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

Huawei Follows ZTE to Lower Profits 继中兴之后华为利润也降低

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China’s reputation as a land of copycats seems like a fitting backdrop for the latest earnings from telecoms equipment leader Huawei, which has mimicked crosstown rival ZTE (HKEx: 763; Shenzhen: 000063) in reporting sharply lower profits as each makes a big push into the new product areas. The earnings report must come as a mild shock to Huawei watchers, who were used to seeing the company notch strong profit growth in the last few years as it became China’s first tech exporting superstar. The company’s profit last year tumbled by 53 percent to 11.6 billion yuan, even as its revenue grew 12 percent. The profit decline marked a sharp turnaround from 2010, when Huawei posted 30 percent profit growth on a 24 percent rise in revenues. (previous post) The latest results look quite similar to ZTE’s, whose profit also plunged 37 percent last year as its revenue grew 23 percent. (previous post) The companies’ parallel results shouldn’t surprise anyone too much, as both are facing similar challenges for their core telecoms equipment business. On a broader basis, both have seen sales slow due to the weak global economy. The companies are also facing stiff resistance in some of the world’s most developed and lucrative markets, such as the US and Australia, where politicians are blocking their entry over suspicions that both are spying arms of Beijing. The 2 companies have responded similarly to the challenges they’re facing, both looking to new product areas to offset slowing sales for their networking equipment. Both are making an especially strong push into cellphones, with ZTE’s chairman saying on Monday his company’s smartphone sales would double this year as part of its aggressive expansion campaign. (English article) The slight difference in the 2 companies’ strategies, and possibly the reason for Huawei’s relatively worse performance to ZTE’s, seems to be focus. Whereas ZTE has quite definitively placed its future bets on cellphones, Huawei seems to be spreading its bets around more, announcing other initiatives in areas ranging from cloud computing to information technology (IT) services. Investing in a wider range of options may be a safer route because obviously not all new initiatives will succeed. But it’s also more expensive, as each new area requires development of new products, as well as sales and support infrastructure. From my perspective, I have to say that I slightly favor ZTE’s focused approach, as it is clearly determined to become a handset leader and is quickly building a global reputation as a maker of inexpensive, quality products. But as I’ve warned previously, betting so heavily on one area could also eventually bankrupt ZTE if the company doesn’t quickly build the business into a strong profit center over the next 2 years.

Bottom line: Huawei’s profit slide and slowing revenue growth parallel that of ZTE, as both invest heavily to diversify beyond their core networking equipment business.

Related postings 相关文章:

