US default could be doomsday option for economy

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US President Barack Obama speaks at a fundraiser at Nob Hill Masonic Center in San Francisco April 20, 2011. [Photo/Agencies]

WASHINGTON - The United States has never defaulted on its debt and Democrats and Republicans say they don't want it to happen now. But with partisan acrimony running at fever pitch, and Democrats and Republicans so far apart on how to tame the deficit, the unthinkable is suddenly being pondered.

The government now borrows about 42 cents of every dollar it spends. Imagine that one day soon, the borrowing slams up against the current debt limit ceiling of $14.3 trillion and Congress fails to raise it. The damage would ripple across the entire US economy, eventually affecting nearly every American, and rocking global markets in the process.

A default would come if the government actually failed to fulfill a financial obligation, including repaying a loan or interest on that loan. The government borrows mostly by selling bonds to individuals and governments, with a promise to pay back the amount of the bond in a certain time period and agreeing to pay regular interest on that bond in the meantime.

Among the first directly affected would likely be money-market funds holding government securities, banks that buy bonds directly from the Federal Reserve and resell them to consumers, including pension and mutual funds; and the foreign investor community, which holds nearly half of all Treasury securities.

If the US starts missing interest or principal payments, borrowers would demand higher and higher rates on new bonds, as they did with Greece, Portugal and other heavily indebted nations. Who wants to keep loaning money to a deadbeat nation that can't pay its bills?

At some point, the government would have to slash spending in other areas to make room for any further sales of Treasury bills and bonds. That could squeeze payments to federal contractors, and eventually even affect Social Security and other government benefit payments, as well as federal workers' paychecks.

A default would likely trigger another financial panic like the one in 2008 and plunge an economy still reeling from high joblessness and a battered housing market back into recession. Federal Reserve Chairman Ben Bernanke calls failure to raise the debt limit "a recovery-ending event." US stock markets would likely tank -- devastating roughly half of US households that own stocks, either individually or through retirement savings programs.

Eventually, the cost of most credit would rise -- from business and consumer loans to home mortgages, auto financing and credit cards.

Continued stalemate could also further depress the value of the dollar and challenge the greenback's status as the world's prime "reserve currency."

China and other countries that now hold about 50 percent of all US Treasury securities could start dumping them, further pushing up interest rates and swelling the national debt. It would be a vicious cycle of higher and higher interest rates and more and more debt.

The US has long been the global standard for financial stability and creditworthiness, with Treasury securities seen as a fail-safe investment. But after the near-shutdown of the US government and a new credit-rating report this week questioning the country's fiscal health, Treasury bills and bonds are losing luster.

If there is a debt limit deadlock, the government by this summer could find itself legally unable to borrow more money to pay its bills, beginning with interest on its debt and gradually extending to day-to-day federal operations. At some point, the government would have to decide which bills to pay and which to put aside.

The debt ceiling will be hit on or around May 16, the Treasury Department says. Unlike the threatened government shutdown, the impact would start slowly, but then build mightily until the damage would be so dire that few political leaders or economists even want to contemplate it. The day of reckoning could likely be delayed at least until early July with creative bookkeeping.

When the House first rejected the Bush administration's $600-billion bank bailout in September 2008, the Dow Jones industrials went into a dizzying 778-point tailspin. A whiff of a possible similar stock market collapse came on Monday with a sharp selloff on Wall Street when the Standard & Poors lowered its outlook on US debt to "negative" from "stable," possibly a first step toward a possible downgrade of America's coveted AAA credit rating.

"We haven't downgraded it. We just said, if nothing happens, we may have to," said S&P chief economist David Wyss. He said a government default remains uncharted territory, "which is one reason why it's not a good idea to hit the debt ceiling."

"There's reason to worry," said Wyss. "But my best guess is that we sort of muddle through this. Cuts will be made, they'll be too little too late, but at least they will be enough to maintain a triple-A rating."

"It's another game of chicken. And this time there are Mack trucks going at each other, not bumper cars. This is a biggie," said American University political scientist James Thurber. But he predicted that, as in the past, "there will be an accommodation. They will avoid a crash."

Investment bank J.P. Morgan Chase recently concluded that any delay in making an interest or principal payments by the Treasury "even for a very short period of time" would have large "long-term adverse consequences for Treasury finances and the US economy." The analysis is being circulated on Capitol Hill by supporters of raising the debt limit.

