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

Education Getting Lesson in Competition

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The latest signals from the education sector, including a mid-sized acquisition by a major foreign player, indicate competition is heating up in the space, posing future challenges for everyone. The latest deal is seeing British publishing giant Pearson (London: PSON) offering to buy a relatively small Chinese firm, Global Education and Technology Group (Nasdaq: GEDU) for just over $11 per share, or $155 million. (English article) That represented a 100 percent premium to Global Education’s last close before the deal was announced, and is nearly 4 times where it was trading in the days before that. The news didn’t help homegrown education leaders New Oriental Education (NYSE: EDU), TAL Education (NYSE: XRS) and Xueda (NYSE: XUE), whose shares all fell amid a broader Wall Street sell-off. Pearson’s latest China education buy follows its earlier purchase of Wall Street English, another major provider of English-language teaching in China, and also follows a move into the market earlier this year by US education giant DeVry (NYSE: DV) (previous post), showing foreign giants, whose ranks also include Disney (NYSE: DIS), realize the big potential in the market and are looking to capitalize on it. Of course all this could mean bad news for homegrown players like New Oriental and Xueda, the former of which reported slowing growth last week while the later posted a widening quarter loss. (previous post) Perhaps sensing vulnerability among the homegrown players, a small investment house, OLP Global, launched a short-selling attack on New Oriental late last week, drawing on recent concerns about the quality of accounting at many US-listed Chinese firms to imply New Oriental may have been playing tricks with its own accounting. The attack prompted New Oriental to issue a statement denying the allegations (company announcement) The statement may have stopped a broad slide for New Oriental shares, but its stock is still down 24 percent since the beginning of November, including a 10 percent drop after it announced its third quarter results. The way things are going, don’t look for the situation to improve for domestic education firms anytime soon.

Bottom line: The latest M&A by a foreign company in China’s education market show competition is growing intense, leaving domestic players vulnerable.

Related postings 相关文章:

◙ New Oriental Results: Slowing Education Growth Story 新东方发表最新财报 中国教育服务增长减速？

◙ Parade of China Money-Losers Report to Wall Street 多家中国企业亏损凸显市场竞争激烈

◙ Education: DeVry Deal Showcases Corporate Opportunity

News Digest: November 22, 2011

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The following press releases and media reports about Chinese companies were carried on November 22. To view a full article or story, click on the link next to the headline.

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◙ China’s Hony Capital Raising Up To $2.6 Billion: Sources (English article)

◙ Expedia (Nasdaq: EXPE) Buys Renren (NYSE: RENN) Stake in eLong (Nasdaq: LONG) (PRNewswire)

◙ China Telcos Announce October 2011 Subscriber Totals (English article)

◙ Phoenix New Media (NYSE: FENG) Reports Q3 Results (PRNewswire)

◙ Pearson (London: PSON) to Buy English Teaching Firm in China For $155 Mln (English article)

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

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Despite all its recent woes, I have to applaud electric vehicle aspirant BYD (HKEx: 1211; Shenzhen: 002594) for its determination to make its EV dream a reality. This time the company, backed by billionaire investor Warren Buffett, is using an old trick to try sell its electric cars and buses outside China, namely by building manufacturing plants overseas, in this case in Argentina. (English article) Of course, this kind of investment will be strongly welcomed in the Argentina and is generally welcome in any country, which means BYD shouldn’t have any difficulty selling similar plans in other overseas markets. Now the only issue is whether BYD can actually find a market for its cars in Argentina and other Latin American markets. The answer is almost certainly no. BYD hopes to leverage the Argentina plant as a springboard to sell its EVs in other Latin American markets. But in any of these markets, the company is likely to face a difficult road as most are unlikely to offer the same strong support as China, which gives big subsidies for EV buyers and helps to build out the charging stations necessary to make electric vehicles an appealing proposition for consumers. Even if these markets offer monetary incentives, an EV is still likely to cost far more than a traditional gas-powered vehicle, which will make them a tough sell in price sensitive Latin American countries where BYD will also face competition from other Chinese automakers selling low-priced made-in-China cars. I don’t know where BYD is getting the money to build all these plants, since its profits have fallen to nearly zero as its China sales plummet. Given its own tenuous finances, I would be wary of BYD’s ability to build and operate these new overseas plants over the longer term, not to mention helping to build new infrastructure to make its EVs attractive to overseas buyers.

Bottom line: BYD’s new plans to build its EVs in Argentina will face numerous obstacles, with the result that the project may not survive very long.

