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

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

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The arrival of spring is bringing a sudden surge in new partnerships for China’s overheated tech space, as companies seek any competitive advantage they can find to stay in business. Online video sites Youku (NYSE: YOKU) and Tudou (Nasdaq: TUDO) led off the parade with announcement of their $1 billion marriage last month (previous post), followed by a strengthening of ties last week between Apple (Nasdaq: AAPL) and Foxconn International (HKEx: 2038), one of its main iPhone producing partners. Now struggling online retailer Dangdang (NYSE: DANG) and equally embattled real-world electronics retailer Gome (HKEx: 493) have formally cemented a relationship that will see the pair merge their online electronics retailing business. (company announcement) This new tie-up has been rumored for a while now so it isn’t really news (previous post), though it should help both partners better compete with 360Buy, the online retailer that started out as an electronics seller, as well as Suning (Shenzhen: 002024), Gome’s main real-world retailing rival that has also pushed aggressively into the online space. But I suspect what really has investors excited, and myself intrigued as well, is the possibility that this alliance could eventually develop into an outright marriage between these 2 companies, each of which could greatly benefit from the other’s traditional strengths. Investors in New York bid up Dangdang shares as much as 15 percent in Monday trade to levels not seen since last September, with the stock closing up nearly 10 percent. Still, its shares are trading at just a third of their level from a year ago — testimony to a bloody price war with 360Buy and other players backed by the likes of Amazon (Nasdaq: AMZN) and Wal-Mart (NYSE: WMT) in China’s ultra-competitive e-commerce space. That price war pushed Dangdang itself deeply into the loss column in its latest reporting quarter, with the company posting a $21 million loss for the fourth quarter of 2011. (previous post) While Dangdang’s troubles have mostly appeared over the last year, Gome’s date back a bit longer, starting a few years back after its charismatic founder Huang Guangyu was arrested on insider trading allegations. Since then Gome has been involved in an endless series of internal power struggles, which has undermined its ability to function effectively. This new partnership won’t immediately address Gome’s internal problems, but it could give both companies a nice boost by allowing each to draw on its traditional strengths to help the other if the partnership runs smoothly. Of course there’s no guarantee that will happen, as Huang may still try to interfere with the new partnership from his prison cell and Dangdang’s husband and wife founders, Peggy Yu and Li Guoqing, are also quite opinionated and may not easily want to give up any control of their company. But if both sides realize that a strong partnership is in everyone’s own interest, I could see this relationship deepen and eventually result in a real-world merger in the next 2-3 years.

Bottom line: The new partnership between Gome and Dangdang could evolve into a true merger within the next 2-3 years if the 2 sides can work well together.

Related postings 相关文章:

◙ Dangdang, GOME In New Alliance, More to Come 国美携手当当网 或开启类似合作序幕

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

◙ 360Buy Heats Up E-Books, People’s Daily Goes to Market 京东商城高调进军电子书,人民网开启上市进程

Apple’s Hon Hai Investment Talk: Why Not? 苹果投资入股鸿海：为什么不？

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I’m going to do something today I don’t usually do and comment on an interesting report that appeared on a Chinese website that has since been removed regarding a potential massive investment by Apple (Nasdaq: AAPL) in Taiwanese electronics giant Hon Hai (Taipei: 2317), one of its biggest iPhone manufacturing partners. The reason for my exception is that the deal sounds extremely intriguing and makes lots of sense in the current climate, even though removal of the article and lack of similar reports in western media make me suspicious of whether anything is really happening. But let’s move past all this discussion and look at the report itself, which said that Apple was preparing to make a massive $9.76 billion investment in Hon Hai, which was going to issue new shares in the form of global depositary receipts (GDRs) to make Apple its second largest shareholder. Hon Hai currently has a market capitalization of about $40 billion, meaning an investment that size, presuming it was new shares, would make Apple the owner of about 20 percent of Hon Hai’s shares. Again, I want to emphasize I have serious doubts about whether such a deal is actually being discussed for the reasons I previously mentioned. But at the same time, I really do believe that such a deal makes lots of sense for both Apple and Hon Hai for many reasons. From a cash standpoint, the investment would represent a minor amount of money for Apple, which has so much cash at this point, around $100 billion to be exact, that it took the unusual step last month of restoring a dividend for shareholders after a 17 year gap, and also said it would buy back another $10 billion worth of its stock. (English article) From a strategic standpoint, it makes perfect sense for Apple to make such a large investment in one of its biggest manufacturing partners, which shows not only its commitment to the health of that partner but also to the efficient and ethical running of its operations. The focus on not only efficiency but also ethical treatment of employees has become an extremely relevant issue over the past year, as Hon Hai’s Foxconn International (HKEx: 2038) unit, which manufactures iPhones for Apple, has come under intense scrutiny during that period for working conditions that some consider harsh, including pressure for its young employees to work lots of overtime and in isolated conditions on production lines to discourage socializing. That issue has become so big that Apple’s Tim Cook made a special trip to a Foxconn factory in the central city of Zhengzhou during his inaugural trip to China last week since taking over as CEO of the company in 2011 shortly before the death of Steve Jobs. (previous post) Last but not least, Hon Hai shares are quite attractively priced right now, down about 34 percent from where they were a year ago on all the negative publicity as well as rising costs, even as the rest of the market has rallied. So, on the whole, even if Apple isn’t considering this deal, I think it should as it makes lots of sense from so many angles, with the potential to benefit both Apple and Hon Hai.

Bottom line: A report citing Apple in talks to make a major investment in manufacturing partner Hon Hai looks like a smart move that Apple should strongly consider, even if the rumor isn’t true.

Related postings 相关文章:

◙ Apple Bytes: Labor, a State Visit and Baidu 库克中国行猜想：他在下一盘很大的棋

◙ Apple CEO Cook Stirs Up Guessing Firestorm 苹果CEO库克低调访华意欲何为？

◙ China Telecom iPhone Debut Looks Strong 中国电信iPhone初次发售，势头强劲

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

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It’s a beautiful spring day here in Shanghai, and if you’re an avid microblogger you’re probably getting up and perusing the latest news and gossip on Sina’s (Nasdaq: SINA) popular Weibo service to read and pass on to your friends the latest news about your favorite celebrity or social issue. But a quick attempt to pass on someone else’s posts with your own insightful comments attached is suddenly impossible — blocked by Weibo itself as punishment from Beijing for spreading rumors, underscoring again the perils big companies face when setting up shop in China’s social networking realm. (English article) The news that Sina’s Weibo and another popular microblogging service from Tencent (HKEx: 700) are both being punished for spreading rumors should come as a surprise to no one, though enthusiastic investors who purchased stock of both companies on big hopes for their microblogging services might decide that Monday is a good time to sell some of their shares. The reports on what happened are actually quite detailed, saying both Sina and Tencent angered Beijing by allowing rumors to spread on their services that troops had moved into the nation’s capital as part of a coup attempt that never happened. Beijing has always been sensitive about any kind of rumor that could foment social unrest, and those sensitivities will only increase this year as the nation prepares for a major handover of power from the current leaders following the end of their official 10-year term in office. What’s interesting in this situation is the very public way in which the matter is being handled, with news of the false rumors and unspecified punishment both appearing in a report from Xinhua, the central news agency considered the voice of the Communist Party itself. No specifics of the punishment have been disclosed, and I suspect both Sina and Tencent will face limits on their microblogging operations and perhaps some small fines over the short term. But the longer term implications could be much more worrisome, with both companies facing big consequences — including even a possible shut-down — if they commit any similar transgressions in the year ahead during the sensitive power handover. That could pose a big risk to both companies, as well as other microblogging services, as all have now officially been warned that Beijing won’t tolerate any political rumors in the months ahead. That means all these services will undoubtedly delete any political postings on their services that are even remotely political for fear of offending Beijing, which could easily anger many of their millions of users who will no longer be able to post many of their thoughts online. Advertisers will also undoubtedly think twice about wanting to play in such a dangerous space, where their ads could not only suddenly become in accessible but they could also risk angering Beijing by doing business with companies accused of spreading rumors. This latest development comes only months after Beijing announced its “real name” policy for all microblogging sites, requiring them to register all their users by their real names, again as a measure to try and curb rumor mongering and other unsavory activities such as scams. (previous post) Sina, Tencent, NetEase (Nasdaq: NTES) and other microblog site operators aren’t the only ones at risk, as other social networking site operators like Renren (NYSE: RENN) and Kaixin, whose services are more similar to Facebook, could just as easily be accused of spreading rumors and also be punished. To anyone considering buying shares of any of these companies, I would just reiterate that they may have good great growth potential due to the size of China’s Internet market — which recently passed 500 million users — but they also come with huge risk. Especially in the coming year with the leadership change, these companies will have to be especially careful about what they allow on their sites, and can risk punishment or closure at any time. At the same time they face the risk of punishment by their own users, who might become frustrated with all the new restrictions and could easily end up abandoning their accounts.

