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

Pepsi’s New China Shot Ignores Bigger Issues 百事联手康师傅抢占中国市场

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After years of playing perennial number-two to Coke (NYSE: KU), PepsiCo (NYSE: PEP) is gearing up for another shot at the China market through a new tie-up with instant noodle juggernaut Tingyi (HKEx: 322). The deal looks interesting on paper, though Pepsi will need to address the much more fundamental issue of its pathetic marketing in China if it really wants to improve its fortunes in what will soon become the world’s top beverage market. Let’s look at the deal first. Under the agreement, Pepsi will hand over its China bottling operations to Tingyi in exchange for a small stake in the company’s drinks joint venture with Japan’s Asahi (Tokyo: 2502). (English article). The deal not only gives over Pepsi’s money-losing bottling operation to a more seasoned operator, whose Masterkong brand is practically synonymous with instant noodles in China, but also gives Pepsi an important new local partner that better understands the market and whose highly developed sales channels will also be a valuable new resource. But rather than celebrate too much, Pepsi needs to address the much more fundamental issue of marketing. Despite its enviable position as sole soft drink supplier to KFC, easily China’s leading fast food operator, Pepsi’s name remains a relative unknown in China to date due to lack of effective marketing. Its main juice drink product, branded under the Tropicana name, is also a relative unknown. By comparison, Coke invented the word “cola” in China, and its Minute Maid Pulpy brand orange juice drink developed just for the market is the company’s first $1 billion brand developed outside its home US market. Pepsi needs to grasp the importance of marketing in China and use campaigns like those used by Coke, KFC and McDonalds (NYSE: MCD) to bring more excitement to its brands  in the market. Otherwise, this latest tie-up with Tingyi could end up as hollow as an empty bowl of noodles.

Bottom line: Pepsi’s new tie-up with China’s top noodle maker won’t help its lackluster performance unless it steps up its marketing efforts.

Related postings 相关文章:

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

◙ Growth-Hungry McDonalds Explores Risky Franchising Route

◙ Yum Feasts on China, Still Eying Little Sheep 百胜依然觊觎小肥羊

 

China Mobile’s TD 3G Fading Fast 中国移动3G网络前景黯淡

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China Mobile’s (HKEx: 941; NYSE: CHL) brief chance to generate excitement for its struggling 3G network based on a homegrown technology is rapidly disappearing, with even the networking equipment sellers who once saw big bucks in the technology known as TD-SCDMA now starting to abandon the standard. Chinese media are reporting that the latest round of contracts to expand China Mobile’s struggling 3G network received only lukewarm response from equipment suppliers, who have quietly started raising their prices to help build a network based on the problematic technology. (English article) The reports aren’t much more specific, but the general tone suggests the equipment suppliers, whose ranks include domestic names like Huawei and ZTE (HKEx: 0763; Shenzhen: 000063), as well as global names like Ericsson (Stockholm: ERICb) and Alcatel Lucent (Paris: ALUA), are finally realizing their TD-SCDMA products will have little or no market outside China, even as they spend big money to address problems with the technology that doesn’t have any users besides China Mobile. Similar realizations by Apple (Nasdaq: AAPL) were likely a major factor behind reports last week that its sputtering talks to create an TD-SCDMA iPhone had finally broken down, in another major setback for China Mobile and its 3G network. (previous post) China Mobile has steadily lost share in China’s 3G market due to its poor technology and equally poor roll out of the network, reflecting lack of focus at the company as it prepares for a major leadership change with the upcoming retirement of long-serving Chairman Wang Jianzhou. This latest development seems to indicate that trend will continue for a while still, with China Mobile’s share of the 3G market  — which has already slipped to 42 percent from 45 percent at the beginning of the year – likely to slip further still to a third or even less over the next couple of years.

Bottom line: A cool response by equipment suppliers to China Mobile’s latest 3G network expansion reflects ongoing problems with a network whose share could soon dip below a third.

