 people do." F2 is the dependent visa; people on F2 visas "could usually only take work that was tangentially related to computers."

To help you understand Xing Haiyang and his views better, here is his own account:

Before 1996 I was still an analyst at a securities consulting firm, writing a closing-bell stock commentary every day and faxing it to brokerages, who would post it on a bulletin board — usually in the lobby on the first floor — for their clients to read.

Back then there was no talk yet of a "New Economy" versus a "traditional economy." What was interesting was that computers had appeared. In that period of changeover, a new thing showed up and everyone started chasing it.

At the very start, investors watched prices only in the brokerage trading halls, the liveliest place on the ground floor of an office building, a crowd packed outside, the price board flipping over and over like a movie screen. Chinese people especially love watching price charts. Each brokerage put two or three computers in the retail-investor hall, and those became the private preserve of a few old hands, veteran investors. They would crowd around, flipping and watching without stopping, bragging about it to others — it looked very mysterious.

At the securities consulting firm, each analyst had his own 286 or 386. You had to stare at it constantly, and I was quite sensitive to price moves myself — happy one moment, low the next. Later I changed careers.

At Sanlian Lifeweek there was a newspaper board with a lot of subscriptions; every day an elderly lady named Wu, now retired, would pin up a stack of papers there and we would all read them. Then one day, out of nowhere, they said there was a new way to get information: Xinhua had opened up an internal network. The typeface was extremely plain, but if you picked something to search for, it could find it.

Sanlian had only just been set up then, and was said to have a "luxury setup" — almost everyone got a computer. At first we wrote with pens; to look something up you basically had to go online at the office, search, and print out what you found, because even if you had a computer at home it wasn't connected to the internet.

People have few places to invest even now; back then there were almost none, and we were cut off from overseas markets too, so all sorts of bizarre things happened. Beijing launched a commodities exchange in those years, and people traded mung beans on it. The price rose and rose on one side only, forcing short sellers to drive trucks from Shanxi, hauling beans to Beijing to deliver on their contracts. In a mature market, connected to markets abroad, people could have arbitraged and this would never have happened.

People also had no financial knowledge or any concept of personal finance. I used to tell a story about "compound interest" — on a chessboard, one grain of rice on the first square, two on the second, four on the third, each square doubling the one before. In the end the king finds that emptying every granary in the kingdom isn't enough, because filling all 64 squares takes 1.84 quintillion grains of rice. Zhu Wei, the editor-in-chief, was delighted, because nobody had this concept back then. Sometimes it was a bit like being a "setter": there was a reading room at the Beijing Library that carried magazines from Hong Kong and Taiwan, and the little popular-science books on personal finance from there were written in short, punchy sentences, with stories sensational enough on their own. All you had to do was retell the story to readers on the mainland.

As for the Big Three portals listing on Nasdaq, I think I must have paid attention to it, but I've forgotten now. Looking back, all of it came down to people making it happen, because the social climate then was fairly relaxed. I graduated from university in 1990, and things were really annoying back then — if you wanted to go abroad, for instance, you first had to sign a contract, because the state had trained you and you owed it five years of service before you could get a passport. By 1996 or 1997, though it wasn't like now, when you can practically get a passport by walking into the local police station, you only had to apply and it would go through. The foreign-exchange market was the same — you saw people changing dollars outside bank doors everywhere, without so many restrictions.

The companies listing at home then were all still traditional companies. At most, a company that sold computers would boast about transforming itself. Around 2000 the domestic stock market had a rally, driven by the influence of the American market. I wrote an article about how Priceline, the flight-booking site, had a market value larger than several airlines put together. The bubble in the American market was huge, but people here couldn't reach it — there was no way to invest in it at all. Domestic startups listed overseas too, so the domestic market cooked up "fake bubbles" and manufactured its own concepts. The capital markets here have always been held that tightly. Before 2000, as I remember it, almost no privately owned company was listed.

The domestic securities market was also a long way from the internet industry at the time. It was extremely opaque, and ordinary investors had no way to touch a startup — and starting a company was itself a very risky line of work.