◙ Huawei, ZTE Suffer More Setbacks 华为、中兴料将在西方市场遭遇更多挫折

◙ Beijing Help Undermines Huawei Image Drive 中国商务部替华为出面或适得其反

◙ ZTE Results: Waiting for Returns 中兴坚持低成本手机策略 亟需尽早盈利

Baidu Diversification Sputters With E-Commerce Flop 乐酷天将关停 百度电商战略再折戟

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Internet giant Tencent (HKEx: 700) might want to take a look at online search leader Baidu (Nasdaq: BIDU), as the former defends itself in a lawsuit accusing it of using its hugely popular QQ instant messaging platform to dominate other areas of the Internet. Just days after the opening of a trial in a Guangdong court accusing Tencent of abusing its QQ monopoly status, word has emerged that Baidu will close its latest e-commerce site, called Lekutian, less than 2 years after launching the service with Japanese e-commerce leader Rakuten (Tokyo: 4755). For anyone who has failed to miss the connection, my point is this: having monopoly status in one area of the Internet doesn’t necessarily guarantee success in other areas — a reality that Baidu illustrates after numerous failed initiatives outside its core search business. Let’s take a look at the facts first. Rakuten has said it will shutter Lekutian due to stiff competition in China’s overcrowded e-commerce space (English article), and a visit to the site reveals the closure will come this Friday. Confirmation of the closure comes after rumors had swirled for the last month over the future of the site, which Baidu and Rakuten launched with fanfare in 2010 just as more established e-commerce players like 360Buy and Dangdang (NYSE: DANG) were starting to raise hundreds of millions of dollars in new funds for aggressive expansions. Just 2 weeks ago, domestic media reported that Lekutian was making large layoffs and preparing for a major directional shift that would see it focus on its Japanese roots to offer more Japanese products. (previous post) The company denied the layoff reports though it did openly talk about the shift to a more Japanese flavor. Clearly Rakuten was having second thoughts about the shift even then, and has decided to shutter the business altogether, in what looks like a wise move to me that will inevitably see Baidu take yet another charge, probably in the tens of millions of dollars, when it announces its second quarter results in July. I say “another” charge, as this failure is hardly new for Baidu, which has yet to find success outside its core search business despite numerous attempts. Its first major e-commerce initiative, a service called You’a, never gained any traction and was later quietly folded into other services after the Lekutian venture was announced. Last year Baidu also quietly shuttered its Twitter-like microblogging service, which again failed to compete with rivals, including Sina’s (Nasdaq: SINA) wildly popular Weibo. (previous post) Baidu’s main overseas investment, a Japanese search site, has also been largely a flop, failing to gain much traction in that competitive market. All of these flops for a company with near-monopoly status in China’s lucrative online search market are all the more interesting in light of the Tencent trial, which began last week as the result of a lawsuit filed by Internet security software specialist Qihoo 360. (previous post) Qihoo alleged that Tencent used QQ’s near monopoly status in instant messaging to dominate other areas, such as the online game space. I would tend to agree with Qihoo’s argument that companies that dominate one space like Tencent do have an unfair advantage when developing related spaces, and should be legally restricted from using that advantage to stifle competition. At the same time, Baidu, which controls more than 70 percent of the online search market, the legal definition of a monopoly, certainly shows that just having domination in one area doesn’t guarantee success in others. I attribute Baidu’s lack of ability to parlay its search dominance into other areas to a general inability to execute new business plans, even though it clearly has many advantages over its rivals. At the end of the day, its inability to develop new businesses does work to Baidu’s advantage in one sense, since Qihoo and any other rivals will never accuse it of using its near monopoly status in search to unfairly dominate other areas of the Internet. But at the same time, its repeated failures to diversify also leave Baidu highly vulnerable to lawsuits from the anti-monopoly regulator itself, which has voiced dissatisfaction in the past and could easily take legal action to bring more competition to China’s online search market this year or next.

Bottom line: Baidu’s latest e-commerce failure reflects an inability to parlay its online search dominance into new areas, as it remains open to anti-trust action due to its monopoly in search.

Related postings 相关文章:

◙ Tencent in Monopoly Spotlight; Baidu Next? 腾讯被诉垄断 下一个是百度吗？

◙ Baidu’s Strong Growth Underwhelms 百度业绩持续强劲增长将投资者期望抬升过高

◙ Baidu Dreams of Brazil 百度试水巴西

China Mobile Takes the Bus 中移动将在北京公交车内提供wi-fi网络

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Rather than delve into the latest lackluster results from China Mobile (HKEx: 941; NYSE: CHL), I’ll focus my latest look at China’s perennial laggard telco today on an interesting new initiative that is seeing the company launch wi-fi service on buses. But before I begin with the bus talk, I should at least mention quickly that China Mobile released its latest quarter results last Friday, which showed its profit continued to rise at an anemic rate, 3.5 percent to be exact, missing analyst expectations in the swansong earnings report under recently retired Chairman Wang Jianzhou. (company announcement; English article) Now that I’ve mentioned the boring results, which should come as a surprise to no one, let’s move on to the bus initiative that has seen China Mobile’s Beijing subsidiary team with the local bus operator to develop wi-fi access for commuters, starting with service on the capital’s perpetually congested second ring road. (English article) This latest  initiative is part of the company’s broader wi-fi plans announced last year to setting up 1 million hot spots by 2014, as it tries to create an interesting high-speed Internet offering to compensate for its inferior 3G product based on a problematic homegrown Chinese technology. (previous post) I said last year the ambitious wi-fi build-out was misguided, as hot spots are highly localized and thus far less reliable than a 3G product that can be accessed nearly anywhere in a major city. But that said, I really do like this latest bus initiative for several reasons, including the fact that it’s quite creative and unlike anything I’ve seen before. But creativeness aside, the main attraction of this product is that it could be highly appealing to the thousands and thousands of Beijing commuters who spend 2 hours or more on buses each day in their trips to and from work on the nation’s capital’s perpetually jammed streets. A hot spot in a coffee shop or convenience store isn’t all that interesting, as many such stores already offer their own wi-fi service for free. But no such services are available on most buses and subways, even though these forms of public transport are the place where many people spend their third biggest amount of time each day, behind only their homes and offices. What’s more, time spent on buses and subways is generally considered wasted or idle, making it perfect for people who want to read the latest news or play games with their friends over the Internet. The keys to this initiative’s success will be two-fold. Technology will be the most critical, as consumers won’t embrace this product if they continually lose their signals or have to battle slow Internet speeds. Second will be pricing. To succeed, this product will have to be priced significantly lower than existing 3G services — perhaps as little as half the price — since traditional 3G is more reliable and can also be used for voice calls. Still, despite these technological and pricing challenges, I have to commend China Mobile this time for an interesting initiative that shows it is trying to regain some of the ground it is fast losing to rivals China Telecom (HKEx: 728; NYSE: CHA) and China Unicom (HKEx: 762; NYSE: CHU).

