Archives July 2014

More freedom set for booming game market

A character from a video game is set up in Shanghai New International Expo Center for ChinaJoy 2014, the country’s biggest annual game fair that opens on Thursday.

China will simplify the procedures needed to launch video games and strengthen intellectual property rights to boost the industry, Shanghai Daily learned at ChinaJoy 2014 on Wednesday.

Integration among games, films, telecommunications and theme parks is a rising trend in the domestic market, industry officials said during the opening of the country’s biggest annual game fair.

The government will continue improving efficiency by giving more cities the power to approve games, greatly simplifying application procedures, said Sun Shoushan, deputy director of the State Administration of Press, Publication, Radio, Film and Television.

Shanghai is the only city now allowed to approve games, Sun said.

In the first half of this year, revenue in the domestic game industry totaled 49.6 billion yuan (US$8.03 billion), up 46.4 percent from the same period last year. Mobile games accounted for a quarter of the total and jumped 395 percent year on year. Domestic game firms generated combined revenue of US$800 million overseas, rising 67 percent year on year, Sun added.

But some game titles based on popular novels and films face IPR problems, which holds back the industry, speakers told the forum.

“New policies must be set to crack down and prevent IPR infringement in the industry while game developers should have a better understanding of their social responsibilities,” Sun said, without providing more details.

About 30 executives from leading firms including Tencent Inc, Shanda Games, Qihoo 360, Giant and Blizzard Entertainment shared ideas about the industry and their development strategies.

Chen Jie, vice president of Qihoo 360, said mobile games will be the company’s new focus as the number of users increased from 170 million a year ago to 250 million now.

“It’s more convenient to play mobile games on smartphones because people always bring their phones with them,” said Xiao Hong, the chief executive of Perfect World.

The speakers spoke highly of industry integration between gaming companies and other sectors like film and literature.

Cheng Wu, vice president of Tencent, said they will continue focusing on cooperating with various industries such as creative art and media to provide a variety of games.

Huayi Brothers, one of China’s top film studios, plans to work with different companies to build a theme park in Suzhou. Huayi Chairman and CEO Wang Zhongjun said the goal is to combine games and movies with recreation facilities.

Microsoft Corp’s Xbox One will debut on the Chinese mainland in September with a starting price of 3,699 yuan (US$596) through local partner BesTV, making it the first foreign game console to be sold on the mainland in the past 14 years.

More than 70 games by 25 developers including EA, Ubisoft, Tencent and Perfect World will be available for the Xbox on its mainland debut.

Chinese-language and free games will also be available for the new Xbox. Other games will cost from 99 yuan to 249 yuan each, according to Microsoft.

Game console sales were banned in 2000, but it was lifted with last year’s launch of the China (Shanghai) Pilot Free Trade Zone. In May, Sony Corp said it would set up a joint-venture with Shanghai Oriental Pearl Group to bring the PlayStation 4 console to China.

Both Sony and Microsoft are attending ChinaJoy 2014.

Meanwhile, Microsoft will also offer a Kinect package with the Xbox One for 4,299 yuan, which includes several games. The Xbox One and Kinect package costs US$449 on Amazon.com in the US market, 35 percent cheaper than the price on the Chinese mainland.

Yum Brands says China sales hit by food scandal

Fast-food owner Yum Brands says the food safety scandal connected to one of its meat suppliers has had a “significant, negative impact” on its sales at its KFC and Pizza Hut outlets in China over the past 10 days.

In a regulatory warning to investors, Yum says if the sales impact is sustained, it will have a material effect on full-year earnings.

Yum Brands has severed its relationship with Shanghai Husi, the meat processing facility which has been accused of repackaging expired meat products and selling them to fast food outlets, including KFC and Pizza Hut.

Gaps widen in property markets

So far, 23 Chinese cities have loosened restrictions on home purchases, accounting for half of the total 46 cities that imposed such restrictions over the past several years. To strengthen the market, local authorities will have to cut their reliance on administrative measures. But given the general market climate, abandoning earlier restrictions will not solve the market’s problems once and for all.

Nowadays, the housing markets in Beijing, Shanghai, Guangzhou and Shenzhen are still quite imbalanced. To put the brakes on price speculation, restrictions will likely remain in effect in first-tier cities where real demand is high.

In many of China’s less-populated cities though, investment in the housing market is mainly a product of local fiscal policy. This has pushed supplies well ahead of demand. This partly explains why many of these cities are easing or removing earlier curbs.

It bears noting though that the restrictions imposed on these smaller cities were often quite limited to begin with. And due to official negligence, many curbs existed in name alone. The real test for the government will come only after housing inventories are digested and local officials wean themselves away from land transfer revenues.

