Archives February 2008

Trina Solar CFO to resign

Trina Solar (NYSE:TSL) Ltd. said Thursday it has accepted the resignation of Sean Shao, the company’s chief financial officer, who is leaving the company to pursue other interests.

The China-based manufacturer of solar-power (OTCBB:SOPW) products said Terry Wang will replace Shao, who will leave the company March 31.

Wang recently joined the company as senior vice president of finance. Prior to joining Trina Solar, Wang served as executive vice president of finance for Spreadtrum Communications Inc. (NASDAQ:SPRD)

Shares of the company closed Wednesday at $37.58.

Senior VP, CFO Resigns At Chinese World Of Warcraft Operator

Chinese online game operator The9 Limited has announced that its senior vice president and CFO, Hannah Lee, is resigning her position effective February 2008 to pursue other interests. The company says it is searching for a new CFO, and expects to announce that person’s appointment prior to Lee’s departure.

The9 both operates and develops games in the Chinese market, either directly or through affiliates. Most notably, it operates Blizzard’s World of Warcraft in the region, in addition to Granado Espada and its first proprietary title, Joyful Journey West in mainland China.

The company has also recently obtained licenses to operate Guild Wars, Hellgate: London, Ragnarok Online 2, Emil Chronicle Online, Huxley, FIFA Online 2, Audition 2, Field of Honor and the original Audition. It currently has two additional proprietary titles, Fantastic Melody Online and Warriors of Fate Online, in development.

Said Lee, “It has been my pleasure to serve as the Chief Financial Officer of The9 for over four years. I believe the company remains well- positioned in the growing online game industry. With its rich and diversified game portfolio, I believe The9 will continue to enjoy long-term growth and deliver sustained growth for its employees and shareholders.”

Detroit’s Big 3 Pin Their Hopes On Chinese and Asian Market Auto Sales

With U.S. auto sales forecast to hit a 10-year low in 2008, Detroit’s Big Three carmakers are aiming to rev up sales in emerging markets.

Developing nations will account for more than 75% of the auto industry’s unit sales growth over the next decade, says market research firm CSM Worldwide. Most will come from the BRIC countries: Brazil, Russia, India and China.

General Motors GM, Ford F and, to a lesser extent, Chrysler hope to grab a big slice. But they’re in for a battle with other global giants as well as local firms like India’s Tata Motors TTM, which is close to buying Ford’s Jaguar and Land Rover brands.

Competition is fiercest in developing countries with their own local producers, says Maryann Keller, head of a Greenwich Conn.-based auto consultancy. China and India are examples.

But emerging markets without local automakers — Brazil, Thailand and Poland — also make attractive targets for global giants and newcomers.

“It isn’t going to be just the Japanese, Americans and Europeans competing for (developing world) sales, it’s going to be Korean, Chinese and Indian carmakers as well,” Keller said. “The automotive world is opening up to greater competition from new emerging companies we’ve never heard of. And there’s no reason to assume foreign companies are going to dominate in Russia, China or India.”

GM has a top-three market share position in China, Russia and Brazil. In 2007, GM’s sales increased 74% in India, 18% in China, 19% in Latin America and the Middle East, and 9% in Europe.

Toyota and GM were neck-and-neck in 2007 global sales. Toyota has been gaining ground in China. Toyota also opened a factory in St. Petersburg, Russia, late last year. The plant will produce 50,000 cars a year, Toyota says.

“The debate going forward is whether GM’s lead over Toyota in BRIC countries is sustainable,” said Lehman Bros. analyst Brian Johnson.

Toyota TM has forecast combined sales of 900,000 vehicles in China and Russia for 2008, a jump of almost 40% from last year.

In BRIC countries, Ford only ranks among the top three foreign companies in Russia.

GM and Ford are well-positioned for global growth, says Michael Robinet, CSM’s VP of global vehicle forecasts.

“GM is doing well in the BRIC countries. It’s focusing more assets on Russia and India,” he said. “Ford is getting stronger in China and it’s well-established in Brazil.”

Chrysler has yet to make a dent in emerging markets. But it’s announced a goal to double overseas sales over the next four years.

