Chinese Media Attacks 51mole.com For Addicting Kids; Regulatory Risks in China Remain High

My latest post on Digital East Asia.

Children-focused Chinese social networking service (”SNS”) 51mole, which launched last year and received $5MM venture funding from Qiming Ventures this summer, has been under attack in recent months from Chinese media.CCTV, the national state television, first criticized the site in late August in one of its daily news segments; then in late September, Oriental Horizon, one of CCTV’s investigative programs, again called out the site for “making children addicted to the Internet.” And over the past few weeks, there has been quite regular articles popping up in the Chinese web media discussing the controversy.

“Internet addiction” is a sensitive topic in China these days. Literally hundreds of “recovery camps”, similar to those treating drug addiction in the US, have sprouted up all over China over the past few years. It’s a highly profitable private industry, and not surprisingly,horror stories are showing up of teenagers being harmed in those treatment camps. But the widespread popularity of such camps does go to show people’s perception of “Internet addiction.”

Therefore, 51mole’s bad PR, especially those accusations made by the state media, is a very serious issue for the firm. It could well be followed by regulatory crackdowns – and there is a recentcrackdown on Internet games ongoing. Regarding the allegations, I don’t know enough about 51mole to say whether they are true or false (the site is essentially a Club Penguin clone). Since it’s launch last year, the site has enjoyed quite explosive growth and now boasts 30MM users, and is part of a trend of SNS / gaming sites targeting children.

Regardless, I think the incident again highlights the regulatory risks of doing business (and investing in start-ups) in China – just think of all the Chinese Twitter clones getting shut down over the summer. In the long term, even if the government wants to retain such a heavy-handed approach towards the market, there must be due processes and proper justice procedures – otherwise China will never be a nurturing ground for entrepreneurial endeavors.

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