Bottom line: China Mobile’s new wi-fi bus initaitive looks like an interesting move with a 50-50 chance of success, targeting commuters with lots of idle time for web surfing.

Related postings 相关文章:

◙ China Telecom Joins Hot Spot Frenzy Wifi热潮兴起 中国电信与中国移动谁将胜出？

◙ China Mobile Wi-Fi Play Misguided 中移动：百万WiFi热点？

◙ China Mobile Tries 4G Back Door in Shenzhen 中国移动试图绕过监管机构于深圳秘密规划4G网络

Luxury Cars Headed for Overheating 豪华车市场步入过热

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China’s luxury car sector is showing all the signs of overheating, as both domestic and foreign auto makers spend hundreds of millions of dollars to invest in a vast consumer market whose fast growth makes it increasingly vulnerable to bubbles in many areas. As the annual Beijing Auto Show begins this week, news has emerged that Nissan (Tokyo: 7201) plans to start production of its Infiniti cars in China, seeking to tap strong demand for luxury brands in the world’s largest auto market. (English article) Nissan’s plan comes just a week after US auto giant General Motors (NYSE: GM) announced a similar plan to produce its own luxury Cadillac brand in China. (previous post) Even domestic names are getting in on the act, with brands like Geely (HKEx: 175) and Chery making recent moves that indicate they want to enter the space. It’s easy to see why all the luxury brands are piling into China, where a growing number of affluent consumers are happy to pay big bucks to show off their newly wealthy status. After two years of breakneck growth fueled by government incentives, China’s broader auto market grew by an anemic 2.5 percent last year as the nation’s economy slowed due to global weakness and cooling measures by Beijing. Despite that slowdown, luxury car sales continued to boom, notching solid double-digit gains for the year. That growth has continued into the first quarter of 2012, even as the broader market contracted 3.4 percent in the same period. First-quarter sales for industry leader Audi (Frankfurt: VOWG) jumped 40 percent, while rival BMW (Frankfurt: BMW), the market’s second largest player, also notched healthy growth of 28 percent. While Cadillac and Inifiniti prepare to start local production, the existing luxury players are also all investing big money on their own expansions. Audi currently plans to more than double its annual capacity to 700,000 units per year from the current 300,000, and BMW is embarking on a similar plan that will see it spend 1 billion euros. Adding to the looming glut is Beijing, which has shown a previous inclination to protect domestic industries and to intervene in markets that appear to be overheating. Beijing showed its intentions for the luxury car space earlier this year when it published a preliminary list of approved models for purchasing by government departments – a big buyer of such vehicles for status-conscious officials. (previous post) In what came as a surprise to many, the list excluded all foreign brands, a huge exclusion for government agencies that now purchase $13 billion in cars a year. That provision was designed to help domestic automakers, but also provided a clear signal that Beijing wants to clamp down on luxury vehicle purchasing by government agencies as it seeks to address public perceptions of corruption and wasteful government spending. There’s every indication that demand won’t be able to keep up with the current breakneck expansion of capacity for the luxury car market, both due to natural limitations as well as this kind of government intervention. When that happens, the big automakers will quickly find they’ve spent hundreds of millions of dollars to build massive new capacity that could end up sitting idle for years until demand finally catches up with the current big wave of new investment.

