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

NetEase: Still a Gamer With WoW Renewal　　网易续签《魔兽世界》运营权

By on

Just a week after commending NetEase (Nasdaq: NTES) for being one of China’s few successful developers of popular online games, we’re seeing what investors really think of the company as they bid up its shares to new all-time highs after the company reaffirmed it will continue to offer its popular World of Warcraft title for at least the next 3 years. (company announcement; Chinese article) But avid gamers will quickly realize that far from being a self-developed title for NetEase, WoW is actually property of US game developer Activision Blizzard (Nasdaq: ATVI), which has just extended NetEase’s licensing deal for the wildly popular title by 3 years. The announcement sparked a rally for NetEase shares, which rose 3 percent to reach a new all-time high — a rarity for most US-listed Chinese firms whose shares all now trade well below such high points following a series of accounting scandals last year. While the renewal is certainly good news for NetEase, the Wall Street reaction highlights the fact that the company is perhaps still more dependent on games licensed from outside companies than I had  suggested in my previous posting. Investors realize that such dependence is ok when you have a hot title and a fresh licensing agreement, but can be quite dangerous when that same title fades in popularity or a licensing agreement expires. The9 (Nasdaq: NCTY) knows that lesson all too well, as it was a previous hiigh-flyer whose success was largely based on its own previous licensing agreement for World of Warcraft. Industry watchers will recall that the company lost its rights to the game to NetEase when its license expired 3 years ago, setting the company’s shares on a downward slide that have seen them lose about half their value since that major development. This new licensing deal means that NetEase looks safe as an online gaming bet, at least for the next 3 years. In the meantime, I do have to commend the company for continuing to develop its own games, even though such an approach is much riskier since it takes lots of time and money, and there’s no guarantee of success. At the same time, the company is also looking to diversify a bit beyond its dependence on games by taking steps to reinvigorate its well-known but neglected Internet portal business. (previous post) Clearly investors like the broader NetEase story, which indeed does seem to paint a picture of a company taking a small number of focused steps to keep its business growing. Now the key will be execution by continuing to develop popular new games and getting some new value out of its portal business. If it fails to do either of those well, shareholders could equally punish the company stock the same way they are rewarding it now.

Bottom line: NetEase’s new licensing deal for a popular game title will give it a 3-year cushion as it works to develop its own new game titles and relaunch its Internet portal business.

Related postings 相关文章:

◙ NetEase Name Change: Spin-Off Coming 网易更名：预示业务分拆

◙ Online Games: Where’s the Excitement? 中国网游企业增长有限

◙ SouFun, NetEase: Slowing Growth Stories 搜房网、网易：增长放缓

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

By on

I have just one word in reaction to the news that Wang Jianzhou will formally step down from China Mobile (HKEx: 941; NYSE: CHL) from the helm of China’s dominant mobile carrier either today or tomorrow: Finally! I hate to sound so negative about Wang, as he has certainly done a lot of good things at China Mobile since taking over as chairman nearly 8 years ago. In fact, he did help the company consolidate its place as China’s dominant telco, at one point grabbing over 70 percent of the mobile market as it used its strong position to trample China Unicom (HKEx: 762; NYSE: CHU), its smaller unfocused rival. But like many chief executives, Wang was guilty of overstaying his welcome at the company he led, causing China Mobile to lose its own focus and become a stumbling giant that has recorded little or no profit growth in the last few years. According to media reports, Wang’s retirement will be formally announced either today or tomorrow, and he will be replaced by Xi Guohua, who last year was named vice chairman of China Mobile’s parent company. (Chinese article; previous post) Of course, now that Wang is finally leaving the tributes will start pouring in commending him for his fine work. One report points out that when he took over at the top of China Mobile, the company’s annual revenue was 192 billion yuan, and its net profit was 42 billion yuan. The revenue figure more than doubled to 528 billion last year, while profit nearly tripled to 125.9 billion yuan. Of course it didn’t hurt that China Mobile, as the nation’s former mobile phone monopoly, was already China’s clear leader when Wang took over, nor that the country’s market was still relatively untapped with just a quarter of the nation’s 1.3 billion people owning mobile phones at that time. Wang took advantage of those factors to aggressively consolidate China Mobile’s position during his first 5 years on the job. But as happens with many corporate leaders, he seemed to lose his focus in his last 3 years, fixating on a global expansion policy that resulted in a number of attempted overseas acquisitions that nearly all ultimately failed. As recently as earlier this month, Wang was still talking about such acquisitions — even though they have contributed nothing to the company during his tenure. (previous post) Furthermore, Wang has lost valuable ground to Unicom and smaller rival China Telecom (HKEx: 728; NYSE: CHA) by dragging his feet in developing China Mobile’s 3G service that will be critical to its future, after being ordered to build its network using an untested China-developed technology. As a result, it now only controls about 40 percent of the 3G market, far less than its two-thirds share for China’s overall mobile market. With Wang finally gone, look for Xi and Li Yue, the company’s other recently installed top leader, to start taking some interesting risks and getting more aggressive with 3G. We’ve already seen what the future could look like, following recent reports of an interesting tie-up between China Mobile and a national cable TV operator now being formed through consolidation of China’s various regional networks. Look for more of that in the year ahead, as these new leaders try and breathe some new life into China Mobile after Wang’s departure.

