An interesting report in the Chinese media says a company China-listed company called Shanghai Lengguang is going to stop making crystalline polysilicon, citing unprofitability of the business and a government campaign to reduce excess capacity. The fact that a no-name like Lengguang is getting out of the business is hardly newsworthy: the report says the business accounted for less than 1 percent of Lenguang’s paltry $100 million in revenue last year. What’s more significant is the fact that the government may be getting serious about forcing some consolidation in the 
overheated sector as it seeks to forge some true home-grown global leaders, which could play to the benefit of the big names like Trina (NYSE: TSL), Suntech (NYSE: STP), Yingli (NYSE: YGE) and LDK Solar (NYSE: LDK). Having said that, I’ll be the first to say that I’ve seen such consolidation campaigns before — most notably with the steel sector — that foundered after local interests got in the way and blocked much major movement. But given the more privately funded nature of the solar sector, versus a steel complex that was largely state owned, there’s a chance that this campaign may stand more chances of success as smaller firms see their funding and government incentives dry up and are forced to either close or get acquired.
Journalist China
China Groupon Charging for IPO Gate
Looks like another China web wannabe is charging for the IPO gate, looking to be the latest first in its class to tap Western markets frothing at the mouth for the latest foamy Chinese Internet offerings. This time it’s an e-coupon web site called Dianping, and a report says the company’s gearing up for a financing round of more than $100 million which smells an awful lot like pre-IPO funding (Chinese article). I tend to be a bit of a naysayer on these first-to-market China web IPOs, but have no doubts that this one will be a hot one given Groupon’s rapid rise as a fast-rising bearer of e-coupons in the West. And Dianping has even been profitable if reports are to be believed. That comes in sharp contrast to Youku (Nasdaq: YOKU), China’s first video-sharing site to list, which hosted a red-hot IPO late last year but has posted a spottier record since then.
Real Estate: Soaring Growth to Stall on Market Pause
The jury may still be out on whether China’s real estate market will correct, and by how much if it does, but one thing is clear: the current climate of uncertainty has consumers and developers alike holding back from putting up their properties for sale. That means that real estate companies themselves, like Vanke (Shenzhen: 000002), as well as real estate Websites like E-House (NYSE: EJ), Soufun (NYSE: SFUN) and China Real Estate Investment Corp (Nasdaq: CRIC) could be in for some shaky times in the next few quarters as the sales volumes that have fueled their soaring growth dry up. That’s not to say that the boom times are over for good. But at least in the first half of this year don’t look for any stellar acceleration in these companies. Don’t look for much cheer from the developers either if the bubble does burst and panic selling sets in, though such a sell-off could play to the benefit of the websites, at least in the short term.
Minsheng Fund-Raising Shift Reveals Govt Angst
Interesting development at Minsheng Bank (HKEx: 1988; Shanghai: 600016), which has suddenly shifted gears in its plans to raise some $4 billion in fresh funds to replenish its coffers. (English article; Chinese) 
Now, instead of flooding a shaky Shanghai market with yet more new shares, Minsheng is going to issue convertible bonds at home, and instead flood Hong Kong with new shares. In my mind, this signals two things: one, Chinese regulators are growing increasingly worried about a big sell-off in Shanghai if and when the housing correction starts in earnest; and two, the banks are looking increasingly vulnerable when that happens. That said, banking stocks might be a good one to avoid in this climate. At the same time, some of these convertible bonds that Minsheng and others like ICBC (HKEx: 1398; Shanghai: 601398) have issued might not be such a bad way to gain exposure to these companies if a meltdown fails to materialize or isn’t as severe as many fear. Outright failure of any of these banks, especially the biggest ones, seems unlikely as the government has shown it’s not about to let any of these guys go under. Too big to fail isn’t just for Western banks, or so it seems.
Geely’s Volvo Roadmap: Laden With Potholes?
Nearly a year after announcing its historic purchase of Volvo, Geely (HKEx: 165) is finally giving its first concrete glimpse at how exactly it’s going to turn around the just-slightly-tarnished Swedish nameplate. The order looks quite tall at first: it’s going to build two new plants in China, one in Chengdu and the other northeastern Heilongjiang, with plans to boost China sales nearly 10 fold to 200,000 units in four years, which would be more than a quarter of its global sales. (click here for article)
Talk about going from zero to 60 in very short order. I see all kinds of bumps in the road ahead on this one. We caught a glimpse of what’s to come last year when Geely and Volvo management butted heads on how to position the Swedish brand: Volvo management was bent on keeping its image as dependable and mainstream, while Geely was determined to position it as a luxury brand in image-obsessed China. That spat seems to have been ironed out, at least superficially, with the latest announcement that the brand will be most decidedly luxury, at least in China, going head-to-head with BMW and Volkswagen’s Audi. But I see lots more head-butting down the road on this one before any of these lofty targets ever gets met, and wouldn’t be surprised at all if the Heilongjiang plant, planned for somewhere down the road, never gets built.