Since I was dealing with stocks anyway, a friend happened to introduce me to two brothers who had always wanted to start a company. I said, why don't we just write a securities-quotes program? Checking prices really was a huge hassle then. If we wrote the software and gave it away, wouldn't that get us an entrance into the internet? From that entrance you could branch into other areas, like a portal.

Of the two brothers, the older one was extremely smart. He had studied English and he could rouse a crowd; a few sentences from him and anyone he met would be swept up in his excitement. He had bought pages in China Entrepreneur magazine to promote the "New Economy" and the internet. The younger brother could write code — not a trained programmer, self-taught. The two of them had made a small amount of money before that with travel software. The three of us teamed up. I was thirty-one or thirty-two.

We set up a small company with an office in the building of my old workplace — quite big, about 50 square meters, just the three of us. We bought 17-inch monitors and were thrilled, because a 17-inch monitor back then was really something; you almost never saw one.

My wife happened to have gone abroad around then, so I ended up living with the two brothers in a big warehouse belonging to a printing factory, next to the staff dormitory and some companies selling herbal medicine and medical devices; we ate out of one pot every day. They were from Guizhou, so they would set up a little hotpot and buy all kinds of vegetables. It felt a bit like a group of young communists. We went on like that for about half a year; the older brother grew more and more manic, until by the end he couldn't stop pacing the office all day. Then he was diagnosed with hyperthyroidism, and that was the end of it. I remember he once told me a company had actually been ready to put money into us — 500,000 yuan. His English was excellent and he had gone looking for foreign investment firms. But we were already too late by then; we had missed IDG's first wave of scattershot investing.

You have no idea what's really behind the people who succeed today, because you've never succeeded yourself — so you don't know where the gap between you and them actually lies.

In 1999 I went to the United States. I burned what we had built onto a CD — I said I'd take it over and ask around whether the thing had any future.

My school in the US was in New Mexico. Even in a small city out in the desert, I could feel the atmosphere around me. Whenever something happened I would write about it and send it back — that's how I kept a column running at Sanlian Lifeweek.

I had a colleague named Liu Huaizhao who was in the US at the time; her husband was Zhang Meng. When I went to California to visit and talk with them, Zhang Meng was working there as an editor. But talent was in such short supply that IDG, one of the biggest venture capital firms of the day, had him go back to Beijing to be its chief representative there.

Speculating on domain names was popular abroad then, and some people got rich on it. I bought a few myself, one of them ehumanbeing — "electronic human." The next year I found nobody was interested, and I still had to keep paying the maintenance fee. If you wanted to grab a domain name then, the shorter the better — you would search, of course, and find every single letter of the alphabet was taken, then every two-letter combination was gone, then word combinations. In China people seemed to like grabbing numeric domain names; those were especially hot.

AOL — America Online — was a big deal then. Later everyone saw that it was simply the company's own name, and it had still become a giant of the industry. Not like the way things were dressed up over here, made so mysterious; you actually had to build the thing. There was a company back then called buy.com, whose domain felt worth even more than eBay's, but in the end they never made it work.

A lot of Chinese students abroad worked hard at making money off advertising. Back in China you couldn't buy anything cheap — everything was fairly expensive, and there was basically no such thing as a promotion. Once they got to America, people would clip a coupon out of the newspaper and feel quite pleased with themselves. Then they discovered you could make money just by watching your computer: download a small plugin and it would push ads at you nonstop. Watch the ads and they would mail you twenty or thirty dollars a month. Some students even took the forum nickname "Shaoping" — literally "flask," a play on the English word "shopping" — and people started deliberately collecting all kinds of coupons online. Even if you weren't collecting on purpose, if you registered on a site under your own name, that site might send you a graphics card, and another might send you a motherboard. Someone actually said, I'm going to assemble a whole computer this way — a computer wasn't worth that much money, but doing this felt addictive. I wrote an article about it called "The Glory and the Sorrow of the 'Shaoping' Gang" (《"烧瓶"帮的风光与悲哀》).