Bottom line: China Mobile will become a more dynamic, risk-taking company in the year ahead after the imminent departure of long-serving Chairman Wang Jianzhou.

Related postings 相关文章:

◙ Advice to China Mobile: Stay Home 建议中国移动呆在国内

◙ China Mobile Steps Up 4G Drive 中移动4G网络建设提速 年底或推商用试点

◙ China Mobile: Improvement Ahead Under New Leaders 新领导有望助中国移动复苏

Alibaba, Yahoo: The Never-Ending Story 阿里巴巴股份回购“马拉松”再现曙光

By on

It seemed like a long time since we last heard any updates on Alibaba’s never-ending quest to buy back the 40 percent stake of itself held by faded US search company Yahoo (Nasdaq: YHOO), and now we finally know why: apparently the talks broke down a month ago over a number of issues. But in a show of its determination to dump Yahoo once and for all, Alibaba’s CFO has reportedly flown to the US to meet with Yahoo’s CEO to see if a deal can still be worked out. (English article; Chinese article) Alibaba has been very vocal about its desire to buy back the Yahoo stake for the last 2-3 years, especially during the tenure of Yahoo CEO Carol Bartz, who had a stormy relationship with Alibaba founder Jack Ma before she was fired last year for unrelated reasons. Yahoo had indicated it was also willing to sell the stake as it hired a new CEO with a mandate to return the company’s core search business to health. So the talks were progressing with updates appearing in the media regularly until about a month ago when the issue disappeared. I attributed that disappearance to media fatigue, and assumed a deal would be announced whenever both sides finalized the agreement. But now it turns out the 2 sides couldn’t agree on a number of issues, including breakup fees and price. Another sticky issue reportedly was Yahoo’s insistence in structuring the deal in such a way that would allow it to avoid paying taxes on the huge gain in the value of its Alibaba stake, which it paid $1 billion for originally in 2005 but now is likely to be worth more than 10 times that amount. With so many sticking points, I’m not exactly sure how new talks between the 2 sides are likely to produce any real results unless both are willing to make some big compromises. The fact that they are indeed talking again does seem to indicate that perhaps we will see some such compromises, as this issue is one that both companies would clearly like to put behind them. From Yahoo’s perspective, the Alibaba issue remains a major distraction at a time when new CEO Scott Thompson wants to focus on fixing its core search and web portal businesses. For Alibaba, the company wants to find investors who will give its stock the respect it thinks it deserves and provide support and connections in the run-up to a potential IPO for the group that could come as soon as the next 2-3 years. At the end of the day, both companies want to see this issue settled once and for all so they can move on to more important matters. That said, look for each side to make some big compromises in the weeks ahead, with a 50 percent chance they may finally reach a deal by mid-year to bring this long and frustrating saga to an end.

