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

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

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Leading online clothing retailer Vancl has held a high-profile press conference where its Chairman and CEO Chen Nian talked at length about his company’s latest developments, including its phenomenal growth since its founding as well as its missteps over the last year. But what’s perhaps most revealing is what he didn’t talk about, namely the company’s long-delayed IPO, reflecting the intense competition that has developed in online retailing over the last year that has perhaps caused Vancl to quietly slip into the red — if it was ever profitable to begin with. Chinese media reports cite Chen giving out a multitude of figures for his company in 2011, including 150 percent sales growth. (English article; Chinese article) The reports also cite Chen saying his company made some missteps last year, mostly due to management’s loss of strategic direction. That confession, combined with previous reports of layoffs amid a cash crunch (previous post) and no mention of profits at the press conference, all tell me that Vancl is losing money, possibly a lot of money, and may be coming under intense pressure to raise more funds or cut costs or both. Vancl reportedly completed all the necessary steps for a New York IPO last year and was waiting for the right time to make its offering, but ultimately had to scrap its plans when market sentiment toward Chinese companies — especially money-losing ones — tanked in the second half of the year. Online video site Xunlei sounded a cautiously positive note for the market last week when reports emerged that it was reactivating its own New York IPO, which it also had to scrap last year due to the weak market sentiment. (previous post) But unlike Vancl, Xunlei was already in the black as early as 2009, when it posted a profit of $5.5 million. When the US IPO market for Chinese companies finally does improve, profitable companies like Xunlei are much more likely to lead the next wave of new offerings than money-losers like Vancl and 360Buy, another money-losing candidate for a US IPO, which investors won’t embrace so easily. If that’s the case, look for more cost-cutting by Vancl in 2012, with an IPO unlikely before the second half of the year at earliest — if the company survives that long.

Bottom line: 2012 will be a tough year for cash-strapped money-losing Vancl, which won’t be able to make a long-delayed US IPO until the second half of the year at earliest.

Related postings 相关文章:

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

◙ Internet Investors Seek Refuge in Big Names 互联网投资者选择性支持中国市场领头羊

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

Markets: HK Huddles, Int’l Board Balks 赴港上市仍障碍重重 上海国际板推出再度押後

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There are a couple of interesting stories out today on stock markets that specialize in China listings, one pointing to a potential surge in new offerings in Hong Kong while the other suggesting a long-delayed international board being set up in Shanghai won’t be launching anytime soon. Let’s start with the Hong Kong development, which is the more interesting of the two. Media are quoting a Chinese securities regulator saying his agency wants to streamline the process for Chinese companies to list in Hong Kong, a move aimed at helping smaller entrepreneurial companies to raise funds. (English article) On the surface this move looks interesting, as such companies do lack access to funds and are usually low on the domestic IPO list, where preference usually goes to former state-run companies with strong government ties. This kind of move by the regulator also looks like it could steal business from the New York stock markets, where the vehicle used by most Chinese companies to list is coming under scrutiny after a recent series of accounting scandals. There are 2 big problems with these assumptions. Perhaps most important, Hong Kong requires all companies that list on its main board to report at least 3 years of profits — a requirement that most US-listed Chinese firms would have failed at the time of their IPOs and a requirement that will make it hard for many smaller entrepreneurial firms to list in Hong Kong. Secondly, Hong Kong tends to be very conservative in terms of which listings it approves, meaning it is unlikely to approve many smaller, riskier companies that might become eligible for Hong Kong IPOs even if the Chinese regulator relaxes its rules. Moving on to the second topic, Shanghai’s highly anticipated but long delayed international board, the story is quite straightforward: investors shouldn’t expect anything anytime soon. Media are quoting Shanghai’s mayor saying the timing isn’t right for the launch of such a board, even though the Shanghai stock exchange said 2 months ago all preparations were ready. (English article) In this case the reason for this latest delay is obvious: China’s 2 main stock exchanges are both extremely weak right now, and officials won’t launch a new board that could drain further money from the domestic exchanges until things show signs of improving. If that’s the case, the international board’s launch could be delayed indefinitely and may not even occur this year at all, as China’s domestic markets show no signs of improving anytime soon.

