Archives 2014

How LinkedIn Plans to Conquer China

With more than 277 million users worldwide, LinkedIn (NYSE: LNKD ) is not only the largest professional social network, it is also one of the best-monetized websites ever created. Unlike Facebook (NASDAQ: FB ) or Google, which mainly rely on advertisements to generate revenue, LinkedIn obtains revenue from its users through advertising, premium memberships, and human resources solutions.

However, despite being one of the best-monetized websites, it is becoming increasingly difficult for LinkedIn to continue growing. In the fourth quarter of 2013, revenue came in at $447 million, up 47%. That being said, management predicted revenue of $455 million-$460 million for this quarter, well below the Street consensus. The company’s projections raised worries that it may be starting to have trouble mining its audience for more revenue. At the same time, the company added only 18 million accounts in the fourth quarter, which barely matched the average of additional accounts that LinkedIn has gained in the previous quarters. To improve revenue and user metrics, the company recently announced the introduction of a Chinese-language website. Can LinkedIn succeed in China?

A great opportunity
LinkedIn will be offering a localized version of its website, after more than a decade of having an English-language site there. The company will also be establishing a joint venture with top private equity firms China Broadband Capital and Sequoia China, to attempt to connect more than 140 million Chinese professionals.

Without any doubt, China represents a huge business opportunity for LinkedIn, which already has more than 4 million members in the world’s second-largest economy. With a labor force of more than 800 million people, China also has a huge population of active Internet users. Most companies in China still do not use LinkedIn or similar alternatives as recruiting tools, but this could change if LinkedIn succeeds in registering enough users.

Note that LinkedIn will become one of the few U.S. social networks with direct exposure to China. Facebook, the largest social network, recently reported revenue of $2.59 billion for the fourth quarter of 2013, an increase of 55%, year over year. However, it has no official presence in China. Eventually, this will become a big problem for the company, which already has more than 1 billion registered users.

Several challenges ahead
LinkedIn will have to compete against several social networks that are already present in the Chinese market. Tianji, a networking site owned by Viadeo, has more than 15 million users in China, where it has been in the market since 2005. Tianji is popular due to some highly social features, like the ability to invite friends and colleagues to evaluate themselves using a Myers-Briggs-type online personality test.

Ushi is an important competitor that released an invitation-only platform in 2010. The company raised $1.5 million in a first round of funding, and has several chief executives registered in its user base. Ushi, which monetizes its site by charging for some premium features, has a deep understanding of Chinese business customs. Before the release, the team spent months in face-to-face meetings with several top executives and business leaders in order to convince them to become early members. This allowed Ushi to become an exclusive hub for elite professionals at an early stage.

On top of competition, LinkedIn will have to comply with several local rules in order to remain online. Complex regulations in China are a reason for the absence of U.S. social media companies in the world’s second-largest economy. Facebook has been blocked by firewalls since mid-2009.

Final Foolish takeaway
LinkedIn, the largest social network oriented to professionals, will release a localized version of its website for the Chinese market. This is a privilege, and LinkedIn will become one of the few U.S. social media companies with direct exposure to China. However, there are several challenges ahead, including fierce competition from local competitors like Tianji and Ushi. To succeed in this market, LinkedIn will need to adopt a growth strategy based on a deep understanding of Chinese business customs.

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Chinese woman become youngest billionaire: Forbes

A Chinese young woman has become the youngest billionaire in Forbes magazine’s latest annual billionaire list 2014 which was unveiled on Monday (US Time).

Twenty four-year-old Perenna Kei Hoi Ting is a newcomer to the list, replacing former Facebook co-founder Dustin Moskovitz as the youngest billionaire.

Hailing from Hong Kong, Kei owns an 85 percent stake in Shenzhen-based Logan Property Holdings through various companies and a family trust.

Her father, Ji Haipeng, is chairman and CEO of the Hong Kong Stock Exchange-listed company, which went public in December 2013.

China signals move to regulate Internet finance

China will not ban web-based financial products like Yu’E Bao, but will strengthen regulation to guide the healthy growth of Internet finance, China’s central bank officials said Tuesday.[Special coverage]

With this reassurance, made four times in one day on different occasions by three top central bankers, the dust seemed to have settled following months-long debate about the fate of popular Internet financial products.

The emergence of Yu’E Bao and its peers has brought joy for millions but also unnerved many. Whether authorities should step in to regulate the burgeoning Internet finance has been a widely watched topic as China’s lawmakers and political advisors gather this week in Beijing to discuss the country’s social and economic policies.