Related postings 相关文章:

◙ BYD True Test Begins With EV Consumer Roll-Out 比亚迪电动车上市 真正的考验刚刚开始

◙ Beijing Sends Mixed EV Signals 中国应推进电动车基础设施建设和宣传

◙ Hertz, GE Give Jolt to BYD Electric Cars 赫兹新项目为比亚迪“加油

Apple Prepares to Take on China Pirates 苹果开始接受人民币付款购买应用软件

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The latest signals from Apple (Nasdaq: AAPL) indicate it may be preparing to tackle the China piracy machine by offering legal music online, hoping to succeed where years of government effort from both the West and Beijing have largely failed. According to media reports, Apple has just begun accepting payments in yuan for apps downloads from its Chinese iTunes store. (English article; Chinese article) The move should provide an instant boost to Apple’s China business, as millions of Chinese who use iPhones and iPads will now be able to easily download apps for both devices. But from my perspective, the much more interesting and intriguing question is whether Apple is using this move as a precursor to making its core iTunes music store available to Chinese consumers. Techies will recall that Apple’s original iTunes store dealt a major blow to online music piracy in the United States several years ago when it began offering a wide range of legally-obtained tunes from most major music labels for reasonable prices of about $1 per song download. Apple’s breakthrough was followed by the opening of similar online stores, resulting in a sharp reduction in illegal online music swapping as consumers opted for better quality, reasonably priced legal copies of their favorite music. If Apple does indeed launch an iTunes music store in China, the big question, of course will be whether or not it can succeed. The answer in my view would be “probably,” with perhaps a 70 percent chance of success. Like their American counterparts, most young Chinese do have some spending money that they regularly use to buy the latest trendy clothes and personal care products and go to the movies. There’s no reason they wouldn’t spend some of that money on music downloads as well if the situation was right. The key to success a China iTunes store will be pricing. The $1-per-tune price tag may be a bit high for the average Chinese youngster, meaning Apple may have to accept a reduced amount for any China iTunes offering. But the big music labels would no doubt be happy to get any money they can from the China market, and I could see iTunes offering Chinese music downloads for 3-4 yuan each, or 40-60 cents, which could easily prove acceptable to consumers.

Bottom line: Apple’s new acceptance of yuan for its China apps store looks like a precursor for the opening of an iTunes music store, which would have a good chance of success.

Related postings 相关文章:

◙ Hulu Makes First Global Stop in Japan, China Next?

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

◙ After Years, Baidu Does the Right Thing 百度多年来的一个正确之举

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

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China-basing has become an unusually major theme in the current US election season, with rhetoric hitting a new high as politicians launch yet another anti-China investigation, this time targeting 2 of the nation’s most prominent exporters, Huawei Technologies and ZTE (HKEx: 763; Shenzhen 000063). Telecoms headlines were buzzing loudly late last week with word of the investigation, which was launched by the Republican-controlled House of Representatives to examine potential threats to national security posed by US-based telecoms networks built by Chinese companies. (English article) This very same concern was put forward by India a couple of years ago, resulting in a temporary ban of the import of Chinese telecoms equipment into the country. After months of talks, which reportedly saw Huawei and ZTE reveal their source codes to the Indian government, both companies were allowed to resume selling their products in the country. Furthermore, if Huawei and ZTE products really do pose such a threat, then most of Europe is now at major risk of Chinese telecoms spying, since telcos in most of its countries now count Huawei and ZTE as 2 of their major telecoms equipment suppliers. Of course, all this talk in the US is nothing new, especially in an election season when politicians have nothing to lose by sounding a tough anti-China note. Politicians in the House of Representatives have already launched anti-dumping probes into Chinese solar cell makers and passed legislation that would punish China as a currency manipulator in the last few months (previous post), and the Obama administration itself also recently denied Huawei permission to bid on contracts to upgrade government-run networks meant for use in emergencies. (previous post) Huawei’s US spokesman took a prudent approach to this latest investigation, saying it was natural for the US to reassure itself of national security on such sensitive matters. If Huawei and ZTE are smart, they will put their US campaigns on hold until after the election and let Beijing issue the periodic statement expressing outrage and disappointment at all the latest unnecessary but politically-motivated anti-China rhetoric.

Bottom line: A new US investigation into security threats posed by Huawei and ZTE is the latest in a string of anti-China campaigns that will continue until the 2012 presidential election.

