Traditional consolidation in industries suffering from overcapacity typically sees stronger companies merge and weaker ones close, resulting in a healthier, more sustainable sector where everyone is profitable. But such conventional “right sizing” is less common in China, where struggling companies in strategic industries are often kept alive through financial and other support from local governments that are highly reluctant to let those ventures simply fail or be purchased by outsiders. Such artificial support may save jobs, but it does nothing to solve the overcapacity problem that created the need for consolidation in the first place. That’s exactly the dilemma facing China’s struggling solar sector, which is now posting huge losses even though we’ve yet to see players close or merge despite a flurry of such activity in the West. In the absence of proper consolidation, Chinese companies appear to be taking the next-best logical step by shuttering idle capacity and implementing massive layoffs in a bid to stem their losses, according to one report. (English article)
Journalist China
China Internet: Money in Russia, Sex Toys 京东商城拟开拓俄罗斯市场 成人用品网站获大笔融资
I’ll close out this week with a couple of interesting Internet items, including one that has overheated e-commerce giant Jingdong Mall looking at expansion into Russia and the other that has a sex toy site getting a nice chunk of new funding. It seems China’s Internet and the big growth opportunities it offers aren’t just for kids! Let’s start with the Jingdong news, as that’s probably the more significant of the 2 developments since it involves the company’s first foray outside its home China market.
Citi Heats Up China Credit Cards 花旗将引爆中国信用卡市场
China’s credit card market could be heading for a major explosion soon, following the official entry of the first foreign card issuer to the market in the form of global banking giant Citibank (NYSE: C). Foreign media have given relatively little coverage to this event, but in my view the development is quite significant for reasons that I’ll explain shortly that could ultimately lead to the kind of consumer credit bust that previously wreaked havoc on the banking sectors in Taiwan and South Korea.
Jaguar Revs Up PR Drive for Chery JV 捷豹路虎为争取合资企业获批加大公关攻势
Six months after announcing their plans for a joint venture, fast-fading domestic car maker Chery and its high-end global peer Jaguar Land Rover are still anxiously awaiting approval for the tie-up from Chinese regulators who are taking their time making a decision. But the pair are hardly sitting idle as they wait for the verdict, and Jaguar in particular has launched a massive PR offensive to try to convince Beijing it is serious about China by showing its commitment to the market. That campaign has officially moved into the fast lane, with Jaguar officially launching a “Let’s Go China!” tour that will take its high-end cars and executives on a national trip to some of the nation’s biggest cities.
Lenovo Headed for M&A Hangover 联想激进并购或留下後患
I hate to sound too negative on PC giant Lenovo (HKEx: 992), as I really do admire this company for its noble aspirations to become China’s first truly commercial global tech giant. But that said, I have to say that I’m also increasingly concerned about Lenovo over the next 2-3 years, as its fixation with global acquisitions seems to be going on steroids these days. The company’s growing addiction to global M&A was on display once again in the headlines today with Lenovo’s announcement that it would acquire Stoneware, a US developer of cloud computing products and services. (company announcement)
Ctrip Bonds: Outspending Private Rivals 携程债券：超出私募的竞争对手
As competition intensifies in nearly every major space on the Chinese Internet, companies are finding themselves increasingly in need of new money as their profits tumble and cash reserves dwindle. The options for new funding are particularly limited for younger private companies, whose main source of money is usually private equity and venture capital that is relatively limited. Older listed companies have more choices, since they can tap financial markets by issuing bonds or new shares to raise money. That distinction is seeing a small but growing number of older Chinese Internet firms raise money by issuing new debt to compete with their smaller but very aggressive rivals in the fight for market share. In the latest development on that front, leading online travel services provider Ctrip (Nasdaq: CTRP) has just announced plans to issue up to $140 million in convertible bonds . (company announcement)
Alibaba Buy-Out: Slow Growth Ahead 阿里巴巴未来增速或放缓
Financial markets have given their verdict on the future growth prospects for e-commerce leader Alibaba, and frankly speaking the long-awaited assessment doesn’t look too exciting or promising. I said last week when word first emerged that Alibaba was near a deal to buy back 20 percent of its shares held by Yahoo (Nasdaq: YHOO) that the most interesting elements would be the valuation Alibaba got from the transaction, as well as the name list of investors. (previous post) For starters, the valuation that Alibaba got from the deal is a bit disappointing for a company whose value rocketed from just $2.5 billion when Yahoo first purchased its stake in 2005 to more than $30 billion last year on the explosion of China’s e-commerce market.
Passive Baidu Limits Liability for Piracy 百度被判定对盗版侵权承担有限责任
A new court decision in a piracy case against search titan Baidu (Nasdaq: BIDU) is throwing a spotlight on a painful reality that has seen China’s fledgling music and publishing industries undermined by poor organization and a lack of support from Beijing. The reality is this: While big Western publishers and music labels have home governments and their own powerful industry groups lobbying on their behalf, Chinese authors, musicians and other makers of copyrighted products lack such groups or support from Beijing to promote their cause. Thus the Chinese content producers are virtually powerless to stop the piracy of their material on big-name sites like Baidu, which facilitate trade of illegally copied material through file swapping services.
ZTE on Long Smartphone March 中兴走上智能手机“长征”路
Telecoms equipment maker ZTE (HKEx: 763; Shenzhen: 000063) is hoping to avoid the fate of faded cellphone giants Nokia (Helsinki: NOK1V) and Motorola by focusing on smartphones as it hones an expansion strategy that it hopes will revive its stagnating fortunes. That seems to be the latest message from the embattled company, whose profits have plunged in recent quarters as its core telecoms equipment business weakens and it pumps major new investment its cellphone unit. Personally speaking, I do think the emphasis on smartphones is a smart one as these computer-like phones are clearly the wave of the future and will probably outsell older phones within the next 5 or 6 years.
Melting LDK Looks for Buyer 崩溃中的江西赛维寻找买家
There are quite a few developments on the solar energy front today, led by the release of new financial results from LDK (NYSE: LDK), the weakest of China’s major solar panel makers, that show a company in the midst of a meltdown. Meantime, Beijing has officially protested a US law that allows Washington to levy punitive tariffs against overseas industries that receive unfair state support, such as China’s solar sector. Both the US and Europe believe China supports its solar sector with unfair subsidies and have taken various punitive actions; and now India is also launching its own similar investigation, dealing yet another blow to the struggling sector.
Alibaba-Google: China’s Android Addiciton 阿里巴巴—谷歌：中国的“安卓瘾”
Despite its high profile exit from the mainland search market in 2010, Google (Nasdaq: GOOG) has quietly regained its position as a powerful force in China these last two years through the rapid rise of its Android mobile operating system (OS) that powers many of the nation’s smartphones. Its new rise was on display last week, as the US Internet giant threw a major wrench into the smartphone plans of Alibaba, China’s leading e-commerce company. With most Asian cellphone makers increasingly dependent on Android, Chinese firms that will depend on the mobile Internet for future growth need to think about creating their own new mobile platforms to rival Android. Otherwise they will risk becoming hostage to the world’s biggest Internet company, which could use its clout to ensure its own products always take precedence over its Chinese rivals’.
