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

55tuan: A Company in Denial 窝窝团拒不接受现实

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Despite turmoil in US markets that has put a halt on most IPO activity, struggling group buying site 55tuan has come out very publicly and said it is aiming to list on the Nasdaq by the end of this year, a goal that probably reflects more on its critical cash situation than any basis in reality. At the same time, another company in need of cash, video-sharing site Xunlei, has officially withdrawn its application for a US listing after demand for the offering dried up back in July. First let’s look at 55tuan, as clearly the company is going through a crisis in the ultra-competitive group buying space. After reports emerged last month that the company had become the latest group buying site to make mass layoffs, 55tuan finally came out last week and admitted making major cuts at many of its offices, particularly in smaller cities. (previous post) Now 55tuan CEO Xu Maodong has come out and reassured the world that his company, which previously had difficulty finding an investment bank to underwrite an IPO, is moving ahead with the offering and expects to make it by the end of the year. (Chinese article) The only problem in all this is that I suspect Mr. Xu and his money-losing company will find little or no demand for their shares from Western investors. That same lack of demand for money-losing Web firms, combined with broader weak sentiment towards US-listed China companies, also caused Xunlei to scale back its plans for an IPO to raise up to $200 million in July, before finally suspending the offering altogether. (previous post) Its latest filing to the US securities regulator indicates it has given up on the deal for now. (Chinese article) But I suspect that unlike 55tuan and rival group buying site Lashou, Xunlei still has sufficient cash to survive for a while longer, and we’ll see it return to market once the current turbulence and negative sentiment toward China stocks subside.

Bottom line: 55tuan’s determination to make an IPO by year end reflect its dire cash situation, with such an offering likely to find little or no demand if it really moves forward.

Related postings 相关文章:

◙ Group Buying Turmoil Grows With 55tuan Layoffs 窝窝团撤站裁员 团购业整合在即

◙ Lashou Ropes in Small Potatoes For US IPO 拉手网聘二流承销商赴美上市

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

Weibo Still Faces Crackdown Despite Govt Tie-Up 新浪微博难改“被监管”命运

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Everyone is buzzing over remarks from a senior party official saying government agencies should embrace mircroblogging to better perform their jobs, interpreting the comments to mean that the popular medium dominated by Sina’s (Nasdaq: SINA) Weibo service won’t come under regulatory pressure soon as many had feared. But a closer look at the actual remarks by Wang Chen, director of China’s State Council Information Office, offers no such reassurances, and I predict it’s only a matter of time before the industry indeed comes under strict new regulations, seriously hampering Weibo and other Twitter-like microblogging services in China. (English article) Wang’s remarks sparked a rally in Sina shares, which soared 18 percent on the news. But a more careful look at his comments show he merely encouraged government agencies to actively use microblogging to better serve society. That sounds fine, but it doesn’t really address the major concern that sparked a sell-off of Sina shares earlier this month after another official said the government was likely to require all microbloggers to register with their real names in the future to curb the rampant rumor mongering and anonymous critical blabbering that has become a staple on the medium. (previous post) That requirement sent a chill over Sina shares because investors realized that many of Weibo’s 200 million registered users would probably decline to open new accounts using their real names if such a new requirement was added, greatly lowering the number of users and Weibo’s attractiveness to advertisers and others who might be willing to pay for exposure on the system. While the latest remarks indicate Weibo isn’t likely to be shut down anytime soon and may even have good government relations, they don’t change the reality that strict new regulations are almost inevitable as the government tries to clean up the mircroblogging space.

Bottom line: New remarks showing government support for microblogging don’t change the fact that strict new regulations are coming that will lower traffic dramatically.