"If anyone wants to push that button, which I think would be catastrophic and unpredictable, I think they're crazy," JP Morgan CEO Jaime Dimon said recently of those seeking to block raising the debt limit.

(Agencies)
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Making Debt Ratings Count, Downgrades US Bonds!

 

The Rabbi’s Four Leadership Lessons - 4 kinds of thinking

  by August Turak SERVICE AND SELFLESSNESS AT WORK

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Success is not a matter of what we think but how we think. There are four kinds of thinking. To be a great leader, we must master them all.  

A Rabbi, fabled for his wisdom, was approached by a young man eager to become his student. The Rabbi repeatedly rejected the young man, dismissively suggesting that he return when he was older and wiser. But the young man insisted that he had mastered logic and all the branches of worldly knowledge, and was therefore worthy of the wisdom of the Divine. Relenting, the Rabbi finally said that if the young man could unravel a riddle he would accept him as a student.

“Two men slide down the chimney of a peasant’s hut together. When they get to the bottom, one’s face is covered with soot while the other is clean. Who goes to wash?”

“Obviously the face covered with soot,” the young man said.

“Don’t be ridiculous! The one covered in soot sees a clean face while the other, peering into a dirty face, assumes his face must be sooty as well. The clean face is washed.

The rabbi turned to leave, but the young man pleaded for another chance until the Rabbi finally agreed.

“Two men slide down a chimney together. One face is covered with soot while the other is clean. Who washes?
“The one with a clean face."

“How can you be so slow witted?” shouted the Rabbi. “The man covered in soot can see it on his hands, smell it in his nose, and taste it on his lips. Of course he goes to wash.

Again the Rabbi turned, again the young man pleaded, and the Rabbi recountedthe exact same riddle one last time.

“They both wash,” the young man cried triumphantly.

“Your taste for stupidity is bottomless,” said the Rabbi, sadly shaking his head. “Where is the chimney perched on a peasant’s hut large enough to accommodate two grown men? On the face of it, the whole problem is clearly non-existent. It is that face as well as your own that must be cleaned.

And with that he walked away.

*        *        *

Such paradoxical stories permeate the mystical literature of all the great religious traditions, from the enigmatic koans of Zen to Plato’s dialogue the Parmenides, and the first time I read one back in college I was hooked. On one level they don’t make sense, but on another they make so much sense that my head hurts. They suggest an infuriating insight into thinking itself: an insight that is just as profound as it is confounding.

My own “Rabbi,” Louis R. Mobley, the founder of IBM’s fabled executive school, insisted that successful leaders don’t know different things. Theythink in utterly different ways. Success is not a function of what we think but how we think. Mobley used to say, for example, that the problem with lawyers is that they are only good for one thing: telling leaders why they shouldn’t do it.

Setting aside the validity of this preemptory indictment, it does make the point that all thinking is not alike. All the skills and knowledge in the world will not make a successful entrepreneur of a man who thinks the future is perpetually half empty.

Very few of us stop to consider that thinking itself has been through a long evolutionary process. As the Rabbi points out, there are actually four kinds of thinking, and a great leader must master all four.

I: Magical Thinking

Magical thinking reigned supreme before the dawn of science, and is usually associated with a superstitious reliance on the stars, luck, grace, signs, coincidence, karma, omens, destiny, or God’s will.

But magical thinking is more than superstition. Creativity and innovation rely on the magical ability to envision an alternate reality not yet born. Movies depend on the magic of our “willing suspension of disbelief” as we cry real tears at some fictitious sorrow superimposed on a big blank screen. Empathy, compassion, and love would be impossible if we could not magically place ourselves in another’s shoes. Art produces something called beauty that is much more than a mass of pigments on a canvas. And where would science be without its magical thought experiments like Einstein imagining himself riding on a light beam, taking in the view?

In business magical thinking survives and thrives in every nascent entrepreneur who just knows that it is his destiny to succeed, and uses this self-confidence to magically enthrall a room full of cold-blooded venture capitalists. If you are on a roll at blackjack and the casino swaps out dealers or shuts down the table, you are the victim of a business decision precipitated by the magical thinking of people who don’t believe in magic.
Magical thinking believes that great leaders and even great companies are somehow magically born not made. It argues that business is art not science, and that the Harvard Business School is merely a well-endowed monument to the fact that those who can’t do teach. The management philosophy of magical thinking is “gut feel” and Nike’s “Just do it.”