Bottom line: Plans to let more Chinese firms list in Hong Kong are likely to have little or no impact, while launch of an international board in Shanghai could be delayed until late 2012 or even 2013.

Related postings 相关文章:

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

◙ Cleanup Resumes, Facebook Sniffs Out China Investors 在美上市的中国企业将继续面临“大清洗”

◙ Jishi the Latest in Low-Key Media Listing Parade 吉视传媒加入中国媒体低调上市大军

Huawei Discovers Cellphones 华为手机要向世界前三进军

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Huawei Technologies, one of China’s most successful exporters but also one of its most frustrated, is following in the footsteps of crosstown rival ZTE (HKEx: 763; Shenzhen 000063) in discovering cellphones, a far less controversial product than its traditional networking equipment business. The move looks like a smart one for Huawei, even if the company is a little late coming to this product area, with many interesting implications. Chinese media are quoting an executive saying Huawei is aiming to become one of the world’s top 3 cellphone makers within the next 5 years — a big order for a company that is currently just a minor player but certainly not impossible for one with Huawei’s vast resources. (Chinese article) Equally significant was where the executive made his remarks, namely at the Consumer Electronics Show (CES) last week in Las Vegas, the world’s largest consumer electronics show that Huawei was attending for the first time. The new push will add an interesting new competitor to the market, posing a challenge not only for domestic rivals like ZTE and Lenovo (HKEx: 992), but also for foreign companies like Motorola Mobility (NYSE: MMI) and even faded global leader Nokia (Helsinki: NOK1V). Huawei is no doubt finally realizing that cellphones are far less sensitive as a product than its core telecoms equipment business, which is showing signs of quickly slowing amid resistance in western markets like the US, where security is a concern (previous post), and even in India, where a corruption scandal has brought the industry to a standstill. (previous post) As a product area, cellphones are also far less cyclical than traditional networking equipment, whose sales tend to spike when new technologies like 4G or wi-fi come out, but then subside afterwards. Lastly and perhaps most interesting, the development of a strong cellphone business could provide Huawei with an opportunity for something that’s been talked about for years but has never happened, namely a Huawei IPO. Huawei tried to sell of its cellphone business several years ago but failed after it didn’t get the price it wanted. But that business was very small at the time, making it not very attractive to outside buyers. If it was one of the world’s top 3 players, on the other hand, it would certainly become a much more attractive candidate for an international IPO, finally giving investors a chance to buy into this interesting buy controversial company.

Bottom line: Huawei’s new drive into cellphones could create a major new global player in a short time, with a potential IPO for the unit in the next 5 years if the drive is successful.

Related postings 相关文章:

◙ Huawei Puts Brakes on India Drive 华为印度建厂计划推迟

◙ US China Bashing Hits New High With Telecoms Probe 华为中兴应巧选时机应对调查

◙ ZTE Gambles With Smartphone Share Grab 中兴通讯押注智能手机业务

News Digest: January 17, 2012

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The following press releases and media reports about Chinese companies were carried on January 17. To view a full article or story, click on the link next to the headline.

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

◙ China to Ease Controls on HK Listings: Regulator (English article)

◙ Vancl 2011 Revenue Increases 150% YoY (English article)

◙ Baidu-Invested (Nasdaq: BIDU) Qunar Considers US IPO (Chinese article)

◙ China Telecom (HKEx: 728; NYSE: CHA) to Launch iPhone 4S by March – Source (English article)

◙ Huawei Aims To Become One of World’s Top 3 Cellphone Brand in 3 Years (Chinese article)

