Journalist China

Business news from China By Doug Young.
Doug Young, journalist, has lived and worked in China for 20 years, much of that as a journalist, writing about publicly listed Chinese companies.

He is based in Shanghai where, in addition to his role as editor of Young’s China Business Blog, he teaches financial journalism at Fudan University, one of China’s top journalism programs.
He contributes regularly to a wide range of publications in both China and the west, including Forbes, CNN, Seeking Alpha and Reuters, as well as Asia-based publications including the South China Morning Post, Global Times, Shanghai Daily and Shanghai Observer

China Mobile Chases Fixed-Line Broadband 中国移动有望获固网牌照

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A steady stream of news has been coming from a broadband conference taking place in Beijing this week, including reports that the fixed-line broadband market could soon get a healthy dose of new competition with the entry of wireless giant China Mobile (HKEx: 941; NYSE: CHL) into the mix. (Chinese article) I’ll admit that I was never really clear why China Mobile had never previously entered the lucrative market for fixed-line broadband services, which is now dominated by its 2 main rivals China Telecom (HKEx: 728; NYSE: CHA) and China Unicom (HKEx: 762; NYSE CHU), who offer services over their legacy networks inherited from the break up of China’s former fixed-line phone monopoly. After reading the reports, I’ve learned that China Mobile was never formally licensed to directly offer fixed-line broadband and instead was only allowed to offer such service through its China Railcom unit, the former telecoms unit of China’s national rail operator that China Mobile took over as part of an industry restructuring 3 years ago. Apparently that restriction was preventing China Mobile from getting many customers for its fixed-line broadband service, according to the reports. It looks like that could soon change and China Mobile could finally get the license it’s seeking to offer fixed-line broadband services directly. The biggest new factor in the equation is the ongoing anti-monopoly investigation launched last year by the powerful National Development and Reform Commission (NDRC) into China Telecom and Unicom over their fixed-line broadband service. (previous post) China Telecom and Unicom have taken steps to improve their broadband services since then, but the NDRC would certainly be pleased to see another major new player like China Mobile come into the space. What’s more, China is in the process of consolidating its many regional cable TV networks into a single operator, which could offer an instant wired-line platform for China Mobile to offer its service over. We saw signs last year that China Mobile was looking for just such a tie-up with the new cable TV operator, and broadband Internet service could be one of the easiest and most logical products for it to launch in such a tie-up. (previous post) Lastly, China Mobile has new top leadership following the recent retirement of its long-serving chairman, and those leaders are showing early signs of taking more aggressive steps to jump-start the company’s flagging growth with just this kind of initiative. If things keep moving in this direction, which looks likely, I predict we could see China Mobile announce a tie-up with the new national cable TV operator as soon as year-end, and for it to also announce a new fixed-line broadband license around the same time.

Bottom line: China Mobile could tie-up with the country’s new national cable TV operator as soon as year-end, and launch a new fixed-line broadband service soon after that.

Related postings 相关文章:

◙ China Mobile Eyes New Nat’l Cable Network 中国移动有望携手中国广播电视网络公司

◙ China Mobile Starts New Era as Wang Leaves 王建宙退休，中国移动开启新时代

◙ Anti-Monopoly Regulator Makes Poor Choice in Chasing China Telecom 中国反垄断初试牛刀 选错对象