When the Rabbi reminds the young man that his riddle relies on an impossible premise he is warning against an over-reliance on magical thinking.

II: Modern Thinking
Modern thinking is the enlightenment thinking that ended the Dark Ages and ushered in Newtonian science. Modern thinking thinks that the truth is objective and knowable. Modern thinking looks at the world through the lens of either/or, right/wrong, good/bad. It lives in a billiard ball universe governed by cause and effect, and its true believers think that the “important” things in life are matters of principle, not of taste.

Modern thinking is macro, top-down, and outside-in. In politics, modern thinking assumes that if we want to change people we must first change the environment. Every attempt at macro “social engineering” is an example of modern thinking. It lies at the heart of Karl Marx’s famous dictum that “being determines consciousness” (i.e. economics determines individual psychology) as well as the stimulus/response deterministic psychology of B.F. Skinner and Pavlov’s dog. Modern thinking is the masculine principle of left brain Aristotelian logic, where A and ~A are always and everywhere mutually exclusive.

In business, modern thinking generates every management “system” based on “scientific” laws, policies, and procedures. These systems emerge from things like time and motion studies, and strive to remove the “intangibles” of human nature. Every time an employee punches a time clock he is experiencing modern thinking, and every A/B split marketing test relies on modern thinking as well. Many people (myself included) are attracted to business because of its clean-cut either/or aspects. After all, you either hit your sales target or you don’t.

When the young man jumps to the conclusion that either the sooty face or the clean face will exclusively be washed he is betraying an overreliance on modern thinking.

III: Postmodern
Postmodern thinking insists that truth is “relative,” and owes its genesis to Einstein’s Theory of Relativity. Where modern thinking emphasizes either/or objectivity, postmodern thinking argues for the both/and of subjectivity. If modern thinking looks for the objective exclusivity of A and ~A, postmodern values the inclusiveness of “diversity.”

Postmodern thinking privileges opinion over principle and in extreme cases may question the very existence of things like “truth” and “facts.” Hamlet’s remark that “there is nothing either good or bad, but thinking makes it so” is a prototypical example of postmodern thinking. When modernity insists that important things are matters of principle, postmodernity replies that the most important principle of all, truth, is merely a matter of opinion.

Postmodern business thinking emphasizes culture rather than impersonal, bureaucratic, and scientifically inspired management systems. We see it in the transition away from rules and policies toward a reliance on the bottom-up, inside-out, unifying power of mission and purpose. Postmodern thinking values people, customers, and corporate responsibility over the impersonal metrics of the bottom line. If the either/or approach of modern thinking is a masculine win/lose business mentality, the postmodern is feminine win/win.

In economics the Efficient Market Theory argues in a postmodern way that the Market in its collective wisdom always knows more in a bottom-up way than any stock picker, government regulator, or central planner can ever know. In politics it is interesting to note that conservatives, while they abhor relativistic theology or morality, often argue for the bottom-up approach of markets both economically and socially.

When the young man thinks that by having both the clean man and the sooty man wash he will finally satisfy the Rabbi, he is thinking in a postmodern way.



IV: Paradoxical Thinking
The fourth type of thinking is the ancient yet emergent Paradoxical Thinking. Paradoxical thinking is found in ancient philosophical and religious texts like Zen Buddhism or Plato’s Parmenides. T.S. Eliot’s famous poem Four Quartets echoes the Christian mystic, St. John of the Cross, with lines like these.

In order to arrive at what you do not know
You must go by a way which is the way of ignorance.
In order to possess what you do not possess
You must go by the way of dispossession.
In order to arrive at what you are not
You must go through the way in which you are not.
And what you do not know is the only thing you know
And what you own is what you do not own
And where you are is where you are not.

-T.S. Eliot

Dismissed or derided for centuries by the Western scientific tradition, it is ironic that paradoxical thinking is emergent precisely because science has been forced to turn to things like Hawkings Paradox to deal with the apparent contradictory nature of the universe. As the famous scientist Sir Arthur Eddington said, “Not only is the universe stranger than we imagine, it is stranger than we can imagine.” Trying to figure out what happened before the Big Bang becomes paradoxical because time itself didn’t exist “before” the Big Bang. It’s trying to figure out what was going on before there was a before.

