Another Chinese New Year is upon us, and this year we transition into the Year of the Tiger. As Chinese businesses begin to shut down until the beginning of March 2010, we’ve stared at the eye of the tiger and risen to the challenge of figuring out the trends for this coming year…

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Perched above a Big C supermarket on a street jammed with bipeds dodging mopeds, the Ho Chi Minh City headquarters of VinaGame is easy to miss. But inside, amid funky warehouse decor and lots of young staff glued to big computer screens, sits Vietnam’s leader in online gaming and social networking services. VinaGame aims to be one of the first homegrown Internet successes in its would-be tiger economy, a Vietnamese counterpart to China’s huge hits, Shanda Interactive Entertainment ( SNDA - news - people ) and Tencent.

With stated 2009 revenues of $50 million on the back of what it says is 50% annual growth, VinaGame is capitalizing on Vietnam’s rapid rise of digital communications and consumerism. Its chairman and chief executive, Le Hong Minh, 32, is an avid gamer himself…

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The following post is about two former colleagues – Asa from New York City and Lifen from Changsha, China. They have never met one another, but their lives are bizarrely linked together because of an emerging trend that’s being spearheaded by a US-based real estate development firm and technology giants like Cisco Systems.

About five years ago my former colleague Asa found himself caught in a dilemma about his career advancement. He had just received a job offer from an up-and-coming advertising firm in New York City. Should he keep his job at Gale International, an established international real estate development firm in the US or accept the new advertising firm’s offer? He chose the advertising firm. When I asked why, he responded, “who cares about building a city in middle-of-nowhere South Korea? There’s no way that will amount to anything – this advertising firm on the other hand, is going to launch my career.”

Since Asa switched companies the real estate project in South Korea has in fact evolved into the model smart city of the future – New Songdo City, South Korea. New Songdo is not a typical city - it is the beginning of what ambitious real estate developers like Gale International, and several multinational technology firms led by Cisco are seeking to replicate throughout emerging markets in Asia and beyond.

“Cisco calls this Smart+Connected Communities initiative a potential $30 billion opportunity, a number based not only on the revenues from installation of the basic infrastructure but also on selling the consumer-facing hardware as well as the services layered on top of that hardware Picture a Cisco-built digital infrastructure wired to Cisco’s TelePresence videoconferencing screens mounted in every home and office, with engineers listening, learning and releasing new Cisco-branded bandwidth-hungry serves in exchange for modest monthly fees. You’ve heard of software as a service? Well Cisco intends to offer cities as a service bundling urban necessities – water, power, traffic, telephony – into a single, Internet-enabled utility, taking a little extra off the top of every resident’s bill.”

This is where the story of Lifen, my former Beijing-based colleague, begins. Lifen is from Changsha, the capital city of China’s Hunan province. In 2009 the Changsha Municipal Government authorized Gale International to build its next smart city right outside of Lifen’s hometown. The Meixi Lake District is one of 20 new cities Gale International plans to build across China and India alone.

The rate of urbanization is increasing in China and many other emerging markets, but are citizens ready to move into these smart cities? Out of China’s population of over 1.3 billion, only a small portion of these are considered middle-class and above. This means that most families Gale and Cisco aim to relocate into their smart cities are low-income rural families with comparatively low levels of education. The transition from a rural to an urban lifestyle is difficult enough, but from a rural lifestyle to a smart city urban lifestyle? From an economic and social standpoint, this seems like a stretch.

New Songdo City has the potential to be a great success, but the overall standard of living for average citizens in South Korea is significantly higher than that of China or India. During her last trip home, Lifen recently helped her father set up an email account. I am curious to see how she manages to teach him how to use the Cisco TelePresence in his living room to pay for his water and electricity once her parents move into Meixi Lake District.

How many Chinese brands can you name? Probably fewer than the fingers on your hand. Atlantic Monthly journalist James Fallows believes China’s lack of global brands is proof it is not an economic superpower. As he wrote last month, 44% of Americans think that the world’s leading economic power is China. “People who think this are crazy,” Fallows wrote on his blog. “Name 20 large American corporations that do business worldwide. Without trying, you can probably name 50. Try to name even 10 from China.”