Bottom line: The latest punishment for Sina and Tencent microblogging services for spreading rumors  underscores the big risks China Internet companies face due to political considerations.

Related postings 相关文章:

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

◙ Sina Gets Serious on Weibo 新浪开始严肃对待微博

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

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

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As today officially marks the end of the latest quarterly earnings season, I thought I’d take a quick look at 2 of China’s leaders in their fields, banking giant ICBC (HKEx: 1398; Shanghai: 601398) and telecoms equipment leader Huawei Technologies, which are discovering the world outside their protected home market can be lucrative but is also quite competitive and fraught with other challenges. ICBC saw its profit last year rise 25.6 percent, but its pretax profits from overseas operations rose a more modest 18 percent. (results announcement; English article) The overseas growth was down sharply from the previous year’s 37.2 percent rise, as ICBC expanded aggressively in Africa, South America and Southeast Asia. Meantime, Huawei saw its revenue grow just 11.7 percent last year, according to a company executive quoted by Chinese media, a relatively disappointing result for a company whose sales the previous year rose 24 percent and was used to seeing even higher rates in previous years. (Chinese article) Obviously many complex issues are behind these relatively modest growth figures, but the biggest one is certainly the fact that global markets are much more competitive than China’s domestic one, where local players have a home-field advantage that includes strong direct and indirect support from Beijing. Still, as China comes under pressure to wean its companies off state support and as these companies themselves try to become serious global players, they will have to take such international steps and prove to the world that they can compete with other top world players. ICBC has been the most aggressive of China’s big banks in its international drive, buying banks in Southeast Asia and Latin America, and expanding its partnership with Standard Bank, Africa’s biggest lender, to boost its Africa business. (previous post) Bank of China (HKEx: 3988; Shanghai: 601988) has also been active in currency services, its traditional strength, signing a series of landmark deals in recent months to enter the global commodities trading business. (previous post) Huawei, meantime, was one of China’s biggest exporting success stories for years, but has run into another roadblock in the last year, namely distrust by western governments who fear the company is just a spying arm of Beijing. Those fears have killed a number of Huawei’s initiatives in western markets over the last year, including one setback this week when the company was banned from bidding on contracts to help build a new high-speed data network in Australia (previous post) This kind of protectionist obstacle is something that all Chinese companies will have to deal with as they expand abroad, and other global giants must frequently deal with such issues from local governments as well. Both Huawei and ICBC seem like quick learners, and I fully expect both to overcome the various obstacles they run into and eventually become respected competitors on the global stage. But in the meantime, they will have to deal with many new issues, and will also have to be satisfied with much lower growth rates than they traditional got from their home market.

Bottom line: The latest results from ICBC and Huawei show that Chinese firms can compete globally, but will get much slower growth from international operations than domestic ones.