Recently paradoxical thinking has trickled from science into business through buzz phrases like creative destruction, controlled chaos, coopetition, getting outside the box, fuzzy logic, breaking the frame, and the Zen of business. These self-contradictory concepts try to capture the fact that even business may be stranger than we can imagine, and that the old models are no longer adequate.

Paradoxical thinkers hold apparent contradictions in tension by moving among magical, modern, and postmodern thinking as the situation requires while still being able to act decisively. This means paradoxical thinkers are open-minded and close-minded at the same time. The paradox underlying paradoxical thinking is that its openness is anything but indecisive, passionless, or lacking in principled convictions.

In a recent book review in the Wall Street Journal, The Long Way Around, Andrew Stark makes a compelling case for paradoxical thinking. Stark argues for what he calls the “profit-seeking paradox” which he defines as “the best way to maximize profit is not to seek to maximize profit.” In order to be successful, we must master the paradoxical idea that it is in our own self-interest to forget our self-interest. For as every great salesman knows, the more he forgets about his product and commissions in order to selflessly serve his customers, the more product he moves and the more commissions he makes. Every great leader knows that the more he focuses on helping others succeed, the more successful he becomes.

But as Stark masterfully points out, the paradoxical secret underlying this paradoxical formula is that it must be sincere.

“Even if you know that keeping workers on the payroll [in a recession] will elicit their over-the-top effort, the hope of gaining their over-the-top effort cannot be your motive for keeping them on the payroll.”

Stark goes on to say that the profit-seeking paradox embodies the “soul-building wisdom of Zen-style spirituality.” He argues that its corollary, the happiness paradox, lies at the heart of successful life. The happiness paradox states that the more we strive to attain happiness, the less happy we become, and the more we focus on something bigger than ourselves, the happier we get. In effect, the shortest distance between two points is Stark’s long way around.

*      *     *

All four types of thinking are essential. When the Rabbi reminds his would-be student that the man with the clean face will objectively see a dirty face and therefore wash, he is reminding the young man of the importance of modern objective thinking.

When he argues that the sooty man will eventually figure it out on his own, he is doing the same for postmodern subjectivity.

When he tells the young man that the whole riddle relies on an impossible situation, he is warning him against the danger of magical thinking. But since riddles and thought experiments rely on imagining impossible realities, by choosing a riddle in the first place, the Rabbi is paradoxically introducing the young man to the value of magical thinking as well.

But when he finally admonishes the young man to first clean his own face, he is pointing at the “soul-building Zen-style spirituality” that is the real answer to his riddle and the riddle of life. Paradoxically, the only way the young man can gain the wisdom he seeks is by ridding himself of the selfish motivations that inspired him to arrogantly approach the Rabbi in the first place, loudly proclaiming his qualifications. Humility and a spirit of service is an answer to the Rabbi’s riddle that never occurred to the young man.

What Stark refers to as the profit-seeking paradox and the happiness paradox lie at the heart of the Rabbi’s riddle, and of Eliot’s admonition that in order to possess what we do not possess we must go by the way of dispossession. But it remains to be seen whether either the young man in the story, or those of us who are privileged to hear it, will take T.S. Eliot’s, Stark’s, and the Rabbi’s wisdom to heart.

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Big companies, stolen ideas

GOVERNANCE MATTER By SHIREEN MUHIUDEEN

Shireen Muhiudeen exposes how some big unscrupulous companies are stealing ideas from smaller companies.

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IN our reviews of various public-listed companies (PLCs) across the region, one issue has cropped up again and again: The appropriating of a small company's ideas by a much bigger company.

The law protects all fruits of the human imagination from songs to sketches and sonnets but not ideas. You cannot own an idea, and this is why big companies can exploit smaller ones, which tend to be more innovative and enterprising because that is the only way they can survive.

Typically, before Company B can value a business transaction by Company A, Company B has to ask Company A to give it a Request For Proposal (RFP). Generally, Company A will do so as long as Company B signs the usual Non-Disclosure Agreement (NDA).

Now, quite often, if the company demanding information is larger than the company disclosing it, the former will keep asking for more and more data from the latter, on the pretext that it is just doing due diligence.

The smaller company will then end up giving the larger one all the ideas it has in the hope that that will seal their business deal.

In this way, the larger company gets to know all it wants about the smaller company's knowhow. Worse, the larger company claims that as its own.

This is a cheap means for the larger company to expand its own business model. In fact, when we spoke to one such large company, it said that it “reviewed” all applications by small and medium enterprises (SMEs), paying particular attention to any ideas or opportunities that the company could exploit for its own ends!