Jingdong Mall: Back on the IPO Track? 京东商城上市：“狼”真要来了？

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After at least a month or 2 of silence from Jingdong Mall about its schizophrenic plans for a mega-IPO, the e-commerce giant that also goes by the name of 360Buy has suddenly vaulted back into the headlines with talk that it’s preparing a listing as soon as September. I honestly don’t know what to think of these latest reports anymore, as the company has sent so many contradictory signs on the IPO issue over the last year, with CEO Liu Qiangdong publicly denying plans for any such offering for at least a couple of years, even as unnamed people from the investment community say differently. I would have possibly have ignored these latest reports, except that they contain a level of detail that looks too deep to be purely gossip and speculation. (English article; Chinese article) According to one of the reports, Jingdong managers, including Liu Qiangdong himself, and their investment bankers met with analysts in Hong Kong earlier this week for 3 hours to discuss their plans, which include registration for a New York listing as early as June, followed by an actual IPO as soon as 3 months after that. Most of this news appears to be coming from analysts who attended the meeting, including one who said that Jingdong’s CFO was also present, as were representatives from major investment banks including Goldman Sachs (NYSE: GS), JPMorgan (NYSE: JPM) and CICC. During the meeting, Jingdong also reportedly made some of its first official disclosures about its sales, which apparently reached 21 billion yuan last year and are expected to more than double in 2012. There’s no mention of profits or losses, although most believe that Jingdong is losing big money due to a recent series of price wars with rivals like Alibaba’s TMall and Dangdang (NYSE: DANG). The report also discusses valuation, with 360Buy reportedly looking for a valuation of around $10 billion even though the investment banks said $6 billion is more realistic. This level of details leads me to believe that perhaps something is really happening, which would be consistent with some previous signals, and that we could actually see an IPO if the financial markets show even just a little improvement by this fall. If that happens, I would congratulate Jingdong for finally making up its mind after a past year of schizophrenic signals. As to whether anyone will want to buy into this offering, that’s a completely different story. I imagine that some investors will be tempted by the company’s position as China’s second largest e-commerce firm and big growth forecasts, but will no doubt be concerned about its losses. All that said, the offering could at least attract moderate interest, perhaps helping to breathe some life back into a moribund market for overseas Chinese listings.

Bottom line: The latest reports of an IPO as soon as September for e-commerce firm Jingdong Mall look like they may be credible, and could attract moderate investor interest.

Related postings 相关文章:

◙ Message to 360Buy: Make Up Your Mind! 京东商城IPO“暗战”

◙ E-Commerce: 360Buy Awaits IPO Window, Amazon Expands 京东IPO融资心切 亚马逊物流扩张加剧竞争

◙ Dangdang Loss Balloons In E-Commerce Wars 当当网在电子商务大战中亏损严重

HNA Goes to Hollywood 海航走向好莱坞

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The huge potential of China’s box office is back in the spotlight again today, with word that US technology company RealD (NYSE: RLD) will install its 3D technology on a major new theater chain with up to 500 screens being set up by a unit of HNA Group, one of China’s more entrepreneurial business groups. (company announcement) The announcement by HNA Vigor Film Investment comes less than 2 weeks after China’s largest movie theater operator, Wanda Group, announced it will buy AMC Entertainment, the second largest US movie theater operator, in a landmark plan that also includes major facility upgrades. (previous post) All this shows how much potential these companies see in China’s movie market, now the world’s second largest, and also underscores their determination to take advantage of a newly relaxed quota for the import of foreign films that now command the big majority of the country’s fast growing box office. Let’s take a look at this latest news, which has HNA Group getting into the movie theater business with a big move that will make it one of China’s top movie theater operators, behind Wanda’s 730 screens in 86 movie theaters. Equally important, the installation of 3D technology in its new theaters means that HNA will be eligible to show films under China’s newly expanded quota for imported foreign movies. After limiting the annual import of foreign films to 20 for many years, China recently raised the figure by allowing in additional 14 movies in high-tech formats like 3D. That could mean a 40 percent increase in box office sales, as foreign films currently dominate a sector that generated more than $2 billion last year and whose sales could top $5 billion by 2015 as more affluent Chinese are willing to pay relatively expensive ticket prices to see big-budget films. The domestic film-making business has also gotten a lift in recent months, with global animation leaders Disney (NYSE: DIS) and DreamWorks Animation (NYSE: DWA) both setting up joint venture animation studios in China earlier this year. (previous post) Look for this trend to continue, with movie theaters quickly multiplying in China’s biggest cities to meet the growing demand from affluent Chinese eager to see a growing number of top-notch films coming into the country. That should play well not only for the theater operators and movie makers, but also technology and equipment makers like RealD and Imax (NYSE: IMAX).