Bottom line: China’s luxury car market is in the process of overheating, which will leave automakers with large amounts of excess capacity when the market slows over the next 2 years.

Related postings 相关文章:

◙ GM Discovers China Luxury Market — Finally 通用汽车在华投产凯迪拉克 亡羊补牢犹未为晚

◙ China Puts the Brakes on Luxury Cars 中国公务车拟告别豪华车

◙ Luxury Cars Zoom, But Who Profits?

News Digest: April 21-23, 2012 报摘： 2012年4月21-21日

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The following press releases and media reports about Chinese companies were carried on April 21-23. To view a full article or story, click on the link next to the headline.

══════════════════════════════════════════════════════

◙ Rakuten (Tokyo: 4755) to Close Baidu (Nasdaq: BIDU) Lekutian JV in Late May (English article)

◙ China Mobile (HKEx: 941) Announces Q1 Results (HKEx announcement)

◙ China Mobile (HKEx: 941) Beijing unit to Provide Wi-Fi on Buses (English article)

◙ China’s No 2 Broker Haitong Prices Hong Kong Offer Near Bottom of Range (English article)

◙ More Than 90 Pct of People Polled Think People’s Daily Website IPO Priced High (Chinese article)

◙ Latest calendar for Q1 earnings reports (Earnings calendar)

Bona Opens New China Back Door 博纳欲与美国同行合拍电影 中国同好莱坞恋情升温

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The growing new love affair between Hollywood and China is taking yet another step forward, with news that New York-listed movie maker Bona Film (Nasdaq: BONA) is in talks with several major US studios to co-produce films for the China market. (Chinese article) In fact, such co-productions aren’t completely new, and many of the other studios have used them in recent years to circumvent a strict quota system that limits the number of foreign films that can be imported to China each year. But Bona’s plan looks particularly aggressive, presenting a potentially interesting proposition for foreign investors looking to buy into the China film story. According to the reports, Bona is talking with a number of major studios, including 20th Century Fox, Universal, Sony Pictures (Tokyo: 6753) and Paramount (NYSE: VIAb) about co-producing movies for the Chinese market. Furthermore, the company’s chief executive says his ultimate goal is to make 2 such co-productions a year. Such a large number would mark a big opening into China for the foreign studios, which until recently were only allowed to collectively export 20 of their films each year into China, now the world’s second largest movie market. Beijing recently increased the total by saying it would allow another 13 movies into the market each year using high-tech formats like 3D. Still, the appetite and potential for high-quality films in China is clearly capturing Hollywood’s attention, leading to a recent flurry of moves into China by the major studios. One of those moves, in fact, saw 20th Century Fox’s parent News Corp (Nasdaq: NWSA) take a 20 percent stake in Bona Film itself last month (previous post); accordingly, I wouldn’t be surprised if 20th Century Fox ends up signing the first co-production deal with Bona in this new round of tie-up talks. Bona’s talks come as other major studios are making their own new moves into China, amid increasing signs that Beijing wants to open the industry to more outside investment. Disney (NYSE: DIS) and DreamWorks Animation (NYSE: DWA) both announced new animation joint ventures in China earlier this year (previous post); and HNA Group and Wanda Group have both discussed major new moves to open and expand their domestic theater operations to accommodate the expected big influx of Hollywood-quality movies. (previous post) Another name to watch could be Huayi Brothers (Shenzhen: 300027), one of China’s other major privately held film studios with foreign experience, though that company has tended to focus more on co-productions with other Asian firms. Either way, these foreign-focused Chinese studios could make an interesting investment play into the market as it prepares for major expansion, with the potential to perhaps someday rival some of the major US entertainment giants.

Bottom line: Bona Films’ aggressive pursuit of foreign co-productions reflects the recent opening of China’s film industry, which is forging growing ties with Hollywood.