DAVID VS.GOLIATH

Internet financial products like money market fund Yu’E Bao, created by e-commerce giant Alibaba, have been instant hits among the Chinese public.

Chinese people have pulled money from traditional banks, which offer a maximum 3.3 percent interest rate for one-year deposits, and moved it to web-based money market funds like Yu’E Bao, which offers a seven-day annualized yield of nearly 6 percent.

The better interest rate enabled Yu’E Bao to attract 81 million users with aggregate deposits estimated at around 500 billion yuan (81 billion U.S. dollars) in just eight months.

Big banks are not happy. At a time when China’s liquidity is generally tight, such a big migration of money has eaten up much of their profits.

Yu’E Bao and its peers have quickly been labeled “blood suckers” by commentators, while the public has seen the banks and their low rates as miserly.

Rounds of tit-for-tat between the two sides showed no signs of abating until the authorities weighed in on Tuesday.

China will not ban Internet finance, but will improve regulations in the area, said Zhou Xiaochuan, governor of the central bank.

“China encourages technological applications in the financial sphere,” he said.

“Improvements must be made in existing policies, supervision and regulation as they cannot cope with new things such as Internet finance and guide its healthy development,” said Zhou.

Internet finance encourages innovation and development, and what it needs is improved and coordinated supervision, said Pan Gongsheng, a vice governor of the central bank.

Despite being supportive of innovative financial products like Yu’E Bao, the central bank will take “appropriate measures” to prevent possible risks arising from the sector, said Yi Gang, another vice governor of the central bank.

Yi said the central bank will closely watch market changes to prevent possible risks while warning investors to be more cautious in their choices.

It seems that David has gotten the better of Goliath again, at least for now.

PROFITS VS. RISKS

Financial innovations like Yu’E Bao are nimble and attractive, but economic pundits have warned that they are not risk-free and should be regulated to avoid any adverse effect on the general economy.

China International Capital Corporation, China’s largest investment bank, said in its latest research note that Yu’E Bao has placed 92 percent of its assets in interbank deposits and used the different terms of maturity between investors to reap high interests.

However, such Web-based money funds may face huge risks, warned Lyu Suiqi, deputy dean of the finance department at Peking University.

“As the assets of Internet finance products like Yu’e Bao increase, so will their liquidity management pressure,” Lyu said, adding that such money funds rely too much on interbank deposits for high interest.

Their ability to bargain with traditional banks will weaken as market liquidity improves and more competitors enter the race, he said.

Millions of investors woke up on Tuesday to find the seven-day annualized interest of Yu’e Bao eased to 5.93 percent, the lowest level since December.

“The biggest problem for the development of Internet finance is default risks that might inflate within a short period of time,” said Li Daokui, an economist and member of the National Committee of the Chinese People’s Political Consultative Congress, the top political advisory body.

That said, there is no reason to throw the golden baby out with the bath water if a little amount of regulation will nurture financial innovations for maximum benefit to the Chinese economy.

Not only do these new products offer a sign of hope for individual savers, but they have assisted micro businesses and spurred China’s interest rate reform.

“The public is more concerned about what real changes Yu’e Bao could bring to the financial monopoly,” said Xu Xuelan, secretary-general of the Chinese Institute of Electronics. “We are expecting much more reform resolve and action in this regard.”

Housing market shows signs of cooling after decade of growth

Higher mortgage rates, concern over impact of tax reduce volume of transactions as year gets underway

Experts say there are signs of cooling in the Chinese property market after a decade of growth, with the transaction volume starting to fall and mortgage rates rising nationwide.

Jia Kang, head of the Institute for Fiscal Science Research under the Ministry of Finance, said China’s housing market also showed signs of a differentiation in prices in January, which may lead to a price slump in second- and third-tier cities, although prices in Beijing and Shanghai are likely to maintain their current level.

“Although precisely how the trend in differentiation will develop is yet to be seen, second- and third-tier cities will be more vulnerable than Beijing and Shanghai during this round of market fluctuation,” he said on the sidelines of a news conference of the Hainan-based China Institute for Reform and Development in Beijing on Friday.

Jia advised investors to take care when making investment decisions.

China’s real estate sector showed signs of cooling at the beginning of 2014, with most of the nation’s cities recording falling transactions on both a yearly and monthly basis. Prior to that, the Chinese property market witnessed 12 years of sustained growth.

According to the real estate research institute China Real Estate Information Corp, shrinking supply and tightened mortgages played important parts in the drop in the number of transactions.