Time for image overhaul at Huawei

The booth of Huawei Technologies Co Ltd at an Internet conference in Beijing. The Kirin 920 chip of the high-tech giant is regarded as an announcement that the company is increasingly innovative and internationally competitive.

As the dust settles on China’s high-tech giant Huawei Technologies Co Ltd’s latest innovation, a new wonder chip, the Kirin 920, it is important to review the significance of this new product.

In the month since the Kirin 920 was announced, it has certainly captured the attention of the media. The tone generally has been one of admiration and respect for the chip in a market long dominated by the United States in general and US-based Qualcomm Inc in particular.

On a technical level, Huawei’s Kirin 920 provides support for QHD displays, 4K video recording and a high-speed LTE category-6 platform. None of Huawei’s global competitors, not even Qualcomm, can match this functionality.

Huawei’s Kirin 920 announcement also signals that the company as well as other Chinese companies are increasingly innovative and internationally competitive.

Technical innovation is an absolute necessity to remain competitive both domestically and globally, but it is not sufficient by itself.

Huawei needs to match its impressive technical innovation record with equally impressive brand image creativity and innovation.

The high-tech industry, perhaps with Apple Inc as the only exception, is dominated by software and electronic engineering advances and specialists. As a result, brand imaging is often relegated to a “bolt on” added by an outside marketing agency.

Huawei, therefore, can step further ahead of its global rivals by matching its latest Kirin 920 innovation with a brand image overhaul and redesign.

The key to any successful brand image is the set of associations chosen that collectively form a powerful impression in the minds of the brand’s target market.

Here, Huawei could demonstrate real innovation and some courage by choosing associations that evoke a powerful Chinese image.

Chinese history, rich in artistic imagery, is full of such associations.

It is important to stress what sort of brand image Huawei should target. Huawei already has an enviable worldwide reputation, for technical excellence and innovation, but high-tech consumers also value a brand that attaches itself to an important aspect of their lifestyle.

High-tech brands also need to be seen as lifestyle solutions and provide a certain amount of “personality” as well as effective technical delivery.

Huawei, like many of its global high-tech rivals, does not appear to have considered any sort of emotional brand personality, but now is the time.

But with China’s 5,000-year history and an abundance of associations from which to choose, where should Huawei start?

Perhaps an effective starting point would be inside the typical high-tech global consumer’s mind, where the company can uncover their knowledge and appreciation of Chinese history.

Such a starting point will undoubtedly lead to one of the nation’s most famous literary works, The Romance of The Three Kingdoms, a brilliant novel that winds through Chinese history with a multitude of rich characters.

Huawei could “attach” some of the book’s characters and images in order to build a brand with real personality.

Intellectual giant and masterful military strategist, Zhuge Liang, could feature prominently in any brand imagery and enable Huawei to begin to build an emotionally powerful, competitive brand.

Huawei continues to lead Chinese companies’ international expansion with technical excellence and creativity, but it is brand image innovation that is much needed now.

LinkedIn, WeChat planning closer cooperation

After launching a Chinese-language website in February, the Chinese branch of the world’s largest professional networking company LinkedIn Corp is set to strengthen its cooperation with reigning mobile messaging application WeChat.

Derek Shen, president of LinkedIn China, said on Thursday that the professional networking site with more than 300 million members globally expects to roll out a service that can tie LinkedIn users’ accounts to the ones they have on WeChat.

Shen, who joined the United States-based LinkedIn in January to assist the Internet giant in tapping China’s professional networking market, declined to give a detailed description of the cooperation.

But he said his Beijing-based team is considering the possibility of allowing WeChat’s more than 500 million users in China to log onto LinkedIn through their WeChat accounts or even communicate with LinkedIn users on WeChat rather than the traditional way of sending messages to users’ registered email addresses.

“People have two identities. One is about their personal life; the other is about their professional life. WeChat has done a great job of enriching people’s private lives. But the cooperation with LinkedIn can help its users build their professional identities,” he said.

LinkedIn has made China one of its top priorities by creating a joint venture with Sequoia China and China Broadband Capital in January in an attempt to connect with more than 140 million Chinese professionals.

Compared with January, the number of LinkedIn’s daily new users jumped 80 percent in July. The company reported that its Chinese users exceeded 5 million by the end of May.

Nearly 1 million of them use LinkedIn’s Chinese language website, which was launched at the end of February.

Shen said he was satisfied with LinkedIn China’s track record in its first six months in China and is hoping to boost Chinese user numbers to 10 million by early next year.

The push will not be through advertisements, however; rather, LinkedIn is planning to launch creative campaigns, including holding offline seminars jointly with top universities or MBA programs, to attract the attention of high-quality talent in China’s biggest cities.

Statistics from LinkedIn showed that more than 60 percent of its users live in Beijing, Shanghai, Guangzhou and Shenzhen. In addition, 42 percent of its users hold manager-level positions or above.