Related postings 相关文章:

◙ Sina’s Weibo: Growth Engine or Growing Burden? 新浪微博：动力or负担？

◙ Investors Punish Sina for Slow Weibo Progress

◙ Sina Gets Serious on SNS With New “Blogging Light” 新浪推出轻博客 大力进军社交网络业务

Rongyao’s US Lawsuit Spotlights China’s Lack of PR Savy *荣耀高调起诉辉瑞 彰显公司缺乏公关意识

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I wanted to start today with a report that shows that Chinese firms need some serious education in how to do good public relations and, equally important, need to understand when NOT to embark on high-profile campaigns. Just a day after I chastised telecoms equipment giant Huawei for its poorlyl-timed criticism of a US government decision (previous post), a much smaller company called Zhejiang Rongyao Chemical has issued a very public announcement saying it is suing pharmaceuticals giant Pfizer (NYSE: PFE) in the US for alleged breach of contract. (company announcement) From a quick glance at the headline, this action looked neutral to even perhaps slightly commendable, pitting a small Chinese firm seeking justice against one of America’s biggest drug makers. But a further reading hardly makes Zhejiang Rongyao look very sympathetic. It seems the company was selling a health additive used in chicken feed to a company that was later acquired by Pfizer, and that Pfizer this year unilaterally suspended a multi-year contract to buy the additive. So far so good. But then Rongyao discloses that Pfizer made its decision after the US Food and Drug Administration, the agency charged with ensuring food safety, released a report showing that chickens treated with the additive had high levels of inorganic arsenic in their livers. When the agency charged with ensuring national food safety makes a discovery like that, the natural reaction in the US is to stop using the product and wait for further tests. That’s obviously not the case in China, where profits and commercial agreements for a company like Rongyao are clearly more important than something like public safety. I’m not an expert on this kind of matter so can’t really comment too much on the safety issue, but clearly from a public relations perspective this is not a case that Rongyao should be publicizing quite so loudly. Its desire to keep feeding Americans chickens with high levels of arsenic in their livers due to its additives will hardly win the company much public sympathy in the United States.

Bottom line: Chinese firms like Huawei and Rongyao need to better understand the effective use of public relations in dealing with setbacks at home and abroad, or risk major public backlash.

Related postings 相关文章:

◙ 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

◙ Lenovo Parent Goes Down to the Farm 联想控股“务农” 瓶装水里淘金

◙ Wal-Mart Pork Brouhaha Spotlights Food Risk 沃尔玛“标签门”表明中国严打决心

Group Buying Turmoil Grows With 55tuan Layoffs 窝窝团撤站裁员 团购业整合在即

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After a week or two of relative quiet, trouble in the group buying space has come bursting back into the headlines with the latest report of mass layoffs at one of the industry’s biggest players, 55tuan. (Chinese article) According to a report in the Chinese media, the company, which was having trouble finding an investment bank in July in its bid to raise new cash with an IPO (previous post), has been forced to close some of its regional offices and lay off 1,500 employees in a number of cities, including Shenzhen, Tianjin and Chongqing. The report also cited one consumer in the Guangdong city of Shaoguan saying he couldn’t use one of his group buying coupons issued by the company, and worrying that all of 55tuan’s coupons might become worthless. A company spokesman confirmed that some smaller outposts had been closed, but insisted that it was business as usual for 55tuan’s group buying website and that unsatisfied buyers could return their coupons for refunds. (Chinese article) Word of the layoffs actually first emerged last month, though the company denied any mass job reductions at that time. (previous post) The woes at 55tuan follow similar mass layoffs earlier this year at Gaopeng, the group buying joint venture between US giant Groupon and Tencent (HKEx: 700), and come as Lashou, another top group buying site, struggles to launch an IPO as it too grapples with fierce competition and a looming cash crunch. (previous post) One source told me earlier this week that 55tuan has finally managed to find an investment bank, though he declined to name the bank, leading me to believe that it’s not a major player. Regardless, the fact that most or all of China’s group buying sites are losing big money will make IPOs by Lashou or 55tuan highly unattractive to investors, who would rightly fear the companies could easily go out of business. Accordingly, I doubt we will see any IPOs by Chinese group buying sites either this year or in 2012, and more likely we’ll see a major market consolidation that will force many players either to combine or close before 2 or 3 large, profitable companies finally emerge.