The most obvious feeling at the time, though, was that no matter what you studied, since finding a job was the only thing that mattered, even liberal-arts students went out of their way to take computer-science electives. Your own professors certainly wouldn't like it, so you had to plan ahead: work out when the computer-science professors would let you transfer in, take their courses first, do well, then switch departments. Once you'd switched, you took that and went to work in Silicon Valley.

Our school was close to Mexico, and Mexicans are easygoing — many of them were there on government funding, so they didn't seem to do this. But plenty of Chinese and Indian students did, the Indians especially.

I studied soil science in the US, and I took a computer science class too. But I never meant to work in Silicon Valley. I was already thirty-four or thirty-five, without the energy to hustle the way the young people did, and I quite wanted to go home. It was only because I'd worked with those two brothers in Beijing on the securities software, which was written in Java, that I went and studied Java. Java was extremely popular then. Once I started, I found it was actually quite hard. Later, when we did a group project, I still had to find someone from the math department to help me build it — a small elevator model.

The Chinese students who switched into computer science hoping to work in Silicon Valley basically all made it. If not Silicon Valley, then somewhere else. That's what makes it interesting — the bubble burst, the index fell from over 5,000 points to just over 1,000, and they all still found jobs. On top of that they faced a real difficulty: most were on H-1B visas, so if you were laid off you had ten days to find another job, and if you couldn't, you lost your legal status. Even so, every one of them stayed.

From the media the downturn looked absolutely dreadful, every day as if the sky were about to fall: this company collapsing, that one laying people off, unable to make payroll, all of it like that. But the bubble may only have been in the especially airy corners; the people actually building internet infrastructure were probably fine.

I later wrote a column about this. The domestic market was falling at the time too and everyone was in a bad mood, so I told them: the year I went to Silicon Valley I had no car, so all I could do was take the Greyhound. Greyhound stations were all in especially run-down parts of downtown; people used to want nothing more than one of those free giant maps the AAA (the American Automobile Association) handed out. I didn't have a map like that when I went, but I could go to the public library, search for a map online, find where the Greyhound station was and walk there. So what I said was: you can feel that the internet is useful, that it isn't useless at all. As long as something is genuinely useful, it will slowly take root and grow.

I went back to China at the end of 2002. Before that I'd gone to Purdue for an MBA, but I dropped out after ten days. You had to get through a hundred pages of reading a day; I couldn't sleep and I was pretty anxious. Looking at those young people, they all seemed so full of energy.

As soon as I got back, I remember, everyone was starting to watch Sina — people saying how Sina had gone from five dollars to ten dollars, and then in that half year it jumped to fifty or sixty.

The new company at home was Taobao. I know a colleague at Sanlian who opened a Taobao shop in 2003 or 2004 selling curtains. He asked me to buy his curtains as a plant, and I did. That was when I realized colleagues and people like that had already started doing this — pretty interesting. I only opened my own Taobao account in the last couple of years.

When I left the US I was feeling quite confident — I had taken some finance courses abroad, so maybe I could find a job at a fund company. But things changed too fast. A friend of mine who studied accounting, and had taught at a school before going abroad, later took a part-time job at AsiaInfo. AsiaInfo was the best internet company in Zhongguancun at the time, founded by Tian Suning, who had come back from the US. One day she told me a new CEO had arrived, for no other reason than that the man had done an MBA in Canada — nobody had heard of him doing anything notable. By the time I got back, "haigui" (returnees from abroad) had turned into "haidai" (returnees waiting for jobs). It happened in a year or two; suddenly there were far more people coming home. Then I watched Baidu and companies like it take off.

Looking back now, I feel I let down the readers of my column. There were a lot of opportunities I never mentioned. Recently, going back over these things, sorting through this material — when I looked up when Baidu went public and saw it eventually rose several dozen times over, I realized how distant I had been from it all. What I paid attention to was mostly the surface of daily life: oil prices going up, commodities, grain.

Xing Haiyang:

Former analyst at a securities consulting firm. Joined Sanlian Lifeweek in August 1996, writing financial commentary. In 2009 his essay collection Investment Tales (《投资物语》) was published. While pursuing a master's degree at New Mexico State University in 1999, he lived through the American internet bubble and its collapse.