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

◙ Bank of China Sees Gold in Global Commodities Trade 中行赴全球商品市场淘金

◙ ICBC Discovers China’s Latest Low-Cost Export: Currency 工行将从非洲人民币结算业务中获益

CITIC on Global Buying Hunt 中信集团加入全球收购行列

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CITIC Group, one of China’s oldest private investors, is joining a growing number of Chinese investors looking for bargains being sold off as a result of the global financial crisis, with media reporting the company’s brokerage arm is seeking to buy a major brokerage asset from France’s Credit Agricole (Paris: CAGR). (English article) The deal, which would see CITIC Securities (HKEx: 6030; Shanghai: 600030) buy Credit Agricole’s CLSA brokerage brand, would mark the second major attempt to purchase of a global asset by CITIC this year, following news last month that another of the company’s units, CITIC Capital, was making a bid  for AsiaInfo-Linkage (Nasdaq: ASIA), one of the oldest US-listed Chinese companies. (previous post) In fact, the Credit Agricole talks aren’t completely new, as CITIC was previously in discussions to buy a smaller stake in the CLSA brokerage unit along with another related asset from the French bank, which was trying to raise cash after taking a hit during the global financial crisis. But what’s new is that CITIC is now looking to buy the CLSA brokerage unit outright, rather than just a 19 percent stake that was being discussed earlier. That seems to indicate that Credit Agricole wants to reach a deal soon and is willing to give a good price, as talks have dragged on for a while now. Likewise, the AsiaInfo deal also looks like a relative bargain as the company’s shares have taken a beating over the past year, down more than 50 percent in 2010, amid a broader sell-off for US-listed Chinese stocks following a series of accounting scandals at several major listed players. Both deals look like they would be in the $1 billion range, which looks like a good comfort level for a group like CITIC, which has plenty of cash, including $1.7 billion raised by CITIC Securities in a Hong Kong IPO last year. CITIC is just the latest in a growing field of cash-rich private Chinese investment groups looking for bargains on the global stage in the wake of the global financial crisis, as most suffered little or no damage themselves during the crisis. Earlier this year, Fosun International (HKEx: 565) said it is eying potential investment oportunties in Europe, where many companies are looking to sell off assets as the continent grapples with its ongoing debt crisis. (previous post) Another aggressive player, HNA Group said last fall it has embarked on a global buying spree that has seen it snap up assets in a range of industries, including shipping and hotels, and boasting it has an additional war chest of more than $6 billion for more purchases. (previous post) Look for even more of these deals in the year ahead, probably mostly focused in the $1 billion range or less, as Chinese investors get more aggressive on the global stage.

Bottom line: CITIC is the latest private Chinese investment firm to step up its activity on the global stage, looking for bargains being sold by cash-hungry western firms.

Related postings 相关文章:

◙ Investors to AsiaInfo: Let’s See Some Numbers 投资者对亚信创联并购案减失耐心

◙ Gree, Bright Food, Fosun in New Global Moves 格力电器、光明食品和复星集团全球新动向

◙ HNA: China’s Next Big Global Investor? 海航集团：中国下一个大型全球投资者？

Apple Bytes: Labor, a State Visit and Baidu 库克中国行猜想：他在下一盘很大的棋

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As Tim Cook’s inaugural visit as Apple’s (Nasdaq: AAPL) new CEO wraps up, I thought I’d take a quick look back at what he’s done on the trip since my previous post earlier this week, which should indicate not only where his China priorities, but also his global ones, will lie in the years ahead. After writing my first post, which included calls on China’s major telcos, an Apple store and Beijing’s mayor, Cook has gone on to visit China’s premier-in-waiting, Li Keqiang, as well as a central China iPhone-producing factory. There are also interesting new rumors on a tie-up between Apple and Baidu (Nasdaq: BIDU), though it’s unclear if Cook actually met with any executives from China’s dominant search engine during his visit. The bigger picture emerging  from all these stops is that Cook is quite serious about developing the China market, and wants to strengthen not only his company’s relations with China’s top 3 telcos, but also improve its broader distribution and sales channels in a market that could easily become its largest globally in the next 5 years. Secondarily, he also seems to be more interested in his company’s image as a good corporate citizen than his predecessor Steve Jobs, whose death last year came just months after Cook officially assumed the CEO title. The visit to the Beijing Apple store underscores Cook’s determination to raise his company’s profile and sales channels in China. The company already enjoys a strong reputation in the nation’s major cities like Beijing and Shanghai, but is less well known in smaller cities that are home to the vast majority of China’s 1.3 billion people and could provide a huge new business opportunity. To cultivate this market, I wouldn’t be at all surprised to see Apple roll out some lower-end iPhones and iPads in the next 1-2 years, and in fact such initiatives have been rumored in the past. Cook’s visit with Li Keqiang also marked a rare state visit for a corporate executive with a top Chinese leader, indicating that both China and Apple want to see this relationship thrive, as China surely realizes it needs companies like Apple to push its own companies away from lower-end manufacturing and up the value chain. By visiting with both Li and Beijing’s mayor, Cook also showed he wants to have a more elevated profile compared with the lower-key Jobs as he tries to cultivate the company’s image as a good global corporate citizen in the many markets where it operates. The visit to one of the central China factories that makes iPhones also underscores this priority, as the facility operated by Taiwan’s Foxconn (HKEx: 2038) has come under scrutiny in the last 2 years for its high-pressure workplace tactics that some consider abusive. Following those ongoing criticisms, Apple said after Cook’s visit that it would work with Foxconn to improve that situation. (English article) Lastly there’s the Baidu tie-up, though that one is only rumored and would reportedly see Apple make Baidu’s search site the default for all of its iPhones sold in China. (English article) Such a move certainly seems to make sense as Baidu controls the overwhelming majority of China’s search market, and I wouldn’t be surprised to see a deal on that front in the next few months.