“Chrysler is trying to catch up,” said Bruce Belzowski, auto analyst at the University of Michigan’s Transportation Research Institute.

He points out that Chrysler largely lost its global reach when parent Daimler sold more than 80% of its stake in Chrysler to private equity firm Cerberus Capital Management.

“Daimler is gone now,” Belzowski said. “Chrysler is trying to build a B-size (subcompact) car with Chery (Automobile) for China’s market.”

It’s a large and growing market. CSM estimates China’s auto sales will grow 60% to 10.9 million by 2013, up from 6.8 million last year.

Among foreign suppliers in China, Volkswagen leads with 18% market share, followed by GM at 10%.

Toyota overtook Korea’s Hyundai for third in 2007, says Tim Dunne, analyst at J.D. Power & Associates.

Japanese automakers have gained share in China, Dunne says, while European firms have held steady. The combined share of U.S. automakers slipped in 2007, he says.

Chinese firms such as Chery had almost 30% of the market last year, with Japanese companies at 28%.

Chasing The Nano

CSM forecasts India’s auto market will more than double from current levels to 4.16 million cars by 2013.

Korea’s Hyundai leads foreign automakers with about 14% market share in India. GM and Ford trail with 4% and 3%, respectively.

Ford on Jan. 8 said it would spend $500 million to set up a small car factory in southern India. Overall, it’s investing $875 million in the country.

GM is spending $350 million to set up its second factory in India.

Both GM and Ford face an uphill battle vs. India’s Tata, which holds 23% of the market. Tata rolled out the world’s cheapest car — the $2,500 Nano — in early January. The Nano is said to get 50 miles per gallon but lacks power steering and power brakes.

Tata expects to sell 250,000 Nanos a year in its home market. Within three years, Tata plans to export its low-cost, no-frills car to other developing countries.

Analysts say Ford is aiming to produce a car for India’s market with a $7,500 sticker price. GM is said to be working on a sub-$5,000 car intended for emerging markets.

What About Profits?

Ultracheap cars might win Detroit’s Big Three market share, but their profitability is questionable, Keller says. “The growth is in small vehicles, but nobody is going to make money on these (ultracheap) cars.”

Meanwhile, Chinese consumers are already trading up. The average car in China costs about $15,000 vs. $27,000 in the U.S., Dunne says.

Aside from BRIC countries, other fast-growing auto markets include Thailand, Indonesia, Mexico, Poland and Ukraine. Sales also are rising fast in Africa and the Mideast.

While overseas markets beckon, GM and Ford will stay under attack in the U.S.

“Every carmaker still wants to come into the U.S.,” Keller said. “Why? Because we buy big expensive cars.”

CitiBank signs China banking deal

Citigroup has agreed with a Chinese partner to establish a mainland investment banking joint venture with Central China Securities, a mid-sized brokerage, ahead of an expected opening of the sector to more overseas participation.

The venture is expected to apply for regulatory approval in the coming weeks, and comes as Beijing is poised to relax a two-year ban on foreign investment in the country’s booming domestic securities industry.

Citi’s move follows those of Credit Suisse and Morgan Stanley, which last month signed separate agreements with Chinese partners to establish mainland investment banking joint ventures. If approved, the JV would become the latest plank in Citi’s mainland platform, which features a stake in Shanghai Pudong Development Bank, de facto control of Guangdong Development Bank and its own retail branch network.

The battle for Asia’s tech talent

By Sol E. Solomon, ZDNet Asia
Monday, February 11, 2008 09:05 PM

Skills in business application and software development, amongst other fields, are expected to be in high demand across the Asia-Pacific region’s more developed markets. However, it could take as long as three years in some countries to train enough talent to meet today’s demands, according to industry watchers.

As the region sees increased development work, and with more functions being undertaken in-house by companies, there will be further boost in demand for .Net and J2EE developers, networking engineers and professionals with SAP enterprise resource planning (ERP) implementation skills, DP Search director Andrew Sansom said in an e-mail interview.

Kelly Chua, consultant for IT and telecommunications (IT&T), Hudson Singapore, said the country’s hot IT jobs continue to be in the field of business applications.

