Ford, Volvo Step on the China Accelerator 福特与沃尔沃拟在中国大幅扩张

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China’s auto market is showing all the signs of a rapid slowdown after a massive boom that saw it overtake the US as the world’s largest auto market in 2010, but don’t tell that to Ford (NYSE: F) or Volvo, which are happily discussing their latest expansion plans with local and international media. In a way, I have to admire both of these companies and many of their foreign rivals for focusing on the longer-term future rather than the next 1-2 years, which are likely to see China’s auto market post low- to middle-range single digit percentage growth as Beijing slams the brakes on the nation’s overheated economy to try to steer it to a soft landing. But at the same time, Volvo’s plan in particular looks fraught with risk, as it aims to build up a massive new manufacturing base and roll out a new brand with its Chinese parent, Zhejiang Geely, despite little or no name recognition among most Chinese consumers. Let’s take a look at the Volvo news first, which has executives at the Swedish firm finally mimicking its Geely parent by saying it wants to become a Chinese luxury brand and plans to spend $11 billion over the next few years to reach that goal. (English article) Geely founder Li Shufu had always promoted this vision for Volvo since his company purchased the money-losing Swedish brand 2 years ago, but Swedish executives at the company had resisted that vision, preferring to maintain the more mainstream image that Volvo had in the rest of the world. In this latest report, a Volvo executive is also saying the Swedish company will shoulder most or all new investment for its drive into China’s luxury car market. Those remarks are interesting because they seem to indicate that Geely, itself burdened by huge debt from the original Volvo purchase, is trying to add some distance from the massive Volvo expansion plan by making the Swedish company assume all the new debt that such an expansion will require. I don’t want to be too cynical, but such a move seems to imply that if the Volvo plan ultimately fails, responsibility for all its debt will be assumed by Volvo itself, meaning Geely could simply close the unit or let it file for bankruptcy reorganization if its ambitious plan doesn’t succeed — a very distinct possibility. Moving on to Ford, foreign media are reporting the company will spend $600 million to expand capacity at one of its passenger car factories by 60 percent, as it aims to grab more share in the China market from more established players. (English article) This plan seems a bit more modest than Volvo’s, and is part of more gradual approach to China by Ford, which came to the market relatively late through a joint venture with Chang’an Auto and is now attempting to catch up by taking share from both domestic nameplates and global rivals like GM (NYSE: GM) and Volkswagen (Frankfurt: VOWG), which came much earlier. At the end of the day I do like the fact that both Volvo and Ford are investing for the future, though I also think the Volvo plan may be a bit too ambitious and could easily see the company filing for bankruptcy in the next 5 years.

Bottom line: New expansions by Ford and Volvo in China auto are aimed at longer-term development, though Volvo’s plan looks overly aggressive and could end in financial collapse.

Related postings 相关文章:

◙ Geely Eyes Risky New Luxury Route 吉利欲走有风险的豪华车路线

◙ Geely Leans on Struggling Volvo 吉利依靠处于困境中的沃尔沃

◙ China Car Sales Sputter Out of the Gate 中国汽车销售龙年遭考验

Unicom: A Bureaucratic Mess 中国联通：官僚混乱

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I don’t like to admit this, but I’m rapidly losing both confidence and interest in China Unicom (HKEx: 762; NYSE: CHU), China’s second biggest telco, which seems to be struggling with a never-ending series of management shuffles that are diverting its attention from its real business. To make matters worse, the company is facing a major challenge from China Telecom (HKEx: 728; NYSE: CHA), the smallest of China’s 3 major carriers, which has just announced some new figures suggesting it will get even more aggressive in its highly effective campaign to steal market share from both Unicom and industry leader China Mobile (HKEx: 941; NYSE: CHL). Let’s look at Unicom first, which has made steady headlines over the last year for all the wrong reasons, mostly involving misjudgement of China’s 3G market and an endless series of management reshuffles. The latest reports center on the latter type of news, with some reports saying the company is now undergoing a shift that will combine its sales and marketing departments, while others simply say adjustments are continuing. (English article; Chinese article) I hope readers will excuse me if I sound too cynical, but Unicom is showing all the signs of a company living in China’s socialist past, when state-controlled work units and their employees had little or no interest in running an efficient business and instead were more interested in the names of their positions and departments, and loved to hold endless meetings that produced no particular results. If this is the kind of company that Unicom wants to become, then perhaps there are some bureaucrats in Beijing who will welcome this return to a friendlier socialist past. But if it wants to be a competitive company, this fixation on bureaucracy needs to end soon. Otherwise the company risks becoming irrelevant and losing its spot as China’s second largest telco to China Telecom. On that front, China Telecom has just announced it is aiming to sell 80 million 3G handsets this year, some costing as little as 300 yuan, or less than $50 each. (Chinese article) I was surprised earlier this year when a company executive implied China Telecom was aiming to add 50 million 3G subscribers this year, which equated to 35 percent growth rate to its total subscriber base from the beginning of this year. (previous post) This new 80 million handset figure implies even more aggressive growth targets, and if the company really added that many new 3G users this year it would translate to more than a 60 percent growth rate over its total user base from the beginning of the year. If the current trends continue, which looks likely, I would fully expect to see China Telecom pass Unicom by the end of this year in 3G subscribers, and could even see it passing Unicom in terms of total subscribers sometime next year.

Bottom line: An increasingly focused and aggressive China Telecom is likely to pass an increasingly mismanaged Unicom by the end of this year in terms of 3G subscribers.

Related postings 相关文章:

◙ China Telecom Turns Up Volume in 3G Drive 中国电信计划一鼓作气 3G市场欲再下一城

◙ Unicom Spends, But Can It Earn? 联通拟增加开支加强3G业务 效果有待观察

◙ China Mobile: Improvement Ahead Under New Leaders 新领导有望助中国移动复苏

News Digest: April 6, 2012 报摘： 2012年4月6日

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The following press releases and media reports about Chinese companies were carried on April 6. To view a full article or story, click on the link next to the headline.

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◙ Proview Opposes Import of New iPads to China, Seeking Ways to Stop (Chinese article)

◙ Volvo to Spend $11 Billion Over Coming Years (English article)

◙ China Unicom (HKEx: 762) to Combine Marketing and Sales Departments (English article)

◙ Youku (NYSE: YOKU) Receives GAPP Internet Publication License (PRNewswire)

◙ People’s Daily Website IPO to Price on April 19 (Chinese article)

More Media IPOs From People’s Daily, Shopping Channel 电视购物，继人民日报后又一计划上市的媒体

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Liberalization of China’s media sector is marching forward, with a new IPO development from the Communist Party’s flagship People’s Daily, and another from a shopping channel named Haoxiang, as players both old and young rush to raise funds and become commercial. The news comes as global media giant Disney (NYSE: DIS) may also be exploring an animation joint venture in China (previous post), and as US home shopping giant QVC is seeking to set up its own joint venture with China’s biggest radio broadcaster, China National Radio (previous post), reflecting Beijing’s recent decision to relax its grip on this sensitive sector. Let’s look at the People’s Daily first, whose previously announced plans to make an IPO for its website, Renmin Wang, has formally been approved by the securities regulator and will now begin marketing to potential investors, according to Chinese media reports. (Chinese article) Recent months have seen plans disclosed for both the People’s Daily and Xinhua to make IPOs for their websites, in highly symbolic offerings for 2 of China’s media most closely associated with state control. With this latest development, it looks like the People’s Daily’s website will be first to market, but I would expect Xinhua’s offering for its Xinhuanet to come in the next few months also assuming there are no major obstacles. Meantime, domestic media are citing an executive from a home shopping channel called Haoxiang saying the company has undergone a recent structural reform in preparation for its own upcoming IPO. (Chinese article) I’ll be the first to admit that I don’t know anything about Haoxiang, and I expect it’s probably a regional player in the increasingly competitive e-commerce space that allows shoppers to purchase products from their home over traditional television and Internet channels. Without knowing more about the company it’s hard to say whether Haoxiang’s IPO would be attractive, but it is certainly coming on the heels of a growing number of public offerings for regional media firms. Last year saw a flurry of such listings, with regional names like Jishi Media (Shanghai: 601929), Jiangsu Phoenix Publishing (Shanghai: 601928) and China Central Land Media (Shenzhen: 000719) all going to market in their drive to raise money and become more commercial. (previous post) These kinds of companies could offer an interesting investment option, as I would expect many to become acquisition targets for a few more aggressive players that are likely to emerge as consolidators for the highly fragmented market. I seriously doubt that either Xinhua or People’s Daily will be major players driving the upcoming consolidation, as both still take their orders from Beijing and have a poor track record at commercial ventures. But major media groups in big cities like Shanghai and Guangzhou could easily play the consolidator role, making them potentially interesting bets to become China’s new media giants if and when they make their own IPOs, which could happen in the next year or 2 if Beijing’s liberalization of the sector continues at its current pace.