Related postings 相关文章:

◙ 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

◙ Huawei, Lenovo Look to Foreign Advisors in Westward Drive

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

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China Mobile (HKEx: 941; NYSE: CHL), keen to launch its 4G service sooner rather than later, is embarking on a major wi-fi initiative in the southern boomtown of Shenzhen, in what looks like an attempt to circumvent the telecoms regulator. According to a domestic media report, China’s dominant wireless carrier has signed an agreement with Shenzhen that will see it spend 6 billion yuan, or nearly $1 billion, over the next 3 years to create a wi-fi network blanketing the city using its 2G, 3G and 4G networks. To me this looks like a clever way for China Mobile to quietly commercialize its 4G service, based on a homegrown technology called TD-LTE, which is currently in the second stage of trials in 6 Chinese cities, including Shenzhen. China’s telecoms regulator only awarded 3G licenses 2 years ago, and it is unlikely to award 4G licenses for at least another couple of years as it gives the nation’s 3 telcos time to recoup their 3G investments, which have totaled around $50 billion to date. As part of the 3G licensing process, China Mobile was required to build a network based on a homegrown technology, called TD-SCDMA, which has suffered from numerous problems and tepid support from handset and networking equipment makers. Accordingly, it has moved aggressively ahead with trials based on the more promising TD-LTE 4G technology, even as it rapidly loses share in the 3G space to rivals China Unicom (HKEx: 762; NYSE: CHU) and China Telecom (HKEx: 728; NYSE: CHA). This “wireless city” initiative in Shenzhen could be followed by similar initiatives in the other 5 TD-LTE trial cities, including Shanghai and Guangzhou, effectively allowing China Mobile to sign up millions of 4G data users even as its service remains in the trial stages. The 2 main risks to this strategy are: 1) that TD-LTE has lots of problems, which looks likely, causing consumers to shun the service; and 2) that the regulator realizes what China Mobile is trying to do and orders it to halt its wireless city plans. Either way, I have to applaud China Mobile for its creative approach, even though I suspect this initiative will ultimately run into lots of problems.

Bottom line: China Mobile’s “wireless city” wi-fi initiative in Shenzhen looks like a creative effort to bypass regulators in commercializing its 4G network, but is likely to fall flat.

Related postings 相关文章:

◙ China Telecoms Faces Power Struggle, Half-Baked 4G 中国电信行业遭遇政府监管权利斗争

◙ TD-LTE Hits First Delay, More to Come? TD-LTE技术首次延期 未来还会更多？

◙ China Mobile Shuffle: Sea Change Coming? 中移动高层变动或引发重大变化？

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

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The latest mass movement against online search leader Baidu (Nasdaq: BIDU) looks set to sow new chaos in China’s online community, once again underscoring that Beijing needs to step in and bring some order to the marketplace or risk major disruptions. Chinese media are reporting that 3 major web firms, Tencent (HKEx: 700), Qihoo 360 (NYSE: QIHU) and Youku (NYSE: YOKU), have all announced new search engine initiatives to rival Baidu, which dominates the market with nearly 80 percent share. (Chinese article) Tencent’s search engine, Soso, is actually already 5 years old, so that part of the story isn’t really news. (previous post) But what’s alarming is that the report says Youku, China’s leading online video sharing site, is launching its initiative after noticing that the number of Baidu search results directing users to its site has dropped sharply since Baidu launched its own video sharing service, called Qiyi. In fact, this is just the latest example of a frequent Baidu practice, namely tampering with its search results to make its advertisers and its own products appear at or near the top of its search results even when other web pages would rank higher under more objective conditions. This latest conflict pitting Baidu against 3 other major web firms comes just weeks after another similar mass protest saw major online retailers including Dangdang (NYSE: DANG) and 360Buy block their web pages from searches by Alibaba’s Etao search engine. (previous post) These kind of turf wars between major online players have the potential to create real chaos on the Chinese Internet by undermining the credibility of search engines that are often the first place web surfers go to find what they want on the vast worldwide web. I’m usually opposed to any attempts by Beijing to step in and regulate the online world, but this really seems like one exception where the government should step in and act as impartial arbitrator to set up some basic ground rules that everyone can agree upon to end these turf wars. Otherwise, China’s online world could be looking at 1-2 years of major disruptions until the building brouhaha gets resolved by market forces.

Bottom line: A new uprising by 3 major web firms against Baidu marks the latest unrest in China’s online search market, which needs Beijing to step in and act as impartial arbitrator.