“The high demand for SAP expertise and business-specific applications is mainly due to the constant need for organizations to align their businesses to market changes. This, in turn, affects the related IT applications,” Chua explained.

According to Roger Olofsson, associate director at RobertWalters recruitment services’ IT division, regional growth has further spurred more organizations to upgrade older ERP systems.

“Most firms were holding back in the difficult years [of] 2003 and 2004,” Olofsson said in a phone interview. “When the economy recovered, they found they needed to expand [their IT capabilities] to compete [since] IT raises their competitive advantage.”

“In Singapore, demand for IT expertise is growing as greatly as it did in the 1990s. Lots of companies are moving from the United States, Tokyo, Europe and other higher-cost areas,” he said.

Big demand in big money
The region’s financial sector continues to be a big employer of tech professionals.

In Hong Kong, for example, IT roles that specialize in investment banking such as frontoffice support, risk management, business analysis, development and project management, are high in demand, said Ellis Seder, manager for IT&T, Hudson Hong Kong.

“Increased volatility in the banking world will lead banks to review market- and credit-risk processes and systems,” said Seder. “As such, they will invest heavily this year to update risk systems.

In Japan, sales and pre-sales roles are also highly sought after by both local small and medium businesses (SMBs) as well as multinational corporations.

“We forecast that in 2008, we will see steady demand for candidates strong in pre-sales, sales and project development,” Mike Armstrong, head of IT&T for Hudson Tokyo said in a phone interview.

“There is still a war for talent,” he added, noting that for candidates, “being bilingual in English and Japanese would help” secure their ideal jobs.

As for China, jobs in OS (operating system) kernel development with low-level system programming such as C coding, look set to be high in demand this year, said Raymond Wong, general manager for Tony Keith, a subsidiary of Hudson China. “An increasing number of kernel and system-level projects are being moved to China from the R&D (research and development) headquarters of major multinational companies,” said Wong.

“In the early days of software development in China, most development projects coming from overseas were limited to application-level or quality assurance and localization projects. The kernel technical aspects were controlled and finished in the home countries,” he explained. “Now, due to the maturity of the Chinese IT environment and current availability of IT talent in China, more OS kernel development projects are being transferred to China.”

Competing for talent
However, Chua noted that the supply of IT expertise in the region is unable to meet the current demand. “It is always a challenge to find individuals with specific application background,” she said.

Singapore, for example, is not producing enough IT professionals, Olofsson said. “Our clients in Singapore are recruiting more from overseas.”

Chua added that Hudson is seeing demand for candidates in the financial services sector, with companies competing with Singapore, Hong Kong and Tokyo for the limited talent pool.

Wong said the job market in mainland China, too, lacks enough suitable technology candidates to satisfy employer needs.

“We forecast that it will take two to three years to train enough talent to meet the demands we face today,” he said. “China is largely short of suitable talent for more senior positions, especially candidates with strong English skills and related experience in their fields.”

Because of a lack of available talent in China, some organizations have had to recruit people with technical skills that are related, but not specific, to their roles.

Companies have also taken to hiring candidates who have potential and training them on the job, Wong said. “This creates more openings for tech talent who would not ordinarily find jobs,” he noted.

In addition, China companies have often resorted to recruiting candidates overseas for senior positions.

“This can present a good opportunity for local engineers to gain knowledge and experience from their foreign counterparts,” Wong said. “It is also a challenge as they are forced to integrate and work closely with foreign supervisors and colleagues.”

“[At the end of the day], more [work] experience is what’s required to bring our domestic talent up to speed, and this is something that will only improve with time,” he added.

And while DP Search’s Sansom noted that the current demand-supply situation is “balanced right now”, he added that high-quality hires are not available on the market for long “so employers have to be quick to catch the good ones”.

China: Still at the ‘top of the head’

by Steven Halpern
Filed under: International markets, China, Newsletters, Stocks to Buy

“Is China’s rip-roaring bull market over?” asks Larry Edelson. The editor of Real Wealth says, “No. No. And no!” Here, he looks at two favorite funds for investors seeking exposure to China.