Bottom line: The People’s Daily website  and a regional shopping channel have become the latest media players to move ahead with IPOs as Beijing loosens its grip on the sector.

Related postings 相关文章:

◙ Xinhuanet IPO Sets Stage For Media Listings 新华网IPO或将开启媒体上市热潮

◙ Jishi the Latest in Low-Key Media Listing Parade 吉视传媒加入中国媒体低调上市大军

◙ QVC Opens Shop in China QVC与中央人民广播电台合作运营电视购物频道

Disney-Tencent Talks: China Looking Animated 迪士尼与腾讯沟通动漫合作

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China may finally be opening up its animation market to foreign investment, with the latest word that none other than Disney (NYSE: DIS), arguably the world’s most famous brand in the field, is in talks with Internet leader Tencent (HKEx: 700) for a tie-up in the lucrative but largely undeveloped space. The media reports are rather vague, saying only that Tencent, China’s largest Internet company, is “communicating” with Disney about a potential animation development tie-up. (Chinese article) But any such partnership would look extremely interesting, especially as Tencent is looking to build up its online video business (previous post) in a bid to compete with industry leaders Youku (NYSE: YOKU) and Tudou (Nasdaq: TUDO), which are in the process of merging. (previous post) From Disney’s perspective, any such deal would mark a major breakthrough, following its last big advance a couple of years ago when it finally reached an agreement to build its first mainland Chinese Disneyland in Shanghai. The Shanghai Disneyland agreement was a long and torturous process, marked by nearly a decade of on-again-off-again talks that finally resulted in the big deal. Disney has a number of other smaller China initiatives, including its Disney-branded English language schools and numerous merchandise licensing agreements. But the big piece missing from Disney’s China picture to date is filmed entertainment, with the company lacking any major presence on Chinese TV and in its movie theaters apart from products imported under a strict quota system. An animation tie-up with Tencent — or any other video channel — could quickly change that situation, allowing Disney to set up a China-based animation studio that could distribute programs through its own Disney-branded TV or Internet channel, or sell content to other channel operators. DreamWorks Animation (NYSE: DWA), creator of the popular “Shrek” animated franchise, scored a major breakthrough on the China animation front early this year when it formally signed a deal to create a Chinese animation joint venture with Shanghai Media Group (SMG), China’s second largest media company. (previous post) I said at the time that the DreamWorks deal, along with a number of other smaller signals from Beijing, indicated that China might be preparing to open up its animation market to western investment, after a previous attempt to open the market about 5 years ago failed. I have to assume that Disney would only enter into talks with Tencent or any other potential partner after receiving a nod from Beijing that any eventual new venture in the sensitive media space would receive government approval. Given the current climate of opening up the media space and the recent DreamWorks deal, I would have to believe that Disney is definitely looking around for an animation partner, and is probably talking to Tencent as well as others at this early stage. If that’s the case, look for Disney to sign its own China animation joint venture in the not-too-distant future, probably by the end of this year.

Bottom line: Reports that Disney is talking to Tencent for a Chinese animation joint venture could very well be true, with Disney likely to form such a venture by the end of this year.