Bottom line: The restarting of collapsed talks between Alibaba and Yahoo indicate both sides are ready to make major compromises in finally bringing an end to their equity relationship.

Related postings 相关文章:

◙ Alibaba Tests Waters for Group Listing 阿里巴巴试水集团整体上市

◙ Alibaba.com Privatization: Parent IPO Coming? 阿里巴巴网私有化：母公司或将上市？

◙ Alibaba: Let’s Get This Show Finished 阿里巴巴和雅虎赶紧“离婚”吧

QVC Opens Shop in China QVC与中央人民广播电台合作运营电视购物频道

By on

Watch out Chinese shoppers, a new big player is coming to town in the form of QVC, an American name synonymous with TV and online shopping. In a twist that looks interesting, the US shopping giant has chosen neither a TV operator or an e-commerce specialist as its Chinese partner, but rather a major radio station operator, China National Radio. (English article) The deal marks the latest in a string of new Sino-foreign tie-ups in the sensitive Chinese media market, which Beijing seems to finally be opening to foreign investment after years of keeping the sector largely closed to outsiders. It should also provide some interesting competition to existing players in both the TV and online shopping space, including shopping channels operated by the likes of Shanghai Media Group, the nation’s second largest media company, and Tianmao, the hugely successful online mall previously known as Taobao Mall, which is operated by Alibaba Group, China’s leading e-commerce company. Let’s have a quick look at the deal itself, which will see QVC take its show to China by teaming up with China National Radio to operate its CNR Mall TV channel, which also has an associated web site, in a joint venture called CNR Home Shopping Company. I’ll be the first to admit I’ve never heard of CNR’s shopping channels, and suspect they are tiny players in both the TV and online shopping markets. The entry of this well-known US partner into the equation could quickly change that, however, as QVC is hugely popular in the US, where it pioneered the home shopping concept and has exported the idea to places like Britain, Germany and Japan. Of course, the entry of a strong foreign partner is far from a guarantee for success, as other big media names like Viacom (NYSE: VIAb) have joined forces with major Chinese media groups in the past only to see those ventures fail, often due to lack of critical government support. The big difference this time is that China has shown a recent desire to finally open up the media space to foreign investment, and thus may be less likely to try to undermine such tie-ups like it did in the past through onerous regulations and other regulatory obstacles. The new openness to foreign investment has been on display over the last few months, with DreamWorks Animation (NYSE: DWA) announcing a landmark animation-producing joint venture in Shanghai (previous post), and the New York Times (NYSE: NYT) also launching a China-based science magazine (previous post), both in February. At the same time, a growing stream of Chinese media companies have also made or announced plans for IPOs, again indicating Beijing wants these companies to become more commercially oriented and competitive. Following this early string of deals, I would look for more Sino-foreign tie-ups to come in the media sector this year, potentially involving some major global names as they take a new look at the China market.

Bottom line: QVC’s new China joint venture marks the latest recent entry by a major foreign firm into China’s media market, with more likely this year as Beijing opens up the sector.

Related postings 相关文章:

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

◙ Facebook, DreamWorks in Latest China Moves Facebook、梦工厂在华最新动向

◙ Xinhuanet IPO Sets Stage For Media Listings 新华网IPO或将开启媒体上市热潮

Solar Tariffs: US Takes Middle Road 太阳能关税：美国采取折中路线

By on

After months of haggling and suspense, the US has finally made its decision in the contentious anti-dumping case against Chinese solar cell makers and found a middle ground in the form of a relatively light punishment accompanied by signals that Beijing needs to ease its unfair support for this industry. In the end, the Obama administration probably realized that it needed to take some kind of punitive action to satisfy critics of China’s strong support for its solar sector, especially in an election year. But at the same time, he also probably realized it’s in no one’s interest to deal a fresh blow to this already struggling sector developing sustainable energy alternatives to replace the world’s current dependence on fossil fuels. According to media reports, after a months-long investigation dating back to last summer, the Obama administration has finally decided to levy punitive tariffs of up to 4.7 percent — a relatively modest amount — on Chinese panels exported to the US. (English article) I suspect this relatively modest figure was probably the result of behind-the-scenes talks with Beijing, which has probably quietly agreed to scale back some of the indirect subsidies, such as cheap bank loans and tax rebates, that were the source of the complaint. Reaction from actual companies has been guarded so far, but looks cautiously optimistic that a crisis has been averted for now. Industry leader Suntech (NYSE: STP) indicated that the relatively benign tariff of 2.9 percent imposed on its products vindicated its assertion that it wasn’t receiving unfair government subsidies. (company announcement) It also pointed out that it has manufacturing facilities in the US, pointing to a trend that may see many of China’s solar panel makers set up production bases in the western markets that are their biggest customers to show they can also help to contribute to those local economies. Another solar company, Yingli (NYSE: YGE) was similarly cautious in its reaction, simply thanking its customers and reiterating that it is not unfairly subsidized and that punitive tariffs are bad for the entire industry. (company announcement) Investors were certainly cheered by the decision, with Suntech and Yingli shares both up around 13 percent on Tuesday. I should emphasize that this decision is just preliminary, but there’s no reason it shouldn’t become final if everyone finds it agreeable. That said, I would expect to see Beijing make some face-saving moves in the next couple of months to show it is quietly scaling back many of the practices that led to this complaint in the first place, which could include ending export tax rebates and pushing companies to seek new financing from true commercial banks rather than state-controlled Chinese lenders. If that happens, look for this conflict to quietly fade, letting the industry focus its sights on returning to profitability and improving its technology.

Bottom line: Preliminary US anti-dumping tariffs against Chinese solar panel makers look largely symbolic, and are likely to be followed by similar conciliatory moves by Beijing.

Related postings 相关文章:

◙ Price Trumps Tech For Solar 光伏投资者重技术但更重产品价格

◙ New Solar Storm Brews in Europe 欧盟或发起反倾销调查 中国光伏业再蒙阴影

◙ Yingli Results: Rescue En Route From China? 英利财报：来自中国政府的营救？

NEC China Cellphones: New Lenovo Tie-Up? NEC计划重回中国手机市场 或与联想联姻

By on

What looks like a new wrinkle has emerged in the growing love affair between Chinese PC giant Lenovo (HKEx: 992) and Japanese electronics giant NEC (Tokyo: 6701), in what could well end up as a marriage that could serve as a template for similar Sino-Japanese tie-ups in the consumer electronics space. Media are reporting that NEC has announced it will once again enter the China cellphone market 6 years after its high-profile departure, with plans to sell a smartphone model, as well as 2 tablet PCs. (English article) Historians will recall that NEC left China back in 2006, at the time citing mismanagement for its decision to leave the world’s largest cellphone market. Of course the real issue was that its phones had become virtually invisible in the market, paralleling a trend in the rest of the world that has seen not only NEC but most Japanese brand cellphones and PCs become non-players nearly everywhere except for their highly protected home market. So what’s different now that would embolden NEC to return to China, the world’s biggest mobile market but also an incredibly competitive one where consumers are especially price sensitive and NEC has little or no brand recognition? The answer is: Lenovo. Last year the 2 companies entered into an interesting agreement that effectively saw Lenovo take over NEC’s PC operations through the establishment of a joint venture. (previous post) Lenovo followed later by saying it may move some of its production to Japan, in what looked like a bid to ease concerns from NEC’s Japanese customers who were undoubtedly worried that their computers could suffer a quality downgrade if all production was moved to China. (previous post) This kind of tie-up looked interesting as it had the potential to provide Lenovo with a quick entry to the lucrative Japan market that has been one of the toughest for foreign brands to tap due in part to local preference for domestic brands that are perceived as higher quality. It also gave Lenovo, the world’s second biggest PC maker, a new premium brand to market outside Japan through its numerous sales channels in both western and developing markets. There aren’t any details in the latest reports about NEC’s decision to re-enter China’s cellphone market, but I would be willing to bet that Lenovo, as China’s dominant PC player with about a third of the market, will be a strong partner behind the scenes, providing NEC with access to its strong sales and service networks throughout the country. Furthermore, while the Lenovo name is synonymous with good quality PCs in China, the same is hardly true for its cellphones, which have had a much more difficult time establishing a strong name in the company’s home market as it vies with better known names like HTC (Taipei: 2498), Apple (Nasdaq: AAPL) and up and comers Huawei and ZTE (HKEx: 763; Shenzhen: 000063). This NEC move back into China, if Lenovo is really involved, could provide Lenovo with an important new premium brand that doesn’t have any of the baggage associated with its own cellphones. That could pave the way for an eventual joint venture for the NEC cellphone brand similar to the 2 companies’ PC tie-up. In fact, TCL (Shenzhen: 000100; HKEx: 2618), another Chinese brand known for its cheap cellphones, made a similar shift with its purchase of the Alcatel cellphone brand name around 5 years ago, and Alcatel-branded phones now account for the lion’s share of its sales outside China. So, what exactly is the end game in this growing love affair between Lenovo and NEC? If the PC partnership proves successful in Japan and this new NEC cellphone initiative in China is also a success, I could easily see an eventual sale in the next 2-3 years that would see Lenovo acquire outright NEC’s PC and cellphone units, 2 of its main consumer electronics businesses. Such a deal could serve as a template for future tie-ups between Chinese electronics companies and their Japanese counterparts. Chinese companies could use such deals to shed their image as makers of cheap, lower-end products, while Japanese firms could shed their increasingly unprofitable and marginal electronics businesses.

