To understand why a Chinese micoblogging service like market leader Sina Weibo will win not just in China but perhaps globally, it’s important to first understand why micro-blogging is becoming an integral part of China’s critical infrastructure.

As noted by the China Daily (the official newspaper of China), which dubbed 2010 “Year of the Microblog in China” (中国微博元年), microblogs are an increasingly vital tool for the government to broadly disseminate information on a timely basis as well as to monitor public opinion and developments away from the capital.

Not as broadly appreciated is the fact that a ubiquitous micro-blogging service allows a uniquely rich data set that not only has enormous commercial value but unrivalled political usefulness too. Microblogs not only capture users’ posts but also various metadata from these posts (e.g. location, time, theme, sentiment, network structure, etc.).

Properly analyzed and interpreted through data mining (i.e. using mathematical and statistical techniques to scan for hidden relationships in streams of digital data or large databases), machine learning and other rapidly developing techniques, this rich data set can facilitate much better policy making as well as more effective day-to-day implementation and enforcement of those decisions (by not just the coercive bureaucracies but also for economic planning, etc.). As such, it would be very much in the central government’s interests to ensure the development of a standardized and universal micro-blogging service with as much participation as possible by all parties of interest (e.g. individuals, businesses, local government departments, etc.).

The operator of the service would also need to be an entity known to be trustworthy and reliable. Sina Weibo would definitely meet this requirement. As noted by Forbes in a recent article, the senior leadership of Sina has close ties with the highest echelons of the CCP.

Given all this, it seems unlikely that another domestic rival can seriously challenge Sina’s dominance. We also need not consider foreign competitors. As such, when Sina Weibo starts to monetize, it would seem to be in an enviable position to earn monopolistic returns on this business.

As icing on the cake, as China rapidly becomes the most important global market, more and more people and businesses from around the world will want and need to access to this market.

For example, Tom Cruise recently set up a Weibo account and currently has more than 480,000 followers versus about 1.5 M on Twitter. Bill Gates is also on Weibo with about 1 million followers as are Lebron James and other NBA stars.

As the number of Sina Weibo users match and surpass Twitter’s current user base of 200 million, we can expect to see many more international opinion leaders following the lead of Tom Cruise, et al. For these opinion leaders, Sina Weibo would be their first and possibly only platform for the China market. This then, would attract even more offshore users to Weibo as well.

It’s also useful to note that there are several adjacent markets that Sina Weibo can easily tap – namely Taiwan, Hong Kong and Singapore. For example, according to Penn Olson Sina Weibo already has over 500,000 users in Taiwan and has recently launched a traditional Chinese version for this market.

Next, according to the Chinese embassy there are about 35 million overseas Chinese living and working in 151 countries, with Australia, European and North American countries their main inhabited areas. This would be another sizable and readily addressable market for Sina Weibo since Sina already serves these markets with its other offerings.

With just mainland China and associated markets like Taiwan and the overseas Chinese community, Sina Weibo could easily be the world’s biggest micro-blogging service in terms of number of users. Should it decide to expand offshore, the ASEAN countries with their 600 million people would seem to be a natural next market (because of the relatively closer cultural distance as well as it being a focus for China’s soft power initiatives).

Next, Charles Chao, Sina CEO, has noted that more than 40% of Sina Weibo users access the service through the network of China’s largest mobile carrier, China Mobile, and that he expects this percentage to grow as Sina works with handset vendors and mobile platforms to promote related mobile applications. This of course may also provide a springboard for entering the Indian market with its almost 800 hundred million mobile phone users.

What is unclear though is whether Weibo can attract significant numbers of non-Chinese users in North America and Europe. On the one hand, it would seem reasonable that Chinese internet moguls like Chao would want to be seen as equal to Bill, Steve, Larry and Sergei. Also, the Chinese government wants the respect that such a home grown global champion would bring.

However, aside from product changes such as English language support, localized UI, etc. one big question is whether consumers in Western countries are too dogmatic to accept a microblog that plays by Chinese rules.

Also, while these foreign markets are potentially enormously lucrative they are also risky from an operational perspective. How should content originating in the US that is objectionable to the PRCG be handled? Will the increased cost and complexity of monitoring content in multiple languages be practical?

