Bubble burst?

In fact, the current plunge in the share price of Chinese stocks listed in the US reminded many observers of the rupturing of the "dot-com" bubble in the late 1990s and early 2000s, which wreaked havoc on the US economy and high-tech industry. However, some industry analysts say that this is not the end for US-listed Chinese stocks.

"The market itself is, in a sense, a risky gamble. The more you want the rewards, the higher the risk," said Michael Ruan, co-president and chief operating officer of the Chinese research firm iResearch Consulting Group. However, he added that the market now is not comparable with what happened after the original "dot-com" bubble.

"Internet companies in 2000 didn't have any clear business models that could sustain their huge spending. But now, most companies have at least foreseeable models that can support their high valuations," he said, adding that China's continued growth in the number of Internet users will provide a fundamental source of growth for the nation's Internet companies in the future.

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"This is a very different scenario from the 1990s, but you must still be circumspect," said Permal's Isaac Souede. He said there is excitement in the market, but there is also significant pressure on the companies to deliver, which was rarely the case in the late 1990s.

"Short-term, the likes of Youku and Renren may create waves, but like all other investments, the longer-term fundamentals will be the only meaningful factor. Those Internet companies that fail to meet expectations will find their share price suffering," he said.

Li Guoqing, the co-founder of Dangdang.com, one of China's biggest e-commerce websites, said in his micro blog earlier this month that the price declines of Chinese Internet companies were mainly driven by the overall outside environment.

He said a series of events, such as the financial frauds, the poor delivery of growth targets, and Alibaba's recent transfer of its online payment business to a domestic subsidiary without the consent of its foreign investors, have combined to contribute to people's distrust of Chinese Internet companies.

"I believe that performance is still the most vital factor that affects share prices, but it may need more time to be recognized," he said.

In fact, many Chinese Internet companies have already taken some steps to launch stricter self-regulation. For example, before its first day of public trading, Taomee Holdings Limited, a Chinese company operating a website for children that listed on June 9, said that its auditors had found major gaps in its internal controls. It said it lacked sufficient accounting resources and the necessary expertise to comply with US accounting standards.

"History tells us that, with hindsight, there have been substantial under-valuations as well as substantial over-valuations of technology companies. This is because the potential growth rates are in a much wider range than companies with more traditional businesses," said Richard Lacaille.

He said long-term growth and the sheer size of China is an enticing prospect for investors who may gain from the shift to a more consumer-oriented and sustainable economic balance.