Bottom line: Tim Cooks’ weeklong China trip underscores that the market will become a top priority for Apple during his tenure as CEO, as will improving his company’s corporate image.

Related postings 相关文章:

◙ Apple CEO Cook Stirs Up Guessing Firestorm 苹果CEO库克低调访华意欲何为？

◙ China Telecom iPhone Debut Looks Strong 中国电信iPhone初次发售，势头强劲

◙ Apple Wins iPad Round in Shanghai: New Justice? 苹果在iPad商标侵权案中扳回一局

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

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Leading e-commerce site 360Buy is increasingly looking like a schizophrenic company in terms of its IPO plans, a troublesome development that may reflect a growing rift between its charismatic chief executive and some of its deep-pocketed investors who last year gave it a record $1 billion-plus in new capital. Founder Liu Qiangdong has been quite adamant that an IPO is off the table until next year at the earliest, as he works to build his company into one that would be truly attractive to investors by bringing in seasoned top-level managers and earning profits — 2 things it currently lacks. But then other reports keep popping up saying the company, which also goes by the name Jingdong Mall, is quickly moving towards an IPO to raise billions of dollars, including some high-profile reports last year to that effect. (previous post) Now, just days after the company’s latest denial of any imminent IPO, media are once again reporting that 360Buy is hiring investment banks to underwrite its offering, in the latest sign of dysfunction behind the scenes. (Chinese article) The latest reports seem to have some credibility, as they contain some financial figures that 360Buy reportedly gave to investment banks as it shops for underwriters, including its revenue and profit margins, as well as its net loss and estimates of when it will become profitable. Those results reportedly showed the company’s transaction volume reached $3.4 billion, falling well short of a previous target of $4.3 billion amid stiff competition in China’s overheated e-commerce sector. The reports contain some other figures, but what’s more interesting to me is the infighting that appears to be going on behind the scenes as reflected by the conflicting IPO messages. My interpretation is that Liu wants to take a cautious approach by waiting until his company either turns profitable or sees profits in close range before making the offering. That seems smart, considering that investors have been punishing shares of money-losing Internet companies that have made public offerings over the last 2 years. In the most recent of those, shares of discount online retailer Vipshop (NYSE: VIPS) plunged 15 percent last week when it became China’s first web firm to make an IPO in more than half a year amid weak market sentiment. (previous post) Its shares have fallen further since then, and are now 30 percent below their IPO price. While Liu wants to take the prudent approach, I suspect that investors who made the massive investment last year, including Russia’s Digital Sky Entertainment, are getting worried about the company’s future as China’s e-commerce market gears up for a major correction, and are pushing for an IPO much sooner to recoup some of their money. If this is the case, look for a tug-of-war to continue into the months ahead, potentially forcing 360Buy into a premature IPO that could meet with weak investor demand and a poor trading debut if it happens this year.

Bottom line: Conflicting signs from 360Buy indicate a growing difference of views between its top manager and major investors over the timing of an IPO.