As a newcomer to China, LinkedIn is also planning to meet with some of the well-established players in China’s professional networking market.

Tianji.com, a Beijing-based platform, boasts more than 18 million users. Founded in 2005, it said its user numbers have soared by an average of 500,000 per month over the past year.

He Miao, marketing director of Tianji.com, said that as the market matures, more and more Chinese are realizing they need a separate platform to meet the demands of building a career.

The key to running a successful professional networking system in China lies in localization, she said.

“People in the West are more open to contacting strangers online and exploring business opportunities through online connections, even if they don’t know each other well,” He said.

Chinese Internet users seldom contact those they do not know well. “They have to become friends first before doing business together. So we have to specially design products and features to improve the interaction and make them know each other better through our platform,” she said.

Jin Xiaolei, an analyst with Beijing-based Internet consultancy Analysys International, said that teaming up with WeChat is a smart move for LinkedIn as more and more people have used the mobile messaging application as a tool for communicating work-related information.

“But digging deeper and meeting the demands of Chinese users requires a long-term commitment. It is still too early to tell what LinkedIn’s future in China will be,” she said.

“But what is sure is that the Chinese professional networking market is going to heat up, with LinkedIn serving as a good catalyst.”

SAIC signs deal on Internet technologies with Alibaba

Shanghai-based automaker SAIC Motor Corp Wednesday signed an agreement with Internet giant Alibaba Group on applying more Internet technologies to SAIC’s future products, news portal tech.sina.com.cn reported.

The cooperation will enable SAIC to use Alibaba’s “YunOS” operating system as well as its mapping and music services in the automaker’s future products, according to the report.

Prior to the Wednesday deal, SAIC has already made efforts to bring the Internet to its vehicles.

SAIC in 2010 developed a vehicle system called inkaNet that enables car owners to get access to vehicle information on both personal computers and smartphones.

The system has reportedly been applied to most models of the company’s self-developed Roewe brand.

Major carmakers and Internet companies have all been trying to tap into the opportunities in the development of “Internet of Vehicles,” a concept that generally means making driving more intelligent using Internet technology.

Leading wireless operator China Unicom has cooperated with major domestic carmakers such as Zhejiang Geely Holding Group to provide 3G telecommunication services to their products.

China Unicom also signed a similar agreement with US premium carmaker Tesla in April.

“There will be more cooperation between Internet companies and automakers in the future as ‘Internet of Vehicles’ represents the future trend,” independent auto analyst Zhang Zhiyong told the Global Times Wednesday.

Zhang also noted that “Internet of vehicles” means great opportunities for domestic carmakers and Internet firms.

Testing times for foreign fast-food chains

Meat scandal exposes loopholes in quality control and supervision

A meat supplier’s practice of selling expired chicken and beef to top fast-food chains in China has highlighted loopholes in ensuring quality and safety in the food supply chain in the country, pushing companies to be more proactive in auditing and testing, experts said.

The Shanghai Food and Drug Administration confirmed on Tuesday that the Shanghai Husi Food Co Ltd was found in violation of the law, after five batches (5,108 boxes) of their chicken, beef and pork were discovered to have problems.

The meat supplier, wholly owned by Chicago-based food company OSI Group LLC, sells meat to nine fast-food chains, including McDonald’s Corp and KFC parent Yum Brands Inc, coffee chain Starbucks Corp and Burger King Worldwide Inc.

The involved brands have halted using products from Husi. McDonald’s and Yum said they will resume purchases when they can ensure the food complies with laws and standards. Neither said what suppliers they would use in the meantime.

The scandal came as multinational food producers and retailers have expanded their outlets and factories aggressively in China, one of their most important markets.

Yum, the parent company for KFC and Pizza Hut, has opened 6,387 outlets in China so far, and it had a market share of about 5 percent in 2013.

McDonald’s has 2,000 outlets, which accounted for 2.6 percent of the fast-food market last year. About half of Yum’s revenue and 35 percent of its operating profits came from the Chinese market last year.

But their rapid expansion was not accompanied by a similar improvement in managerial capacity and training, resulting in continued food safety scandals, said Zhao Ping, deputy director of the Chinese Academy of International Trade and Economic Cooperation, which is under the Ministry of Commerce.

Fast-food chains, which have developed quickly in China in recent years, many through franchising, have been weak in implementing the industry standards and ethical principles that they follow in developed markets, she said.

“Multinationals should require their operations in China to follow the same standards in terms of food safety as in developed markets,” Zhao said. “It is an excuse for food producers to lower their standards only because local regulations are loose and food safety and security awareness are weaker.”

Companies should invest in internal training and set up appraisal systems that involve food safety issues, she said.