Most people can’t. In part, that’s because Chinese companies traditionally haven’t cared much about building brands. Lacking marketing talent and looking for a quick buck, they competed on price rather than spend the time and money on brand-building. After all, it took decades for Japanese and Korean companies like Toyota and Samsung to become global players.

The world has changed, though, and Chinese companies with the potential to become global brands have emerged. For brand managers, it would be a mistake to discount Chinese companies. Take sports-apparel maker Li Ning as an example. It is competing head to head with Nike (NIKE) and Adidas on design and product selection, and opened its first retail store in Portland this month. It has even opened design operations near Nike’s headquarters in Beaverton, Ore., and is taking advantage of the downturn to hire American talent…

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When Google announced that they may exit the China market, it sent shock waves across both traditional media and new media. I’d like to highlight a few of the thoughtful posts that helped shape my perspective on this issue:

Clearing Up Confusion on Google and China

WSJ China Real Time Report

Why it’s Good that Google.cn Leaves + SEM (2)

CHINAYOUREN

Google Leaving China Will Not Be A Revolution, Televised Or Not

CNReviews

What Google is Trying to Do In China - Gambling For Free Speech and Losing

Asia Ruminations

The specific case of Google raises an important broader question: where can foreign Internet companies succeed in China? With 384 million Chinese netizens and that number is set to increase, companies see the Internet as a space in which the possibility exists to make some serious cash. That said, instances such as the Google case demonstrate that even the most powerful of global Internet companies may be unable to make the Chinese government change its censorship policies. If you can’t change the law, then how can you still work within the existing framework to win?

The Chinese government’s number one priority is to maintain social order and stability. The Internet is perceived as a threat to social stability, which is why the government has implemented restrictive measures such as the Great Firewall of China.

Where is the most regulation?

The Internet companies most regulated are those that are perceived as possessing the potential to affect social stability. Internet search and Social Networks (SNS) are two such areas – thus negatively impacting foreign sites like Google, Facebook and Twitter. If you are a company that provides access to “sensitive” material or provides a communication platform for netizens to unite on “sensitive” topics, then you will continue to face pressure and restrictions from the Chinese government.

The underlying trend appears to be that in the event that the government is unable to repress Chinese netizens’ needs for a particular service, they will restrict the foreign original and support a more easily regulated domestic alternative. This can be seen both with the Google – Baidu and Facebook - RenRenWang dynamics as well as with the recent emergence of Sina’s Twitter-like micro-blogging service.

Where is there room for growth?

Companies who wish to succeed in China’s Internet space would best stick to areas that focus on job creation and economic gain that do not overlap with broader social & societal challenges. The government actively promotes the online gaming industry and is a great proponent of e-commerce companies like Alibaba Group that connect people to do business and grow the Chinese economy, rather than connect them in a way to go against the government.

However areas such as Internet search, Social Networks and other online communication platforms will continue to be heavily monitored, regulated and even thwarted by the Chinese government due to the potential impacts such tools have on social interaction and unification.

Kai-Fu Lee, who’s overseen operations for both Google Inc. (GOOG) and Microsoft Corp. (MSFT) in China, posted a cryptic message on microblogging service Twitter the day after Google made its recent, startling announcement that it might exit the Chinese market: “A captain would never run away from his duty, if he knew the ship was sinking.”

It’s unclear exactly what Lee, who now runs Beijing-based investment firm Innovation Works, meant. He didn’t respond to a request for comment.

But on Thursday, Microsoft Chief Executive Steve Ballmer said during a televised interview that the Redmond, Wash.-based company would not be running anywhere, as it has no plans to follow a Google departure from one of the fastest-growing international markets.

“If you’re going to operate in China, you have abide by the laws of China,” Microsoft’s Ballmer said during his televised interview on CNBC Thursday. “We’ve been quite clear that we’re going to operate in China.” A Microsoft spokesman declined to comment further.

It’s also not clear whether Microsoft could surmount considerable obstacles and capitalize on a Google exit from China by gaining significant ground on local search leader Baidu Inc. (BIDU).