Related postings 相关文章:

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

◙ China-Hollywood Lovefest Continues With Latest Deal 小马奔腾携手数字王国 中国与好莱坞恋情继续

◙ 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

China’s Microblog Crackdown Continues 中国继续加强微博管控 新浪或受冲击

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China’s displeasure at the ability of Twitter-like microblogs to quickly and efficiently spread rumors is heading into a new phase, with word that Beijing is ordering all search engines to stop including microblog posts in their results. (English article) Details are scant and there’s no official confirmation from Beijing, but the reports say an official at the Data Center of China Internet said on his own microblog that the move has been ordered by relevant government offices effective immediately, a move that would deal yet another blow to Sina (Nasdaq: SINA) as it tries to commercialize its wildly popular Weibo microblogging service. Weibo and its peers have had a difficult time these last few months, as Beijing tries to rein in this popular medium that allows anyone to say anything they want and see their messages instantly passed on to thousands of other subscribers, often leading to huge waves of protest or criticism of various social problems and government shortcomings. Late last year the government rolled out a new rule requiring all microblog users to register with their real names, in a bid to curtail rumor-mongering by people who could say anything they wanted with no fear of being identified. (previous post) More recently, the government ordered Weibo and another popular microblogging service operated by Tencent (HKEx: 700) to shut down part of their services after they helped to spread false rumors that army troops were entering Beijing amid the Communist Party’s latest internal power struggle. (previous post) This latest initiative, if it’s true, looks like just the latest step in the drive to reduce the influence of microblogs by making their messages unavailable to people using Internet search engines. While a large number of Weibo viewers get their news directly off Weibo itself, I suspect a large number of people also view Weibo posts as a result of web searches, as such posts are often indexed by the search engines. This latest initiative should have little effect on the search engines themselves, but could significantly reduce traffic to Weibo by halting all referrals from the search engines. That will come as the latest headache for Sina as it tries to commercialize Weibo, as the lower traffic volumes will make the service less attractive to advertisers that are one of the biggest potential revenue sources. If Beijing continues to impose more and more restrictions on Weibo like this, look for the service, once considered full of potential, to eventually wither and maybe even die in what would be a huge setback for Sina.

Bottom line: Beijing’s latest order banning microblog posts from search results is the latest setback for Sina’s Weibo, which is being by a growing list of government restrictions.

Related postings 相关文章:

◙ New Crackdown Spotlights Social Networking Risk 新的打压凸显社交网络风险

◙ Real Name Registration: Burden or Not for Weibo? 实名制会否成为新浪微博的负担？

◙ Microblog Clampdown: Only Chapter 1? 实名制向网络行业吹去冷风

Cars: Vancl’s Delivery Cuts & A Low-End EV Drive 汽车：凡客诚品配送服务收缩和低端电动汽车推进

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I’ll start out my musings this Friday with 2 car-related stories, one that’s seeing online clothing seller Vancl idle part of its delivery service and another that looks at a low-key type of electric vehicle that is making huge inroads in China’s rural markets. Let’s look at the Vancl story first, which has media reporting the company, which has repeatedly delayed a planned New York IPO, has closed or consolidated a number of locations for its fully-owned Rufengda delivery unit. (Chinese article) Vancl itself appears to confirm the report by calling the move an “adjustment” rather than a cost-saving measure, and is stressing the move is unrelated to the health of its broader business. Followers of Vancl will recall the company made another “adjustment” last year when it reportedly laid off about 5 percent of its workforce. (previous post) Vancl also recently lost its CFO, something that often happens when a company is facing financial difficulties. Or course, these kinds of rumors are inevitable for such a high-profile company like Vancl, as the entire e-commerce sector faces a cash crunch due to rampant competition that is already forcing limited sector consolidation. Look for more such “adjustments” from Vancl, which is likely to forge ahead with its IPO if and when market sentiment ever improves, which is unlikely before the late third or even fourth quarter. Meantime, my old employer Reuters is reporting on an interesting kind of super low-end electric vehicle that is quietly gobbling up market share even as Beijing’s plans sputter to promote larger traditional EVs. (English article) These super low-end cars appear to be gaining popularity in the countryside mostly, where farmers are buying them for around $5,000 apiece. They seem to be filling a niche somewhere in between a tractor and a real car, with limited speeds of only up to 50 kilometers per hour and running on environmentally unfriendly lead-based batteries. But they’re fast approaching the 100,000 mark for annual sales, with a company called Shifeng as the industry leader, compared to only 8,000 true EVs sold last year despite generous incentives from Beijing. This space could be one to watch, as Shifeng claims that representatives from the likes of Toyota (Tokyo: 7203) and Mitsubishi have come to check out its operations in search of similar alternatives to more costly traditional EVs. Stay tuned for some potentially interesting initiatives to come out of the segment, where China for once has the potential to become a true innovator if this space doesn’t get squashed by Beijing.