“China’s economy continues to fire on all eight cylinders. The country’s fourth-quarter 2007 gross domestic product rose an amazingly robust 11.2%. That’s down a tad from third-quarter growth of 11.5%, but who’s kidding who? China is still at the top of the heap as the fastest-growing major economy on the planet!

“Meanwhile, Beijing’s fiscal revenues are soaring. According to the National Statistics Bureau, the government’s fiscal revenue hit $691 billion (almost $2 billion per day) last year, up from $261 billion in 2002.

“And don’t forget, that’s just tax revenues. China’s mountain of foreign reserves has climbed to an astounding $1.53 trillion – and is growing at a rate of more than $1 billion per day.

“Add it all up, and China has almost $2.3 trillion stashed in the bank. Plus more than $3 billion a day of positive cash flow. In contrast, the U.S. has negative cash flow of more than $2.7 billion per day.

“I find it incredible that just a few years ago almost every analyst I talked to told me China’s banking system was going to implode. Now , China’s banking system is now one of the strongest in the world, with 15% of their deposits held as reserves at the People’s Bank of China, the country’s central bank.

“Contrast that with U.S. banks, which hold on average about 8% of their capital, including stock and earnings, as reserve capital to meet so-called Tier 1 requirements for bank safety. That’s less than half of what China’s banks hold.

“My suggestion: Buy the heck out of China’s stock market. The pullback you’ve seen there is nothing more than a sharp technically-based sell-off. Here are investments you can use:

1. iShares FTSE/Xinhua China 25 Index (ASE: FXI). One of the most liquid ETFs that tracks China’s top 25 companies, the FXI is a great way to play China. The ETF is down more than 32% from its highs and is now bouncing off of long-term chart support. I consider it a great buy!

2. U.S. Global Investors China Regional Opportunity Fund (USCOX). This mutual fund invests at least 80% of its money in the China region, from Mainland China to Hong Kong, Taiwan and more. Manager Frank Holmes’ worldview and analyses are similar to mine. The fund is now trading at just $11, back to 2003 levels. Another great buy, in my opinion.”

Each day, Steven Halpern’s TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation’s leading financial newsletter advisors.

What is China doing to its workers?

Arvind Subramanian / New Delhi February 08, 2008
Is the dramatic decline in labour’s share of the economic pie ominous.

A silent revolution has been taking place in China. Somehow, without anyone noticing, the capitalists have upended the People’s Republic. Over the past few years, they have effected a significant redistribution of income away from workers. This might well be the mother of all redistributions.

Normally, in most countries, the distribution of income between labour and capital changes not at all or very slowly. For example, in the United States, the share of the economic pie going to workers has been, with some small exceptions, roughly stable in the post-war period. In China itself, this share was roughly stable for over 25 years since the Chinese economy took an outward turn in 1978.

But recently there have been tectonic shifts. Between 2002 and 2005, according to Berkeley economists, Chong-En Bai, Chang-Tai Hsieh, and Yingyi Qian, the share of the economic output going to workers decreased by about 8 percentage points, from about 50 per cent of GDP to 42 per cent of GDP. Which means that China — yes, the People’s Republic — now has perhaps the lowest labour share of any major country in the world.

What does the decline in labour share mean? It does not mean that the absolute fortunes of labour have declined. To the contrary, in China, real wages have been growing at a decent clip of about 7 per cent a year. What it does imply is that real wages have been growing more slowly than productivity. This failure of workers to capture their productivity gains — as economic theory would predict — has proved costly to them. If the sharing of the pie had remained the same in 2005 as in 2002, the average Chinese would have received $160 more than he or she actually did, which represents nearly 10 per cent of current per capita income.

How did this happen? Historically, such major shifts are rare. When they have occurred, they have typically been associated with political transitions as Dani Rodrik of Harvard University documented some years ago. Transitions from democracy to autocracy (Chile in 1973, Turkey in 1980, Argentina in 1976 and Brazil in 1964) led to a large decline in the share of the pie going to labour. In fact, during these four transitions, the share of labour fell on average by 11 percentage points.