Related postings 相关文章:

◙ Facebook, DreamWorks in Latest China Moves Facebook、梦工厂在华最新动向

◙ Disney Bets on China Thirst for Luxury 迪士尼押注中国名品市场

◙ Tencent Sends Out Mixed Video Signals 腾讯若持股优酷 有助进军视频业

 

Qihoo: The Next Accounting Victim? 奇虎360：下一个会计丑闻受害者？

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Just when the confidence crisis that has hit US-listed Chinese stocks for nearly a year looked like it was waning, a new accounting scandal could now be brewing, this time involving security software maker Qihoo 360 (NYSE: QIHU). Readers of this space will recall that Qihoo came under attack last year by a small brokerage named Citron, which questioned the company’s user figures and said Qihoo’s stock was probably worth around $5 per share rather than the $20 range where it was trading at that time. (previous post) Now Forbes magazine has come out with a much broader report questioning many of Qihoo’s operational figures, including its advertising revenues. (Chinese article) Qihoo responded by issuing a statement “strongly rejecting” the allegations, and also threatening legal action. (Qihoo statement) As a veteran reporter, I know it’s one thing when a small brokerage questions a company’s data, as many observers will suspect that brokerage is making such allegations to make some quick profits by short selling the company’s stock. But it’s quite another thing when a big publication like Forbes makes similar or even bigger allegations, as such publications understand the risks of printing material that might be considered defamatory and are much more careful about what they publish. Such publications also strictly forbid their reporters to trade in the stocks that they write about. In this case, I’ve had a look at the Forbes article and it does indeed appear that the author, Richard Pearson, has done quite a bit of research, including trying to contact the people who sell ads that are a main revenue source for Qihoo. Nothing in his research allows him to directly accuse Qihoo of falsifying data, but many of his arguments do seem convincing about why he believes the company may be engaged in questionable accounting. I’m quite confident that Deloitte, which is Qihoo’s accountant, will feel compelled to investigate some or all of the issues pointed out in the Forbes article, and wouldn’t be surprised at all to see it resign the Qihoo account if it doesn’t like what it finds. What surprises me quite a bit is how resilient Qihoo’s stock has been despite all this controversy. Its shares were trading around $20 when the initial Citron report came out last year and went down a bit afterwards. But they have rebounded sharply since then and were even above $25 before this latest Forbes story came out. And yet despite the strong arguments in the Forbes report, Qihoo shares have only fallen a relatively modest 11 percent since the article came out, indicating investors aren’t completely convinced that there are any problems. I previously said “let the buyer beware” when Qihoo made its initial public offering last year, as the company had a history of lawsuits being filed against it as a result of some of its dubious business practices. (previous post) I would take this opportunity to reiterate that message, and would be willing to bet this latest controversy involving Qihoo is far from over.

Bottom line: An attack on Qihoo 360 by Forbes magazine marks the beginning of a new controversy for the company, in the latest of a string of accounting scandals for US-listed Chinese firms.

Related postings 相关文章:

◙ Qihoo 360 At Center of New Scandal 奇虎360陷入新的丑闻

◙ Citron Keeps Up Qihoo Assault 香橼继续攻击奇虎

◙ Inflated Qihoo Bounces Back on Hot Air

 

News Digest: April 5, 2012 报摘： 2012年4月5日

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The following press releases and media reports about Chinese companies were carried on April 5. To view a full article or story, click on the link next to the headline.

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◙ Tencent (HKEx: 700) Seeks Animation Development Tie-Up With Disney (NYSE: DIS) (Chinese article)

◙ Qihoo 360 (NYSE: QIHU) Strongly Rejects Recent Allegations in Forbes Article (PRNewswire)

◙ China’s Wen Urges Breakup of Bank Monopoly as Growth Slows (English article)

◙ Suntech (NYSE: STP) “Sun King” Sees Industry Back in Black, Eyes US Duties (English article)

◙ Starwood Hotels (NYSE: HOT) to Open Its First Dual-Branded Ski Resort in China (Businesswire)