According to comScore data, Microsoft sites held about a 5% share of the Chinese search market as of November, compared with Google’s 14% share and Baidu’s 62%.

Microsoft isn’t likely to enjoy the same word-of-mouth boost that helped Google gain its significant–albeit second-place–market position in China, according to Peter Lu, an analyst with Beijing-based China IntelliConsulting. “Google is still viewed as a more technologically sophisticated Chinese search engine than Baidu,” he said.

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A handful of homegrown micro-blogging sites emerged about the same time Twitter started to gain a small, yet steadily growing, share of Chinese Internet users, beginning about 2007, around a year after Twitter was launched in the U.S. in 2006.

While almost all of the early Chinese micro-blogging pioneers faced the same fate as Twitter, most of the sites are now back online and are fiercely competing to gain a share of what many predict will soon be an exploding population of Chinese micro-bloggers.

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“你今天偷菜了吗？” “Have you stolen vegetables today?” From middle school students, to white collar workers, and even retirees – Chinese netizens of all ages are obsessed with 偷菜 toucai, the latest online gaming application sprouting up all across China’s social network sites (SNS). Players own a virtual farm where they plant fruits and vegetables. They purchase supplies like seeds, pesticide and fertilizer at a virtual market. Players can even buy guard dogs to protect their crops while they are away from the farm. While part of the game is about growing and protecting your own harvest, the real fun is sneaking into your friends’ farms to steal their vegetables. The simple, yet addictive game brings together a diverse audience to partake in this sneaky pleasure.

五分钟 Five Minutes

Xu Cheng, Five Minutes Founder & COO

 

 

 

It took much longer than five minutes for Xu Cheng, founder of 五分钟 (Five Minutes) to create Kaixin Nongchang also known as the Toucai game. Xu Cheng’s Shanghai-based team first released the game as an application on Xiaonei (now known as Ren Ren Wang), a leading Chinese social network whose user base is comprised primarily of college students and recent graduates. The two companies have a profit sharing partnership in which Ren Ren Wang and Five Minutes split each month’s earnings now totaling approximately one million renminbi per month. Five Minutes has the option to end the partnership at any point as it sees fit. Five Minutes shares similar partnerships with other Chinese SNS operators; however, Tencent took full control of rights to the game for its QQZone platform through a one-time multimillion renminbi payment to Five Minutes.

Virtual Interactions, Real World Emotions

Why is toucai so popular? How is it able to appeal to the young, the old and everyone in between? For my Chinese speaking readership I highly recommend taking a look at this article produced by iResearch entitled 三个“菜农”的故事 The Story of Three “Farmers.” The author interviews participants representing three distinct age groups: a 14 year-old middle school student, a 25 year-old white collar worker and a 49 year-old mother. Each of the three respondents provides a different explanation for why he or she enjoys playing toucai, but I feel there is a common rationale that links their responses. Their main source of pleasure and enjoyment is not from direct entertainment while playing the game, but rather it is indirect real world benefits.

The middle school student brags:

“我是班长，农场级别也是最高的！”

I’m class president; my toucai farm level is also the highest!

The white-collar worker excitedly recounts a recent toucai encounter:

“有一次更牛，我一个初中同学到我的农场来偷菜，我才发现, 居然因为种菜又联系上了”

There was one time that was even more awesome, I found an old middle school classmate on my farm who came to steal my vegetables, surprisingly because of this game we had a chance to reconnect.

Toucai is 49 year-old Mrs. Wu’s favorite hobby. She doesn’t care how many vegetables she harvests, or who steals from her – the main reason why she enjoys playing toucai is because it is an alternative way for her to interact with her son while he is away from home.

Xu Cheng, 5 Minutes’ founder, seems to have achieved his goal to make KaiXin NongChang a true Social Game. People may spend countless hours playing online, they may even spend excessive amounts of renminbi to purchase additional seeds and guard dogs, but when all is said and done, the true attraction of the toucai obsession is not the virtual world farming, but the real world interpersonal connections.

To edit the “Toucai” Wikipedia entry click here