Bottom line: Real ID’s tie-up to install 3D technology in HNA Group’s new theater chain marks the latest step the recent boom for China’s movie industry.

Related postings 相关文章:

◙ Wanda’s AMC Buy: The Show Isn’t Over Yet 万达并购美国AMC影院：表演还未结束

◙ News Corp Makes New Play for China 新闻集团入股博纳影业集团

◙ Disney, Tencent Tie-Up to Animate China 迪斯尼、腾讯合作研发动漫

 

Commerce Ministry Weighs in on Price Wars 商务部或对电商领域价格战有所行动

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You know things are bad when even your national regulator isn’t optimistic, which appears to be the situation based on comments by a top Commerce Ministry official discussing rampant competition plaguing China’s e-commerce sector. Of course, it doesn’t take a genius to know that China’s vibrant e-commerce industry is in the midst of a series of cutthroat price wars, with new promotions being announced almost daily by the likes of Jingdong Mall, also known as 360Buy, Dangdang (NYSE: DANG), Yihaodian and Suning (Shenzhen: 002024). What’s more interesting here is the fact that the regulator is commenting on the situation, which hints that perhaps it may soon make an attempt to ease the situation — a step that would be consistent with China’s past behavior but also one I would strongly advise against. According to media reports, a top Commerce Ministry official for e-commerce, speaking at an event in Beijing this week, noted that the online retailing space has huge growth potential, with total sales set to pass 3 trillion yuan in the country’s current 5 year plan. But he also noted that companies are using the future to subsidize the present, which has led most major players to sink deeply into the red. (Chinese article) That trend has been all too obvious on company financial statements lately, with Dangdang, the biggest publicly traded player, and newly listed discount retailer Vipshop (NYSE: VIPS) both recently reporting big quarterly losses. (previous post) None of this is really news, as these price wars have been going on for nearly a year now. But what’s potentially cause for concern is that the Commerce Ministry is speaking so publicly about its own concern for the sector, since regulators are traditionally supposed to remain low-key and impartial to market developments as long as conditions remain orderly. These comments indicate the ministry may be considering taking steps to cool the competition, perhaps by bringing the major parties together to try and tone down their price wars. Indeed, the very same Commerce Ministry made a similar move last year, when it tried to mediate a patent dispute between telecoms equipment leaders Huawei and ZTE (HKEx: 763; Shenzhen: 000063). (previous post) That attempt looked clumsy and inappropriate and I doubt it yielded any results, and a similar attempt to end the rampant competition in e-commerce would most likely product a similar outcome. It’s somewhat understandable that Beijing regulators might want to prevent this kind of destructive situation from getting out of control, which is clearly the case with e-commerce. But experience in the West has shown that government intervention in these situations usually just makes the situation worse, and instead natural market forces are the best antidotes for these kinds of problems.

Bottom line: The Commerce Ministry needs to remain impartial in ongoing e-commerce price wars and let market forces resolve the situation.

Related postings 相关文章:

◙ Beijing Plays ‘Father Knows Best’ In Huawei-ZTE Spat 中国政府插手华为与中兴之争

◙ Dangdang and Gome: Marriage Ahead? 当当和国美：联姻前夕？

◙ Youku and Dangdang: Stuck in the Red 优酷和当当：生存在亏损

New Formula Needed for Focus Industries 中国需要找到支持重点产业发展的新路

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I’ll start off this Thursday with a word of advice to Beijing, which has just approved a plan to support 7 key growth industries: Find a new formula to implement your policies. The blueprint just passed by China’s cabinet is rather straightforward, containing the names of many industries that are already the recipients of strong state support, including alternate energy, new energy vehicles, environmental protection and new IT services like cloud computing. (English article) Perhaps not coincidentally, China approved the plan the same day the US announced preliminary anti-dumping tariffs for Chinese-made wind towers, one of the main components of producing wind energy (English article), and the same week that foreign media reported the European Union may soon launch a formal probe into unfair state support for Chinese telecoms equipment giants Huawei and ZTE (HKEx: 763 Shenzhen: 000063). (English article) Economic slowdowns like the ones being felt in the US and Europe are famous for producing this kind of protectionism, as governments seek to assist their own struggling domestic industries to boost their local economies during a downturn. But perhaps China should stop accusing the West of protectionism so much and consider that perhaps some of the growing number of similar allegations of unfair state support against it may actually have some truth to them. Just yesterday I wrote about reports that Beijing will give strong support in the form of new subsidies for its electric car and bus programs, which could easily result in similar accusations if companies like BYD (HKEx: 1211; Shenzhen: 002594) ever manage to actually export their products. (previous post) The country is also providing aggressive subsidies in the emerging cloud computing services sector that, again, are likely to produce similar accusations if China ever tries to export any of those products or services. It’s perfectly understandable that Beijing wants to promote many cutting-edge industries, and indeed many other countries have similar goals. What China needs to change, however, is its older habit of giving those industries free money, a policy that’s a relic of an earlier era when everything was state-owned. Such policies have become quite outdated in the current move to a market economy, and China needs to find its own new blueprint that doesn’t rely on direct handouts to help develop these sectors.

Bottom line: China’s latest plan to support 7 key industries shows Beijing still relies on state subsidies to support emerging sectors, a policy it needs to end to avert unfair trade claims.

Related postings 相关文章:

◙ BYD Set For Charge From New Incentives 中国刺激新举措或有助比亚迪

◙ Solar Storm Heats Up in US, China 中美太阳能产品征税之争升温

◙ ICBC, Huawei: It’s Cold Out There 工商银行、华为：国外市场冷清

Shui On Prepares Ground for China Unit IPO 瑞安准备分拆新天地上市

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Investors rapidly losing interest in the tired old group of Chinese real estate developers, many of them fading rapidly as China tries to cool the overheated property market, might want to take a look at an interesting news bit coming from Hong Kong, where local developer Shui On (HKEx: 272) is preparing what could be a new trend-setting IPO for one of its China units. The deal would see Shui On spin off its Xintiandi unit, operator of the hugely successful Shanghai complex of restaurants and shops by the same name, into a separate company for a listing in Hong Kong. (English article) In my view this offering looks extremely attractive and interesting for a number of reasons, both from the individual company and broader industry perspective. From the company perspective, Xintiandi offers an attractive play into the China real estate space with a highly unusual product, namely commercial-use properties created by the rehabilitation of older buildings into modern recreational complexes of shops and restaurants. As a resident of Shanghai, I can personally attest to the huge popularity of Xintiandi’s original project here in the city, though I should also note that the complex counts foreign expats and tourists as some of its biggest patrons — a feat that could be difficult to replicate in other cities without such big foreign populations. Despite that potential drawback, Xintiandi presents an interesting growth story for investors, with the unit planning to try to replicate its Shanghai success in other major Chinese cities including Chongqing and Wuhan. I like this concept, as it will be hard for other companies to replicate such developments and clearly there are plenty of Chinese cities with older buildings that could be similarly rehabilitated, probably with strong local government support. This kind of company is also attractive because of its commercial real estate focus, which means it will be much more resistant to downturns in the highly cyclical real estate market that tend to see residential developers suffer the most. From the broader perspective, this kind of deal could perhaps signal the beginning of a movement by Hong Kong and other Asian real estate firms that have invested heavily in China to spin off their Chinese assets into separate publicly listed companies to give investors an alternative to tired old choices like Vanke (Shenzhen: 000002) and Soho China (HKEx: 410), which are good at building big numbers of new homes but tend to lack excitement. Right now many Hong Kong companies have heavy investments in China, but they have even bigger investments in their home markets, making their stocks an odd hybrid with heavy exposure to both places. Moves like this one with Shui On and Xintiandi will provide a nice new investment option for people looking for exposure to commercial real estate in China, and we might expect to see 1 or 2 similar moves by other Asian developers in the next year or 2.

Bottom line: Shui On’s plan to spin off its Xintiandi China unit into a separately listed company could mark the start of an interesting new option for China real estate investors.