Bottom line: Mass layoffs by 55tuan are the latest sign of distress in China’s group buying market, with IPO bids by Lashou and 55tuan likely to fail as the sector undergoes a major consolidation.

Related postings 相关文章:

◙ Lashou Ropes in Small Potatoes For US IPO 拉手网聘二流承销商赴美上市

◙ 55tuan Layoff Rumors Mark Latest Group Buying Distress Call 传窝窝团大裁员 团购业前景黯淡

◙ 360Buy $5 Bln IPO Plan Looks Like Desperation 京东商城50亿美元上市计划凸显绝望

 

 

China Autos Set for Long Slowdown

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China’s automobile association has lowered its sales outlook for 2011, dealing a further blow to the industry and especially to China’s embattled domestic car makers that specialize in the kinds of cheaper, more fuel-efficient models that look set to take the biggest hit as the market cools. The auto association’s latest numbers show that passenger vehicle sales rose an unexpectedly strong 8.79 percent in September, as buyers rushed to take advantage of government incentives that expired at the end of the month for smaller, more fuel efficient cars. (English article) The association, which has become quite bearish in recent months, lowered its outlook for the market in 2011 despite the strong September, saying it now forecasts China’s auto sales will rise just 3 percent this year, down from a previous 5 percent, which was already well below the 10 percent growth most were looking for at the beginning of the year. The industry looks set for a particularly long slowdown in my view, as Beijing not only wants to slow down consumer spending to cool the economy, but also wants to ease congestion on China’s crowded roads by severely limiting the number of new car licenses. Smaller and medium sized domestic car makers, especially those without foreign partners, will feel the biggest pain in this downturn, with names like BYD (HKEx: 1211) and Chery the most vulnerable among the top 10 brands. Separately, Swedish media are reporting that Saab, the dying Swedish automaker looking for a lifeline from a couple of obscure Chinese companies, has received a $15 million bridge loan from one of those companies, Youngman Lotus Automobile, which, together with Pangda Automobile (Shanghai: 601258), is waiting for Beijing approval to give Saab a $300 million cash infusion. (English article) This $15 million might be enough to fund Saab’s operations for a few days or even a month, but I still stand by my previous prediction that China’s central planner ultimately will veto the larger investment, and Saab will be forced to look elsewhere for funding or face probable closure. (previous post)

Bottom line: The auto industry’s latest downgrade for China’s car sales this year foreshadows a long downturn ahead, as Beijing looks to cool consumer spending and ease road congestion.

Related postings 相关文章:

◙ Foreign Spending Spree Augers Woes for China Car Makers 外国车企大举投资中国 本土车企倍感压力

◙ Message to Saab: Don’t Count on China 萨博不应指望中国注资

◙ Chery, Luxury Cars Hit New Speed Bumps

Taobao Mall’s IPO March Collides With Merchant Uprising 淘宝商城IPO或因商户“起义”被推迟

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China e-commerce visionary Jack Ma loves to talk about the power of the Internet, and now he’s  experiencing that power directly, though not in the way he envisioned, as a group of unhappy merchants on his popular Taobao Mall platform rise up in rebellion over a recent massive fee hike. The uprising that has created chaos at the Taobao Mall, the B2C platform of Ma’s Alibaba Group, is just the latest in a string of crises that have plagued Ma and his company this year, each due to a big miscalculation. This time a large group of small- to medium-sized merchants have created chaos on the platform, flooding larger merchants with bogus orders and posting fake negative user comments on their sites, after Taobao hiked annual fees for merchants by up to 10 times, and implemented other policies that smaller merchants said were aimed at pushing them off the site. (English article; Chinese article) These smaller merchants are right, of course, at least in their argument that Taobao wants to get rid of them to create a site for mostly premier merchants that have better records for quality control and customer satisfaction as it prepares for an IPO as early as next year. I said earlier this week that the strategy is a smart one for Taobao Mall (previous post), as it seeks to avoid scandals like the one plaguing sister company Alibaba.com (HKEx: 1688), which has suffered since it revealed earlier this year that its B2B e-commerce site had become a major ground for fraud by some smaller, unscrupulous merchants. The only problem in Taobao Mall’s latest move is that it failed to understand the power of smaller merchants on its site to create havoc on its system. All this chaos will inevitably result in more negative publicity for Ma and Alibaba, and it could be months or even longer before business returns to normal, potentially scaring  away some of the larger merchants that Taobao wants to keep. At the end of the day, this storm will probably pass, but not before dealing a blow to Ma and Alibaba’s image, and creating a delay that could push Taobao Mall’s widely expected IPO into 2013.