BAIC – Scavenging for Parts in IPO Run-Up
Beijing Automotive Industry Holdings (BAIC), one of China’s top automakers, has developed an interesting strategy in its bid to drive on to the global stage: it has become a sort of scavenger for older but still relevant intellectual property being discarded by other struggling automakers desperate for cash. BAIC announced its latest move on that front with a $43 million purchase of technology and equipment from Swedish transmission maker WEIGL Transmission. The fact that neither you nor I have ever heard of this company is beside the point. The deal follows a similar one 
by BAIC to purchase some older model designs from another Swedish firm, Saab. Are the two deals related? Again, this seems beside the point. BAIC seems to be showing a very targeted strategy of looking selectively for technology that can boost its products and profile in the run-up to an expected Hong Kong IPO later this year. Such a strategy would be far different from automakers like SAIC (Shanghai: 600104) and Geely, both of which have taken on far bigger challenges of buying entire foreign automakers. For SAIC the results were disastrous. The jury is still out on Geely’s Volvo purchase, but BAIC’s strategy could turn out to be a better alternative for these automakers as they rev up in the race to be the first into western markets.
Qihoo IPO: Security in Lawsuits?
Word has it that Chinese Web security firm Qihoo is gearing up for an IPO, in what could become a major money spinner for its controversial founder and chairman Zhou Hongwei. Details on the offering are still to be determined, but any wise investor would be well advised to read up on Zhou’s long history as a lightning rod for litigation from some of China’s biggest Internet firms. Those who have sued Zhou, who shot to fame as Yahoo’s (Nasdaq: YHOO) initial top man in China, mostly for shady business practices, include Yahoo’s current business partner Alibaba Group, leading search engine Baidu (Nasdaq: BIDU) and most recently China’s top Internet firm Tencent (HKEx: 700), in a high-profile spat has captivate China. Maybe one lawsuit would be understandable, but after a while a pattern starts to develop. No doubt some US investors may pile into this one looking to make a quick buck off one of China’s earliest Internet whizzes. But anyone in for the long haul, or even the medium one, should be extremely wary of this one.
Oil Could Heat Up Solar Firms, Spark Consolidation
Soaring oil prices could should drive more business to China’s solar makers, also providing a potential spark to ignite long-awaited consolidation to the buzzing field of privately owned but strongly state-supported companies. Industry heavyweight JA Solar (Nasdaq: JASO) posted impressive numbers in its latest results, with fourth quarter shipments doubling and overall shipments expected to grow another 50 percent this year. (JA results) Those follow strong results from other players like Yingli Green Energy (NYSE: YGE) and Trina Solar (NYSE: TSL), who are likely to benefit as the world is reminded once again about the perils of its heavy reliance on oil. But equally interesting is the potential for an evasive consolidation, as competition remains fierce. As the industry gears up for even more growth, look to leaders like JA Solar, Yingli and Suntech (NYSE: STP) to be first out of the gate in the upcoming dance for merger partners to boost their shaky margins. Once that genie is out of the bottle, look for a spate of deals to come — both insider and outside China — as this industry gears up to take on the traditional energy giants.
Huawei Dials Up a Page from Western Playbook
Huawei is showing it can play with the big global boys, much to their annoyance. China’s perennial up-and-coming-but-not-quite-there telecoms equipment seller has scored a major victory in US court by winning an injunction to stop Motorola (NYSE: MOT) from transferring technology to Nokia Siemens Networks with the sale of the former’s telecoms equipment division to the latter. (English article; Chinese article) Huawei had argued that a past collaboration had given Motorola valuable technology that could compromise its own competitiveness. Obviously this case began before Huawei abandoned a minor acquisition of US company 3Leaf Systems last week, but its bound to make US legislators who cry wolf every time China tries to buy a US tech or energy firm take notice. That in turn could be good news for the likes of Huawei, ZTE （ＨＫＥｘ: 763）, and acquisitive energy firms like CNOOC (NYSE: CEO; HKEx: 883) and Sinopec (HKEx: 386), who are fast learning that if you want to play in the West, it’s best to learn all the tricks of the trade to make your presence felt.
Don’t Hang Up On Unicom Just Yet: Seeing is Believing
I’ve long been a naysayer on China Unicom (HKEx: 762), buying into the line that the company was a perpetual laggard despite being given the creme de la creme of 3G licenses in the form of permission to build China’s only network based on the globally dominant WCDMA standard. Now I’m not so sure. What’s changed? For one, I’m now in China instead of calling the shots from Hong Kong, which is also where most of the telecoms analysts are based. In the space of a single afternoon, I encountered not one but two friends who were both singing the praises of Unicom 3G to me — something unheard of just years ago when people scoffed at the mere mention of the Unicom name. They also said the company, the sole vendor of Apple’s (Nasdaq: AAPL) iPhone in China, has much improved coverage, another previous complaint. A look at the 3G numbers is also revealing: Unicom has about 30 percent of the 3G market, far better than the 20 percent of the broader market it commands. If it can get its integration issues behind it following its absorption of the former China Netcom, which seems inevitable, Unicom could yet become a force to be reckoned with.