Bottom line: NEC’s re-entry to the China cellphone market looks like the latest wrinkle in its growing ties with Lenovo, which could ultimately result in a longer-term marriage.

Related postings 相关文章:

◙ Lenovo Considers Japan Production 联想向日本转移制造业务为明智公关手段

◙ Lenovo Results: Honeymoon Nearing an End? 联想并购後的蜜月期何时结束？

◙ Lenovo-NEC: Let the Defections Begin 联想与NEC结盟注定失败

Google Tussles With China on Motorola 延迟批准摩托罗拉移动交易 中国政府对谷歌仍心存芥蒂

By on

Leaders in Beijing seem to be holding a long grudge against Google (Nasdaq: GOOG), following its high-profile withdrawal from the China market in 2010 after a dispute over self-censorship policies. That’s the only conclusion I can draw from the latest news in this stormy relationship, which has seen China emerge as the lone major country that has yet to approve Google’s pending purchase of Motorola Mobility (NYSE: MMI), the faded giant that was once the world’s second largest cellphone maker. All major governments have approved the deal announced last August, in what looks to me like an easy call for most anti-monopoly regulators as Google doesn’t make cellphones and Motorola Mobility is now just a relatively small player in the competitive space anyhow. But for some reason, China’s anti-monopoly regulator has not only failed to approve the deal more than half a year after it was first announced, but has actually said it will need extra time to make a decision. (Chinese article) Exactly why the Chinese regulator needs so much time to make what should be a relatively easy decision is hard for me to determine, which is why I can only guess that Beijing still harbors some bad feelings towards Google. Readers will recall that Google made global headlines in 2010 with its departure from China, which cast a spotlight on the self-policing that all web sites are forced to do under Chinese law to eliminate sensitive content from their sites, creating lots of negative global publicity for Beijing. Since then, China has dragged its feet in a number of decisions relating to Google. First it delayed before finally approving a renewal of the registration for Google’s China Internet domain, Google.cn; and more recently it has sparred with Google over the licensing of its mapping service in China, which is reportedly still awaiting final approval. (previous post) I previously said I thought Beijing and Google had moved past their bad feelings from the 2010 dispute, but perhaps some conflict still remains. Still, I do believe that both sides realize they need each other and can’t really afford  to fight too much, as Google’s Android is now the world’s most popular smartphone operating system and China is the world’s largest mobile market. There’s also an interesting side element to this story which may not even be Google-related, in that Motorola’s sale of its networking equipment business last year to Nokia Siemens Networks also ran into repeated unexplained delays in approval from China last year. Then the deal was suddenly approved after an unrelated patent dispute between Motorola and Huawei was settled, leading some, myself included, to suspect the 2 actions were related. (previous post) It’s hard to say if there might be a similar related element this time as none is apparent; but hopefully China has learned by now that its approval of major global M&A shouldn’t be tied to unrelated matters.

