INTERNET: Didi, Meituan Drive Into Each Others’ Turf in Search of Growth

Bottom line: Didi’s foray into takeout delivery and Meituan’s into private car services look like moves of desperation to make the companies more attractive as they get pressured to make IPOs by the end of next year.

Meituan eyes car services

Two of China’s biggest unlisted internet companies are in the headlines as the week winds down, each taking a shot at the other’s turf. One headline has the Uber-like Didi Chuxing hiring in preparation to launch a takeout dining service like the one operated by Meituan-Dianping. The other has Meituan-Dianping preparing to roll out its own private car services in seven Chinese cities, taking a direct shot at Didi.

The timing of these two news bits is probably coincidental, since I doubt they share information on their strategic planning. What’s more, the Meituan move into car services is just an extension of previous earlier news. From a bigger perspective, both items smack just slightly of desperation as these two companies look for growth in the face of stagnating core businesses. Read Full Post…

E-COMMERCE: Alibaba Salivates at Ele.me in ‘New Retail’ Vision

Bottom line: Alibaba’s potential purchase of Ele.me could be the biggest piece yet in its pursuit of a “new retail” model, but could result in a case of indigestion as it tries to make the company profitable.

Alibaba salivates at Ele.me

When it comes to acquisitions, e-commerce giant Alibaba (NYSE: BABA) seems to have an insatiable appetite these days. After investing some 80 billion yuan ($12.7 billion) in brick-and-mortar retailing over the last couple of years, the company is now setting its eyes on take-out dining specialist Ele.me, in a deal that could cost it around another $5 billion.

This particular buying binge does seem a bit more focused than Alibaba’s previous M&A patterns, which always felt a bit more random to me and covered a wide range of areas. In this instance, the company is pursuing founder Jack Ma’s vision of a “new retail” landscape that will combine Alibaba’s mastery of e-commerce with more traditional brick-and-mortar retailing. Read Full Post…

IPOs: Redlands Shines Spotlight on Education, Low-Tech Listing Pipeline

Bottom line: New listing plans by education firm Redlands and steel-trading platform Zhaogang point to lower-tech offshore IPOs taking center stage in the first half of the year until the situation for fintech candidates stabilizes.

Redlands sees riches in professional education

With fintech offerings in a holding pattern, a stream of lower-tech IPOs are finding their way to market in the first few months of this year. The latest of those is education company Redlands, which has just filed to sell up to $300 million worth of stock in a New York listing. At the same time another lower-tech offering, a steel-trading platform called Zhaogang, is also in the headlines, with media reporting it is gearing up for a Hong Kong listing that could raise up to $500 million.

It’s hard to spot a trend from just two offerings, but these deals do have a particularly low-tech bent to them. That’s probably at least partly because many of the higher-tech offerings in the current market, which were coming from financial technology firms, or fintech, are on hold at the moment due to regulatory uncertainty. That said, education does seem to be a flavor of the moment, at least in part because many of the companies going to market have found ways to quickly scale-up their business using online models. Read Full Post…

CHIPS: U.S. Kills China Deals to Buy Xcerra, Chicago Stock Exchange

Bottom line: Two new vetoes for Chinese purchases of US microchip and financial companies are the latest signals the Donald Trump administration intends to use such vetoes to fight for a more balanced trade relationship.

Washington vetoes 2 more Chinese U.S. purchases

What started as a trickle of dying cross-border deals involving Chinese buyers of US assets is showing signs of becoming a flood, with two new vetoes hitting the headlines. The latest of those is from the all-too-familiar high-tech chip sector, and has US chip maker Xcerra (Nasdaq: XCRA) saying it is scrapping its plan to be purchased by a Chinese buyer after failing to win clearance from the US national security reviewer. In a related vein, the Chicago Stock Exchange earlier this week scrapped a similar deal due to objections from the US stock regulator.