Related postings 相关文章:

◙ Real Estate: Soaring Growth to Stall on Market Pause

◙ E-House: Don’t Sell the House Just Yet 易居：不要马上卖掉这栋楼

◙ Energy: Good for Builders, Bad for Sellers 中国电力行业：电价管制转变外资投资方向

BYD Set For Charge From New Incentives 中国刺激新举措或有助比亚迪

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As China’s auto world buzzes with excitement this week on news that Beijing will soon take steps to boost the struggling sector, my attention has turned to an element of the reports that could bode especially well for struggling BYD (HKEx: 1211; Shenzhen: 002594), which has placed a major bet on the difficult new energy vehicle space. At the same time, BYD, which is 10 percent owned by US billionaire investor Warren Buffett, has issued an unrelated announcement that could be cause for concern about an accident involving one of its electric vehicles, reflecting just one of the many uncertainties for this newly emerging technology. Let’s look at the bigger car story first, which has Beijing saying it will roll out new incentives later this year to boost car sales that have fallen from strong double-digit growth rates in 2009 and 2010 to very slow or no growth at present as China’s economy slows. The reports say that new incentives will target more energy efficient cars, as part of a broader national drive to cut back on China’s soaring energy consumption. (English article) But the detail in the reports that caught my attention was one buried in the middle of the China Daily’s story, saying one of the plan’s first steps will be to promote the purchase of new energy buses in large and medium-sized cities. The article says rental companies will also receive strong incentives to purchase big fleets of alternate energy cars. (English article) Both of those moves are smart because they target big vehicle owners that have the money to spend on necessary charging and maintenance infrastructure needed to make new energy vehicles attractive. That’s an important distinction with many of the previous incentives that have been targeted at ordinary consumers who are more reluctant to buy new energy cars due to worries about lack of such infrastructure. BYD’s home city of Shenzhen has already invested heavily in such programs, including rolling out experimental fleets of electric and hybrid buses and taxis. The mandate for more cities to buy new energy buses should mean lots of new business for BYD, as local governments are usually some of the biggest supporters of directives from Beijing, since local politicians want to please officials in Beijing. It’s less clear if rental car companies will embrace alternate energy vehicles under these new incentives, but many may at least buy small experimental fleets to see how they work. Meantime, BYD has also put out an interesting announcement detailing a high-speed accident in which one of its electric taxis in Shenzhen caught fire after being hit by another car and crashing. (company announcement) The fact that it issued the announcement means there’s clearly concern about this case, as obviously fire is one of the biggest dangers with this new technology that involves power generation through massive batteries. BYD does its best in the announcement to try to ease those concerns, and its points do look reasonable. Still, this kind of accident will do little to ease public concerns about new energy vehicles, making it that much more difficult for them to gain broader acceptance.

Bottom line: Beijing’s latest efforts to encourage new energy vehicle buying could benefit BYD by prompting more cities to buy the company’s new energy buses.

Related postings 相关文章:

◙ BYD Sputters Back to Life 比亚迪新车型助其重整旗鼓

◙ Car Sales: Domestics Down, But Not Out 汽车销量：国产车下降，接近拐点

◙ BYD’s New EV Plan: Hook Them With Investment 比亚迪拉美电动车之路堪忧

State Grid Powers Into Brazil 中国国家电网伸向巴西

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We’ve seen lots of Chinese resource companies snapping up overseas assets this past year at low prices, and now there’s an interesting new wrinkle to this global bargain hunting spree with word that State Grid, China’s largest power grid operator, will buy some assets in Brazil. At the very macro level, this deal is quite interesting because State Grid’s purchase of Brazilian power transmission assets from Spain’s ACS (Madrid: ACS) looks like a sign of things to come in terms of cross-border M&A. That trend would see more and more cash-rich Chinese firms from the infrastructure space looking for global bargains from debt-laden US and especially European firms seeking to raise cash amid economic slowdowns in their home markets. From a company-specific perspective, the crisis could also provide a nice opportunity for the Chinese acquirers, which may be able to finally purchase some decent global assets in this upcoming round of global M&A. That’s an important distinction from previous M&A, which has often seen Chinese firms buy global bargains with major operational problems, often leading to big losses for the Chinese acquirers. Let’s look quickly at this individual deal, which will have State Grid purchasing Brazilian assets of Actividades de Construcción y Servicios SA (ACS) for $531 million and the assumption of $411 million in debt. (English article) This deal looks like the largest in a recent series of global acquisitions for State Grid, which has purchased or 3 other assets in Portugal, the Philippines and Brazil. The main driver for ACS is probably a need to raise cash as Spain’s economy takes one of the biggest hits in the ongoing Eurozone debt crisis. The move looks like a smart one for State Grid, as Brazil, one of the world’s 5 BRICS economies, is unlikely to see the same kind of sluggish growth now being faced by the US and much of Europe, and thus these newly purchased assets should yield decent returns. This deal could also become a template for other Chinese companies, who could look to buy up other non-core assets in developing markets from their debt-heavy US and European owners. Sectors that look especially suitable for this kind of M&A include not only resources and power generation, but also other big infrastructure areas like telecoms. Companies like Spain’s Telefonica (Mardid: TEF) own extensive assets in developing markets, which they may start looking to sell to comanaies like China Mobile (HKEx: 941; NYSE: CHL) or China Telecom (HKEx: 728; NYSE: CHA), which have made recent hints of plans for more aggressive global expansion. We could also see other power companies enter the mix, such as Huaneng (HKEx: 902; Shanghai: 600011) and Datang (HKEx: 991; Shanghai: 601991), again seeking to leverage their expertise in developing markets to expand abroad. Look for a growing number of these deals in the next year, including some interesting ones in the $1 billion-plus range.

Bottom line: State Grid’s purchase of power assets in Brazil marks the latest deal in a new trend that will see Chinese infrastructure firms looking for bargains from debt-heavy Western peers.

Related postings 相关文章:

◙ Int’l Miners Dig For China Dollars 外资希望搭载中国矿企全球并购的顺风车

◙ China’s Resource Binge: Bubble Building 中国资源并购潮：酝酿泡沫

◙ Powerless AES Looks to Bow From China 爱依斯出售中国发电业务 凸显行业严酷形势

UPS, FedEx Drive Into Domestic Deliveries UPS和联邦快递或推动中国快递业洗牌

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There’s quite a bit of noise in the fast-growing package delivery space these last few days as companies large and small clamor for position in China’s booming e-commerce market, setting the stage for yet another bubble similar to the one now infecting the e-commerce space itself. Less than a month after the parcel delivery arm of China’s postal service announced plans for a domestic IPO to raise up to $1.6 billion (previous post), media are reporting that multinational giants UPS (NYSE: UPS) and FedEx (NYSE: FDX) are both set to receive the nod from Beijing to start offering domestic delivery services, adding 2 major new competitors to the already crowded market. (Chinese article) Both UPS and FedEx have been limited up until now to delivering packages to China from overseas, and each has been lobbying for years for rights to deliver packages domestically — an area that has seen explosive growth in the last 5 years with the rapid rise of e-commerce in China. It’s interesting that Beijing now may be finally preparing to allow them to operate domestically, just as China Postal Express gets set to make an IPO to fund its own expansion. I suspicion that Beijing wants to bring some order to the parcel delivery space, which has become quite unruly with the e-commerce boom. New reports about bombs, weapons and other illicit materials being delivered through smaller, unscrupulous courier services now appear regularly in the Chinese media, which looks like Beijing’s way of saying the sector needs to consolidate around a much smaller group of perhaps a dozen players who can run more efficient operations and controls to prevent such illegal activities. Bringing experienced veterans like UPS and FedEx into the picture could quickly help to clean up the industry, driving many of the smallest players either out of business or into mergers with larger rivals, creating a handful of large-scale, more efficient domestic players. Meantime, Alibaba’s TMall, China’s e-commerce leader, is also making its own moves in the package delivery space, with Chinese media reporting the company has partnered with 9 major courier services to improve delivery of goods sold on its platform. (Chinese article) While unrelated to the UPS and FedEx news, this step by Alibaba also looks directed at trying to improve efficiency in the package delivery space by focusing on a handful of the biggest services to improve customer satisfaction and cut down on less efficient and even illegal activity by some of the smaller players. From a broader industry perspective, look for more of these kinds of moves to occur in the next year, with other major e-commerce players forging their own similar ties with the bigger, stronger delivery services. That should bode well for both UPS and FedEx if they get domestic licenses, as well as China Postal Express, as all are big, experienced companies that can quickly offer quality and reliable services for most major Chinese cities. The losers in the equation will be the smaller delivery companies, though some of the better run operations could benefit as they will be become attractive acquisition targets for big names looking to quickly expand their coverage networks.