Baidu’s Qunar: Going Places 百度投资的去哪儿网：前途无量

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We’re getting a bit more clarity on Qunar, the online travel site that made headlines last June when it received a major investment from search leader Baidu (Nasdaq: BIDU), following the release of some new financial data showing a company that looks quite intriguing and potentially positioned to soon challenge eLong (Nasdaq: LONG) for the place as the sector’s second largest player. I’ll be the first to admit I was a bit skeptical when Baidu forked out a hefty $300 million for an unspecified stake in Qunar last year, assuming the stake was probably a minority interest and also unconvinced about the wisdom of investing in an area so far removed from Baidu’s core search business. (previous post) But now Chinese media are reporting that according to a Baidu filing with the US securities regulator, it actually purchased 62 percent of Qunar in the transaction, making it the company’s major shareholder. (Chinese article) Some quick math will show that investment values Qunar at just under $500 million. A further look will show that eLong, which I’ve long considered an industry laggard, also has a market capitalization in the same range, at just over $500 million. eLong also made headlines last November when longtime minority investor Expedia (Nasdaq: EXPE), a top US online travel agent, paid a hefty premium to boost its stake to a majority share. (previous post) But after rallying on the news, eLong shares have since given back nearly all of their gains and now trade at about $15, far below the $23 per share that Expedia paid to boost its position. All this reflects the reality that despite its longtime presence in the industry and Expedia ties, eLong has failed to ever bridge the large gap between itself and market leader Ctrip (Nasdaq: CTRP), whose market capitalization of around $3 billion means investors think it is worth six times as much as eLong. Founded in 2005, Qunar had revenue of about $23 million and a profit of about $420,000 from the time of Baidu’s mid-year purchase of its controlling stake, according to the newly released data. That would translate to annual revenue of about $46 million and a profit approaching $1 million, versus eLong’s $93 million in revenue and $6.2 million in profits last year. So clearly eLong is more profitable and twice the size of Qunar in terms of revenue; but eLong was also founded in 1999, meaning it had a 6 year head start over Qunar. Based on Qunar’s valuation from the Baidu deal and eLong’s inability to become bigger and pose a more serious challenge to Ctrip, I would say that Qunar looks like a company to watch closely, especially following the Baidu tie-up which could see it use Baidu’s hugely popular search and other sites to boost its position. If things proceed smoothly, I wouldn’t be surprised at all to see Qunar pass eLong in terms of revenue in the next 2 years, with a potential IPO for the company also possible in that timeframe.

Bottom line: New financials for Baidu-invested online travel site Qunar show a company poised to make a potential IPO and challenge eLong for the sector’s number-two spot in the next 2 years.

Related postings 相关文章:

◙ Baidu’s Takes a $300 Mln Spin on Travel Market 百度斥资3亿美元进军旅游市场

◙ Expedia Boosts China Ties, Watch Out Ctrip Expedia增持艺龙股份携程要小心了

◙ 360Buy Losing Focus With Travel Plan 京东商城涉足在线旅行服务业 偏离核心业务

Dangdang and Gome: Marriage Ahead? 当当和国美：联姻前夕？

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The arrival of spring is bringing a sudden surge in new partnerships for China’s overheated tech space, as companies seek any competitive advantage they can find to stay in business. Online video sites Youku (NYSE: YOKU) and Tudou (Nasdaq: TUDO) led off the parade with announcement of their $1 billion marriage last month (previous post), followed by a strengthening of ties last week between Apple (Nasdaq: AAPL) and Foxconn International (HKEx: 2038), one of its main iPhone producing partners. Now struggling online retailer Dangdang (NYSE: DANG) and equally embattled real-world electronics retailer Gome (HKEx: 493) have formally cemented a relationship that will see the pair merge their online electronics retailing business. (company announcement) This new tie-up has been rumored for a while now so it isn’t really news (previous post), though it should help both partners better compete with 360Buy, the online retailer that started out as an electronics seller, as well as Suning (Shenzhen: 002024), Gome’s main real-world retailing rival that has also pushed aggressively into the online space. But I suspect what really has investors excited, and myself intrigued as well, is the possibility that this alliance could eventually develop into an outright marriage between these 2 companies, each of which could greatly benefit from the other’s traditional strengths. Investors in New York bid up Dangdang shares as much as 15 percent in Monday trade to levels not seen since last September, with the stock closing up nearly 10 percent. Still, its shares are trading at just a third of their level from a year ago — testimony to a bloody price war with 360Buy and other players backed by the likes of Amazon (Nasdaq: AMZN) and Wal-Mart (NYSE: WMT) in China’s ultra-competitive e-commerce space. That price war pushed Dangdang itself deeply into the loss column in its latest reporting quarter, with the company posting a $21 million loss for the fourth quarter of 2011. (previous post) While Dangdang’s troubles have mostly appeared over the last year, Gome’s date back a bit longer, starting a few years back after its charismatic founder Huang Guangyu was arrested on insider trading allegations. Since then Gome has been involved in an endless series of internal power struggles, which has undermined its ability to function effectively. This new partnership won’t immediately address Gome’s internal problems, but it could give both companies a nice boost by allowing each to draw on its traditional strengths to help the other if the partnership runs smoothly. Of course there’s no guarantee that will happen, as Huang may still try to interfere with the new partnership from his prison cell and Dangdang’s husband and wife founders, Peggy Yu and Li Guoqing, are also quite opinionated and may not easily want to give up any control of their company. But if both sides realize that a strong partnership is in everyone’s own interest, I could see this relationship deepen and eventually result in a real-world merger in the next 2-3 years.