Related postings 相关文章:

◙ 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

◙ China IPO Winter Goes On as Vipshop Flops 唯品会大跌，中国IPO冬季持续

◙ 360Buy IPO: Let the Delays Begin 京东商城放缓IPO进程

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

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I’m feeling slightly artistic this morning, hence my choice of headline for this posting which is a reference to the famous Samuel Beckett play “Waiting for Godot,” about 2 people excitedly waiting for a person who will probably never appear. The same story could be true for ZTE (HKEx: 763;  Shenzhen: 000063), whose just-released results showed plunging profits and rapidly rising costs as the company takes a risky bet on the low-cost smartphone market that may bring in lots of new revenue but never pay any returns in the form of new profits. (results announcement; English article) Let’s take a closer look at the earnings, which show the company’s profit plunged nearly 50 percent from a year earlier in the fourth quarter, accelerating from a 40 percent decline in the previous quarter as profits for the year fell 37 percent. A closer look at the company’s income statement shows that costs rose sharply, with R&D and marketing expenses up 20 percent and 25 percent, respectively. Furthermore, the company’s annual profit would have tumbled even more if not for a big jump in one-time investment gains. ZTE has been quite direct about its desire to become a top-five cellphone maker in the next 2-3 years, and has embarked on a focused strategy to achieve that goal by rolling out a new line of lower cost smartphones priced very aggressively. That goal is certainly commendable and I applaud the company for staying focused on its aim despite the profit erosion that is clearly a cause of concern for investors. The company’s Hong Kong-listed shares are down 45 percent over the last 52 weeks, and have lost around 20 percent of their value so far this year, even as the broader market has rallied about 15 percent. The cellphone gamble is at once both a smart move and a very risky one. On the one hand, ZTE realizes its need to diversify beyond its core networking equipment business, which has run into numerous roadblocks in the last few years from western markets concerned about security issues. Cellphones are much less controversial and have steadier sales, and ZTE is drawing on its expertise as a low-cost manufacturer to focus on the lower end of the booming market for smartphones that can take advantage of high-speed 3G and 4G wireless networks. The only problem is that ZTE is hardly the only company to notice the trend, and is joining a very crowded market that includes heavyweights like Apple (Nasdaq: AAPL), Samsung (Seoul: 005930) and Nokia (Helsinki: NOK1V), not to mention hometown rival Huawei Technologies, which is making a similar aggressive smartphone play. At the end of the day there’s no reason a few companies can’t succeed in the low-cost smartphone market, and ZTE could certainly be one of those. But unless it can start to show some profits by the second half of this year from its cellphone gamble, look for trouble  ahead for this company and continuing downward pressure on its stock.

Bottom line: ZTE’s latest results reflect its ongoing push into low-cost cellphones, but it needs to show returns by the second half of this year or risk losing investor confidence.

Related postings 相关文章:

◙ Baidu, ZTE Earnings: More of the Same 百度和中兴财报：看上去没变化

◙ Huawei and ZTE: Swapping Networking for Cellphones? 华为和中兴：转型进军手机市场？

◙ ZTE Faces More Profit Erosion With Latest Low-Cost Moves 中兴通讯以低价机抢占市场恐损及获利

Nokia Bets on China Telecom 诺基亚联手中国电信

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The arrival of spring in China is bringing in a sudden surge of tech and telecoms VIPs, no doubt salivating over a market with more than a billion mobile subscribers and 500 million Internet users and growing. First came Apple (Nasdaq: AAPL) CEO Tim Cook, whose visit has included courtesy calls on the nation’s 3 telcos as well as his most recent visit with vice premier Li Keqiang, tipped to become the country’s new premier next year. Now he’s being followed by Nokia (Helsinki: NOK1V) CEO Stephen Elop, who has attended a high profile Beijing event to announce the launch of company’s first smartphone in China using Microsoft’s (Nasdaq: MSFT) latest Windows mobile operating system. (English article; Chinese article) But wait — there’s more. Apparently none other than Facebook founder and chief executive Mark Zuckerberg has also been sighted in China, visiting my own city of Shanghai just a month before the company prepares to make its multibillion-dollar IPO. I already talked about Cook’s visit yesterday (previous post), so will focus this time mostly on Elop and Nokia, which used to dominate the China cellphone market but has seen its share drop sharply in the last 2 years, mirroring a global trend. Elop is hoping to reverse the slide by retiring Nokia’s old operating system and betting on Windows new mobile OS.  I found it both interesting and intriguing that Nokia has chosen the smallest of China’s 3 mobile carriers, China Telecom (HKEx: 728; NYSE: CHA), as partner for the launch of its first Windows-based smartphone in China, rolling out a Lumina model that will run on the carrier’s 3G network based on a technology called CDMA EVDO. The gamble on China Telecom looks like a smart move to me, as this telco is clearly the more aggressive and better organized of China’s 2 major carriers that use global technology in their 3G networks. The other company, China Unicom (HKEx: 762; NYSE: CHU), has been plagued by operational and management issues; and China’s third major telco, China Mobile (HKEx: 941; NYSE: CHL) uses a homegrown technology that most major developers have shunned so far. By signing up with China Telecom as its first partner, Nokia can be assured the carrier will give its phones special attention, unlike Apple’s iPhone, which is now offered by both China Telecom and Unicom. China Telecom has said it hopes to add 50 million or more 3G users to its network this year (previous post) as it aggressively chases the market in its drive to steal share from its other 2 rivals. Obviously Lumina phones will account for only a small portion of that, assuming that Chinese consumers like them. Still, that could translate to 3-5 million handset sales if the models prove popular. Meantime, here’s just a quick take on Zuckerman, who was seen shopping with his girlfried in Shanghai’s trendy Tianzfang district. (Englilsh article) The reports say Zuckerberg said he was on vacation, and I believe that’s probably true, since he was in Shanghai and not Beijing and he has much bigger issues at the moment with his company’s upcoming IPO. But he clearly still has his eye on the China market, and I wouldn’t be surprised to see him make another more formal China visit sometime later this year after the IPO.

Bottom line: Nokia’s pairing with China Telecom for its first Windows smartphone launch in China looks like a smart move, with sales of up to 5 million units possible this year.

Related postings 相关文章:

◙ Nokia Looks For Fresh China Start With New Country Chief 诺基亚中国区新官欲扭颓势

◙ China Telecom Turns Up Volume in 3G Drive 中国电信计划一鼓作气 3G市场欲再下一城

◙ Nokia Facing China Backlash After Years of Dominance 诺基亚手机在华“失宠”

China Life Joins Financial Begging Line 中国人寿加入融资潮 暗含行业危机

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The smoldering crisis quietly seeping through China’s financial services sector has infected the nation’s largest insurer, China Life (HKEx: 2628; Shanghai: 601628), which has announced plans to raise about $6 billion this year through the issue of subordinated debt, becoming the latest player to turn to financial markets to raise billions of dollars in new cash as provisions for shaky investments. (English article) The entry of China Life into the beggar’s cue is quite significant, as up until now the latest cash-raising frenzy has been confined mostly to big state-controlled banks that made questionable loans under a Beijing-ordered lending spree to stimulate the economy at the height of the global financial crisis. China Life’s biggest rival, Ping An Insurance (HKEx: 2318; Shanghai: 601318), also previously went to financial markets not once but twice last year, announcing plans to raise a total of more than $6 billion as well. (previous post) But unlike Ping An, which is considered a relatively aggressive investor, China Life is known for its conservative investment policies. As such, the fact that its investments are also running into trouble could be an early warning sign that the problems in China’s financial system run much deeper than industry and government officials realize or are admitting. Beijing has already made several moves to ease the burden on Chinese banks, including a potential plan to let them delay collecting repayment on many of the problematic infrastructure loans they made to local governments that may now be in danger of default. (previous post) China Life announced its fund-raising plan after reporting its quarterly profit slumped 86 percent in last year’s fourth quarter, its worst-ever decline. A 22 percent slump in China’s stock market last year certainly contributed to China Life’s woes, as the company invests up to 10 percent of its money in stocks. But I suspect that such a big profit decline, combined with big fund-raising plans, indicate that stocks alone weren’t responsible for the big downturn, and that many of China Life’s other investments also may be running into problems. The company joins a growing list of major financial institutions that have announced multibillion-dollar capital raising plans in the last half year, including Ping An, Bank of Communications (HKEx: 3328; Shanghai: 601328), China Merchants Bank (HKEx: 3968; Shanghai: 600036) and ICBC (HKEx: 1398; Shanghai: 601398). Minsheng Bank (HKEx: 1988; Shanghai: 600016), one of the nation’s most entrepreneurial lenders, announced its own intent to raise funds last month, and earlier this week gave final details for the $1.4 billion planned Hong Kong share sale. (English article) Look for more fund-raising plans this year, accompanied by significant asset write-downs at both the insurers and banks as the defaults start to swell. From an investor standpoint, unless you have a strong stomach I would say that stocks for these and other major financial institutions look like volatile bets for at least the next 1-2 years.