Li Wei, head of the Development Research Center of the State Council, said in a recent speech on the Chinese economy that new home construction may be slashed given the high stockpiles of homes in third- and fourth-tier cities, where supply has exceeded demand.

Li’s team previously concluded in a report that housing demand will increase at a much slower pace after 2012 and demand will continue to slide under raised mortgage rates and an upcoming property tax.

Li warned about an “important change” expected to take place in China’s property market after its breathtaking growth of more than a decade.

A declining market outlook was also linked by some experts to rising mortgage rates, with nearly 90 percent of 69 bank branches in 22 Chinese cities no longer offering preferential mortgage rates to first-home buyers, according to the China Real Estate Information Corp.

“We have to watch closely the trend of price differentiation in different cities, take precautions and note the role of the government in real estate control,” he said, adding he believes it is highly unlikely China’s property market can maintain the rises it witnessed in previous years because the environment for industrial development and the inner drive for expansion have both been altered.

Jia, from the finance institute, suggested speeding up legislation regarding property tax because more people are looking forward to the government expanding its trial to regulate the market.

In the two cities where property tax has been levied as a pilot program since 2011, individuals in Shanghai are taxed at a rate of 0.4 percent or 0.6 percent of the total price of their property annually if the housing area for each person exceeds 60 square meters. In Chongqing – the other trial city – the tax is levied only on high-end properties, such as villas, at a rate between 0.5 percent to 1.2 percent of the property price on an annual basis.

“We have to be prudent about bringing more cities into the trial and be especially cautious when drawing a watershed between homes where a tax is beneficial and those in which it isn’t. Any expansion of the trial should be aimed at regulating the high-end property market, instead of levying taxes on all properties alike,” he said.

Police relax entry rules on recruitment of Chinese

Police have relaxed several conditions pertaining to recruitment to encourage more Chinese to join the force (PDRM).

Deputy IGP Datuk Seri Bakri Zinin said aspects related to salary, promotion opportunities and others to entice the participation of the Chinese might be reviewed.

“We are targeting about 5,000 Chinese in stages because we need to look at the capacity and our need to provide basic training and courses,” he told reporters.

He said the number of Chinese police personnel made up only 1.87 per cent of the total police strength.

Bakri said the force had also formed a special team to ensure the participation of the Chinese could be implemented as soon as possible.

“They will explain to society, especially the Chinese community, on joining the PDRM. We are doing that, this is our initiative, to ensure we get suitable candidates in the PDRM,” he said.

Bukit Aman Management Department director Datuk Seri Fuzi Harun said the police viewed the participation by the Chinese seriously as the community made up 30 per cent of the population.

“So, less than two per cent have joined the PDRM, it does not look good, so we have to improve this figure…to ensure this programme is successful, we will relax the entry conditions,” he said.

Bukit Aman Personnel (Recruitment) assistant director ACP Saiful Azly Kamaruddin said the exercise for the recruitment of new police constables for the first session this year, would be carried out on Monday.

He said the relaxation of conditions included a pass in Bahasa Malaysia in SPM apart from passing a vision test or by using glasses or contact lenses by obtaining V/6/9.

“We understand the entry requirements, which prior to this were too stringent for the Chinese community, namely, credit in Bahasa Malaysia while there are those among them who are not fluent at all.

“So, we consider this situation a special one for the Chinese community,” he said.

Based on statistics, as of Dec 31 last year, Malays (90,156 people) dominated the force, followed by Indians (3,659 people) and Chinese (1,974 people), while the rest were from other communities, he said.

He said the lack of Chinese staff was due to several reasons, including salary, which was regarded as still low, while parents did not encourage their children to join the PDRM.

“According to a study, most of them do not realise a constable can bring home RM3,000 a month, if all the allowances are included,” he said.

For the recruitment on Monday, the Chinese were encouraged to download the application form from the PDRM website at www.rmp.gov.my.

The form should send it to the nearest police station or to the Personnel Recruitment Unit at the federal police headquarters in Bukit Aman.

China Unicom to announce 4G services

China United Network Communications Co Ltd, known as China Unicom, said on Thursday that it would announce its official TD-LTE 4G services and packages in 25 major cities in China on March 18.

“The 4G service will be expanded to 56 cities by May 17 and reach 300 cities by year-end,” said Lu Yimin, executive director and president.

Lu said that the company is actively building its TD-LTE network infrastructure nationwide. It’s also conducting a large-scale test of FDD-LTD services on its current WCDMA technology.