Business ethics

Legally, it is not doing anything wrong. But siphoning another's ideas under the guise of doing due diligence goes against every grain of business ethics.

Recently, we reviewed a company that had a big business plan to tap global funds, using an idea that it presented as its own. The thing is, we knew of a smaller company that had presented exactly that idea to a PLC some six years ago.

We had followed every development in that negotiation, from the signing of the NDA right up to the excuses given by the PLC as to why the evaluation process was taking so long.

That smaller company has since taken the PLC to court, alleging the breach of a condition precedent contained in a subscription and shareholders agreement, as well as a failure to fulfill its obligations.

But, in trying to get justice, it is the smaller company that suffers the most; it cannot forge ahead because it is being weighed down by long legal proceedings, to say nothing of how much it has to spend for lawyers to argue its case.

When asked about the smaller company's grievances, the PLC brushed off all queries and said, “Oh, these are just small, insignificant issues”, implying that they would not affect its own business model. Shouldn't they, though? If the PLC is selling itself with ideas siphoned off another company, what does such siphoning say of the sustainability of its business model?



This big and not so beautiful PLC goes ahead and launches its “latest” ideas while daring the smaller company that came up with these ideas to send it a cease-and-desist letter. It can be so arrogant because it knows only too well that it has much deeper pockets than the aggrieved company and so will simply push the latter over the edge with mounting legal fees.

Currently, the law gives recourse to aggrieved smaller companies based on what they have actually lost to the bigger companies. But surely it should be based on what smaller companies could have earned but for the idea-siphoning?

From this, it is evident that bigger companies are taking advantage of the current disconnect between how much the courts will make them cough up and how much smaller companies really suffer financially from someone else using their good ideas.

Stamina

This means that it is still cheaper for big companies just to use a smaller one's ideas, even if that smaller player takes them to court for doing so.

Not surprisingly, bigger companies tend to operate in this manner because smaller companies simply do not have the stamina and finances to protect their good work.

This is often the case even if the law is overwhelmingly in the smaller company's favour. The smaller company simply cannot afford the very long time taken for justice to be done.

But something, clearly, needs to be done for fairness. Now, directors of companies are required to declare in their annual reports that “they are responsible for all information and representations contained in the financial statements” and that “the financial statements have been prepared in conformity with generally accepted

accounting principles” and that “the reflected amounts are based on the best estimates and informed judgment of the management with an appropriate consideration as to materiality”.

This being the case, perhaps there should also be a statement to the effect that they have not infringed another company's intellectual property, have not settled out of court or that they have no pending legal proceedings regarding the use of another's ideas.

As Malaysia gears itself up to be a full-blown knowledge-based, or K-economy, it becomes critical to protect SMEs, especially in the telecoms sector where this is very prevalent. If the law does not ring-fence their rights, they will be forced to look beyond Malaysia to flourish.

Shireen Muhiudeen is managing director of Corston-Smith Asset Management in Malaysia, a fund management company that makes investment decisions based on corporate governance

Making Debt Ratings Count, Downgrades US Bonds!

Making debt ratings count

A QUESTION OF BUSINESS By P. GUNASEGARAN

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S&P’s negative outlook on US bonds may help make rating agencies a wee bit more relevant

Reuters

In this Feb. 14 photo, The National Debt Clock hangs from a building near Times Square in New York.

IS it “better late than never” or “too quick to jump the gun?” That depends, of course, on whom you talk to.

US president Barack Obama will say it is the latter but quite a number of people in the finance industry believe that rating agency Standard and Poor’s negative outlook on US long-term sovereign bonds should have been proclaimed at the start of the world financial crisis in 2008/9.

The US, along with a number of developed countries around the world such as the UK, Australia, Japan, Germany and neighbour Singapore hold an AAA rating for their sovereign long-term bonds.

That simply implies that these countries are the least likely to default on their debts in comparison to other countries.

The US has had its highest rating continuously from the forties. Since the US dollar emerged as the dominant reserve currency – one in which other countries keep their surplus assets – it has a major advantage over most other countries. Its (USA) external debts are in its own currency.

That means that there is hardly any likelihood of default because if the US economy and US government finances are in deep trouble, then all the US government has to do is to put in place measures which will increase the supply of US dollars – printing money to repay its debts. That has other undesirable consequences of course but that’s another story.

