Those of you looking to catch a piece of China’s ongoing healthcare reform might want to examine the upcoming $1 billion Hong Kong IPO for China-listed Fosun Pharmaceutical (Shanghai: 600196). (English article; Chinese release) I’ll be the first to admit I don’t know too much about this company, but its diversified nature, coupled with parent Fosun’s reputation for being a savvy, entrepreneurial investor make this one look like a good bet as China embarks on a multibillion-dollar national healthcare overhaul expected to last for years. Fosun Pharma’s profit already grew around 70 percent last year, and that was just as healthcare reform was getting started. This company could also offer a more entrepreneurial play into the space, in contrast to more traditional firms like Sinopharm (HKEx: 1099), China’s biggest drug distributor, which come from a state-run background.
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Groupon in China: Real Deal or Same Old Story?
Just a day after reports that a Chinese Groupon wannabe called Dianping was revving up for an IPO, we learn that Groupon itself is wheeling and dealing its way into China in a new tie-up whose partners include a fund run by local Internet giant Tencent (HKEx: 700) (English article). Never mind that Alibaba’s Taobao, Dianping and even Tencent itself already host their own Groupon-like sites that will compete with the new site, called Gaopeng.com. The question here is, in this relatively greenfield area in China does Groupon stand any chance of success against the established giants and start-ups? In a word, the answer is no. The Chinese Internet road is paved with ruins from the likes of Yahoo (Nasdaq: YHOO), Google (Nasdaq: GOOG) and eBay (Nasdaq: EBAY), all of whom tried but failed to crack the China Internut. Others like Microsoft (Nasdaq: MSFT) are still struggling after years in the market. Chinese officials pay lip service to having an open Internet market, but the reality is they stack the deck heavily against foreign firms through various means that favor the homegrown names. I see no reason why this time should be any different. Sorry, Groupon.
Putting the Squeeze on Solar
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.
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.
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.
What’s in a Name? Plenty for Best Buy in China
Best Buy (NYSE: BBY) has discovered there’s plenty in a name when it comes to retailing in China. The company may be a household name in its home U.S. market, but that didn’t mean much in China, where Best Buy is ending its brief experiment with its own brand by shuttering about 10 “experimental” stores it had opened over the past few years. Was the competition from homegrown giants Gome (HKEx: 493) and Suning (ShenzhenEx: 002024) too much? To some extent the answer is yes, though Gome continues to struggle with issues related to its jailed founder Huang Guangyu. But the bigger picture may be that Best Buy has realized it may be easier to build off an existing brand, hence its decision to put its China growth plans into Five Star, a homegrown chain it acquired a few years back. Best Buy has said it plans to boost its Five Star store count by a third this year, opening 40-50 stores to bring its total count to 210 by the end of 2012. If the strategy works, which looks like a good bet, look for other late-coming western retailers to also contemplate similar strategy of entering China via m&a, which seems to be the more effective way of competing in the vast market.
Trust in Baidu? No One Likes a Net Hog
Interesting reports out there saying a company called Hudong is seeking anti-trust action against Chinese search gorilla Baidu (Nasdaq: BIDU) and seeking 790 million yuan in damages. The damages figure is really beside the point. What’s interesting here is that Baidu, by virtue of its phenomenal success at cornering China’s online search market, has become a lightning rod for unhappy would-be competitors appealing to China’s increasingly assertive anti-trust regulators to intervene and create a more level playing field. Investors may have cheered Google’s (Nasdaq: GOOG) retreat from China a year ago, but the departure of the only serious competitor to Baidu has just provided more fuel for the anti-trust complainers. The growing potential for government intervention, coupled with Baidu’s sky-high stock valuation, are making this one look increasingly like a hot potato at least until the regulator takes a stand on this issue. Others that could also be at risk for similar reasons include Internet juggernaut Tencent (HKEx: 700), which is also the frequent target of complaints by many China web firms, Alibaba Group’s Taobao and potentially even well-connected giants like Lenovo (HKEx: 992).
Phoenix Wings Getting Clipped?
I’m hearing from one of my sources that Phoenix Satellite (HKEx: 2008), probably the only “foreign” broadcaster to boast anything resembling even slight success in China, has hit a road bump in its drive into the world’s most populous TV market. It seems that after years of giving preferable treatment to Phoenix, led by a former PLA propaganda officer, the Chinese Propaganda Ministry is actually asking for something in return. My source says the propaganda ministry wants Phoenix to do more to spread news about China to the outside world, which sounds largely in line with China’s broader goals of extending its “soft” power beyond its borders. Only problem is, when you ask private companies to get into things like the unprofitable business of soft power, the bottom line often ends up falling as victim. But then again, Phoenix can hardly afford to upset its Beijing sugar daddies. Stay tuned to see how the chips fall on this one, but the picture can’t look too good for Phoenix profits in the short term.