Related postings 相关文章:

◙ China Mobile: Poor 3G Approach Yields Weak Results 中移动3G策略不当 拖累公司三季度业绩

◙ 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？

New Lawsuit Has Potential to Bite Baidu 百度或因新侵权诉讼案“受伤

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I’ve been a regular critic of China’s legal system from a business perspective, as it does little or nothing to protect copyrights and intellectual property rights due to its ridiculously low fines that have little or no deterrent effect. That said, the latest copyright lawsuit filed against Baidu (Nasdaq: BIDU) actually looks quite interesting, but not because of the legal implications. Chinese media are reporting the suit against the literature site operated by China’s leading search engine was filed by 4 prominent writers, including the wildly popular blogger Han Han and authors Hao Qun and Han Ailian. (Chinese article) It demands that works by the 4 be removed from the Baidu Literature site immediately and seeks unspecified damages. On the surface, this suit looks like a much broader one filed against Baidu several months ago by a bigger group of lesser known authors for the same reason. (previous post) That suit briefly made headlines, but disappeared just as quickly as the public and media lost interest. I have no doubt that any damages against Baidu resulting from this new lawsuit will be meaningless. But the big difference here is that the 4 plaintiffs this time are very influential writers, including Han Han, whose blog has millions of followers and thus could mount a very damaging, long-term campaign against Baidu if they choose. If Baidu is smart, it will quickly settle this lawsuit to placate these plaintiffs. Even if it does that, it could face some serious negative PR from this lawsuit in general, damaging its reputation for a public already skeptical about many of its less-than-transparent practices in displaying its paid search results, which have also come under criticism.

Bottom line: A new lawsuit by 4 prominent writers against Baidu could result in a major negative campaign against the company, which should try to settle the case as soon as possible.

Related postings 相关文章:

◙ Baidu Comes Under Government Fire 政府“修理”百度

◙ Baidu Seeks Diversification in Tudou Talks 百度求购土豆，寻求多元化

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

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

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Barely a day has passed these last few weeks without a report in the Chinese media about the latest price wars between major online retailers, reflecting rampant competition that is causing companies to hemorrhage cash. Two of the biggest rivals in the never-ending wars are Dangdang (NYSE: DANG) and 360Buy, also known as Jingdong Mall, with Dangdang reportedly preparing to turn up the heat with a major new offensive. According to domestic media, Dangdang is preparing to launch a major new campaign against 360Buy, extending a current drive that already specifically undercuts prices for popular items on 360Buy by significant amounts. (English article) For its part, 360Buy is also offering a near non-stop stream of promotions that have been so popular that an unusually high volume of shoppers caused its site to crash earlier this week, forcing the company to install more servers. (Chinese article) While such a high volume of shoppers would normally be good news, the business disruption will hardly help 360Buy’s reputation. Furthermore, the new servers will only add to the company’s costs, and I suspect many of the goods that attracted such attention in the first place were being sold at a loss. If the competition remains this rampant, look for a cash-hungry 360Buy to potentially try to accelerate its stalled plan for a multibillion-dollar IPO to raise more cash (previous post), and for Dangdang, which already reported a widening loss in the second quarter, to see its losses widen even further going forward.

Bottom line: Chinese online merchants engaged in non-stop price wars are facing a cash crunch that could soon result in consolidation for the overheated sector.

Related postings 相关文章:

◙ New Regulatory, Competitive Waves Hit E-Commerce 监管和竞争冲击电子商务领域

◙ Amazon Name Shift Signals China Ramp-Up 亚马逊改名背后折射中国野心

◙ Albaba Faces New Assaults From Merchants, 360Buy 阿里巴巴受到中小商户和京东商城的双重夹攻

More Solar Gloom From Trina

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The latest signals from China’s struggling solar sector are decidedly downbeat, with Trina (NYSE: TSL) sharply lowering its previous guidance and taking a big inventory write-off. The company dropped its third-quarter shipment guidance by a hefty 25 percent, and lowered its overall gross margin forecast by more than 50 percent as the industry’s worst-ever downturn continued to take its toll. (company announcement) It also lowered its full-year output target by more than 20 percent. Interestingly, the huge margin shortfall, combined with a $19 million inventory write-down in the announcement, may actually be good news, as I suspect these two elements are directly related to the July resignation of the chairman of Trina’s audit committee, which could have hinted at a much bigger accounting scandal. (previous post) Trina’s shares fell a relatively mild 3 percent on Wall Street on Thursday, probably partly due to relief that no accounting scandal was imminent. Look for more similar write-downs by other Chinese solar players when they start to report their results later this month, beginning with Trina on November 21, followed the next day by Suntech (NYSE: STP). The news wasn’t all bad, as Trina was also guardedly optimistic about the future, saying it was seeing more signs of demand from emerging markets to offset a slump in US and Western Europe that have been the industry’s biggest markets to date. On the emerging markets front, Beijing should taking the lead to help the struggling solar sector that it has so carefully nurtured over the last 5 years, and indeed it has made a number of moves that indicate a big new wave of solar energy plant construction could soon begin in China. It should try to accelerate that pace to save its industry from further pain, which could grow worse as the US considers an anti-dumping complaint by US solar firms against their Chinese rivals. (previous post)

Bottom line: The latest guidance from Trina Solar reflects an industry still in the throes of a massive downturn, with no meaningful relief in sight.

Related postings 相关文章:

◙ Solar Fight Sees Accusations Flying 中美太阳能纠纷引发口水大战

◙ More Solar Woes With Plunging Prices

◙ Tech, Environmental Issues Cast New Clouds Over Solar Firms

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

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ZTE’s (HKEx: 763; Shenzhen: 000063) latest strategy of flooding the world with low-cost cellphones appears to be working, as the first phase of the its risky bid to become a global brand yields results. According to the latest information from IT data tracking firm IDC, ZTE zoomed past Apple (Nasdaq: AAPL) to become the world’s fourth biggest cellphone seller in the third quarter of the year, shipping more than 19 million handsets to take nearly 5 percent of the global market. (English article) ZTE has previously stated its aim of becoming one of the world’s top 3 cellphone brands, relying in part on a strategy of grabbing market share by selling low-end smarphones powered by Google’s (Nasdaq: GOOG) Android system for $100 or less for little or no profit. That strategy has showed up in ZTE’s results in the last 2 quarters, with profit dropping steadily even as cellphone revenue has soared. The strategy is a very risky one, as it’s often very difficult to raise your prices and corporate image after establishing yourself as a maker of low-cost products. Taiwan’s Acer (Taipei: 2353) learned this lesson about a decade ago, and is now learning it again. But for at least the next year or two, look for ZTE to steadily increase its global cellphone market share, even as its profits continue to erode. In a separate development along similar lines, Brazilian media are reporting that ZTE is preparing another major new initiative in contract manufacturing, opening a new factory in that country that has landed Apple itself as one of its first customers. (Chinese article) The reports are quite brief, but say that ZTE will assemble both iPads and iPhones for Apple in the city of Hortolandia, putting it in direct competition with Taiwanese OEM giant Foxconn (HKEx: 2038), which has also opened a plant in the same city. To this development I say: congratulations to ZTE for winning this prestigious business from Apple, if the reports are true. But at the same time, I suspect ZTE will be assembling the Apple products for little or no profit and most likely at a loss, meaning we could see its bottom line erode even more quickly.

Bottom line: ZTE’s latest aggressive moves to generate new business will erode its profits for the next 2 years at least, with only a 50-50 chance for long-term success.

Related postings 相关文章:

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

◙ Ericsson, ZTE Spat May be Near Resolution 爱立信与中兴的官司尘埃落定？

◙ Low-Cost Apple iPhone to Bite ZTE, Lenovo 苹果推低端iPhone 冲击中兴和联想

China Telecom Move Signals Industry Shuffle 中国电信高层调整 预示或出现行业高层换血

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It seems to be the season for executive shuffles at the top of major state-run companies, with telecoms now looking set for major changes with a new announcement that a new CEO will take over at the top of the Hong Kong-listed China Telecom (HKEx: 728; NYSE: CHA). (Chinese article) Under the change longtime head Wang Xiaochu will stay on as chairman of China Telecom’s state-run parent, but this move looks like the first step before his eventual removal from the company to make way for new, younger leadership as the Communist Party itself is gears up to install its own new set of leaders as part of its regular  change every 10 years. China Telecom’s shift comes as rival China Mobile (HKEx: 941; NYSE: CHL) also prepares to edge out its long-serving Chairman Wang Jianzhou to make way for new leaders (previous post), and comes less than a week after a major shuffle in the banking world that saw top executives at Agricultural Bank of China (HKEx: 1288; Shanghai: 601288) and China Construction Bank (HKEx: 939; Shanghai: 601939) take on new positions in the nation’s financial regulators. (previous post) So you’re probably asking yourself, what does it all mean for the telecoms space? The answer is that we probably won’t see much change immediately, but should see both China Mobile and China Telecom become more aggressive over the longer term as their younger, new leaders try to reshape these slow-moving state-run giants into more nimble, competitive players. That new stance could also see them become more assertive in terms of global M&A, an area that China Mobile has tried before without much success, and which China Telecom and China Unicom (HKEx: 762; NYSE: CHU), the nation’s other major carrier, have yet to seriously consider. With China Telecom’s new announcement, Unicom becomes the only major telco that has yet to announce a big change at the top — an ironic twist since it is probably the company in biggest need of new leadership as it struggles for direction. (previous post) But in light of the China Telecom announcement and the broader changes taking place at state-run companies, it wouldn’t surprise me to see a similar shake-up at Unicom by the end of the year.

Bottom line: A shake-up at the top of China Telecom signals a broader industry shuffle that will see the country’s 3 major telcos become more aggressive both at home and abroad.

Related postings 相关文章:

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

◙ Sputtering Unicom’s Latest Excuse: Lack of Leadership

◙ Beijing’s Financial Shufflle: Bankers or Regulators? 中国金融高层“大换血”

Liu Steps Down at Lenovo — Again 柳传志再度卸任联想董事会主席

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China’s business world is fast becoming the land of deja vu, at least from my perspective. Just a day after Apple (Nasdaq: AAPL) snubbed China for a second time by excluding the country from its international launch list for its  latest hot product (previous post), PC powerhouse Lenovo (HKEx: 992) has announced that co-founder Liu Chuanzhi is stepping down as chairman for a second time. (company announcement) But the deja vu doesn’t end there. Not only is Liu stepping down a second time, but his heir apparent is Yang Yuanqing, who also took over the chairmanship the first time Liu stepped down shortly after his company’s historic purchase of IBM’s (NYSE: IBM) PC assets in 2005. My question is: if Yang couldn’t succeed the first time, which prompted Liu to return to the chairmanship in 2009, then why does Liu suddenly think he will succeed now? In all fairness, things are a little different this time around. The last time Yang was named chairman, an American, Bill Amelio, was also brought in as CEO to help Lenovo digest its then newly-purchased IBM business. That combination proved too difficult for Lenovo, which incurred losses and underwent a major restructuring that prompted Liu to return as chairman in 2009. This time around, Lenovo has also just posted very nice earnings that saw its profit surge 88 percent in its latest quarter (English article), partly due to recent acquisitions in Germany and Japan, as it zoomed past Dell (Nasdaq: DELL) to become the world’s second biggest PC seller, behind only Hewlett-Packard (NYSE: HPQ). But those new acquisitions also look very much like the IBM purchase, in that both are in mature Western markets, which have been a difficult area for Lenovo in the past. I would like to think that Yang could succeed this time and Liu, now in his 70s, can permanently retire. But I sense that Yang’s return will signal more rocky times ahead, with earnings likely to take a hit as Lenovo stumbles in trying to integrate its Western acquisitions and grab more global market share.

Bottom line: Liu Chuanzhi’s departure as chairman of Lenovo for a second time signals a rocky period ahead for the company.

Related postings 相关文章:

◙ Lenovo Takes Backward Step With Compal JV 联想和仁宝合资建厂为倒退举动

◙ Acer Trips, Lenovo Next? 联想应避免重蹈宏基覆辙

◙ Huawei, Lenovo Look to Foreign Advisors in Westward Drive

Tidbits: Alibaba, Anhui Conch, Sinopec, China Mobile

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There are quite a few too good stories out there today, so here are some quick takes on a few that didn’t make the headlines but look interesting nonetheless.