Bottom line: A new merchant uprising at Taobao Mall over fee hikes will deal a blow to the company’s  business, pushing back a widely expected IPO into 2013 or later.

Related postings 相关文章:

◙ Alibaba Sharpens Focus in Yahoo Buy-Out, Taobao Mall 阿里巴巴回购雅虎所持股权有望

◙ Alibaba.com Blows Smoke With HiChina Spin-Off Plan 阿里巴巴网络分拆万网放烟幕弹

◙ Taobao Mall Drums Up Hype in IPO Run-Up 淘宝商城开放或为IPO造势

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

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In a move that shouldn’t surprise anyone, China top networking equipment maker Huawei, which has been working hard to win its first major business in the China-phobic US market, has been rebuffed in its bid for contracts to help upgrade emergency networks in America. This bid was a foolish one to start with, as these networks were already sensitive to begin with for obvious reasons, as many US politicians still see Huawei as an arm of the Chinese government intent on using its networking hardware for spying as well as commercial purposes. (previous post) What’s equally surprising here is that Huawei is now asking the US for an explanation for its rejection (English article; Chinese article), a request that will put the Obama administration in an awkward position just as it’s trying to prepare for a much bigger battle by most likely refusing to sign a bill that has passed in the US Senate that would punish China for manipulating its currency to gain an unfair trade advantage. Perhaps Huawei is trying to show its independence from Beijing with its request, as clearly Beijing would not approve of this kind of distraction amid a much larger and more critical battle over its currency that could affect billions of dollars in trade. But that kind of calculation seems unlikely, and unfortunately this move by Huawei seems more like a very poorly timed effort to make its case that it should be allowed to sell its products into the US the same as any other major commercial telecoms equipment maker. Making the situation worse, Huawei is making its request the year before US presidential elections, which will force the Obama administration to come out with a strong anti-China message to appeal to voters if it chooses to respond to Huawei’s request at all. But more likely the Obama administration will simply ignore Huawei’s request, but may still resent the timing and being put in this kind of an awkward situation. Either way, this kind of action will hardly help Huawei in its effort to win its first major US deals, and now it seems likely that any such contracts won’t come until 2013 after the election at earliest, and possibly even later.

Bottom line: Huawei’s request for explanation of its rejection to help build sensitive US telecoms networks is a foolish move that will only delay its attempts to score its first major US contracts.

Related postings 相关文章:

◙ Huawei, Lenovo Look to Foreign Advisors in Westward Drive

◙ ZTE’s US Back Door, Huawei’s Foreign Hire 中兴通讯的美国後门 华为的海外招贤

◙ Huawei, ZTE Ratchet Up Western PR Offensives 华为和中兴加紧西方公关战

More Solar Woes With Plunging Prices

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After staging a brief rally this week, solar module makers are returning to the defensive posture they have held for most of this year amid new reports that the slump in demand that has led to their worst-ever crisis seems to be accelerating rather than easing. Media are reporting the price of silicon, the main ingredient used to make solar cells, dropped a hefty 5.8 percent on October 10 from just a week earlier, in the latest indication that demand remains weak from an industry that built up massive new capacity during a brief boom under incentives rolled out by Western governments in 2009 during the global financial crisis. (English article) Demand for new solar power was already falling as the global crisis eased, and now it appears the problem is only getting worse as the US considers an anti-dumping complaint against Chinese manufacturers that produce over half the world’s solar panels (previous post), and as demand tumbles in Europe amid the unfolding Eurozone debt crisis. Shares in big names like Suntech (NYSE: STP), Trina Solar (NYSE: TSL) and Yingli Green Energy (NYSE: YGE) all plunged to near 52-week lows last week, but have staged a brief rally in the first 3 days of this week, possibly as bargain hunters swooped in to buy shares of companies whose forward price-to-earnings ratios are now in the super-low range of 4 to 5 times. The only problem is, most of those PE ratios are likely to soon become negative as analysts revise their estimates when companies start reporting losses as they sell their panels at below costs. While most Western producers have reported net losses in recent quarters, including a number that have gone bankrupt, only a handful of Chinese players have reported losses so far. But look for that too change if the current trends to continue, which looks likely, which will push solar cell makers’ stocks to new lows in the weeks and months ahead.

Bottom line: Tumbling material prices show that weakness in the solar cell market is accelerating rather than easing, which will push panel maker share prices to new lows in the weeks ahead.

Related postings 相关文章:

◙ US Congress Turns Up Heat in China Solar Debate

◙ Tech, Environmental Issues Cast New Clouds Over Solar Firms

◙ US Solar Probe: Get Ready for China Bashing 美国太阳能调查：炮轰中国大潮的前奏

Lenovo Parent Goes Down to the Farm 联想控股“务农” 瓶装水里淘金

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While leading Chinese PC maker Lenovo (HKEx: 992) focuses on its core computer business, its parent, Legend Holdings, seems intent on a strange diversification campaign in the run-up to its own IPO that could come in the next 3-4 years. That seems to be the message with the latest series of Chinese media reports that Legend sees long-term potential in both the agriculture (Chinese article) and bottled water (Chinese article) businesses. These latest initiatives come not long after Lenovo founder Liu Chuanzhi, who never seems content to focus on the PC business he co-founded more than 2 decades ago in Beijing, said his company will also explore possibilities in the hotel business. (previous post) I’ll give Liu credit for limiting these strange new initiatives to his parent company rather than putting them into the listed Lenovo, where they could hurt earnings and divert attention from the company’s core technology business. At the same time, however, these disparate new initiatives don’t seem particularly related to anything Liu has done before, and therefore I would seriously question how much they could contribute to Legend Holdings, which Liu has said on several occasions will seek a public listing as soon as 2014. I understand that Liu wants to differentiate Legend from Lenovo, as investors won’t have much reason to buy shares in the newly listed Legend if its business profile looks identical to the listed Lenovo. But rather than look to completely green fields like agriculture and hotels where it has little or no experience, Liu should focus on growing related areas of the company, such as its interesting Hony Capital unit, a venture capital style firm that focuses on financing for up-and-coming technology firms, or its recently formed gaming console business. Those offer a much better chance for synergies and success than these unrelated areas that may also have big growth prospects but will face uphill climbs due to Legend’s own lack of experience in the areas.

Bottom line: Diversification plans by Lenovo parent Legend Holdings into fields completely unrelated to its core tech business look misguided, with a big chance for failure.