Zhao said fast-food restaurants are also responsible for unsafe food purchased at their outlets, because they should have supply chain controls at their logistics centers that deal with this issue before products are shipped to the stores. Even when products are labeled as qualified, fast-food chains should send samples for third-party testing.

The latest incident is “a wake-up call for Chinese consumers, who have long believed that foreign fast-food brands follow higher standards than domestic ones”, Zhao said.

These fast-food brands should be prepared to lose a number of loyal customers, she added.

The incident is not a simple case of negligence by an individual company but an exposure of the systemic risk in the food supply chain, which damages consumer trust and brand loyalty, she said.

Ben Cavender, an analyst at Shanghai-based China Market Research, said the reason why it appears that multinational food companies are involved in more misconduct in China than in other markets is because most of the markets are not as big or fast-growing as the market here in China.

In many ways, suppliers in China are still “professionalizing” their operations and do not always hold same standards that apply in Western Europe and the United States, he said.

Because of all these issues, it is difficult for foreign-invested suppliers to maintain quality and offer consumers safe products the way they should, even though the supplier situation has improved a lot, he said.

Hu Min, leader of the professional team of the China Federation of Logistics and Purchasing and its specialized committee for purchasing and supply chain management, said that food safety testing standards and frequency should be improved at all stages of the logistics and supply chains.

In recent years, many international retailers have learned a lesson and put more resources into food testing to prevent food safety scandals.

Wal-Mart Stores Inc came under the spotlight early this year after a supplier’s donkey meat was found to contain fox meat. It also came under fire for selling expired duck meat in 2011.

Walmart China said the company will increase its investment in food safety to more than 300 million yuan ($48.6 million) between 2013 and 2015, focusing on Increasing supplier audits and tests for suppliers.

It will increase DNA testing on meat products and spend more on facility audits and inspections of primary producers. The number of facility audits and inspections of primary producers was up 50 percent in 2013 compared with a year earlier, it said.

More sectors open to foreign investors in FTZ

Shanghai on Tuesday shortened the negative list that bars overseas investment into some sectors in the Shanghai free trade zone (FTZ), a policy move designed to lower the entry barriers for foreign investors into the Chinese market, but analysts suggested that the focus should be on the rules for a wider market.

The newly revised version of the negative list cut the number of bans and restrictions on foreign investment in the FTZ to 139 items from the previous 190 items.

One of the biggest changes is made in the financial sector. In the previous version of the negative list, foreign investors were not fully allowed to participate in the banking industry and the services offered by finance, trust and currency brokerage companies. But in the revised version, foreign investors can do business in these sectors as long as they abide by the related regulations.

Other sectors that are newly opened to foreign investors include oil refinery, nonferrous metal smelting and the wholesale market, according to a statement on the website of the China (Shanghai) Pilot Free Trade Zone.

The easing of restrictions is in line with the market expectations, Zhang Yugui, director of the School of Economics and Finance at the Shanghai International Studies University, told the Global Times on Tuesday.

But Zhang also noted that foreign investors should have more access to the services industry, as core industries such as the manufacturing sector are still firmly controlled.

Shanghai FTZ, launched in September 2013, was seen as a testing ground for financial reforms, commodities trading and logistics.

Shanghai adopts a “negative list” approach for foreign investment in the zone, which ensures foreign companies can invest without any restriction if a sector is not on the list.

The number of bans or restrictions that the new negative list has lifted for foreign investment is not the central issue. What matters more is whether what has been achieved in the FTZ can be extended to the whole country, analysts said.

“At present, the newly opened sectors that are excluded from the shortened negative list actually don’t attract much interest from foreign investors, and the policy is only confined to the free trade zone. What overseas investors value the most is the massive market potential in the whole country,” Qiang Yongchang, director of the International Trade Study Center at Fudan University, said on Tuesday.

The actual impact of the policy innovations carried out in the FTZ on the dynamics of the entire Chinese economy is the fundamental issue, instead of the specific policy privileges, Qian pointed out. The opening of the sectors is an unprecedented move in China, and where the line should be drawn for the restrictions in the future will require time and patience to figure out, he said.

The People’s Bank of China has held an internal discussion and expects the rules related to the negative list could be expanded beyond the FTZ by the end of this year or early next year, Zhang said without elaborating.

“It’s just an anticipation for now, and whether it will be achieved depends on China’s risk control ability, as an open capital market is vulnerable to arbitrage,” Zhang noted.

“The reduction to the scope of the negative list re-establishes European companies’ confidence in China’s commitment to the China (Shanghai) Pilot Free Trade Zone,” said Stefan Sack, vice president of the European Chamber and Chairman of its Shanghai Chapter in a statement e-mailed to the Global Times Tuesday.

There is, however, still great room for further eliminating many of the remaining barriers to foreign investment in the zone that would bring benefit for both European business and China, Sack said.