Script:
am Jim Ledbetter with CNN Money, I am here with Fortune’s David Kirkpatrick. Today, we are gonna talk about the phenomenal rise in Chinese Internet Stocks. David, welcome.

Okay, let’s go.

Just in a matter of a week, ten days' time, some of the big players in China like Sohu and Baidu have seen their stocks go up 9%, 15%. What’s behind these phenomenal rises?

There are just, there is just huge innovation in China, there is unbelievable hunger for success by some very creative entrepreneurs. The government is 100 percent behind it which makes all the difference in China. And the audience is there, I mean, I am not, I am not sure what the exact number in China is, but estimates are 120 to 140 million PCs in China, a very large percentage of the Chinese population doesn’t even use their own PC, they use Internet cafes to go on the Internet. I am sure that you are in the 2 to 3 hundred million minimum population on the Chinese internet, and albeit their reven(ue), their, their, their income is not what, what we would consider high by American Standards. But their purchasing power is growing very rapidly. The advertising market in China for the internet is exploding. So, it’s, it’s, it's really a kind of like the next bubble in a way or it’s, it’s, the enthusiasm for the Chinese internet is kind of at the place where the American internet was in 1998, 99. I would say.

You mentioned that the government is behind this 100 percent, which is really interesting because for so many years, we’ve heard that the Chinese government perceive the internet as a threat, that they censor people who were looking at Falungong, or looking at, (they do) you know issues about Taiwan or issues about the Dalai Lama. Um, well, how can they, how can they square that circle, how can they be in favor of the internet growth as a business but, but still be afraid of it as, as a political device?

I think the way they are managing it is that the companies don’t want to alienate the government and they are basically telling a line. In fact, there is extensive communication, pretty much at all times, between all the major Chinese internet companies and the government, and they don’t even have to really take orders from the government. They have internalized this sufficiently that they know where the lines are. And I will tell you something else; the ordinary Chinese person doesn’t really care to read about the Falungong or the Dalai Lama. I am sorry to say that, but I really don’t think they, they do. The average Chinese internet surfer takes the view that their information access is so much greater than it ever was without the internet that even if they can’t see everything, they are way better than they were when all they had were government-sponsored newspapers that were much more censored frankly than the internet could ever be.

Right, you used the comparison of America in 98, 99, which suggests that it could be in a situation with a bubble.

Their, their stocks are at huge multiples right now. Um, but that’s also a function of the Chinese stock market in general. The Chinese stock market is in a bubble by many opinions, and you know, had a pickup a couple of weeks ago, and dropped like 5% in a day as I recall. And the internet companies are leading a lot of the markets there. So in that way, it is kind of like the late 90s. I think though when you have an economy that is growing 11% year over year which I don’t believe any country in the world has ever done before. And it’s an economy of that scale, you know, maybe you can sustain some pretty high PEs for quite a while because there is just so damn much economic activity.

OK, great. Thanks.

Notes:
PE:The P/E ratio (price-to-earnings ratio) of a stock (also called its "earnings multiple", or simply "multiple", "P/E", or "PE") is a measure of the price paid for a share relative to the income or profit earned by the firm per share. A higher P/E ratio means that investors are paying more for each unit of income.