Archives 2014

FINANCIALS: Chinese firm 51Jobs posts positive results

HR solutions provider 51Jobs’ revenue increased 13% year on year in the second quarter, reaching RMB457.5m (£44.3m) and exceeding the company’s guidance range.

Rick Yan, president and chief executive officer of 51Jobs, said: “In the second quarter, we made good progress in our customer acquisition efforts, as we saw robust expansion of the unique employer user base in our online business.”

Online recruitment services revenues increased 15.8% over Q2 2013 to RMB312.0m (£30.2m).

Human resource-related revenues, which exclude advertising, increased 15.6% to RMB143.2 million (£13.9m). This was primarily due to growth and use of business process outsourcing and training services.

51Jobs is a human resource solutions provider, offering recruitment solutions, training and assessment, HR outsourcing and consulting services.

Mobile games market to expand 11.8% annually in five years

China’s mobile game market is expected to grow an average of 11.8 percent in the next five years if the user base stays stable with a massive shift toward smartphones and tablets, an industry report says on Friday.

Last year, mobile game players accounted for over 50 percent of China’s mobile Internet users, PricewaterhouseCoopers said in its Mobile Game Industry Insight 2014.

“The development of mobile devices and network environment provides much faster mobile access and huge potential for the mobile game market,” said Vincent Cheuk, PwC China TMT partner.

The number of products and downloads of sports and strategy types of games across China’s mobile game platforms is significantly greater than that of martial-arts role playing and social games, the report shows.

Meanwhile, mobile game players’ payment habits have changed as domestic game players become more willing to pay for in-game tools or functions and “free game + in-game purchases” model will continue to be the most profitable business model for mobile games in the future.

Yhd sees healthy future in online OTC sales

An yhd.com banner displays at an exhibition on June 28, 2014 in Nanjing, Jiangsu province.

Analysts: Pharmaceutical retailers may face technology-driven shakeup

Yhd.com, a Shanghai-based online supermarket controlled by Wal-Mart Stores Inc, has been given permission by China’s Food and Drug Administration to sell over-the-counter medicines online, a first in the nation.

The FDA in late July included Yhd.com in an online medicine retail pilot project. With the license, all the third-party pharmaceutical retailers that have set up online shops on the company’s website are allowed to sell medicines directly to consumers.

Previously, they could sell only certain categories of health and beauty products such as medical devices and cosmetics.

At present, however, only OTC drugs can be sold online. Prescription drugs, which account for the majority of China’s massive pharmaceutical market, are not included in the project.

Many of the big names in China’s e-commerce industry, such as JD.com Inc, are going through the application process, hoping to tap into the online medicine industry. But analysts warned that there are many hurdles, particularly at the policy level, that stand in the way of profit.

According to a press release from Yhd.com on Wednesday, more than 10 pharmaceutical retailers have already set up online stores on its platform, which has more than 60 million registered users. Yhd.com said that it expects to add another 50 pharmaceutical retailers by the end of year.

It has set an ambitious goal of having 200,000 OTC medicines by the end of the year, said the company.

Vice-President Liu Tong said that getting permission to sell OTC drugs online will expand the company’s business portfolio and help it provide better one-stop shopping for customers.

Most important, with the help of the Internet, customers anywhere can easily buy safe drugs at reasonable prices, said Liu.

“By setting up stores on Yhd.com, pharmaceutical chain stores can effectively reduce their operating costs, therefore eventually lowering the prices of medicines,” said Liu.

The Internet has revolutionized many traditional sectors, such as retail, videos and finance, and created high-growth sectors.

China’s e-commerce market is already the world’s largest. And traditional brick-and-mortar stores must change or be left with a decreasing retail market, experts say.

Will the Internet work the same magic with the pharmaceutical industry? Probably not, at least in the short term, said analysts.

Lu Zhenwang, an independent Internet expert and chief executive officer of the Shanghai-based Wanqing Consultancy, said that the nation’s pharmaceutical market is valued at more than 1 trillion yuan ($162.5 billion) annually, but OTC drugs only account for 20 percent of the total.

“The prices of OTC medicines are usually not very high. If you include the delivery cost, the medicines you buy online may even be more expensive than those you buy at local pharmacies,” Lu said, adding that the market also excludes those with acute conditions who cannot wait for delivery.

Qiao Yu, an analyst with IT consultancy Analysys International, said those with chronic diseases are often elderly people who are not tech-savvy enough to place orders online in any case. And some people may also shy away from buying drugs online because they worry that insurance will not cover the bill.

Despite these challenges, many e-commerce companies and pharmaceutical retailers still see online medicine as a strategic sector. “With the continuation of medical reform, there’s hope that the government will allow the sale of prescription drugs online, which will quickly make the market more dynamic,” Qiao said.

Zhaopin seeks new platforms in China

THE Chinese online job-market business backed by Seek and gaming billionaire James Packer is working on rolling out educational services in the world’s fastest-growing economy over the next 12 months, fresh from its ­successful listing on the New York Stock Exchange.