Sina’s Weibo Suffers New Setback With Lawsuit 吉林市驻京办可能起诉新浪微博

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Sina’s (Nasdaq: SINA) Weibo service is suffering yet another setback as the Beijing representative office of northeastern Jilin province prepares to sue the wildly popular microblogging service, marking an ominous start to the new year for the former high flyer. In this latest setback, the Jilin representative office says it will sue Weibo for defamation after a woman with “verified” status on the site falsely claimed the office as her employer and boasted of a lavish lifestyle. (Chinese article) The case underscores the difficulty Sina will have in verifying the identities of its 250 million users over the next 2 months, after Beijing ordered it and other social network sites to do so as part of a campaign to crack down on rumor-mongering and general unruliness in the space. (previous post) It also exposes the vulnerability that Weibo will face from similar lawsuits by others who say their reputations have been damaged by things that are said and happen on the site, potentially burying Weibo in a pile of legal actions that distract it from its core mission of becoming profitable. The case behind this looming lawsuit looks very similar to another more high-profile one earlier last year, which saw scandal erupt after a woman named Guo Meimei, who had similar “verified” status as an employee for a unit of the China Red Cross, boasted of a lavish lifestyle on the site. Her boasts led many to question how their donations to the Red Cross were being used, and it was later discovered that she really didn’t work for the organization despite her “verified” status. This latest case has seen another woman named Gao Yue, who had similar “verified” status as an employee of the Jilin representative office, make similar claims of a lavish lifestyle, again raising the ire of other Weibo users. The Jilin office  responded by filing a formal complaint with the police, and saying it intends to sue Weibo for defamation. Luckily for Weibo, Chinese law strictly limits potential damages for such lawsuits, meaning Sina is unlikely to face serious financial consequences even if it loses such a suit. But such a development will damage Weibo’s reputation, and could open the doors to many more suits from people and organizations unhappy about activity on the site. I previously predicted that Weibo could make an IPO later this year when its business was booming last year, but now I think the service will be lucky if it can even become profitable by year end.

Bottom line: A looming lawsuit against Sina’s Weibo shows that 2012 will be a year of challenges for the former high-flyer, which will be lucky if it can even become profitable by year end.

Related postings 相关文章:

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

◙ Watch Out Weibo, Weixin Is Growing 新浪微博要小心腾讯微信要崛起

◙ Govt’s Microblog Shift Looks Good for Weibo 政府口风转变或有利於新浪微博

Google, Apple OS Rivalry Intensifies 苹果与谷歌在华智能手机战白热化

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The intense rivalry between Apple (Nasdaq: AAPL) and Google (Nasdaq: GOOG) is heating up in China, with the former hosting a somewhat unruly launch of its latest iPhone 4S in Beijing and Shanghai as the latter prepares to launch an app store for competing smartphones using its Android operating system. Apple made headlines in China over the weekend after scuffles broke out at some of its stores when the iPhone 4S formally went on sale the day before under service contracts with China Unicom (HKEx: 762; NYSE: CHU), China’s second biggest mobile carrier and Apple’s only iPhone partner in China so far. The biggest scuffle occurred when one Beijing store decide not to open due to safety concerns after large crowds lined up overnight to buy the phones as soon as they went on sale. (English article) Such news certainly isn’t great publicity for Apple and could provide some negative impact in the short term. But it also shows just how popular Apple products are in China, since the launch was still able to generate that much buzz even though the 4S was already available on the gray market following its US launch 3 months ago. That fact bodes well for China Telecom (HKEx: 728), China’s smallest mobile carrier, which is also reportedly near its own deal to offer the iPhone 4S on its 3G network and could hold launch the model as soon as next month. (previous post) Meantime, Chinese media are reporting that Google is preparing to launch a mainland Chinese version of its app store for Android phones, which would come just 2 months after Apple made a similar move by starting to accept payments in local currency, the renminbi, for its own China app store. (English article) Of course all this just shows the war between Apple and Google in the smartphone space will only intensify in the Year of the Dragon, and I wouldn’t be surprised to see the former sue the latter in China later this year as part of its global strategy of fighting Android through litigation.