Related postings 相关文章:

◙ Alibaba’s Etao Faces New Merchant Revolt

◙ Tencent Search: Baidu Beware? 腾讯搜搜成功关键依赖创新

Inflated Qihoo Bounces Back on Hot Air

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After briefly considering a recent research report raising doubts about user numbers from Internet security software maker Qihoo 360 (NYSE: QIHU), investors seem to have brushed the information aside, preferring to believe the company’s hype. OK, I should probably be a little more fair and say that the recent bounce-back in shares for Qihoo, which I’ve previously criticized for its unethical business practices, was probably sparked by a strong earnings report this week that saw the company’s third-quarter profit nearly triple and revenues rise by even more. (English article) But what caught my attention were claims by the company that it now controls 57 percent of China’s Internet browser market, with about 235 million users. This sounded a bit high to me, as most people I know in China use more mainstream browsers from Microsoft (Nasdaq: MSFT), Mozilla and Apple (Nasdaq: AAPL). So I did a little analysis based on data for this site. According to that data, about half of the visitors to this site are in China. And yet the same data source says just 13 percent of visitors to this site use Qihoo’s browser. So assuming this site is roughly representative of the market, that means Qihoo browsers control just a quarter of the China Internet market at best, or less than half of what it claims. If the browser figure is so inflated, then I can only imagine how accurate Qihoo’s other numbers are. A report earlier this month from a small research house called Citron also called many of Qihoo’s Internet numbers into question, and said the company’s shares were extremely overvalued and should trade at about $5 per share, versus their price of $20 at the time. (previous post) Its shares briefly slipped about 15 percent to around $16.50 after that, but have come back following its earnings report came out and now trade around $17.60. I won’t question the authenticity of the company’s earnings, as I do believe they are probably honest for legal reasons if nothing else. But once Qihoo’s advertisers — who account for 73 percent of the company’s revenue — realize they’re not getting nearly the online audience that Qihoo claims, look for that part of the company’s business to drop considerably.

Bottom line: Qihoo 360 continues to post strong results on Internet user data that appears to be quite exaggerated, making it vulnerable to advertiser defections.

Related postings 相关文章:

◙ Report Takes Wind Out of Inflated Qihoo 奇虎遭遇Citron釜底抽薪

◙ Qihoo Goes to War With Mobile Browsers 奇虎360加强移动互联网布局

◙ Qihoo Loses Yet Another Lawsuit, But No One Cares 奇虎败诉不足为戒

 

China’s Overseas Gold Grab Set to Stumble 山东黄金海外掘金或遇政府阻拦

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I have to admit I was a bit surprised to read this morning that China’s Shandong Gold (Shanghai: 600547) is crafting a $1 billion bid for Brazilian gold miner Jaguar Mining (Toronto: JAG), as gold doesn’t really seem to fit the trend of recent Chinese purchases of overseas resource assets. (English article) Sure, gold is a popular metal, especially for people who don’t like to put their investments in currencies like the US dollar that could fall in value, although gold has been known to do that too. But more importantly, most of China’s recent overseas resource purchases in the last couple of years have been for strategic things like oil, gas, iron ore and coal, all of which can be used to feed China’s fast-growing economy as it depletes its own natural resources at home. Gold, on the other hand, is more like an extra that’s nice to have if you happen to have some in your backyard, but certainly isn’t necessary to keep your factories running and industry humming. Investors seem to have taken the same view and are somewhat skeptical, at least based on the reaction by Jaguar’s New York-listed shares after the news came out. Its stock jumped a nifty 45 percent to $7.80 in Wednesday trading, but was still 16 percent below the reported offer price of $9.30 per share, which has yet to formally come. That relatively high discount reflects a big degree of investors doubt that this deal will ever close, and for good reason. For starters, Shandong Gold wants to make the purchase in cash, meaning it will have to find $1 billion in cash somewhere at a time when Chinese banks are sharply curbing their lending under orders from Beijing. But perhaps more importantly, I see very small chance that China’s regulator will approve the deal, which it will view as a frivolous use of capital with only a small chance of success as Shandong Gold probably has little or no experience running an overseas mining operation.

Bottom line: Shandong Gold’s $1 billion cash bid for Brazil’s Jaguar Mining is likely to be rejected by Beijing, which will see the purchase as frivolous and likely to fail.