For developing countries and even developed countries it is often the case that their external debt is denominated in US dollars or some other reserve currency such as yen or euros and they must earn foreign exchange (that is a surplus of exports to imports of goods, services and capital) to eventually repay these debts. They can’t resort to the printing presses.

When they are in danger of default, the standard prescription is bone-crunching austerity and a steep currency depreciation to make exports more competitive and imports prohibitively expensive so that there is a surplus of reserve funds to repay debts.

Currency depreciation increases the amount of debt in terms of the base currency and therefore such a prescription often leads to prolonged hardship for these countries, as we saw during the Asian financial crisis of 1998. This crippled growth in many Asian countries for years afterwards and resulted in a relative drop in living standards.

So, why does S&P put a negative rating outlook on US long-term bonds when there is little or perhaps, no risk that the US government cannot repay its US dollar debt? That’s a question that is difficult to answer.



Using, S&P’s own definition, “a credit rating is Standard & Poor’s opinion on the general creditworthiness of an obligor.” Its hard to see how such a definition alters anything in terms of the US, even if S&P is now tying its rating to how the US solves its budget deficit problems, unless it is expanding “creditworthiness” to include more than just ability to repay.

For those countries who have substantial US dollar assets in the form of US bonds, bills and other assets, the S&P ratings have hardly mattered at all because all of them know that the US will pay its US dollar obligations and they don’t need the rating agencies to tell them that.

For them they have to make a crucial call on returns – essentially, how much earnings the assets bring in and how the US dollar moves relative to their base currencies.

If the US’ financial position is poor, that will eventually be reflected in the value of its currency. If the US dollar falls like how some Asian currencies did in 1998 and the aftermath, the ratings by agencies such as S&P will count for nought.

Perhaps, that is what is persuading S&P to extend the scope of “general creditworthiness” to something beyond the mere ability to repay a debt. That cannot be a bad thing and one hopes more credit rating agencies will follow suit and show the courage of their convictions and thereby make themselves a wee bit more relevant.

● Managing editor P Gunasegaram thinks that the world is far from making the adjustments needed to prevent a recurrence of the ongoing world financial crisis.

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Micro blog leads revolution in China

By Zhang Jing, Yang Yang and Meng Jing (China Daily European Weekly)

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Weibo may reshape Internet behavior in China over next few years

It is the new kid on the block and growing leaps and bounds. Soon it may tower like a goliath over other better known peers in the Web world as suitors from the government, public and corporate sector jostle for attention on its platform.

Weibo, or micro blog, the sending of brief text, audio or video to select groups, is making rapid strides in China and reshaping the way information flows with their multiple sources and diversified, authentic content. It is also becoming an attractive platform for companies to showcase their products and reach out to more consumers.

Related readings:  Huge attraction for business  Information flow draws more people to weibo  Tapping into micro blogs is the new Marketing 101  Handle platform with kid gloves

Unlike Twitter, micro blog is relatively new to China and just two years old. Despite being a late entrant, the weibo has already started to reshape people's lives in China, thereby indicating its growing prowess.

A typical weibo starts with an "@" before the user's nickname, and like Twitter, has a word limit of 140 words. There is, however, one exception. Internet company Tom.com has set the weibo limit at 163 words to match with its parent company name 163.com. Unlike Twitter, a weibo can also be a picture, a voice message, a song and a video.

In February this year, Beijing rock singer He Yong posted a short message on his micro blog styled, "Weibo the Almighty, please save my child!" It was a request for help to cure his 30-month-old daughter as she refused to take any food or water for five days in a row. In the same month, the Ministry of Foreign Affairs saved over 900 stranded Chinese workers in Libya as they were able to locate them through their weibo messages for help.

The weibo power came to the fore in March, when irate netizens in Nanjing, Jiangsu province, led a campaign to stop the felling of the city's famed parasol trees for a subway construction. Netizens urged micro blog followers to hold protest meetings in front of a local library until the authorities agreed to their demands.

Nothing personifies the growing popularity of weibos than the example of a 12-year old boy in remote Fujian province who has a weibo account with all the four major providers - Sina, Tom, Tencent and Sohu.

Tencent, the world's third-largest Internet company by market capitalization, said in February this year that its number of registered weibo users has risen to nearly 100 million. Sina also claims that its numbers have swelled considerably and it has started making profits from the weibo services. That is indeed impressive, considering that the feat was achieved in less than two years, whereas it took Twitter nearly four years to build a network of 195 million users since inception in 2006.