— The chief executive of Alibaba’s Etao has held a high-profile media briefing to announce his company, operator of a search engine specializing in e-commerce, will invest 1 billion yuan in its business. (English article) This event is a clear signal to the market that Alibaba intends to stand by this investment despite recent moves by a number of major e-commerce sites, including 360Buy, Dangdang (NYSE: DANG) and Suning (Shenzhen: 002024), to block their pages from inclusion in Etao’s search results.

— Sinopec (HKEx: 386; NYSE: SNP) is reportedly in talks to buy a stake in Galp’s Brazilian Unit, for what’s sure to be an overinflated price. (English article) This latest potential mega-acquisition by a Chinese oil major just shows how China’s policy of buying global assets at any cost to feed its growing economy continues to be in effect, even as oil prices show every sign of coming down for an extended period.

— The China Daily is reporting that Anhui Conch (Shanghai: 600585; HKEx: 914), one of the country’s leading cement makers, aims to go global by purchasing distressed international assets for bargain prices, as most of the world’s construction industry suffers during the global downturn. I would look for this company to carry through with this plan with a major announcement or two over the next year, but have serious doubts about its ability to manage such global assets.

— Chinese media are reporting that China Mobile‘s (HKEx: 941) long-running talks with Apple (Nasdaq: AAPL) to make a TD-SCDMA iPhone have finally broken down, confirming what I had already suspected several weeks back. (Chinese article) If true, which seems likely, this would be a relatively major setback for China Mobile, which was counting on the iPhone to breathe some life into its anemic 3G business.

News Digest: November 3, 2011

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The following press releases and media reports about Chinese companies were carried on November 3. To view a full article or story, click on the link next to the headline.

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

◙ ZTE (HKEx: 763) Ranks Fourth in Q3 2011 Global Handset Shipments (English article)

◙ Lenovo (HKEx: 992) Q2 Profit Up 88 Percent, Beats Forecast (English article)

◙ China Telecom (HKEx: 728) Names Yang Jie as New CEO of Listed Company (Chinese article)

◙ China Mobile (HKEx: 941) Ends Talks With Apple (Nasdaq: AAPL) For TD-SCDMA iPhone (Chinese article)

◙ China Power in $784 million JV with China Coal (English article)

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

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In what is becoming an increasingly common refrain, Apple (Nasdaq: AAPL) has once again overlooked China in the global launch for its latest smartphone, the iPhone 4S, in what looks like an expression of growing frustration with its difficult Chinese partners. The company, whose China sales have exploded on the popularity of its smartphones, tablet PCs and desktop computers, has announced a second wave of launch markets for the newest iPhone starting next week following the initial launch in the US and several other major markets last month. (company announcement) The second wave includes Hong Kong and South Korea in Asia but contains no mention of China, with Chinese media reporting a launch for the domestic market won’t occur until year-end at the earliest. (Chinese article) This latest China snub looks similar to Apple’s global launch for its iPad2 in May, when China was also absent from the original list. In that case, however, Apple quickly reconsidered and launched the iPad 2 in China just a week after the global launch. (previous post) In this case, in my view, the absence of China from the latest global iPhone launch probably reflects Apple’s growing frustration with China’s 3 telcos, most notably China Unicom (HKEx: 762; NYSE: CHU), the country’s only official iPhone supplier to date. Unicom has recently shown a tendency to botch even the simplest product launches, and is fast squandering its chances to pick up share on dominant carrier China Mobile (HKEx: 941; NYSE: CHL). For their part, China Mobile and China Telecom (HKEx: 728; NYSE: CHA), China’s third telco, have also proven difficult partners for Apple, with each repeatedly hinting they were on the verge of signing iPhone deals only to fail to announce anything. It’s still possible we could see an iPhone 4S deal in China before year-end if Unicom can reach an agreement. But based on past experience, I wouldn’t bet on seeing any official iPhone 4S tie-ups in China anytime soon.

Bottom line: Apple’s failure to include China in its latest iPhone 4S launch list reflects its difficult relationship with China’s mobile carriers, especially China Unicom.

Related postings 相关文章:

◙ China Mobile: Where’s the 3G iPhone? 中移动4G网络稳步推进 3G版iPhone或遇阻

◙ Apple Takes A Second Look at China for iPad 2 苹果重新考虑中国市场

◙ China Telecom Set for Boost With Imminent iPhone Deal 中国电信借力iPhone