A couple of weeks ago, I attended the Silicon Dragon conference at Shanghai’s Knowledge & Innovation Community, a complex of offices and labs that aims to leverage the intellectual capital of nearby Fudan University.

Here are some thoughts regarding the panel on “Exit Options” for Chinese tech companies.

Kai Fu Lee’s Crusade against Citron: Who Cares?

Former head of Google China and founder of startup incubator Innovation Works Kai Fu Lee has launched a fiery campaign against U.S. based short seller Citron Research over their (many say unsubstantiated) negative report on NASDAQ-listed Chinese web-portal Qihoo, which recently entered the search battle against Baidu.

One entry, “The Dark Side of Andrew Left,” leaves the impression that Lee was inspired by negative American campaign ads: “Citron Research is a one-man show run by Mr. Andrew Left, whose fraudulent career began with a huge black mark.” You can get a more complete picture for your own consideration from this thorough examination of Citron’s track record.

Though none of the  speakers at Silicon Dragon had yet signed the CitronFraud letter—almost surprising given its long list of Chinese tech executive and investor backers—they did not all remain silent on the controversy. Sidney Austin M&A lawyer Joseph Chan said he strongly “salute[s] Kai Fu Lee’s counter attack,” and added that Citron should not “drag companies through the mud.” He lamented the tendency for good Chinese companies to be lumped unfairly with the bad ones, which doubtlessly can be a problem with the less discerning investor who has little knowledge of the Chinese internet. Chan’s salute was somewhat dismissed by Fritz Demopoulos, the former CEO of Qunar turned VC who has been praised for his impeccable market timing. Demopoulos’s initial comment was two words: “Who cares?”

NASDAQ’s Frank Giglio and Sidley Austin’s Joseph Chan

The panel’s moderator was Russel Flannery, the Shanghai bureau chief of Forbes magazine, which last April published a comprehensive short argument on Qihoo by Richard Pearson. Pearson’s argument was based on several factors, including: the transformation of Qihoo’s revenue vehicle from software sales to advertising revenues, the comparatively low use of ad agencies for ad sales (3% for Qihoo vs. the 80% of its competitors) but small in-house sales staff, link exchanges which don’t generate any real money but are booked as revenues, and discrepancies between the amount of money second page ads allegedly generate and their list prices.

Demopoulos later phrased the attack on Citron as an overreaction to what amounts to negative PR for Qihoo. He said that large institutional investors such as Putnam and T. Rowe Price won’t short the stock based on “some idiot from Citron”. While Demopoulos implied he has low regard for the short seller, one might infer he also does not support the fervor and intensity of Lee’s campaign to discredit him.

It is most certainly wrong if Citron is lazily trying to ride a wave of American suspicion of Chinese stocks to bigger profits without any real evidence, but the value of Lee’s attack seems questionable. It would probably make more sense for Lee to spend his efforts urging reform and transparency in China than raising Citron’s profile with vitriolic rhetoric. After all, which course of action would be more effective in reducing the entities he dislikes to irrelevance?


Panel 1 (Exit Options): Frank Giglio (General Manager, NASDAQ OMX Asia Pacific), Joseph Chan (Corporate/M&A Lawyer, Sidney Austin), Fritz Demopoulos (Former Qunar CEO and V.C.); Moderated by Russel Flannery (Shanghai Bureau Chief of Forbes)


For more photos and info, visit the Silicon Dragon event page.


About the Blogger

James Hopkins is an American working for Alibaba.com in Hangzhou, China. He previously lived in the tech-heavy district of Nanshan in Shenzhen. The views expressed here are his own and do not represent those of his employer.

  • http://twitter.com/21tigermike Michael A. Robson

    Speaking of ‘black marks’ how about the sad legacy of Google in China (Congrats KFL, I’m sure you enjoy that Ominous title). So let’s see…

    1. Smugly turning down a powerful and multimillion dollar offer from Steve Jobs (huge mistake, this position would have no left KFL in the inner circle at Apple, the most powerful company in tech, if not the world)…
    2. Running MSFT off a cliff in China…
    3. Then repeating the same valiant effort with Google in China (apologies if those are in the wrong order). Despite all the connections and ‘fame’ in China, the government still stepped in and booted Google out of the country, letting Baidu swoop in.
    So Lose, lose, and lose.

    Anyway, so KFL is defending China against all attacks of ‘corruption, dirty tricks and lack of transparency’. When you think about it, there is a huge bright side to all this mess: a Taiwanese guy defending China. Now that is a real achievement!