Related postings 相关文章:

◙ Caterpillar Places Mining Bet With New Buy 卡特彼勒收购中资矿山机械企业押注中国矿业未来

◙ China Makes Up Its Mind: Iron Ore 中国终於下决心：大幅增加国内铁矿石供应

◙ CNOOC’s Latest M&A: A Shaky Oil Sand Castle 中海油收购加国油砂生产商或招来更多麻烦

Parade of China Money-Losers Report to Wall Street 多家中国企业亏损凸显市场竞争激烈

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Online video leader Youku (NYSE: YOKU), online retailer Dangdang (NYSE: DANG) and education services firm Xueda (NYSE: XUE) have all reported net losses in their latest results, underscoring the fact that Western investors don’t seem to care all that much about profits when it comes to Chinese firms, especially Internet companies. Each of these firms has a different story to tell, although frankly speaking all 3 look disappointing to me and show movement in the wrong direction. Let’s start with Youku, which reported a third-quarter loss of 47 million yuan, narrowing 11 percent from a year ago but ballooning from the second quarter’s 28 million yuan loss. (company announcement) The company also forecast a slowdown in fourth-quarter revenue growth to 90-100 percent from 130 percent in the third quarter. None of these trends looks particularly positive, especially after chief rival and much smaller Tudou (Nasdaq: TUDO) surprised the market earlier this week by becoming profitable in the third quarter. (previous post) As to Dangdang, the situation looks even more discouraging, as the company faces what seems like daily price wars with the likes of 360Buy and Wal-Mart’s (NYSE: WMT) Yihaodian in the super-competitive e-commerce space. Dangdang reported its third-quarter net loss ballooned to 73 million yuan, or more than double the 33 million yuan loss from a year earlier, as it tries to expand beyond its original model as a book seller to the ultra-competitive general merchandise business. (company announcement; Chinese article) Lastly there’s Xueda, which seems unable to get out of the loss column despite being in the high-growth education services area. It reported a $6.3 million loss for the third quarter, more than double the year-ago loss of $2.4 million, again reflecting tough competition in the market but also in sharp contrast to steady profits reported by industry leader New Oriental Education. (previous post) This parade of losses certainly is still more the exception than the rule among US-listed Chinese companies. But it also reflects a worrisome trend that competition for many has become way too intense, and consolidation in many areas is sorely needed.

Bottom line: Money-losing results from Youku, Dangdang and Xueda reflect stiff competition in their respective spaces, with no immediate relief in sight.

Related postings 相关文章:

◙ Tudou Surprises With Profit, Licensing Deal 土豆网意外扭亏为盈视频分享市场的好兆头

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

◙ New Oriental Results: Slowing Education Growth Story 新东方发表最新财报 中国教育服务增长减速？

Jiuxian Targets Taste For Wine

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One week after brewing giant Anheuser Busch InBev (NYSE: BUD) made headlines with the launch of its Stella Artois brand as a premier beer for the China market (previous post), online wine merchant Jiuxian is making a similar splash with disclosure of its latest venture funding, reflecting the growing spending power of an emerging class of affluent Chinese yuppies. Jiuxian isn’t giving a lot of details, except to say that it recently received the funding from a group led by US heavyweight Sequoia Capital and another venture firm called Oriental Fortune, and that the amount was bigger than its first-round funding of 20 million yuan, or just over $3 million, that it received in April. (English article) Previous reports had indicated Jiuxian was aiming to raise as much as $50 million in its second round of funding, so clearly things are moving along smoothly for the company as it builds a network of warehouses throughout China to cater to the tastes of affluent young urbanites who don’t mind spending a little extra for a bottle of red or white wine to show off their status. Back in September, Chinese media reported that another online wine merchant, WineNice, secured 80 million yuan in first-round funding from 2 Chinese venture companies, again underscoring the high growth potential of this space. (Chinese article) Like Jiuxian, WineNice, which was founded just 3 years ago, said it would use the money to build up a national infrastructure to deliver its wine to China’s large cities where demand is growing fast, adding it expects sales this year to top 150 million yuan, equaling about 1.5 million bottles of imported wine. Unlike the overheated broader e-commerce space, this niche market for online premium products like wine looks a little safer, as there’s less competition so far and the market for affordable luxury products like wine and premium beer is likely to grow rapidly in the next few years. That said, I would watch for Jiuxian, WineNice and others in this space to quickly turn profitable, and for the first IPOs from this sector to start popping up by the end of 2014.

Bottom line: The latest funding for online wine merchant Jiuxian underscores the big growth potential for this sector, spurring the rise of a new group of companies that could make their first IPOs as soon as 2014.

Related postings 相关文章:

◙ InBev Taps China’s Thirst for Luxury Brands 中国人重面子百威英博趁机引入高端啤酒品牌

◙ Diageo’s China Baijiu Bid: Aiming for the Middle 帝亚吉欧瞄准中国中档白酒市场

◙ Coke’s China Formula: A Pulpy and a Smile 可口可乐入乡随俗显成效