Though Tencent and Sina are the biggest players among Chinese weibos, there is also a sea change when it comes to the customer profile on the two platforms. Tencent Weibo users are mostly teenagers who use the company's instant messaging service QQ, which has nearly 630 million active accounts. Users of the Sina services are in contrast aged between 30 and 40 and better educated.

With a big surge in user numbers expected by the end of this year, both the companies are leaving no stone unturned to boost market share. The Data Center of China Internet (DCCI) says that by the end of 2011, independent weibo users will reach 100 million and grow to 253 million by 2013. The weibo market is expected to take off from 2013, it says.

"Though the data differs from company to company, there is no doubt that micro blog is poised for explosive growth," says Liu Yan, director of Digital Influence with Ogilvy Public Relations Worldwide.

"Micro-blogging has a real-time news function," says Yang Guobin, author of The Power of the Internet in China: Citizen Activism Online and associate professor at the Barnard College of Columbia University in the United States.

"Its basic follower function gives a clearer structure to the increasing expansive and formless flow of information in cyberspace.

"By following another weibo user, I automatically receive his or her messages. Popular weibos can have large following. A person with a large following has enormous broadcasting power," says Yang.

By Jan 12 this year, the number of Tencent followers on Liu Xiang, China's 2004 Olympic 110-meter hurdle champion, crossed 10 million, well surpassing that of Lady Gaga on Twitter. Since then, Liu has become the most popular micro-blogger in the world.

Entrepreneur Lee Kai-fu, the former China head of Google, is another leading light in the weibo world and has more than 3 million followers. Lee admits that his entry into the weibo world was by chance. In June 2009, his friends told him that someone with the name of @kaifulee had been publishing news concerning Google and responding to fans' comments on Twitter. This made Lee aware of the power of Twitter.

Lee Kai-fu at the release of his book Weibo Changes Everything in Beijing in February. Gao Zhixing / For China Daily

"If a fake Kaifulee could enjoy such popularity, I thought that I should micro blog myself for more influence," says Lee, who later verified his account and posted a message saying "Dear impostor Kaifulee, you pretended to be me for three months. You've been reasonable, but with the Reuters' coverage, I had to get my name back."

An experienced micro-blogger now, Lee was invited to give a speech at the first China Weibo Developer Conference 2010. Lee named his latest book, Weibo Changes Everything, in which he has predicted the end of WAP era, and the coming of the new age of Mobile Internet, embodied by weibo.

"Weibo's social networking function is further enhanced by external applications, like those found on compatible mobile phones that can read, receive and send micro blogs," says Yang Guobin.

A recent report by Sina shows that nearly 36.6 percent of their weibo users log onto the service with their mobile phones. Over 43 percent of such users are women and they account for nearly 65 percent of the active weibo accounts.

Liu Xiang, the 2004 Olympic 110-meter hurdle champion, meets with his followers at Tencent Weibo on Jan 22 in Shanghai. Guan Kaiji / For China Daily

"The level of stickiness and salience on the micro blog sphere is beyond any other forms of media," says Liu from Ogilvy.

"With the advent of weibo, one can immediately feel that social network sites like Kaixin001.com are losing their sheen. I used to visit Kaixin every day, but now I visit the site only once or twice a week. But for weibo, it's a different story. I can publish a microblog in a restaurant, at bedside, on the subway... It can be anywhere, any time. It is said some real fans would publish a micro blog even when they go to the toilet."

"They (weibo) can help us find those with similar interests instantly and build a network through information sharing," says Elli Li, a business development representative with Bianfeng.com, a leading online gaming company in China.

"In the social network system (SNS) of weibo, the clearer one is about what his or her interests are, the more effective the process of information gathering will be. For example, once I wanted to buy certain cosmetics products online and my followers immediately told me to go to a global purchasing website. That helped me save nearly $80 (56 euros).

"Nowadays, I don't read newspapers nor do I watch TV. Most of my

information feed is from weibo. The speed of weibo SNS information sharing and the vastness of its spread are also beyond reach for blogs or forums, which, in a way, has brought about the decline of the latter. MSN blogs closed on March 17 after a five-year existence," says Li.

According to the Internet Real-time Public Opinion Index Annual Report 2010 released by the Communication University of China in Beijing, weibo has become the third-favorite online source of information for public opinion, after news portals and online forums.