Bottom line: The arrival of UPS and FedEx to China’s domestic parcel delivery market reflects Beijing’s desire to clean up the unruly sector, which has boomed with the rapid rise of e-commerce.

Related postings 相关文章:

◙ Post Office Delivers Attractive IPO 中邮速递推进IPO 或将受热捧

◙ E-Commerce: 360Buy Awaits IPO Window, Amazon Expands 京东IPO融资心切 亚马逊物流扩张加剧竞争

◙ Retail: Tesco Goes Online, Perry Ellis in New JV 零售：乐购推出网购，派瑞•艾力斯成立合资企业

IPOs: BMW Distributor Crashes, PICC Revs Up 永达汽车搁置IPO计划 中国新股持续遇冷

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Just a week after a top Chinese auto rental firm scrapped its plans for a New York IPO, another auto specialist, Yongda Automobile Services has also junked plans for a listing in Hong Kong, reflecting not only cooling overseas demand for Chinese IPOs but also the chill that is settling over the country’s auto sector. But the true test for offshore Chinese IPOs could still be coming, as insurance major PICC gets set for a mega-IPO in Shanghai and Hong Kong to raise up to $6 billion. Let’s look at the Yongda news first, which has seen the operator of China’s largest distributor of cars from luxury German automaker BMW (Frankfurt: BMWG) cancel its plans for a Hong Kong plan to raise up to $430 million due to anemic demand. (English article) The decision comes just a week after auto rental specialist China Auto also formally scrapped its plans for a New York IPO after originally filing for the offering back in January. (previous post) The failure of both of these IPOs reflects not only weak sentiment for new offerings in general, but also the anemic state of car sales in China, which passed the US in 2010 to become the world’s largest auto market but has seen growth slow dramatically over the last year as China’s economy slows. While the failure of China Auto’s IPO isn’t too surprising, the withdrawal of the Yongda listing was a bit more unexpected because sales of luxury cars like BMW seemed to be more immune to the slowdown in China. Thus this lack of investor interest seems to indicate that markets expect an imminent slowdown as well for the luxury segment, which is still seeing growth in the 30-40 percent range even as broader market gains have fallen into the low single digits. Meantime, People’s Insurance Company of China (PICC), one of China’s top insurers, is hoping to avoid a similar fate to Yongda by bringing more major investment banks into its dual listing plans. (English article) Foreign media are reporting the company has added 14 investment banks, including powerhouses like Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS), to the group underwriting the Hong Kong portion of its IPO aiming to raise around $3 billion from foreign investors. The addition of so many major foreign investment banks, combined with PICC’s strong state backing, means that this offering is very likely to go forward despite weak sentiment in the broader market, though I wouldn’t expect it to price very strongly and the final amount of funds raised in Hong Kong could be closer to $2 billion. One of the few Chinese companies to successfully make a major Hong Kong IPO in recent months was another insurance company, New China Life (HKEx: 1336), which raised $1.3 billion in the Hong Kong portion of a dual listing late last year. The company’s shares initially surged, but have since given back most of the gains and are now just slightly ahead of their offering price — roughly in line with the broader market. Given recent uncertainty in the broader insurance market, I wouldn’t expect too much excitement from this PICC offer though it should indeed go forward. When that happens, look for the stock to trade sideways or sink lower after its trading debut.