Bottom line: Vancl’s scale back of its delivery service is its latest adjustment as it tries to save money, with more moves likely before it makes its delayed IPO later this year.

Related postings 相关文章:

◙ China IPO Train Hits Bump With Vancl Resignation 中国上市事件撞上凡客诚品CFO辞职

◙ China Internet Bubble Sees Vancl Dressing Down 中国互联网泡沫见证凡客裁员

◙ Foreign Automakers Uncharged on China EVs 外国汽车商对中国电动汽车市场态度谨慎

Sinopec Still Chasing China Gas 中石化仍想收购中国燃气

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Energy major Sinopec (HKEx: 386; NYSE: SNP; Shanghai: 600028) is unaccustomed to being refused when it makes an M&A offer, though its tactics towards buying private companies are anything but conventional. That’s my conclusion as I read over the latest announcement from Sinopec and another Hong Kong-listed firm named ENN (HKEx: 2688), as they continue to chase China Gas (HKEx: 384), a privately held operator of a China-based natural gas distribution network that has previously shown little or no interest in being acquired. Let’s do a bit of backtracking and review the history of this deal, which is interesting because it marks one of the first unsolicited takeover bids by a big state-owned Chinese firm for a major private company. Sinopec and ENN made their initial bid for China Gas last December, offering about $2.2 billion for the company at a 25 percent premium to its share price at the time. It soon became clear that Sinopec and ENN had done little or nothing to discuss the deal with China Gas before making their offer, and China Gas made it clear that it wasn’t interested in being acquired. (previous post) An ENN executive said last month that his company and Sinopec were no longer chasing China Gas, only to have Sinopec quickly issue another statement saying the executive’s words were purely his own opinion, indicating that Sinopec was still interested. Now Sinopec and ENN have issued their latest statement, directly appealing to the employees of China Gas about why a takeover would be in their best interest. (HKEx announcement) I’ve reported on Chinese companies for a decade now, and this is the first time I’ve ever seen an appeal like this to the workers of an acquisition target. It’s much more common to see appeals like this made to shareholders of an acquisition target, especially during a hostile takeover, as they have the power to approve a deal even when management opposes it. But workers in most cases are usually unimportant players, as they don’t really have much power to influence managers’ decisions when it comes to M&A. Sinopec indicated in its statement that it is still trying to talk to China Gas’ management, but that China Gas managers have shown no interest. This latest statement indicates that Sinopec is determined to move forward with its bid, be it friendly or hostile, and I would fully expect it to announce a new, higher offer in the next few weeks.

Bottom line: Sinopec’s newest statement indicates it wants to move ahead with a bid to buy China Gas despite previously being rebuffed, with a new offer likely soon.

Related postings 相关文章:

◙ Sinopec Weighs New China Gas Bid 中石化似乎考虑提高对中国燃气收购价

◙ Battle Heats Up For China Gas

◙ Sinopec Balks at Rebuff to Hostile M&A Bid 中石化试水敌意收购碰壁

Facebook Keeps Calling on China Facebook继续推动进军中国市场

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Facebook may be making global headlines for its upcoming mega IPO, but the social networking giant is making much quieter headlines in China as well, where local media are saying it has been meeting with potential joint venture partners in its long-stated pursuit of entering the market. (English article) All this comes amid a broader opening up of China’s tightly controlled media space, which is also seeing the website of the People’s Daily, the official newspaper of the Communist Party, roaring towards a landmark IPO that, not surprisingly, is seeing huge investor demand. Let’s look at the latest Facebook talk first, which has media saying founder Mark Zuckerberg has made a number of low-key recent trips to China to meet with potential joint venture partners. There’s no reason to believe the reports aren’t true, as Zuckerberg has been very open about wanting to enter China and has made a number of trips to the country. Those include an official visit in late 2010 where he reportedly met with a number of partners including search leader Baidu (Nasdaq: BIDU), and another lower-profile visit just last month where he was spotted shopping in Shanghai in what was described as a personal visit. (previous post) My sources told me last year that Beijing had laid down a number of conditions that would make it difficult for Facebook to come to China, including requiring it to self-censor any China site it operated and also to make any information on the site available to the central government. (previous post) While such conditions looked like a deal killer at that time, Zuckerberg’s determination to enter the market, which includes a recent campaign to hire local Chinese engineers (previous post), seem to indicate he is willing to play by Chinese rules. I admire his determination, but should also point out that if and when Facebook ever does come to China, it will receive the same scrutiny, criticism and negative publicity that western organizations gave to Internet giants like Google (Nasdaq: GOOG) and Yahoo (Nasdaq: YHOO) when they entered the market. Facebook will also face stiff competition from established players Renren (NYSE: RENN) and Kaixin, which dominate the market but are having more difficulty finding profits there. Given Zuckerberg’s determination, I would say that China will be one of his top priorities after the IPO, and I could see the company entering the market as soon as late this year. Meantime, the People’s Daily has put out its own self-congratulatory statement in the run-up to its domestic IPO, saying it has tripled the size of the original offering due to strong demand and will sell shares that value the company at an 18 percent premium to its peers. (English article) As I’ve said before, I expect this IPO to be a huge success due to strong support from cash-rich party members and their associates. The stock could also do well in the longer term due to its party connections, but I wouldn’t look for anything too exciting in terms of growth or business initiatives due to the company’s political nature.

Bottom line: The latest reports on Facebook’s China plans indicate the company is aggressively aiming to enter the market, with a potential new joint venture possible by the end of this year.

Related postings 相关文章:

◙ Facebook, NY Times Make New China Moves Facebook和纽约时报在华新动向

◙ Despite China Rebuff, Facebook Going Back for More Facebook明知山有虎，偏向虎山行

◙ Twitter Eyeing China? Twitter想进中国？

 

Tencent in Monopoly Spotlight; Baidu Next? 腾讯被诉垄断 下一个是百度吗？

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An important trial has just begun in southern Guangdong province, testing China’s young anti-monopoly law and its legal system in a case that could spell big headaches for leading Internet firm Tencent (HKEx: 700). Analysts also point out the case could have a domino effect for other areas where a single company dominates the Web, with online search leader Baidu (Nasdaq: BIDU) perhaps the most vulnerable to a similar lawsuit. But let’s look at the Tencent case first, as that’s the main point here. Perhaps appropriately, the case is being bought by Internet software company Qihoo 360 (NYSE: QIHU), a seasoned veteran with litigation in China, having been sued numerous times by others, including Tencent, and also filing numerous lawsuits of its own against rivals. This latest case has Qihoo suing Tencent for monopolistic practices in the instant messaging space, claiming Tencent’s wildly popular QQ service has a virtual lock on the market. (Chinese article) The case, which began on Wednesday morning，has Qihoo seeking 150 million yuan, or about $24 million, in damages. Chinese courts rarely award that much money due to legal restrictions, but even if they did such an award would be trivial to a company like Tencent that has a market cap of $56 billion and a huge cash pile. Of course the much bigger threat is that the court will determine that Tencent does indeed have an instant messaging monopoly, which it has used to quickly gain dominance in other Internet spaces such as online games. From my perspective, Qihoo’s case does indeed look convincing, as Tencent currently controls more than 70 percent of the instant messaging market. I personally don’t use QQ, but in my experience the only other platform that has any users at all in China is Microsoft’s (Nasdaq: MSFT) MSN, whose service is basically just a copy of its global product and is far less popular among Chinese users. A court ruling against Tencent would be interesting for a number of reasons, all of which would obviously be bad for the company. Qihoo and others are clearly interested in seeing the court order Tencent to de-link QQ from its other initiatives, as that would seriously hamper the company’s ability to take advantage of its massive instant messaging user base to quickly develop into other areas like search, online video and e-commerce. But the court, if it rules against Tencent, should also take steps to break its instant messaging monopoly, which is what the anti-monopoly rule was designed for. Of course, if the court rules against Tencent the next major target would be Baidu, which also controls more than 70 percent of China’s search market, the legal definition for a monopoly. Accordingly, China Internet watchers and investors should be paying close attention to this case, which could have big implications for both Tencent and Baidu stock.

Bottom line: Tencent will suffer a big setback if a court rules it has a monopoly in instant messaging, potentially paving the way for a similar lawsuit against Baidu.

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