Bottom line: China’s delays in approving Google’s purchase of Motorola Mobility point to lingering distrust by Beijing towards Google.

Related postings 相关文章:

◙ Google: Getting Mapped Out of China? 谷歌地图：会退出中国市场吗？

◙ Google Map Impasse Resolved With New JV 谷歌地图风波解决

◙ Troublesome Timing As China Approves NSN-Motorola 中国监管部门批准诺基亚西门子购买摩托罗拉网络业务时机不佳

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

By on

All eyes will be on discount online retailer Vipshop later this week when it should officially become China’s first New York IPO in months, testing whether investor sentiment has improved toward this group that was rocked last year by a series of accounting scandals. But in the meantime, a potential new scandal brewing at leading online clothing retailer Vancl will hardly help the situation. Details are quite scant and the company isn’t even confirming anything, but Chinese media are citing unnamed sources saying Vancl’s chief financial officer has resigned and that the company’s planned IPO now won’t happen until 2014 at the earliest. (Chinese article) Again, there’s little or no explanation about what’s happening at this company, but the resignation of a CFO is a never a good sign, as this is obviously the top person in charge of the company’s accounting and the implication is that he left due to questions about that part of the business. The big delay for Vancl’s IPO, if true, is also quite surprising, as the company was reportedly all set to make a public offering last summer before deciding to indefinitely delay the deal after market sentiment tanked. So the fact that sources are saying that the IPO won’t happen for at least 2 years now seems to indicate that auditors may have found some serious problems in Vancl’s accounting that will require a while to fix before the company can make a new effort at an IPO. The same reports say Vancl estimates it will post a loss of 1 billion yuan, or about $160 million, for the current fiscal year ending in June, which clearly isn’t the kind of story you want to tell investors before a big IPO. Of course, the problem with all of this is that the source of the information isn’t named in the report, so it’s hard to know how much is really accurate. My guess is that the CFO resignation and large loss are true, as the e-commerce space has been suffering from rampant competition for much of the last year driving everyone deeply into the red and setting the stage for a much needed consolidation as companies run out of money. In fact, Vancl was just one of many e-commerce firms to reportedly lay off employees last year, cutting about 5 percent of its workforce to conserve cash. (previous post) It’s unclear if Vancl is facing an internal accounting scandal, but, as I said above, the fact it’s delaying its IPO by 2 years when it’s clearly in need of cash certainly seems to indicate something is happening. With investors unlikely to provide any new funds until the e-commerce landscape starts to settle down, look for more layoffs at Vancl in the year ahead, and for the company to possibly even become insolvent or get acquired. In the meantime, this development could weigh on Vipshop’s upcoming IPO, causing investors to avoid this important first new offering for a China-based web firm in half a year.

Bottom line: The reported departure of Vancl’s CFO and delay of its IPO point to accounting issues at the company, which could prolong investor concerns about Chinese accounting practices.

Related postings 相关文章:

◙ Vancl: Sales Soar, But Where’s the IPO?