Three carriers in China received licenses in December to operate 4G services. Two-China Mobile Communications Corp and China Telecom Corp Ltd-have already launched 4G services in the mainland.

China Mobile had 4G services in 16 cities as of Dec 31, catering to the smartphone market. China Telecom offered 4G services starting in January, but only through data cards and wireless routers.

Chang Xiaobing, chairman and chief executive officer of China Unicom, said that operators will adapt different approaches to provide 4G services and the company is communicating with relevant government authorities to speed up the issue of FDD-LTE licenses.

The country’s biggest fixed-line operator increased its 3G base stations by 76,000 to 407,000 in the past year. 3G service revenue rose 50 percent to 89.8 billion yuan ($14.6 billion), accounting for about 60 percent of China Unicom’s mobile service revenue.

“Our first priority in 2014 is still to improve our 3G WCDMA network and set up our TD-LTE gradually. Meanwhile, we will prepare to deploy the FDD-LTE network, if approved by the government,” said Chang.

Lu said the company will have advantages over competitors in terms of 4G services.

“We have a sound user base in the north of China, and we are the biggest internet operator in the world,” he said.

As of January, the company had 280 million mobile subscribers, having added 41.6 million new ones in 2013.

China is expected to have 30 million 4G mobile network service subscribers by year-end, according to the Ministry of Industry and Information Technology.

The company reported operating revenue of 295 billion yuan in 2013, up 18.5 percent. Net profit climbed 46.7 percent to 10.4 billion yuan.

Baidu’s profits flat on marketing costs

China’s largest search engine, Baidu Inc., said Thursday that its net profits slid 0.4 percent year on year in the fourth quarter of last year to 2.78 billion yuan (460 million U.S. dollars).

The slight drop was mainly due to climbing marketing costs, especially for its mobile products.

The company’s expenditures in sales, general business and administration surged 135.1 percent year on year to 1.86 billion yuan in the final quarter, according to an unaudited business statement.

Its revenue surged 50.3 percent from a year earlier to 9.52 billion yuan in the final quarter, indicating healthy growth.

Li Yanhong, the company’s chief executive, said the company has made remarkable progress in the mobile business and established a leading position in the mobile market, including in search, mobile application distribution and location-based services.

In the fourth quarter, mobile business accounted for more than 20 percent of Baidu’s revenue, Li said.

In 2013, the company’s total profits edged up 0.6 percent to 10.52 billion yuan, and its total revenues soared 43.2 percent to 31.94 billion yuan.

Brand challenge of smart and wearable bands

Chinese telecom giant Huawei Technologies Co Ltd has shown faith in the fledgling smart wearable market with the world’s first hybrid smart band for both Bluetooth calling and fitness tracking.

Shenzhen-based Huawei demonstrated TalkBand B1 at the Mobile World Congress held in Barcelona, Spain, on Sunday.

The smart band, which is worn on the wrist, has a 1.4-inch, flexible organic light-emitting diode (OLED) display and removable earpiece.

Huawei said the device can connect to people’s smartphones so they can stay updated with all the information they need with just a quick glance.

The TalkBand B1’s fitness tracking feature can record how many steps one has taken, what one’s sleep quality is and how many calories one has burned, according to Huawei.

The product will be available for 99 euros ($136) and be out in China next month, whereas Japan, the Middle East, Russia and Western Europe will have to wait until the second quarter of 2014.

Richard Yu, chief executive officer of the Huawei consumer business group, said the company needs to start early in order to acquire a good position in the wearable device industry.

“Because (the smart band market) is new, manufacturers can only march forward by taking tentative steps,” Yu said at a news briefing in Barcelona.

Huawei is not the first Chinese company to launch a smart wearable product.

ZTE Corp, Huawei’s crosstown rival, released its first smart watch in Las Vegas at the Consumer Electronics Show in January.

Zeng Xuezhong, ZTE’s executive vice-president, pointed out that the wearable gadgets market is a “blue sea”, since no company currently dominates this new field and every player has an equal opportunity.

Global smart-watch shipments reached a record 1.9 million units in 2013, according to Strategy Analytics, a US-based research company. Matt Wilkins, the company’s director, said, “We estimate that less than 1 percent of all smartphones shipped worldwide were bundled with smart watches in 2013, so there remains huge scope for smart-watch growth.”

“It is very early days, of course, but the smart-watch market is starting to take shape,” Wilkins said in a research note.

South Korea-based Samsung Electronics Co Ltd, of course, poses the most obstacles for Chinese players hoping to gain a major share in the smart wearable market.