This pair of collapses extends a recent string of similar developments that actually dates back to the Obama administration. But the pace is clearly picking up under current President Donald Trump, who has made no secret of the fact that he wants to see a more level playing field in US-China trade relations. Whether or not these deals represent a real security risk is open to interpretation. But regardless, Trump is making it clear he will use this pretext to block deals in the sensitive financial and high-tech sectors. Read Full Post…

SMARTPHONES: Xiaomi Wins India, Makes First Visit to Top Trade Show

Bottom line: Xiaomi’s taking of the India smartphone crown and attendance at a major trade show next week are aimed at boosting its profile in the run-up to its IPO. 

Xiaomi to attend MWC

Hype is building in the run-up to what’s likely to be one of the largest high-tech IPOs this year, with word that smartphone maker Xiaomi has snatched the India crown from a fading Samsung (Seoul: 005930) and is also making its first visit to the world’s top telecoms trade show next week. Both events are important milestones for a resurgent Xiaomi, as it attempts to boost its profile for a public listing that’s likely to raise in the neighborhood of $10 billion in Hong Kong.

At the same time, the list of attendees for this year’s Mobile World Congress taking place next week in Spain is also notable for a number of brands that have purchased booths in the past but aren’t doing so this year.  Leading that list is Oppo, which briefly took the China smartphone crown last year from current leader Huawei.  Also absent from the list are past attendees including Meizu and Gionee. That probably speaks to the fact that some of these brands are feeling the squeeze of prolonged competition in the space, and are choosing to spend their limited marketing budgets elsewhere. Read Full Post…

IPO: Xiaomi Partner Huami Defies Market in Trading Debut

Bottom line: A relatively solid debut for wristband maker Huami bodes well for offshore Chinese IPOs outside the financial services sector, including for smartphone giant Xiaomi.

High-tech wristband maker Huami posts modest gain in debut

Different people are putting different spins on the trading debut for the first major Chinese IPO in New York this year, for a company called Huami, which makes fitness trackers and rose 2.3 percent on its first day. From my perspective, this looks like a gravity-defying debut, since the broader market tanked on that same day, with most of the major indexes down around 4 percent in the week’s second major major sell-off.

From a broader perspective, this seems to bode well for offshore Chinese IPOs in the year ahead, at least for those that are in safer sectors like this. Companies from the more volatile fintech sector, which has been the subject of repeated regulation to rein in the sector, could be in for a tougher ride. But this kind of more consumer-related product, which is far less controversial, could enjoy some success on positive sentiment about the broader China consumer market. Read Full Post…

TELECOMS: Spurned by US, Huawei Turns to UK

Bottom line: Huawei’s latest big financial commitment to the UK is mostly for show, but Britain could still emerge as a winner over the longer term if Huawei conducts more R&D work in its British labs.

Huawei gives $4.2 billion gift to UK

After getting the cold shoulder from the US for its smartphones, telecoms superstar Huawei is turning increasingly to Europe, and specifically to Britain, for consolation. That’s the key takeaway from the latest reports that say Huawei has told British Prime Minister Theresa May that it will spend a further 3 billion pounds ($4.2 billion) on procurement from the UK on top of its other commitments to the country. (English article)

This particular move seems mostly political, and also it’s questionable how significant it is. Huawei made its commitment last week during a trip by Theresa May to China, and this kind of mega-commitment is quite common during these meetings between Chinese and global leaders. The fact of the matter is that Huawei posted 600 billion yuan ($97 billion) in sales last year, meaning it had to spend perhaps half of that amount, or around $50 billion, on procurement of various components for its core networking equipment and smartphones. Read Full Post…

MEDIA: DreamWorks Crashes Out of China Animation JV

Bottom line: DreamWorks Animation’s withdrawal from its China joint venture marks the end of an explosive phase in China-Hollywood tie-ups, with one-off co-production deals the most likely form of cooperation going forward. 

Take-two for DreamWorks Animation China JV

In what could herald a wave of the future, a highly-touted joint venture between DreamWorks Animation and Shanghai’s China Media Capital (CMC) has come unglued, with the official departure of DreamWorks from the tie-up. This particular exit appears quite symbolic, as Oriental DreamWorks was the first of what ended up becoming a huge wave of similar tie-ups between China and Hollywood. Thus the big question becomes if this abandonment of the venture could signal more unraveling of similar tie-ups ahead.