Similarly, the transition from autocracy to democracy saw an increase in the share of the pie going to labour. In a few cases — Greece and Portugal in 1974, Spain in 1975 and Chile in 1989 — the increase in the labour’s income share was dramatic — an average increase of about 10 percentage points. Similar changes occurred when Korea and Taiwan moved towards democracy in the 1980s.

The association between political changes and the fortunes of labour has to do with the institutional arrangements that affect the relative bargaining power of labour and capital. Democracies tend to strengthen labour’s bargaining situation, either by allowing greater freedom of association or better means of redress against employers. In some cases, democracy simply encourages greater populism, leading to large and unaffordable wage increases. On the other hand, authoritarian regimes could favor cronyism and strengthen producer interests, resulting in a greater ability of employers to transfer income away from labour.

But China, of course, has not seen any radical political change that could easily explain the dramatic shifts that have occurred. Can market-related developments explain this puzzle? Consider the counterpart of the decline in labour share, namely the rise in the share of capital.

It is well known, for example, that China has a distorted financial, especially banking, system, resulting in cheap and easy credit, at least to those state-owned enterprises that get it. This distortion has if anything worsened over time. Capital has become even cheap relative to labour, contributing to rising investment, from 35 per cent of GDP in 2000 to nearly 45 per cent in 2006, and a growing capital intensity of production. With such high investment rates, it seems logical that capital’s share would have risen.

Actually, standard theory suggests the opposite. The rising capital intensity of production should have reduced the returns to capital, so that the total income accruing to capital should have declined. And this decline in turn should normally have been large enough to reduce capital’s share of income or keep it unchanged. But the opposite has happened in China: the returns to capital failed to decline so that capital’s share of income went up, and by a large amount. So, the puzzle deepens.

One possible explanation is technological progress. China’s intensive use of capital could have been simultaneously accompanied by rapid technological progress which made capital more efficient — or prevented it from becoming less efficient. In fact, there’s some evidence for this in the structure of exports, since over the past five years China has shifted from low-margin “commodity” manufacturing to high-margin “advanced products.” But the shifts are not significant enough to warrant large changes in income distribution.

How might this decline in labour’s share — a source of potential social disaffection and unrest — be reversed? To begin with, it is likely that public pressure will force the government to share the large returns to capital with savers, thereby improving household investment income. Most Chinese savers, who have their money in the Chinese banking system, today obtain zero or negative returns. And they have become wise to this large disparity. Thus, the government has been forced to list more firms in the stock market so that households can enjoy some of the high returns that companies are making. Households have also been investing heavily in the real estate market. But this government strategy has limits because stock and real estate prices are exceptionally high, and as they return to earth, households could be left with depreciated assets and poor returns, which might do little to increase their income.

Over a longer period, further economic forces will come into play. New entrants will emerge and bid away the excessive return to capital. But the big question is this: what if these forces are too weak, or too slow, and the public becomes impatient? Will the decline in labour’s share of the economic pie be reversed through political change? That may be China’s big question.

Arvind Subramanian is Senior Fellow, Peterson Institute for International Economics and Center for Global Development, and Senior Research Professor, Johns Hopkins University

China drafts code to regulate salaries

?BEIJING, Jan. 22 (Xinhua) — The Ministry of Labor and Social Security is working on a draft regulation to encourage employers to implement salary rises, a move that is being seen as a way to lessen the effects of rising inflation.

The regulation is designed to help develop a mechanism to facilitate a healthy and rational increase of employees’ salaries, an official said.

The draft will be submitted to the State Council for review soon but the source did not release specific details.

Qiu Xiaoping, a senior official with the ministry, said the consumer price index shall be taken into account when salary levels are set.

“The government can not force companies to increase salaries. We hope to find a decision-making system that involves all parties in this issue through the regulation,” he was quoted by Beijing-based financial weekly China Times.

About 12 provinces in China have announced their own rules on the salary issue and labor departments in 27 provinces began to ask employers to deposit a certain amount of security to ensure they do not delay payment.

These efforts have effectively reduced the number of cases in which salaries have been paid in arrears, the ministry said.

But many employers have not increased salaries for years and employees, especially blue-collars, still earn less than they should, Qiu said.