Samsung accounted for more than half of the world’s smart band shipments in the second half of 2013, according to research firm Canalys.

In the same period, Sony was the No 2 smart-band vendor, with a 19 percent global share.

“Samsung launched Galaxy Gear with a major marketing push that received significant consumer interest,” said Chris Jones, principal analyst at Canalys. “Shipments of the device took Samsung to the top of the smart-band category, although disappointing sell-through will necessitate more promotional activity in coming months.”

Canalys estimated this will be the year that wearables become a key consumer technology. The smart-band segment is expected to reach 8 million annual units shipped.

Daniel Matt, another Canalys analyst, said he expects the high-margin smart bands that incorporate sophisticated sensor technology will offer vendors great profit potential.

“With increased awareness about personal well-being, having a computer on your wrist will become increasingly common,” Matt said in an email to China Daily.

Huawei’s Yu predicted that smart-band gadgets likely will utilize cloud technology and that more and more smartphones will be tied to specific wearable products in the near future.

Sina Weibo mulls IPO: report

Comparison of Sina revenue structure between 2012 and first three quarters of 2013 Source: iResearch Inc, Graphics: GT

China’s Twitter-like microblogging service provider Sina Weibo is mulling raising a $500 million share issue in the US for the second quarter of 2014, a media report said Monday.

The company has hired Goldman Sachs and Credit Suisse to manage the New York listing, the Financial Times reported Monday, citing two people familiar with the matter.

Sina Weibo’s public relations office was unavailable for comment when contacted by the Global Times as of press time.

Alibaba Group, China’s leading e-commerce platform, paid $586 million for an 18 percent stake in Weibo in April last year, valuing the microblogging business at $3.3 billion.

Alibaba’s public relations department also declined to comment on the issue Monday when contacted by the Global Times.

Normally Internet companies offer 10-15 percent of their stake for IPO, meaning Sina Weibo could be now worth about $4-5 billion, Wang Guanxiong, a Beijing-based expert on IPOs, told the Global Times Monday.

Sina is due to report its fourth-quarter earnings after the close of trading on Monday in New York.

Some analysts expect its Weibo platform to reach breakeven in the fourth quarter of 2013.

“Turning profitable will be the basis for Weibo’s IPO,” Lin Juan, analyst at research firm Wedge Partners, said in a research note released earlier this month.

“We think Weibo is ready for IPO since management restructuring has finalized, as well as the platform turning profitable,” Lin noted.

In the previous quarter that ended September 30, 2013, advertising revenues generated by Sina Weibo posted a 125 percent year-on-year surge to $43.7 million, while non-advertising revenues from Weibo’s value-added services, such as Weibo membership fees and games, also roared by 121 percent year-on-year to $9.7 million.

“Alibaba’s joining in has speeded up the microblogging platform’s commercialization process,” Ding Daoshi, deputy managing editor of IT website sootoo.com, told the Global Times on Monday.

Sina Weibo’s listing comes at a time when microblogging services in China are losing appeal due to strengthened government regulation and fast emergence of other social networking services, analysts said.

The number of Chinese microblogging users dropped 9 percent year-on-year to 280.8 million by the end of December 2013, China Internet Network Information Center said in a report published on January 16.

The report sent Sina’s share price tumbling 7 percent on the same day.

Weibo is facing increasing competition with Tencent Corp’s mobile messaging app WeChat, which is more private than Weibo, Ding said.

Sina Weibo’s daily active users amounted to 60.2 million by the end of September 2013, while WeChat boasted 272 million monthly active users, data from the two companies showed.

Sina Weibo’s offering also follows a number of Chinese companies which have been flocking to the US stock markets in their biggest numbers since 2010.

“The current market environment is favorable to China-based Internet companies, as US investors have gradually regained their appetite for Chinese stocks based on better performance of some newly listed Chinese firms since the second half of 2013,” Li Ling, an analyst at ChinaVenture Investment Consulting, told the Global Times on Monday.

Jd.com, a major online platform in China, announced in January a plan to raise $1.5 billion in a US IPO that would be the largest by a Chinese Internet company.

Property developers slash home prices

Two property developers slashed their prices and created turmoil in the Hangzhou housing market, the local Qianjiang Evening News reported Sunday.

Hangzhou-based DoThink Real Estate slashed the price of 200 apartments by 12 percent from 18,000 yuan ($2,956) to 15,800 yuan per square meter on Tuesday. The homes immediately sold out.

Zhejiang Guanghong Real Estate Development Co announced a 4,000 yuan cut in a project on Friday, prompting angry homeowners to topple a model