Bottom line: The smartphone war between Apple and Google is heating up in China with new products from both, and could see Apple launch China-based lawsuits targeting Google’s Android later this year.

Related postings 相关文章:

◙ Apple Suffers Setback in China Lawsuit Loss 苹果在华商标侵权案初尝苦果

◙ Unicom, China Telecom in iPhone 4S 中国电信有望领先推出iPhone 4S Race

◙ Apple Overlooks China — Again 苹果再次撇开中国内地市场

Battle Heats Up For China Gas

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What looks like one of the first true hostile takeover bids in the brief history of Chinese M&A just got a little more interesting, as a major shareholder of takeover target China Gas (HKEx: 384) has boosted its stake in the company, in what looks like a challenge to rebuffed suitors Sinopec (HKEx: 386; Shanghai: 600028; NYSE: SNP) and ENN Energy Holdings (HKEx: 2688). Sinopec and ENN launched their unsolicited $2.2 billion takeover bid for China Gas, owner of some lucrative China-based natural gas distribution networks, back in December, and was surprised when China Gas rebuffed the offer saying it was too low. (previous post) The rebuff showed that major state-run firms like Sinopec clearly aren’t accustomed to other major Chinese companies refusing their takeover offers, in a market where everything used to be state-owned and central most of the country’s M&A was planned by central leaders in Beijing. Sinopec declined to comment at the time on whether it would raise its offer, but many predicted it might do so and that a bidding war could even break out for China Gas if another suitor entered the picture. Now it seems that one of China Gas’ major stakeholders, South Korea’s SK Holdings (Seoul: 003600), has been quietly buying up China Gas shares, bringing its stake to more than 12 percent of the company. (English article) SK’s recent buying spree looks more opportunistic than reflecting any real long-term commitment to China Gas, and shows that the takeover saga is still developing. I wouldn’t be surprised to see Sinopec and ENN raise their offer for China Gas in the next month or two, and could easily imagine one or more new bidders also entering the picture to chase one of the few more interesting energy assets in China that is privately owned. If that happens, look for a lively bidding war to develop that could see China Gas ultimately sell for as much as $3 billion.

Bottom line: SK Holdings’ recent increase in its stake of hostile takeover target China Gas presages a potential bidding war that could see the company sell for as much as $3 billion.

Related postings 相关文章:

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

◙ Cash-Rich China Eyes More Global Energy Assets　　财大气粗的中国企业着眼更多全球资源并购

◙ Pricey M&A, Cheaper Gas Undermine Sinopec 溢价收购和成品油降价 中石化面对双重利空

Xunlei, Muddy Waters Sound Upbeat Notes 迅雷和Muddy Waters保持谨慎乐观

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It’s the new year, and that means a time for new beginnings — or at least that’s what video sharing site Xunlei and infamous short-seller Muddy Waters are saying, as both sound notes of cautious optimism that the worst of the confidence crisis for US-listed Chinese stocks may be past. Let’s start with Xunlei, China’s seventh largest online video site, which is reportedly preparing to relaunch plans for a US initial public offering that it initially aimed to make last year. (English article) Readers will recall that Xunlei had planned to raise up to $200 million when it first announced its IPO plans last July, only to steadily scale back those plans as market sentiment plummeted due to a series of accounting scandals at US-listed Chinese companies. (previous post) It ultimately shelved the IPO, but has now completed preparations to restart the process, a company official said, without being more specific. Meantime, Carson Block, whose Muddy Waters research firm was behind several high-profile short selling attacks that helped to start the confidence crisis, is changing his tone slightly and saying he may actually buy some of the Chinese stocks whose shares took a beating last year. (English article; Chinese article) Block is still being quite cautious, saying only investors with the resources to conduct their own independent research should consider buying Chinese stocks at this point, implying we may still see yet another accounting scandal or 2 emerge before this latest confidence crisis ends, which I expect will be around the middle of this year. But the fact that he would even consider buying some of these companies — many of whose shares fell by half or more last year — indicates he thinks that valuations are probably in a more reasonable range now than they were a year ago. Industry watchers will no doubt be looking closely at Xunlei if it moves ahead with its IPO plan, as investor response could set the tone for the rest of the year, especially if the IPO is even moderately successful. I would expect Xunlei to move forward and take steps to keep expectations relatively low, with the result that it should be able to see modest success with an offering that will probably raise around $100 million in the first quarter.