China, whose economy is driven by low-cost labor, has made efforts to protect the rights of employees. A new labor contract law took effect on Jan. 1, imposing tighter controls over employers’ rights to hire and fire staff.

Merrill to expand in emerging markets

Merrill Lynch is seeking to expand its presence in emerging market economies such as Brazil, Russia, India and China as it looks for new sources of growth to mitigate the downturn in US markets, John Thain, Merrill Lynch’s chief executive, said on Wednesday.

Speaking as Merrill Lynch opened a new office in Moscow, Mr Thain said the bank’s shift towards the so-called Bric economies would mean that overall headcount at the bank would not decrease even as it slashed about 1,000 staff at its mortgage and fixed-income divisions at home due to the subprime crisis amid fourth-quarter losses of $9.8bn.

“As the US economy slows, we are looking for growth prospects outside the US. The Bric economies are going to continue to grow … Russia is one of the most important places.”

Wall Street banks have been pouring resources back into Russia over the past year, prompting hiring wars for a small pool of Russia experts and sending salaries soaring. Last year saw $42bn in Russian IPOs in London and Moscow and bankers expect the volume could reach up to $50bn this year.

Merrill Lynch was Russia’s top M&A adviser last year, according to Dealogic, winning $64.3bn in deals, nearly a third of the total.

Russia’s energy-driven equity markets have been seen by investors as a relatively safe haven.

Mr Thain said Russia was more protected than other world markets, including emerging ones. “No one is immune from the global slowdown. But Russia is probably more insulated than other Bric economies.”

Asia Favours SAP with Record Growth in 2007

SAP Asia Pacific and Japan (APJ) finished the year strongly with fourth quarter software revenue sales growth of 44 percent in constant currencies, compared with the previous corresponding period, to Euros 18 billion.

According to the German software behemoth, APJ remained its fastest growing region with software revenue rising 32% year-on-year in constant currencies to Euros 482 billion.

Total revenues for SAP APJ grew 20% year-on-year in constant currencies to Euros 1.275 billion.

“2007 was a terrific year for SAP Asia Pacific Japan, with revenue growth in India, Greater China, Japan and South East Asia providing key impetus for the region,” said Geraldine McBride, President and CEO, SAP Asia Pacific Japan.

“We are continuing to invest in this region, hiring more than 3300 new people in 2007 to help take our exciting array of products and services to market.”

“Our customers in this region remain motivated to grow their businesses and need to derive real value from the systems they implement,” added McBride.

“In 2007, we expanded operations into new markets in the region and are on track to grow consistently over the next two years,” McBride continued.

For the full year of 2007, SAP APJ’s software and software related service revenue grew 24% in constant currencies to Euros 959 billion, while Q4 software and software related service revenues grew 32% in constant currencies to Euros 304 billion.

SAP said it continues to invest in maintaining its leadership position in the fast growing Asian region, adding 3384 full time employees in 2007, bringing the regional total to more than 9500 full-time equivalent employees.

In the fourth quarter, SAP also established its first sales operations in Cambodia working with an SAP Business All-in-One partner in Phnom Penh. This follows SAP APJ’s expansion into Vietnam in both Hanoi and Ho Chi Minh earlier in 2007.

SAP India, the fastest growing country for SAP globally, continued to expand operations in 2007 with the acquisition of YASU Technologies and the SAP Executive Board’s continued commitment to invest USD1 billion in the country by 2010.

“SAP Asia Pacific Japan also remains the leader in SAP’s fastest growing customer segment: SME,” said McBride.

“SME delivered a strong performance each quarter in 2007 and grew at more than ten new names per working day. SME customers now make up nearly 70% of SAP’s customer base in the region.”

Success for SME in Asia Pacific and Japan will continue to be driven by a strong partner ecosystem and an innovative solution portfolio.

In 2008 SAP will continue to roll-out its latest innovation for the lower midmarket, SAP Business ByDesign, a software-as-a-service solution specifically designed for SMEs. Successfully launched in 2007 in China and recently in Singapore, SAP believes its Business ByDesign portfolio will add to the SME momentum in Australia and India in 2008.