News Digest: October 13, 2011

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The following press releases and media reports about Chinese companies were carried on October 13. To view a full article or story, click on the link next to the headline.

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◙ Lenovo (HKEx: 992) Passes Dell (Nasdaq: DELL) To Become Global No. 2 PC Seller in Q3 (Chinese article)

◙ Taobao Mall Stores Flooded with Malicious False Orders – Source (English article)

◙ Saab Receives Loan Money From Youngman: Paper (English article)

◙ Hyatt (NYSE: H) Introduces Hyatt Place, Hyatt House in Asia with 3 Shanghai Hotels (Businesswire)

◙ Two Wal-Mart (NYSE: WMT) Workers Arrested in Chinese Organic-Pork Probe (English article)

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?

 

News Digest: October 12, 2011

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The following press releases and media reports about Chinese companies were carried on October 12. To view a full article or story, click on the link next to the headline.

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◙ China Mobile (HKEx: 941) Opens 5th Bidding Round For Major TD-LTE Construction (Chinese article)

◙ Group of Taobao Mall Merchants Band Together to Protest Steep Fee Hikes (Chinese article)

◙ Wal-Mart (NYSE: WMT) Halts Operations of Six More Stores in China Over Label (English article)

◙ CCTV Restricts TV Advertising from Medical Sector (English article)

◙ Spreadtrum (Nasdaq: SPRD) In 1st TD-Dual-SIM Dual-Standby Solution for TD-SCDMA (PRNewswire)

TD-LTE Hits First Delay, More to Come? TD-LTE技术首次延期 未来还会更多？

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After reporting just yesterday that first-phase trials had wrapped up in 6 cities for TD-LTE, the 4G technology being developed by China Mobile (HKEx: 941; NYSE: CHL) (Chinese article), domestic media are reporting today that those same trials weren’t quite as clean as the first reports indicated, spotlighting the inevitable delays this technology will face in getting to market. China Mobile has been trialing TD-LTE on an expanded basis in 6 major cities since this spring, with domestic firms Huawei, ZTE (HKEx: 763; Shenzhen: 000063) and Datang, and global players Ericsson (Stockholm: ERICb), Nokia Siemens and Alcatel Lucent (Paris: ALU), all seeking to showcase their technology in hopes of winning big future contracts when a national commercial network is built. Now it seems that two of the smaller players in the trials, Samsung (Seoul: 005930) and a company I’ve never heard of called New Postcom, have fallen behind in the trials by failing to complete their work for technical reasons. (English article; Chinese article) Frankly speaking, this particular delay looks rather small and insignificant, as neither Samsung nor New Postcom are major players in this area and their failure to deliver technology on time would probably have minimal impact on the building of new networks. But what these delays do highlight is the fact that TD-LTE is a completely new technology, and it’s probably only a matter of time before we see more significant big problems coming from the likes of Huawei and Ericsson as their trials become more advanced. People who follow the industry will recall that TD-LTE’s 3G predecessor, TD-SCDMA, was looking fine in its early trial stages until numerous issues started emerging later on, including all kinds of technological problems that continue to haunt China Mobile’s commercial 3G network to this day. TD-LTE could see less problems, since it’s a follow-on to TD-SCDMA, which was completely new, and it’s also closer technologically to other more globally accepted 4G standards. Still, such technological glitches are almost inevitable, and this first round of problems, while they appear small, are a reminder that more significant problems are almost guaranteed to appear as the trials become more advanced. Such problems will almost inevitably push back the timeline for a commercial rollout TD-LTE, making a service launch unlikely before before 2013, and perhaps more likely in 2014.

Bottom line: Newly disclosed delays in China Mobile’s 4G trials are a sign of things to come, with more significant problems almost guaranteed to push any commercial launch to 2013 at earliest.

Related postings 相关文章:

◙ China Mobile Nears iPhone Deal, Continues 4G Press 中移动iPhone协议近尾声 加紧4G攻势

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

◙ Telecoms Regulator Shifts Tone on 4G 电信监管者就4G牌照发放转变口风

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

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It wouldn’t be a proper week if I didn’t write at least one commentary about Alibaba Group, which has been in the headlines nearly non-stop following the firing of Carol Bartz as the controversial CEO of Yahoo (Nasdaq: YHOO), which owns 40 percent of Alibaba. After initial reports said Alibaba founder Jack Ma was interested in both buying and running all of Yahoo (previous post), the latest reports indicate Ma may have found little interest from investors in that plan and instead is narrowing his focus to simply buying back the 40 percent stake in his company owned by Yahoo. (English article; Chinese article) According to the reports, Ma is talking to Singapore sovereign wealth fund Temasek about funding a buy-out of the 40 percent stake, in a move which looks much betterthan Ma’s previous hopes of taking over and running Yahoo, which would have stood a big chance of failure.  Bringing in Temasek as its controlling stakeholder makes lots of sense, as this kind of investor is purely interested in earning money rather than a strategic pair-up, which is far more suited to Ma’s style as an extremely self-confident business owner who likes to call all the shots and doesn’t like to listen to others. Combined with separate media reports that say Yahoo co-founder Jerry Yang is trying to engineer a privatization of his company, I could easily see Yahoo first being taken private, and then Ma’s Temasek-backed group buying back the 40 percent Alibaba stake from that newly privatized company. Separately, domestic and foreign media are reporting that Alibaba’s main B2C platform, Taobao Mall, is making a broad set of new moves to prepare itself for an IPO, possibly as soon as next year. (English article; Chinese article) The moves are too detailed to describe fully here, but the bottom line seems to be that merchants that sell on Taobao will see their fees rise dramatically, while Taobao is also taking strong early steps to prevent the kind of fraud on its site that undermined its sister company, B2B marketplace operator Alibaba.com (HKEx: 1688), earlier this year. Both moves look smart in my view, as the higher fees will weed out many of the smaller sellers that were the most likely to engage in fraud while significantly boosting revenue from the biggest merchants, while the anti-fraud measures will avoid future controversy like the one dogging Alibaba.com.

Bottom line: Alibaba Group is finally regaining some much needed focus by targeting a buyback of the 40 percent of the company owned by Yahoo, and by sharpening operations at its Taobao Mall.

Related postings 相关文章:

◙ Alibaba: The Little Genie That Roared?

◙ 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

Message to Beijing: Privatize the Big 4 Banks 对中国政府说：将四大银行退市吧

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I’m going to be a bit controversial today and make a bold suggestion that may seem obvious to some, namely that China should privatize its big 4 banks and let them resume their role as the state-owned policy lenders that they were for their first 50 years. The idea may sound extreme, but it’s exactly the approach that Beijing seems to be taking first by forcing its banks to issue billions of dollars worth of new shares to shore up their balance sheets last year, and now by announcing it will buy up even more of their stock to support their sagging shares. The banks’ majority shareholder, the central government-controlled Central Huijin, provided few specifics other than to say it has started buying up shares in the top 4 lenders, ICBC (HKEx: 1398; Shanghai: 601398), China Construction Bank (HKEx: 939; Shanghai: 6019399), Bank of China (HKEx: 1398; Shanghai: 601398) and Agricultural Bank of China (HKEx: 1288; Shanghai: 601288). (English article) Let’s review the facts: Huijin, which controls a third or more of each of those banks, already boosted its holdings in the 3 of the 4 last year when each made a multibillion-dollar share rights offering to strengthen their balance sheets after a year-long lending binge ordered by Beijing to prop up the economy at the height of the global financial crisis in 2009. This new buy-back will put even more of the banks’ shares into Huijin’s hands, boosting the central government’s ownership even further. Shares of all 4 banks jumped in late Monday trading in Hong Kong on the news, and we could well see those gains extended on Tuesday. But the banks’ shares are still down sharply over the last year, falling 40-50 percent from their 52-week highs. The main reason for their poor performance is that investors realize that despite their publicly listed status, all 4 banks still take their orders from Beijing and show no signs of changing those habits, making them less attractive as growth companies. That said, it would make more sense for Beijing to just end the charade and take all 4 of the banks private again so they can continue in their role as policy tools of the central government.

Bottom line: Beijing’s latest move to buy back sagging shares in the country’s top 4  lenders further underscores their function as policy lenders that should be privatized.

Related postings 相关文章:

◙ Record Profits Bolster Banks as Storm Looms 创纪录利润有助银行抵御楼市低迷隐忧

◙ ICBC Discovers China’s Latest Low-Cost Export: Currency 工行将从非洲人民币结算业务中获益

◙ China Merchants Bank Kicks Off “Capital Raising II” 招商银行掀起第二轮融资热潮

News Digest: October 11, 2011

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The following press releases and media reports about Chinese companies were carried on October 11. To view a full article or story, click on the link next to the headline.