Bottom line: Recent signals from Muddy Waters and Xunlei indicate the confidence crisis toward US-listed China stocks may be easing, with a sustained recovery likely in the second half of 2012.

Related postings 相关文章:

◙ Xunlei’s Shrinking IPO Disappears 迅雷无限期推迟IPO时间

◙ Cleanup Resumes, Facebook Sniffs Out China Investors 在美上市的中国企业将继续面临“大清洗”

◙ Short Sellers Target China in Year End Assault 做空抛盘年底将矛头对准在美上市中国企业

Search Blocking Wars Expand to Video 搜索屏蔽战蔓延至在线视频业

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The search-blocking wars that gripped the e-commerce sector in the second half of last year have spread to the online video space, where Tudou (Nasdaq: TUDO) and Sohu (Nasdaq: SOHU) video, the second and third largest operators, have blocked their content from a video search engine operated by top player Youku (NYSE: YOKU). (English article) Of course the biggest loser in this latest blockage battle will be the Chinese consumer, who will find it difficult to find the movies and TV shows he wants to view, which will also hurt the broader industry’s development. Let’s backtrack a moment and look at this latest development in a vibrant but perplexing industry where company behavior more often resembles children fighting in a sandlot than major corporations trying to do business. According to Chinese media reports citing a Tudou representative, Tudou and Sohu video, along with another major video site operator LeTV (Shenzhen: 300104), all decided to block their content from searches by Soku, an online video search engine operated by Yoku. The move comes as Tudou and Youku are embroiled in a series of lawsuits over copyright infringement (previous post), and just as the online video sector has started to sign a series of ground-breaking deals to legally license popular TV shows and movies as they try to wean themselves from the pirated content that was traditionally the main attraction on their sites. Youku announced the latest such deal just yesterday in a new tie-up with Twentieth Century Fox (Nasdaq: NWSA) (company announcement); but this latest spat will surely overshadow that news. In fact, moves like this could ultimately threaten future licensing deals, as this kind of blockage will ultimately make it more difficult for consumers to find the programs they want to watch online, putting a serious damper on the industry’s development. This latest development also comes as Chinese regulators consider restricting the amount of advertising that online video sites can put in their programs, potentially dealing another big blow. (previous post) From a broader perspective, these kind of developments don’t bode well for online video in 2012, and could even delay the money-losing industry’s march to long-term profitability.

Bottom line: A new search blocking war in the online video industry will hamper its development and, along with other negative developments, delay a transition to long-term profitability.

Related postings 相关文章:

◙ Tudou, Youku: China’s New Piracy Police　　土豆和优酷：中国打击盗版的民间警察

◙ 2011: A Breakthrough Year in Copyright Protection 2011年：中国版权保护取得突破的一年

◙ Search Wars Heat Up With Latest Anti-Baidu Moves 中国网络搜索战升温

Huawei Puts Brakes on India Drive 华为印度建厂计划推迟

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Telecoms equipment maker Huawei Technologies, which hit numerous roadblocks ast year in its drive to enter the US, has hit another obstacle in the fast developing and important India market as well, indefinitely postponing plans to build a major factory there. (Chinese article) The decision comes a couple of years after a major flare-up between China and India that saw the latter ban the import of telecoms equipment from both Huawei and Chinese rival ZTE (HKEx: 763; Shenzhen: 000063) for several months over security concerns. This latest move by Huawei, which probably would have involved an investment of $100 million or more, looks more related to a series of government corruption scandals that has gripped India’s telecoms industry in the last year, paralyzing new development. Reports in the Chinese media cite a Huawei official saying the new plant was designed to localize more of the company’s production and also address some of India’s security concerns, but that recent sputtering demand in light of the industry’s paralysis has made such new investment unnecessary. That kind of explanation is probably true, but also means that both Huawei and ZTE will take a hit in their India business this year, which is one of their most important Asian markets. It also shows that Huawei and ZTE will continue to face numerous obstacles as they try to expand in overseas markets, where concerns run high that their equipment may contain security loopholes designed for Beijing to use for spying purposes. Huawei has met with repeated resistance in the US due to such concerns, and with the presidential election coming there this year I wouldn’t expect the company to make its first major deal in the market until 2013 at the earliest. That reality, combined with the latest problems in India and weakening demand in Europe as it struggles with its ongoing debt crisis, means that 2012 could be a bleak year for both Huawei and ZTE in terms of telecoms equipment sales, with no relief in sight until 2013 at the earliest.

Bottom line: Huawei’s plans to delay construction of a major new factory in India reflects recent difficulty in the important market, and augers a difficult year for the company in 2012.

Related postings 相关文章:

◙ US China Bashing Hits New High With Telecoms Probe 华为中兴应巧选时机应对调查

◙ Huawei: Fight Them With Innovation 华为欲借创新论低调进军美国市场

◙ Huawei Undermines US Push With Foolish Request 华为讨要说法很不明智唯有阻碍进军美国市场

E-Commerce: 360Buy Explores IM, Wal-Mart Gets Serious 京东商城内测即时通讯工具,沃尔玛有意控股一号店

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There are a couple of interesting tidbits from the e-commerce space today, with 360Buy reportedly making a dubious move into instant messaging, as Wal-Mart (NYSE: WMT) prepares to boost its online presence by taking control of its Chinese online partner, Yihaodian. Let’s look first at 360Buy, also known as Jingdong Mall, which has reportedly developed an instant messaging product that it will launch later this year, according to Chinese media reports. (English article) If you had asked me 10 years ago about this move, I would have said that maybe it looked smart, as online shoppers and merchants should theoretically enjoy chatting with each other about their latest favorite products, discounts and so forth, just like any other community. The problem is, online auctions leader eBay (Nasdaq: EBAY) tried just such a move with its purchase of IM specialist Skype in 2005, in what looked like a logical move at the time. Of course, industry watchers will know that move ended in disappointment with eBay selling Skype to Microsoft (Nasdaq: MSFT) last year after failing to reap any synergies from the company. The case here is a little different as 360Buy is a B2C specialist whereas eBay is C2C. But I see no reason why the result will be any different, especially as 360Buy’s IM product will face stiff competition from existing offerings like Skype, Microsoft’s MSN Messenger and Tencent’s (HKEx: 700) popular QQ service. In the other news bit, financial services group Ping An is getting ready to sell some or all of its large stake in online retailer Yihaodian, with Wal-Mart lining up to buy more shares to become the company’s controlling stakeholder, Chinese media are reporting. (Chinese article) Wal-Mart already bought an undisclosed minority stake in Yihaodian last year (previous post), and has made it clear it intends to become a major player in Chinese e-commerce, after largely losing out in its home US market to big names like Amazon (Nasdaq: AMZN) due to its initial dismissal of the potential of online retailing. Yihaodian has already begun to boost its activity following Wal-Mart’s initial purchase, and look for it to become even more aggressive after the world’s biggest traditional retailer takes control, adding even more pressure to a space plagued by rampant competition and non-ending price wars.

Bottom line: 360Buy’s new instant messaging product is bound to fail, while Wal-Mart will add even more competition to the overheated e-commerce market by taking control of Yihaodian.

Related postings 相关文章:

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

◙ Wal-Mart Buys Into China E-Commerce 沃尔玛进军中国电子商务

◙ Price Wars Beat Up Online Retailers 网上零售商引爆价格战