◙ Qihoo, Vancl Fend Off New Attacks 奇虎、凡客和人人承受压力

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

Alibaba vs eBay: Chapter 2 Begins 阿里巴巴和eBay狭路又相逢

By on

After engaging in a bloody war in the online auctions space 7 years ago that ironically resulted in no winners, leading e-commerce firms Alibaba and eBay (Nasdaq: EBAY) may be gearing up for a second round in this entertaining conflict in the lucrative electronic payments area. That’s the way it looks following the latest disclosure that PayPal, eBay’s highly successful e-payments service, intends to enter China’s fast-growing domestic electronic payments market. (English article) In fact, PayPal already processes electronic payments between China and other countries, and indicated as early as last fall that it was seriously considering a bid to enter China’s domestic market that would allow it to process payments between Chinese buyers and sellers. That market is currently off limits to foreign-invested companies, but the country is now accepting applications and many it expect it to issue its first licenses to the group later this year, following the licensing of domestic players last year. A top PayPal executive has said he is cautiously optimistic his company will be one of the first foreign recipients of a new license. Anyone who follows the market knows that PayPal’s entry to the market would put it in direct competition with Alibaba’s AliPay, which has grown rapidly to become one of its most valuable assets and is now a leading player in the space. China Internet historians will recall that another Alibaba service, its Taobao online auctions marketplace, fought a fierce battle with eBay’s EachNet starting around 2005. That battle saw Taobao institute a strict no-fee policy that helped it rapidly steal share from EachNet, which at the time was the country’s dominant provider of online auction services, also known as consumer-to-consumer or C2C. EBay eventually conceded the battle, leaving the market to Alibaba which heavily trumpeted its victory in this battle. Ironically, Alibaba would go on to discover it had won the battle only to lose the war, as it could never find a way to earn very much money from its online auction business, which is now one of its smaller assets. After that battle, eBay and Alibaba actually had a brief friendly period where they joined forces, only to see eBay break off that relationship last year. (previous post) Unlike online auctions, which no longer generate much excitement among investors, e-payment services seem to be a safer long-term bet, as they can be used by anyone doing business on the Internet and generate steady revenue for providers in the form of transaction payments. AliPay clearly has an advantage in this market due to its longer operating history. But that said, PayPal has been active for years in the cross-border market between China and the rest of the world, and has the resources to wage a serious new war if it gets a license. Look for this newest battle to be quite colorful and interesting, with eBay quite possibly winning the second round of this ongoing rivalry with Alibaba.

Bottom line: A new war could shape up between Alibaba and eBay later this year in electronic payments, putting pressure on Alilbaba’s lucrative AliPay service.

Related postings 相关文章:

◙ Alibaba, eBay Lovefest Over as eBay Rethinks China 阿里巴巴和eBay的蜜月期结束

◙ E-Payments: Lots of Noise But Little Space

◙ Alibaba in Alipay Deal: Jack Ma Wins Again 支付宝股权纷争尘埃落定 马云公关赚钱两不误

China Oil Majors Step Into Troubled Waters 中海油卷入南中国海争端

By on

The latest controversy involving oil exploration giant CNOOC (HKEx: 883; NYSE: CEO) is once again shining a spotlight on why these Chinese government-controlled oil majors remain a risky bet not only due to exposure to volatile oil markets, but also because of their role as policy tools of Beijing. CNOOC and peers Sinopec (HKEx: 386; Shanghai: 600028; NYSE: SNP) and PetroChina (HKEx: 857; Shanghai: 601857; NYSE: PTR) are accustomed to having to heed Beijing orders to invest in more expensive unconventional fossil fuels like shale oil (previous post), which already carry risks due to their higher development costs. Now it seems these 3 are also becoming policy tools of Beijing in its determination to exert its rights to disputed waters in the South China Sea also claimed by Vietnam. Foreign media are reporting that Vietnam’s foreign ministry has said that CNOOC’s recent moves to develop oil resources in some of those waters violate its territory, and has asked China to cease those activities. (English article) Diplomatically speaking, this kind of move represents a dangerous escalation of this  territorial dispute by bringing in a commercial element. From CNOOC’s perspective, this development is also quite troubling as the company is being clearly used as a tool of Beijing to undertake a project that most purely commercial companies would never even consider due to the very real prospects for military conflict. If CNOOC really goes ahead and starts to explore for oil in this area, there’s the very real prospect that it could see its ships and other exploration equipment come under attack from Vietnam, potentially resulting in major losses and turning up the heat in this ongoing territorial conflict. Almost equally bad would be the possibility that CNOOC actually finds oil, which would automatically raise the stakes in this conflict due to the discovery of a valuable new resource in the area. I don’t hold strong views on this particular conflict, which is really a diplomatic matter for China and Vietnam to resolve. But for China to bring one of its major publicly-traded companies into the middle of the conflict is highly irresponsible, as it creates a huge new risk for CNOOC shareholders that no truly commercial company would ever want to take. Then again, shareholders in any of China’s 3 oil majors should be accustomed to shouldering this kind of risk as all are frequently ordered by Beijing to invest in areas with questionable chances of success. But it’s one thing to force a company to develop a difficult new resource, and quite another to ask it to put itself in the middle of a political spat that could easily result in military conflict, endangering not only property but also human lives. If Beijing continues in this direction, investors could be well advised to sell CNOOC and PetroChina shares, as both could easily end up suffering major damage as they become pawns in Beijing’s territorial disputes with its neighbors.