"At the moment, weibo serves more as a content provider and disseminator than a social networking platform," says Zheng Yingqin, a PhD from Cambridge University and a senior lecturer with the De Montfort University in UK, who specializes in information & communication technology (ICT) and social development.

"According to research, the main content providers on Twitter largely fall into four categories - celebrities, media, individual bloggers and enterprises/organizations. The first two are mostly interested in their own networks, i.e. they follow weibo accounts in the same category, while the other two have broader interests and may pay more attention to other groups. It is likely that the same applies to weibo," says Zheng.

"People log onto weibo for a variety of reasons, and social networking is only one of them. Weibo differs from existing social networking services such as QQ or Facebook in that its connections can be unidirectional. One can follow other people without their permission or reciprocal attention and nor does one necessarily need any fans (followers) to enjoy a fulfilling weibo experience. It also provides minimal tools to support one to one interactions, unlike QQ or Facebook."

"Weibo may evolve to incorporate stronger social networking functions in the future, as there seems to be such a demand from some users. More importantly, it is changing the way we perceive the world and the way we connect to each other. Potential opportunities of open innovations, for example, user-led product development and network-based business models, are yet to be explored," says Zheng.

The huge population base of weibo has greatly enhanced its potential in social commerce and influence. By the end of August 2010, a total of 466 major media companies, including TV, radio, print and magazines, have registered with Sina Weibo. The latter has also verified some 2,500 companies as its weibo users, covering over 30 industries such as automobiles, food, film and entertainment.

Sina chief executive Cao Guowei says that his company's advertising revenue grew 28 percent in 2010 thanks to the weibo platform. "There is still enough room for Sina Weibo's growth," says Cao.

Other companies are also taking advantage of weibo, but in more creative ways. Sohu is providing weibo dating services, while several companies are using it for recruitment by asking potential employees or interns to describe themselves on weibo in whatever way they like. Prominent include French advertising company Publicis Groupe, Taobao.com, and Hangzhou City Express, a local newspaper in Hangzhou, Zhejiang province, that attracted some 500 million yuan (53.7 million euros) advertising revenue in 2010.

Many European companies and organizations in China have also followed the trend of creating weibo accounts in China. These include the Netherlands Board of Tourism and Conventions and the British Tourist Authority. The Delegation of the European Union to China officially launched its "EU in China" blog and micro blog service in Beijing on March 28.

"Blog and micro blog are a promising way to reach out to different types of people whom we don't meet in our daily work," says Markus Ederer, ambassador of the EU Delegation to China.

The EU Delegation blogs on four major Chinese portals - Sina, Tencent, Tom and Sohu. Most topics are on European lifestyle and pertain to films and travel. "Hopefully the interactiveness of blogging will help Chinese understand why we are the way we are," says Ederer.

William Fingleton, press officer with the EU Delegation, says blogging the EU in China "is perhaps the best way to reach out to young people who spend a lot of time indoors and in front of their computers."

The EU delegation has chosen food as its first blogging theme, to coincide with the recent visit of the EU Agricultural Commission and the introduction of its geographic identification system in China. Special guests to the ceremony included Chinese food bloggers like Great Chef Bai Du and Transparent Purple, who showcased their self-made favorite European dishes to the audience.

"Weibo has made understanding our customers easier, and them us," says Ogilvy's Liu. She says her team addresses questions to followers of their clients, sometimes trivial questions like the duration of time taken to apply cosmetics. Feedback from the followers also helps us understand their interests and also whether they are more interested in brand history and culture, or whether they are more interested in sales and discounts.

"Weibo is an integral platform for companies to communicate with their customers or potential clients. What you get is first-hand material. It is fast and effective and without the participation of any third parties. Previously, we may have to physically go to 10 cities to collect samples, which are time consuming, and the samples are limited. But within two days, an online survey on weibo may get more than 100 feedbacks from across the county," she says.

Each company approaches micro blogs differently and their styles vary. Dell China has set up several micro blogs, intended for differentiated customers, like one for medium- and small-sized companies, and one for after-sales. L'Oreal decides on the next city for its road show by fans' votes on its micro blog.

"When the fans' wishes are answered, they feel they are respected," says Liu. "And once an emotional bond is connected, it will last for a long time. Eventually it may lead to sales."

"But everything is still in the early stages of trial and error. A business model with weibo is yet to be set up," says Liu.

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