Analysis: Hu addresses U.S. stress over China high-tech drive

By Doug Palmer

WASHINGTON | Thu Jan 20, 2011 6:42pm EST

WASHINGTON (Reuters) - China's plan to change itself from a major manufacturer to a leading global source of innovation poses an enormous challenge for U.S. companies whose competitive edge depends on coming up with the next big idea.

Those firms may be able to breathe a little easier after China pledged during President Hu Jintao's visit to Washington this week to "delink" its indigenous innovation policies from its $88 billion-plus government procurement market.

"This issue has been one of our top advocacy priorities for the past year," said John Frisbie, president of the U.S. China Business Council, which represents more than 200 American companies that do business with China.

China's commitment is "potentially very significant" depending on how it is implemented, Frisbie said.

China's indigenous innovation drive refers to policies intended to spur its domestic firms to develop technologies and products as good as or better than those offered by the United States, Europe and Japan.

U.S. industry has feared being locked out of the vast Chinese central, provincial and local government procurement markets unless companies agree to develop and maintain their intellectual property in China.

Last January, 19 U.S. business groups representing aerospace, telecommunication, software, clean energy and other high-tech sectors put those concerns into a letter to U.S. Secretary of State Hillary Clinton, Treasury Secretary Timothy Geithner, Attorney General Eric Holder, Commerce Secretary Gary Locke and U.S. Trade Representative Ron Kirk.

What prompted that action was a Chinese central government proposal to establish a national catalog listing which products would be eligible for preferential treatment in government procurement contracts.

The groups told the five U.S. Cabinet officials that they were alarmed by criteria that would require products included in the catalog to contain "intellectual property that is developed and owned in China and that any associated trademarks are originally registered in China."

'NEARLY IMPOSSIBLE'

"This represents an unprecedented use of domestic intellectual property as a market-access condition and makes it nearly impossible for the products of American companies to qualify unless they are prepared to establish Chinese brands and transfer their research and development of new products to China," the groups said.

The issue also surfaced at the provincial and municipal level in China.

Shanghai issued its own catalog of innovative products in late 2009, and of "the 530 on the list only two were made by foreign-invested companies operating there," Frisbie said.

"And the two happened to be from joint ventures that had majority-Chinese ownership too," Frisbie added.

More than a year later, Shanghai has not updated its catalog -- which U.S. industry thinks illustrates the folly of using product lists to promote innovation, Frisbie said.

Analysis: Facebook ignites Bubble 2.0 chatter

Facebook CEO Mark Zuckerberg speaks at a news conference where he unveiled a new Facebook messaging system in San Francisco, California November 15, 2010.

Credit: Reuters/Robert Galbraith

By Alexei Oreskovic

SAN FRANCISCO | Thu Jan 6, 2011 3:56pm EST

SAN FRANCISCO (Reuters) - Remember Webvan? The online grocer, whose initial public offering in March 2000 was among the most hotly anticipated during the dot-com boom, is now viewed as one of the greatest disasters of the era.

Fast forward 11 years and the feeding frenzy around Facebook and its exponentially expanding valuations are conjuring fears of a Bubble 2.0.

Goldman Sachs bankers have offered their private wealth clients less than a week to decide whether they want to hand over $2 million apiece for a sliver of the Web darling du jour: Facebook at a $50 billion valuation.

For one Goldman client, who was expecting a 100-page financial document on Facebook to be hand-delivered on Thursday, hours before the deadline to invest in the company -- the whole thing "felt a bit like 1999."

Thanks to Goldman Sachs' latest cash infusion of about $450 million with a commitment to raise another $1.5 billion, Facebook has become the lightning rod for debate over whether these new Internet hotshots possess the profit-generating muscles to justify Wall Street's unforgiving expectations.

Twitter and Groupon, an online coupons site considered by some as the fastest growing company in Web history, are also mulling plans for IPOs well ahead of Facebook's potential offering at the end of 2012, investment bankers have told Reuters.

LinkedIn is wasting no time. The social network for professionals, with 85 million members, has hired bankers to go public this year.

For Facebook, which generated about $2 billion in revenue in 2010, according to media reports, the $50 billion valuation means investors have awarded it a multiple of 25 times sales, compared with a nine-times multiple for Google, and Amazon.com's 2.5-times multiple.

Facebook generates $4 per user, compared with Google's $24 per user and Yahoo's $8 per user, according to a recent report by JPMorgan.

All that makes Facebook look expensive in the eyes of investors who measure businesses using traditional financial yardsticks, said Ken Sawyer, the managing director of venture capital firm Saints Capital, which owns shares of Facebook.

Investors will need to look past existing financial returns to focus on the company's business-transforming potential.

"It depends on your view of the world," said Sawyer. "If you believe that the ability to leverage this social network fabric will change the way companies acquire customers, then the valuation looks cheap."

Just as Google's search advertisements revolutionized the way businesses reach customers, Facebook's audience of a half-a-billion members has allowed companies like social gaming service Zynga and online dating service Zoosk to sign-up tens of millions of customers of their own in record time, Sawyer said.

As Facebook devises more ways to make money from that capability, such as by taking a cut of transactions made by other companies on its platform, the opportunity could be substantial, he said.

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