Bottom line: The scrapping of an IPO by China’s top BMW distributor and addition of major banks to a planned IPO for major insurer PICC reflect continued weak demand for new China offerings.

Related postings 相关文章:

◙ China Auto IPO Crashes 神州租车的IPO之梦告吹

◙ Ping An Returns to Market With Second Big Fund Request 中国平安拟发大规模可转债

◙ Year End Brings Problematic New IPO Wave 中国新一波IPO潮或无法达预期效果

West Launches New Attack on Huawei, ZTE 西方对华为和中兴通讯发起新攻击

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The bad news never seems to end for embattled telecoms equipment makers Huawei and ZTE (HKEx: 763; Shenzhen: 000063), which have become magnets for attacks from global rivals seeking to curb their gains into the lucrative US and European markets. The latest move has seen the European Union launch an anti-dumping probe against the Chinese pair over allegations that they receive unfair subsidies from Beijing, according to foreign media reports. (English article; Chinese article) It’s not surprising that this investigation is coming in Europe, since most of Huawei’s and ZTE’s biggest global rivals are based there, including Ericsson (Stockholm: ERICb), Nokia Siemens Networks and Alcatel Lucent (Paris: ALUA). All those companies have complained for years that Huawei and ZTE can offer lower prices partly due to strong support from Beijing, which indirectly subsidizes them through policies like export rebates. From my perspective, the fact that the EU has launched this investigation is not surprising at all. What is more interesting is the timing of the move, as well as the broader implications of the probe for a recent major push by Huawei and ZTE into the faster-growing and less controversial smartphone sector. In terms of timing, this anti-dumping investigation is the latest in a recent series of government probes in the US and Europe against not only Huawei and ZTE but also a growing number of other Chinese firms in up-and-coming sectors. Both companies have been largely locked out of the US network-building market to date over concerns their equipment could be used for spying by Beijing. ZTE received a major setback on that front early last year when Sprint (NYSE: S), one of the top 4 US wireless carriers, rejected its bid to help build a new 4G telecoms network (previous post); Huawei received a similar setback months later when it was blocked from bidding for US government contracts to upgrade some of the nation’s emergency telecoms networks. (previous post) Even top Chinese mobile carrier China Mobile (HKEx: 941; NYSE: CHL) has gotten caught up in the fray, with US regulators earlier this month citing security concerns as a reason for potentially vetoing the carrier’s application to offer service between China and the US. (previous post) This latest EU move is unrelated to security concerns, but is rather based on accusations of unfair subsidies from Beijing, which has become another popular tool for Western firms to slow down the advance of aggressive Chinese rivals into their markets. Both the EU and US regularly launch anti-dumping investigations against Chinese sectors, though most of those have usually targeted low-end manufacturing areas like construction materials and auto parts. But the unfair trade attacks moved into the high-tech space last year when the US has launched a high-profile investigation against China’s solar panel industry, which could soon result in big punitive tariffs. (previous post) This new series of attacks against such higher tech companies could quickly become a major obstacle for China as it tries to move away from its traditional strength as a low-end manufacturing powerhouse to higher-tech products that command bigger profit margins and rely less heavily on the cheap labor. From the perspective of Huawei and ZTE, equally worrisome is the prospect that the US and Europe could soon turn their attention to the companies’ smartphone units, which they are aggressively building up as a less controversial alternative to their traditional networking equipment businesses. If the EU believes the 2 companies’ networking equipment business is unfairly subsidized, it should logically believe the same is true for their cellphones. At the end of the day, I suspect there is some truth to the anti-dumping and possibly even the security concerns, which Chinese companies will need to address if they really want to become global players. At the same time, however, I do believe that much of this activity also represents foreign rivals’ attempts to stop encroachment into their home markets by Chinese firms — a reality that Huawei, ZTE and other aspiring Chinese high-tech firms will have to learn to deal with more effectively if they really want to become top global players.

Bottom line: An EU anti-dumping probe against Huawei and ZTE is the latest move by their global rivals to try and keep them out of lucrative Western markets.

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