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Wowed by China's Net

Technology is central to China's self-image, and the Net is amazing, writes Fortune's David Kirkpatrick. Just don't eat the sushi.

By David Kirkpatrick, Fortune senior editor

DALIAN, CHINA (Fortune Magazine) -- Every trip to China is a revelation. From the moment I got off the jet from Beijing at Dalian Airport to attend the new World Economic Forum summer meeting, I was wowed.

I've been caught by surprise too.

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Last night I went to a Japanese restaurant in my hotel and ordered sushi. "Are you with Davos?" asked the waitress in halting English. "Yes," I replied.

"Then no sushi," she firmly but pleasantly dictated. To reduce the chances of upset to visiting stomachs and potential ensuing bad publicity, authorities had ordered the restaurant not to let Forum visitors - but only them - eat raw fish.

The places, the people, the control - and for a tech writer like me, the Internet - all are more than I expected, though this is by no means my first visit. Did you know, for example, that the music business on mobile phones has considerably surpassed the entire offline music industry in size here?

I've now attended (and moderated) several Forum sessions devoted to technology and the Internet, which is a subject of tremendous importance to all the Chinese here. That's not because they are, as some Americans might assume, concerned about its censorship. Far from it.

The widespread view is rather that the Net's very existence has opened up information availability to Chinese people like nothing before.

Martin Lau, president of Tencent Technologies, one of the world's largest consumer Internet media companies, was among several who said that Chinese people depend considerably more on the Net than do typical Westerners.

When it came along, he and others told me, it was not a way to do more efficiently what people were already doing, as in the West. Rather it was a way to do completely new things.

Bo Shao, a longtime entrepreneur, said that Sina.com (down $1.34 to $42.89, Charts) has become mainstream media in China in a way that no sites in the United States have been able to do, even Yahoo (down $0.39 to $23.76, Charts, Fortune 500).

A top U.S. tech executive living in China says the first thing China's top leaders do every morning is read the most popular 10 blog posts of the day before. (Blogging is huge here.)

Their understanding of the Internet and its power is acute and subtle, this executive said. After all, just about every one of them has a Ph.D in engineering. They are technocrats, oriented towards problem-solving, and they see the Net, many say, as a way to continually gauge the sentiments of the people.

The government is apparently making progress on its commitment to use the Net for e-health, e-education, and e-government. It will do all this in its own way, quite foreign to us, and will almost certainly acquire expertise in these fields that will become a national competitive advantage. In the United States, there are no such national commitments.

The Chinese commitment to the Net is also apparent in the broadband statistics. Government figures show that 162 million people in China have Internet access and 122 million have broadband. That is way more than in the U.S. Even small villages in China now typically have broadband.

China's Internet companies have a surprisingly cordial, even one might say incestuous, relationship with the government regulators. The two groups are constantly in conversation.

On an earlier trip to China I was told that it's not uncommon for Net and telecom regulators to organize outdoor hikes and overnight retreats with top Internet executives. As someone here said, the Net companies are "hitting the ping-pong ball close to the edge of the table," so they cannot risk being unaware of where the edge actually is.

Internet ad spending in China remains minuscule - only $640 million in 2007, estimates J.P. Morgan. However, Scott Spirit, who directs strategy in China for WPP (Charts), the nation's largest advertising agency, calculates that Net ads will grow 58 percent in the coming year.

A huge problem with technology growth and innovation here will remain the widespread lack of respect for intellectual property.

Signs of that problem are everywhere - all I have to do is lift up my head from the hotel bed on which I am writing this. On the wall is an original local painting, but it blatantly rips off the forms in Matisse's late cutouts. Down the street are billboards for Discoveryland, a Chinese theme park that uses almost the identical typeface as Disneyland over an image of sparkling pixie dust surrounding a tall castle tower.

The same habits afflict makers of hardware, software and Internet products. Executives at MySpace have told me, for example, that not only are there quite a few sites in China that baldly copy the design of MySpace, but more than one of them is actually called MySpace.

If, as is increasingly the opinion of experts worldwide, the future of the Net is on the mobile phone, China remains a fascinating case study.

I sat at dinner this week with Wang Jianzhou, CEO of China Mobile (Charts), the world's largest cell phone company. It commands 330 million of China's 500 million total cell phone subscribers. Wang told me that China Mobile has 200 million subscribers paying the equivalent of about 50 cents a month for access to music on their phones.

That amounts to $1.2 billion in annual revenue and, Wang said, it exceeds the size of the entire offline music industry in China, including CD sales and concert ticket sales.

He also said that the 20 million subscribers who pay to have a daily news bulletin delivered to their China Mobile phones surpass the number of subscribers for any single Chinese newspaper.

While I remain confident the United States will continue to command the heights of software and Internet innovation, in China, the future is now. Top of page