Related postings 相关文章:

◙ Lenovo Lodges? Perhaps, Says Liu 联想进军酒店业？

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

◙ Huawei, Lenovo Look to Foreign Advisors in Westward Drive

Wal-Mart Pork Brouhaha Spotlights Food Risk 沃尔玛“标签门”表明中国严打决心

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A new flurry of reports about mislabeled products at some of Wal-Mart’s (NYSE: WMT) China stores would be almost comical if they weren’t true, spotlighting just how sensitive the issue of food safety and false advertising has become in the country. The latest media reports say some Wal-Mart store managers have been detained and more than a dozen stores temporarily closed in this new crisis. And the reason for all the brouhaha? Believe it or not, it’s all because someone discovered that some pork products were falsely labeled as “organic” when in fact they weren’t. (English article) Don’t misunderstand me, I’m quite against the mislabeling of products, especially when such practices could result in health hazards to consumers. But in this case, there doesn’t appear to be any immediate health hazard, and the detention of employees over this kind of minor misdeed seems like a bit of an overreaction. All of this is no doubt part of Beijing’s desire to show it is taking false advertising and food safety very seriously, following a steady stream of much bigger scandals in the last 3 years that have sickened and even killed victims who ate unsafe and tainted food products. This kind of high-profile campaign carries big risk for companies like Wal-Mart, which will now face backlash from Chinese consumers. Hong Kong-listed Japanese noodle chain Ajisen (HKEx: 538) has experienced first-hand this kind of backlash, as its business has dropped dramatically since Chinese media recently exposed that its soups were made using packaged powder rather than fresh ingredients as the company had advertised. Its shares have lost about half their value since the scandal erupted in July. Wal-Mart, which is China’s second biggest supermarket operator, now faces similar fall-out, and other major chains like recently listed Sunart (HKEx: 6808) and Carrefour (Paris: CARR), China’s largest and third-largest supermarket operators, will also be exposed to similar risk. Restaurant operators like KFC parent Yum Brands (NYSE: YUM) and McDonalds (NYSE: MCD) will also be vulnerable, as Beijing looks for more high-profile targets to chase to ease broader public concerns over food safety and false advertising.

Bottom line: Major food-related firms will be highly vulnerable to negative publicity campaigns in the next 2-3 years, as China tries to ease public concerns over food safety and false advertising.

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

◙ Investors Feast on Sun Art 高鑫零售首日挂牌表现抢眼

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

Real Estate Relief Coming With Foshan Reversal 佛山放宽限购政策的启示

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There’s an interesting bit of news today that indicates relief may be in sight for some real estate companies, now suffering through the most sluggish property market since Beijing reintroduced private property ownership in the 1990s. But the latest move, which has seen the mid-sized city of Foshan roll back some of its most drastic real estate restrictions, probably reflects recent financial distress being felt by local governments rather than any desire by Beijing to help a real estate sector that looks more like a gambling casino than a true property market. According to a report in the China Daily, Foshan, a smaller city near Guangdong’s provincial capital Guangzhou, has eased restrictions rolled out last year under orders from Beijing that forbade local families from buying more than one home. It also eased selling restrictions, saying owners could sell their homes if they had owned them for 5 years or more. (English article) Foshan most likely would only take this kind of step with Beijing’s approval, and I expect we’ll see similar moves from other second- and third-tier cities in the next month or two. Unlike top tier cities like Beijing and Shanghai, these smaller cities are especially dependent on land sales for their revenues, and clearly they need those revenues to avoid defaulting on the numerous infrastructure and other loans they took out at the height of the global financial crisis under directives from Beijing to boost spending to prop up the economy. Having to choose between inflation and a massive wave of defaults on local government loans, Beijing seems more willing to accept the former, at least in its smaller cities. All this should spell good news for real estate services firms like E-House (NYSE: EJ), Soufun (NYSE: SFUN) and China Real Estate Investment Corp (Nasdaq: CRIC), which derive much of their revenue from activity in the market rather than actual real estate prices. Real estate developers with a greater presence in these smaller markets should also benefit, though easing measures in top tier cities are probably still at least a year or two away.

Bottom line: A new easing of real estate restrictions in a mid-sized Guangdong city indicates Beijing is moderating its tight property policies, providing relief for real estate services firms.

Related postings 相关文章:

◙ E-House: Don’t Sell the House Just Yet 易居：不要马上卖掉这栋楼

◙ Real Estate: Soaring Growth to Stall on Market Pause

◙ Real Estate Rising?