Bottom line: The new partnership between Gome and Dangdang could evolve into a true merger within the next 2-3 years if the 2 sides can work well together.

Related postings 相关文章:

◙ Dangdang, GOME In New Alliance, More to Come 国美携手当当网 或开启类似合作序幕

◙ Dangdang Loss Balloons In E-Commerce Wars 当当网在电子商务大战中亏损严重

◙ 360Buy Heats Up E-Books, People’s Daily Goes to Market 京东商城高调进军电子书,人民网开启上市进程

Apple’s Hon Hai Investment Talk: Why Not? 苹果投资入股鸿海：为什么不？

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I’m going to do something today I don’t usually do and comment on an interesting report that appeared on a Chinese website that has since been removed regarding a potential massive investment by Apple (Nasdaq: AAPL) in Taiwanese electronics giant Hon Hai (Taipei: 2317), one of its biggest iPhone manufacturing partners. The reason for my exception is that the deal sounds extremely intriguing and makes lots of sense in the current climate, even though removal of the article and lack of similar reports in western media make me suspicious of whether anything is really happening. But let’s move past all this discussion and look at the report itself, which said that Apple was preparing to make a massive $9.76 billion investment in Hon Hai, which was going to issue new shares in the form of global depositary receipts (GDRs) to make Apple its second largest shareholder. Hon Hai currently has a market capitalization of about $40 billion, meaning an investment that size, presuming it was new shares, would make Apple the owner of about 20 percent of Hon Hai’s shares. Again, I want to emphasize I have serious doubts about whether such a deal is actually being discussed for the reasons I previously mentioned. But at the same time, I really do believe that such a deal makes lots of sense for both Apple and Hon Hai for many reasons. From a cash standpoint, the investment would represent a minor amount of money for Apple, which has so much cash at this point, around $100 billion to be exact, that it took the unusual step last month of restoring a dividend for shareholders after a 17 year gap, and also said it would buy back another $10 billion worth of its stock. (English article) From a strategic standpoint, it makes perfect sense for Apple to make such a large investment in one of its biggest manufacturing partners, which shows not only its commitment to the health of that partner but also to the efficient and ethical running of its operations. The focus on not only efficiency but also ethical treatment of employees has become an extremely relevant issue over the past year, as Hon Hai’s Foxconn International (HKEx: 2038) unit, which manufactures iPhones for Apple, has come under intense scrutiny during that period for working conditions that some consider harsh, including pressure for its young employees to work lots of overtime and in isolated conditions on production lines to discourage socializing. That issue has become so big that Apple’s Tim Cook made a special trip to a Foxconn factory in the central city of Zhengzhou during his inaugural trip to China last week since taking over as CEO of the company in 2011 shortly before the death of Steve Jobs. (previous post) Last but not least, Hon Hai shares are quite attractively priced right now, down about 34 percent from where they were a year ago on all the negative publicity as well as rising costs, even as the rest of the market has rallied. So, on the whole, even if Apple isn’t considering this deal, I think it should as it makes lots of sense from so many angles, with the potential to benefit both Apple and Hon Hai.