I suspect the answer to that question is yes, but perhaps not for the reasons you might expect. It appears that DreamWorks Animation’s decision to quit the joint venture owed to disappointing results, and I suspect the company’s acquisition by Comcast two years ago was also a factor. The fact of the matter is that China’s movie market still has huge potential. But Beijing has shown less appetite for these China-Hollywood tie-ups these days, less for political reasons and more because it is trying to stem the outflow of money for foreign acquisitions. Read Full Post…

FINANCE: Ant Financial Crawls Back Into Bed with Alibaba

Bottom line: Alibaba’s purchase of 33 percent of Ant Financial looks like a shrewd move for both firms, making Ant more attractive in the run-up to an IPO likely to be one of the world’s biggest this year.

Alibaba and Ant back together

In what looks like a homecoming of sorts, e-commerce giant Alibaba (NYSE: BABA) has just announced it is taking back a major stake in its Ant Financial affiliate. Followers of this pair will know they have quite a long and complex relationship, and were actually once part of the same company. But they were split apart around a decade ago for political reasons, which apparently aren’t an issue anymore.

The other major plank to this story is Ant’s own story, including the unusual way in which this deal was structured. The company, whose core asset is the popular Alipay electronic payments service, is gearing up for what could be one of the biggest fintech IPOs of this year, likely to raise several billion dollars in Hong Kong. Thus this particular move could be designed to draw more attention to this lesser-known Alibaba offspring, and also to relieve it of some of its financial burden in the run-up to that offering. Read Full Post…

INTERNET: Toutiao Sues Baidu Over Search Abuse

Bottom line: Baidu’s anti-competitive behavior alleged in a lawsuit by Jinri Toutiao won’t have a long-term effect on its stock, but will draw the attention of an increasingly assertive anti-trust regulator.

Toutiao sues Baidu for manipulating search results

A humorous war of words has broken out between search leader Baidu (Nasdaq: BIDU) and news aggregating app Jinri Toutiao, also sometimes called Today’s Headlines, over unfair competition in the form of search manipulation. I’ll detail the allegations shortly. But on a more serious note, this particular lawsuit does raise the question of whether a search engine like Baidu is obliged to be objective in its results. Moreover, it could also open the company to allegations of abusing its market-leading position with anti-competitive actions.

This kind of monopoly-like position has become a growing issue on China’s Internet, which has recently shed the notion of being too small for antitrust treatment. The original BAT of Baidu, Alibaba (NYSE: BABA) and Tencent (HKEx: 700) all now hold positions in search, e-commerce and games, respectively, that are quite lucrative and might be considered monopolies in many other markets. I personally would consider all three monopolies in China in terms of their ability to dominate their respective markets, and I suspect the regulator may someday attempt to challenge them the way that Google (Nasdaq: GOOG) and Facebook (Nasdaq: FB) are now getting challenged in the rest of the world.  Read Full Post…

INTERNET: Alibaba’s Ant Takes a Bite of Hong Kong

Bottom line: Ant Financial’s purchase of 20 percent of Hong Kong restaurant ratings site OpenRice looks like a smart, incremental move to boost its presence in its first major foray to build a local customer base outside China.

Ant Financial buys into HK’s OpenRice

We’ll close out the week with a lighter story, with word that Alibaba’s (NYSE: BABA) Ant Financial affiliate has taken a nibble at Hong Kong with an investment in the territory’s most popular restaurant ratings site. On a more serious note, we should point out that this particular acquisition comes after the much higher-profile failure of Ant’s bid to buy US money-transfer giant MoneyGram (NYSE: MGI), which was vetoed by Washington on national security ground.

This latest particular purchase is somewhat interesting, as Hong Kong is quickly evolving into an important test case for whether Ant can successfully export its popular Alipay electronic payments service to other markets. Alipay is already widely available throughout the world, but only as a vehicle for Chinese to make payments when traveling overseas. Thus Ant really hasn’t tried to target local consumers in any market in meaningful ways outside China. Read Full Post…