Some industry insiders describe the China-rest of the world Internet dichotomy as the “blood-brain barrier”. That is to say, there is a semi-permeable barrier that will forever and always restrict what can pass between the two.

What do you think? Can Weibo achieve global dominance or will it only be a China play?

It’s said that a rising tide lifts all boats. In China today, a confluence of forces has created a tide of unprecedented proportions that will most likely lift entrepreneurs and those building companies now highest of all.

What are these forces?

First, while the notion of guo jin min tui (国进民退 – the state advances while the private sector retreats) has gotten a lot of recent attention, the private sector in China has quietly become the engine of economic growth and outpaces the state-owned sector in a few essential benchmarks.

For example, in a recent Economist article, a Communist Party official noted that there are 43 million companies in China of which 93% are private and employ 92% of China’s workers. According to China Macro Finance, a research firm in New York, the number of registered private businesses grew by more than 30% a year between 2000 and 2009. Given China’s continued strong economic growth and emphasis on domestic consumption, this trend is likely to continue, if not actually accelerate.

More importantly, a study by Qiao Liu, a professor at the University of Hong Kong, concludes that the average return on equity for state-owned companies was about 4% while the returns of unlisted private firms are at least ten percentage points higher.

Note that these heady growth rates and profitability indicators have been achieved with relatively limited access to capital. For example, some analysts estimate that the private sector accounts for up to 80% of enterprise profits in China yet loans to small and medium-sized enterprises (SMEs) comprise 4% or less of the total made by three of the country’s four largest banks.

Which leads to my second point, capital constraints are being vastly eased. Government policies to extend credit to SMEs have been emphasized and it looks like loan volumes are in fact increasing. Also, other lending institutions are starting to recognize the opportunity to serve this rapidly growing market. More interestingly, from both a business and investment perspective, the amount of risk capital available for high potential early stage companies has exploded with 2010 being a banner year.

For example, according to Zero2IPO, over US$10 billion was raised in 2010 for the China VC market and more than 150 new funds were launched. Also, more than 800 investments were made totaling more than $5 billion. This enthusiasm seems to be justified by recent exits including the highly successful IPOs for Dangdang and Youku, which were just two of almost 400 exits last year (versus about 120 in 2009). Also, within the TMT (technology, media and telecommunications) space, there are signs of a greater willingness by industry leaders to buy versus make (i.e. compete with) innovations launched by new companies.

Furthermore, the long-term “smart money” (i.e. institutional LPs such as sovereign wealth funds, pension funds, etc.) has made significant re-allocations to emerging markets with China being high on the list. This ensures continued availability of capital for at least the next few years.

As such, early stage businesses in China with credible leadership who can demonstrate a coherent strategy targeting sizable and high growth markets can expect to see greater access to capital at increasingly attractive valuations, which can fuel that virtuous cycle of expansion and profitability. Meanwhile, while competition for industry leadership will, of course, be fierce, strong domestic growth and continued economic integration with the rest of the world should result in a somewhat more benign and forgiving operating environment for many companies here.

Given all this, the risk-reward trade-off of joining a startup seems to be tilting very favorably toward doing so. If you’ve been thinking about taking the plunge, come on in, the water is just fine.

Here’s a list of most, if not all, of the major group buying or tuangou (团购) websites in China. Note that they fall into several categories: Those that are affiliated with an existing web property, stand-alone tuangou sites, aggregators that collect and present offers from primary tuangou websites and some combination of the foregoing (e.g. a sub-site that aggregates primary offerings).

The list below is ranked in ascending order based on Alexa traffic rankings in China. Tuangou traffic as percent of total is also from Alexa. Both data sources should be taken with the usual caveats.

A couple of observations:

• With the exception of Tuan.Hao123, Tuan360.cn and Dianping, tuangou isn’t currently a meaningful contributor of traffic to China’s top web properties
• Aside from Lashou, none of the independent tuangou sites rank in the top 100. It will be interesting to see how many can generate enough traffic to make their business models work
• The stand-alone websites are pursuing differentiated strategies. For example, while Groupon.cn is relying on celebrity spokespeople, Meituan is focusing more on acquisitions in 2nd and 3rd tier cities