Bottom line: A report citing Apple in talks to make a major investment in manufacturing partner Hon Hai looks like a smart move that Apple should strongly consider, even if the rumor isn’t true.

Related postings 相关文章:

◙ Apple Bytes: Labor, a State Visit and Baidu 库克中国行猜想：他在下一盘很大的棋

◙ Apple CEO Cook Stirs Up Guessing Firestorm 苹果CEO库克低调访华意欲何为？

◙ China Telecom iPhone Debut Looks Strong 中国电信iPhone初次发售，势头强劲

New Crackdown Spotlights Social Networking Risk 新的打压凸显社交网络风险

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It’s a beautiful spring day here in Shanghai, and if you’re an avid microblogger you’re probably getting up and perusing the latest news and gossip on Sina’s (Nasdaq: SINA) popular Weibo service to read and pass on to your friends the latest news about your favorite celebrity or social issue. But a quick attempt to pass on someone else’s posts with your own insightful comments attached is suddenly impossible — blocked by Weibo itself as punishment from Beijing for spreading rumors, underscoring again the perils big companies face when setting up shop in China’s social networking realm. (English article) The news that Sina’s Weibo and another popular microblogging service from Tencent (HKEx: 700) are both being punished for spreading rumors should come as a surprise to no one, though enthusiastic investors who purchased stock of both companies on big hopes for their microblogging services might decide that Monday is a good time to sell some of their shares. The reports on what happened are actually quite detailed, saying both Sina and Tencent angered Beijing by allowing rumors to spread on their services that troops had moved into the nation’s capital as part of a coup attempt that never happened. Beijing has always been sensitive about any kind of rumor that could foment social unrest, and those sensitivities will only increase this year as the nation prepares for a major handover of power from the current leaders following the end of their official 10-year term in office. What’s interesting in this situation is the very public way in which the matter is being handled, with news of the false rumors and unspecified punishment both appearing in a report from Xinhua, the central news agency considered the voice of the Communist Party itself. No specifics of the punishment have been disclosed, and I suspect both Sina and Tencent will face limits on their microblogging operations and perhaps some small fines over the short term. But the longer term implications could be much more worrisome, with both companies facing big consequences — including even a possible shut-down — if they commit any similar transgressions in the year ahead during the sensitive power handover. That could pose a big risk to both companies, as well as other microblogging services, as all have now officially been warned that Beijing won’t tolerate any political rumors in the months ahead. That means all these services will undoubtedly delete any political postings on their services that are even remotely political for fear of offending Beijing, which could easily anger many of their millions of users who will no longer be able to post many of their thoughts online. Advertisers will also undoubtedly think twice about wanting to play in such a dangerous space, where their ads could not only suddenly become in accessible but they could also risk angering Beijing by doing business with companies accused of spreading rumors. This latest development comes only months after Beijing announced its “real name” policy for all microblogging sites, requiring them to register all their users by their real names, again as a measure to try and curb rumor mongering and other unsavory activities such as scams. (previous post) Sina, Tencent, NetEase (Nasdaq: NTES) and other microblog site operators aren’t the only ones at risk, as other social networking site operators like Renren (NYSE: RENN) and Kaixin, whose services are more similar to Facebook, could just as easily be accused of spreading rumors and also be punished. To anyone considering buying shares of any of these companies, I would just reiterate that they may have good great growth potential due to the size of China’s Internet market — which recently passed 500 million users — but they also come with huge risk. Especially in the coming year with the leadership change, these companies will have to be especially careful about what they allow on their sites, and can risk punishment or closure at any time. At the same time they face the risk of punishment by their own users, who might become frustrated with all the new restrictions and could easily end up abandoning their accounts.

Bottom line: The latest punishment for Sina and Tencent microblogging services for spreading rumors  underscores the big risks China Internet companies face due to political considerations.

Related postings 相关文章:

◙ Real Name Registration: Burden or Not for Weibo? 实名制会否成为新浪微博的负担？

◙ Sina Gets Serious on Weibo 新浪开始严肃对待微博

◙ Microblog Clampdown: Only Chapter 1? 实名制向网络行业吹去冷风