Bottom line: China Life’s new $6 billion capital raising plan indicates China’s building banking crisis may be worse than most people realize.

Related postings 相关文章:

◙ AgBank Results: First Look at Banking Winter 中国农业银行财报：银行业的冬天

◙ Bocom Recapitalizes, Govt Pays the Bill 交行再融资或掀起新一轮银行再融资热潮

◙ More Banking Bad News From Minsheng 民生银行融资揭示银行业困境

 

Apple CEO Cook Stirs Up Guessing Firestorm 苹果CEO库克低调访华意欲何为？

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I’ve been quite amused by the flood of articles coming out these last few days guessing at the mission behind the low-key visit to China by Tim Cook, who replaced Steve Jobs as Apple’s (Nasdaq: AAPL) CEO shortly before Jobs’ death last year. The trip is Cook’s first to China since he took the helm at the  world’s biggest technology company, and follows another low-profile visit last year when he was still chief operating officer and was spotted at the offices of China Mobile (HKEx: 941; NYSE: CHL). (previous post) So what exactly is Cook up to this time around? Different media are all playing the guessing game to try and figure it out. The few certain facts include his visit to a Beijing Apple store, where Cook was spotted and photographed, as well visits to China’s 3 wireless carriers, China Mobile, China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA). Cook is also paying a visit on Beijing’s mayor, but that’s where the certainty ends. Reuters, my former employer, is saying that Cook is on a mission to try to sort through some of Apple’s recent headaches in China, including labor issues at some of its manufacturing partner and an ongoing trademark dispute over the iPad name. (English article) Bloomberg, meanwhile, is putting a more positive spin on its guess, focusing on Apple’s plans to invest further in China, its second largest market. Bloomberg’s report points out that Apple currently has a relatively modest 5 retail stores in China — far less than it was aiming for by this time in an earlier interview. (English article) Meantime, the Chinese tech website operated by NetEase (Nasdaq: NTES) is covering all the bases, leading off with an investment story and Cook’s many meetings, while also giving smaller play to the trademark dispute. (Chinese article) The rival tech news website operated by Sina (Nasdaq: SINA) also has all the bases covered, though it has kicked off its Cook-fest with speculation that the trademark dispute is the main focus of his trip. Since everyone else is weighing in with their guesses, I don’t mind also getting in my own view, which is that Cook is here to focus on big picture issues such as expansion of the company’s store and distribution networks. That means the smaller things, like the trademark dispute and image problems due to labor issues, are probably very low on his agenda, and are being left for the company’s public relations department to handle. One topic that nobody has mentioned, which should be near the top of Cook’s agenda, is Apple’s desire to sign a deal with China Mobile, the country’s largest mobile carrier with two-thirds of the market and the only one of China’s 3 telcos without a formal iPhone deal. Such a deal has been elusive so far since China Mobile’s 3G network uses a homegrown technology, meaning Apple would have to develop a new  iPhone model just for China Mobile. Still, China Mobile’s 650 million subscribers must look very attractive to Apple and should be worth the investment. And with the retirement last week of China Mobile’s long-serving Chairman Wang Jianzhou (previous post), who was unable to reach an iPhone deal in earlier talks, perhaps Apple and China Mobile could finally reach a deal with the company’s newer, more aggressive leadership.

Bottom line: Apple CEO Tim Cook’s visit to China is focused on big picture issues, including the sealing of an elusive iPhone tie-up with leading mobile carrier China Mobile.

Related postings 相关文章:

◙ China Mobile Nears iPhone Deal, Continues 4G Press 中移动iPhone协议近尾声 加紧4G攻势

◙ Apple’s COO Comes Calling on China Mobile 苹果首席运营官造访中移动

◙ China Telecom iPhone Debut Looks Strong 中国电信iPhone初次发售，势头强劲