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◙ China State Investor Buys Shares in Four Biggest Banks as Valuations Slump (English article)

◙ Alibaba Said to Seek Temasek Financing to Buy Yahoo’s 40% Stake in Itself (English article)

◙ Rumor: TD-LTE Trials Stalled in Two Cities (English article; Chinese article)

◙ Lenovo (HKEx: 992) Delays Internet TVs Due to Regulatory Difficulties (English article)

◙ Yingli Green Energy (NYSE: YGE) Announces New and Improved Warranty Terms (PRNewswire)

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

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After months of seeing its shares and prospects soar on non-stop hype about its phenomenally successful Weibo microblogging service, Sina (Nasdaq: SINA) is quickly learning that what goes up often comes down, and that great chances for growth also carry equally great risk. In a rare setback for Weibo, which boasts 200 million users, Hong Kong media reported over the weekend that China is considering new regulations for the unruly microblogging sector, which has become an increasingly fertile ground for fanning public discontent and spreading rumors by people often using fictitious names. (English article) According to the report, the biggest change being considered would require all microbloggers to register accounts using their real names — a development that would instantly probably wipe out about 90 percent of the accounts now in use. Such a move is certainly consistent with previous measures taken by Beijing, which is trying to limit things like rumor mongering and spam, even as some criticize such moves as also limiting free speech. Even if less drastic measures are ultimately taken, the increased regulation doesn’t look good for Weibo and microblogging in general. Investors, recognizing that fact, have been dumping Sina shares en masse, sending the stock down by a third in the last 3 weeks. Making the situation worse, in my opinion, is the steady stream of reports about new social networking services (SNS) that Sina is now rolling out to try and leverage Weibo’s popularity. In the latest of those, local media are reporting that Sina is launching a new SNS product called Kandian (English article), after launching another related product called Qing back in July. (previous post) I understand that Sina is looking for ways to turn Weibo into a profit center, but this pattern of launching so many new businesses in such a short time looks very rushed and lacking in long-term vision, and could very well backfire by leaving Sina and Weibo with a new group of lackluster performers rather than the next new Internet sensation.

Bottom line: Looming new government regulations and an increasingly chaotic growth strategy both look like bad developments for Sina’s popular Weibo microblogging site.

Related postings 相关文章:

◙ Sina, Tencent Pose Threat in SNS, E-Commerce 新浪腾讯攻城掠地

◙ 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

◙ Sina’s Weibo Steps Outside China 新浪微博进军日本市场

Chery, Luxury Cars Hit New Speed Bumps

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The rapid slowdown in China’s auto sales has spread to the higher-end of the market, boding poorly for foreign names like Volkswagen’s (Frankfurt: VOWG) Audi brand and BMW (Frankfurt: BMW), which have invested heavily in the market on a bet that pricier cars were less vulnerable to industry downturns than more mainstream models. After two turbo-charged years of growth that saw Chinese car sales jump on strong buying incentives from Beijing, growth in the market has suddenly disappeared as incentives ended and the central government takes other tightening steps to cool the overheated economy. Makers of high-end products, such as luxury bags, homes and cars, love to say how their products are more immune to economic downturns than mainstream goods, even though the reality is that the suffering is usually just slightly delayed for these higher-end products. But even luxury cars appear to already be suffering in the current car slowdown, with foreign media reporting that sellers of premium brands are now offering discounts of 16-20 percent to maintain sales. Those discounts look similar to ones being offered by more mainstream brands such as VW and SAIC (Shanghai: 600104), as companies lower prices to try and offset cooling demand. I previously said that Chinese car makers with major foreign partners are best positioned to survive the current downturn, which is bad news for names like Chery and BYD (HKEx: 1211; Shenzhen: 002594), which lack such partners that have the resources to weather such slowdowns. Chery has received a setback on that front, with Japanese media reporting the company’s plan to produce Subaru-branded vehicles in a new joint venture with Fuji Heavy Industries (Tokyo: 7270) has been rejected by China’s state planner because the company’s major shareholder, Toyota (Tokyo: 7203), already has 2 joint ventures in China, the maximum allowed under Chinese law. (English article) Chery says it will go ahead with the plan to make Subaru cars despite the rejection, but the development looks like a big setback as the industry gears up for some painful restructuring under a slowdown that will last a year or more.

Bottom line: Luxury brands will face a 1-2 year slowdown in China’s auto market similar to that seen by mainstream automakers as China takes steps to cool the market.

Related postings 相关文章:

◙ Nissan Jumps on China Expansion Bandwagon, Overcapacity Ahead 日产加入中国市场扩张潮 未来料产能过剩

◙ China Carmakers Lose a BRIC in Export Drive 中国汽车厂商的出口机会将逐步缩窄

◙ China Car Brands Look Like One-Hit Wonders