Bottom line: Beijing’s use of CNOOC to exert territorial claims over disputed waters with Vietnam is a highly irresponsible move that puts both the company and its shareholders at unnecessary risk.

Related postings 相关文章:

◙ Stumbling CNOOC Replaces Chief Executive 中海油换将李凡荣接棒CEO

◙ Alternate Fossil Fuels: China’s Newest White Elephant 过度追求替代性化石燃料或给中国留下大量沉重“鸡肋”

 

◙ 2012: The Year of China Resource M&A? 2012：中国企业的资源并购年？

SMIC: Still Tethered to the State 中芯国际：仍然依赖国家

By on

China’s largest chip maker SMIC (HKEx: 981; NYSE: SMI) seems firmly dependent on support from the Chinese government despite its best efforts to show it can compete in the lucrative but also highly competitive market for these high-tech products that lie at the heart of most electronic gadgets. The latest evidence of SMIC’s inability to stand on its own comes in the company’s latest announcement that it has secured a $600 million loan to help it upgrade its state-of-the-art factory in Beijing. (company announcement) Within the announcement, SMIC’s CEO Tzu-Yin Chiu points out that the participation of commercial banks in the loan validates the company’s strong prospects, implying that commercial banks would only lend money to a company with strong future potential. But a closer look at the list of banks participating in the loan reveals that it’s all Chinese policy banks and state-run commercial lenders, all of which take their orders from the government. The list includes policy banks China Development Bank and Export Import Bank of China, and commercial lenders China Construction Bank (HKEx: 939; Shanghai: 601939), Bank of Beijing and Bank of Shanghai. No one should be surprised that SMIC’s 2 biggest bases are in Shanghai and Beijing, which explains why 2 of the top regional banks in these cities were among the commercial lenders on the deal, no doubt instructed by local government officials to participate. I’m not saying that there’s anything inherently wrong with accepting money from government-controlled banks, but it’s certainly not very strong evidence to convince investors of your strong long-term prospects. Indeed, investors seemed unimpressed and and perhaps even worried by the loan announcement, with the company’s New York-traded shares falling nearly 5 percent after the news came out. SMIC’s Hong Kong-listed shares have languished since last summer, when an internal management battle broke out after its chairman suddenly died and its well-respected CEO was forced to resign. (previous post) A period of instability followed before the instigator of the internal battle himself was pushed out and Tzu was brought in as new CEO to return some stability. SMIC’s shares fell from as high as HK$0.90 before the battle, when the previous CEO was showing clear signs of turning around the underperforming company, to their current position where they are now stuck in the HK$0.40 to HK$0.50 range. This latest loan announcement just underscores that any progress made under the previous CEO has been dismantled as the highly cyclical global chip sector heads for its next downturn, and any return to profits for this once-promising but consistently troubled company probably won’t come until late next year at the earliest.

Bottom line: SMIC’s continued dependence on state support for its financing reflects a company stuck firmly in the red, with no near-term prospects for return to profitability.

Related postings 相关文章:

◙ SMIC Puts Turmoil Behind It — Again 中芯国际又走出内讧

◙ Chip Merger Near, More Consolidation Ahead? 华虹NEC和宏力半导体合并预示未来或有更多整合

◙ SMIC: Under Fire From All Directions 中芯国际亏损显示其内外交困