A recruitment remedy for China’s mismatched labour market

In China, both a labour shortage and unemployment have emerged as problems in recent years. The number of university students scheduled to graduate in June 2014 is 7.27 million, increasing by 280,000 from 2013. Following 2013, at the time considered the most difficult year for jobseekers in history, 2014 is expected to be even harsher.

Problems in the labour market in China, a key region for Japanese companies advancing overseas, are also attracting attention in Japan. This paper provides a few perspectives on the Chinese labour market, which combines a labour shortage with challenges for jobseekers.

High unemployment amid a labour shortage

Although a nationwide labour survey did not include unemployment rates, we will look at the Chinese labour market using statistics from job placement services. According to the latest statistics on job offers and applications, as of the January-March quarter of 2014, there were 1.293 million young jobseekers who graduated in the last year or earlier but had yet to find a job through employment agencies in 102 major cities.

As the population of these major cities accounts for approximately 46.7 per cent of the total population of large and mid-size Chinese cities, we can estimate that the number of young jobseekers who have graduated, but have yet to find a job, totals more than two million.

Using data from the survey, I also tried to estimate the unemployment rate in those 102 major cities. I employed data on the working population in major cities and the number of job seekers who have not found employment (newly graduated unemployed persons and rural immigrant job seekers) based on the international standard set by the International Labour Organisation (see Figure 1).

Figure 1. Unemployment rate in major Chinese cities

Source: Calculated by the author from statistics on job placement services in China.

The unemployment rate, including rural migrants in major cities in the first quarter of 2014, is 8.7 per cent; excluding them is 6.9 per cent. Unemployment rates before the first quarter of 2014 are also close to these numbers, suggesting that the high unemployment rate has continued.

The unemployment rate is high not because unemployed people lack the ability to work. Looking at the age distribution of all job seekers in these 102 major cities (of whom 96.0 per cent are unemployed), workers aged 45 or younger account for 89.9 per cent of the unemployed, indicating a large population of young workers. In addition, 54.7 per cent of job seekers have specialist or vocational qualifications. Regarding the type of job, 44.1 per cent of job seekers look for technical jobs, while 25.8 per cent seek marketing, sales, or service jobs. Abundant, high-quality labour in the Chinese labour market still exists.

Job offers still buoyant

The high unemployment rate cannot be blamed for the sluggish job offers. Despite the slower economic growth, job offers from companies are still buoyant. As indicated in Figure 2, the job-offers-to-seekers ratio in the first quarter of 2014 was 1.1, showing that there are still more job offers than job seekers.

Figure 2. Job-offers-to-seekers ratio in China

Source: Statistics on job placement services in China (http://www.chinajob.gov.cn/) and CEIC Database

With regard to the buoyant job offers, I demonstrated in my recent book that labour productivity is the most persuasive of the factors that have an impact on the job-offers-to-seekers ratio in China.

As shown in search theory, the larger the income earned from a job, the larger will be the rate of return gained from job creation for companies, which will result in more job offers. Given that productivity in developing countries will improve through not only technological innovations on their own but also through their efforts to catch up with developed nations, a higher rate of increase in productivity can be expected. For that reason, even if the economy slows down somewhat, buoyant job offers are likely to continue because of the support for higher productivity.

Reasons why a labour shortage coexists with high unemployment

So why do labour shortage and high unemployment co-exist in China? I analysed this in my book. I explored the matching efficiency in the labour market by estimating the matching function between job offers and job seekers in urban labour markets in China based on search and matching theory.

Figure 3 shows the values of matching efficiency on the vertical axis. From the figure, we see that matching efficiency in China declined sharply from the late 1990s to the 2000s.

Figure 3. Matching efficiency in the Chinese labour market

Source: Liu (2013 a, b)

* A conceivable cause of the sharp decline is the increase of the inflow and outflow of workers into and out of companies, reflecting the establishment of new companies and the disappearance and downsizing of old state-owned enterprises following economic and corporate reforms, which led to friction in the labour market. This decline was also attributable to imperfect information between job offers and jobseekers.
* I also found that a rise in productivity has a significant negative impact on matching efficiency and showed that a mismatch has arisen between unemployed persons and companies seeking highly-skilled workers.
* Lastly, although it was not dealt with by quantitative analysis in the book, a skill mismatch and a geographic mismatch have some bearing on this phenomenon.
For example, the job-offers-to-seekers ratio for security maintenance staff is surprisingly high in Nanjing at 4.0, while it is only 0.2 in Shanghai.

One way to improve matching efficiency is through employment agencies, as I find that the matching efficiency is very high in areas where there are many employment agencies. As employment agencies are organisations that provide information mainly on job offers and job seekers, they are useful for increasing matching efficiency by correcting imperfect information. Although it is, of course, difficult to increase substantially the number of employment agencies in a short period of time, it would be beneficial for companies to put more efforts into recruiting activities in order to bring many job seekers and secure the labour force.

Although the coexistence of unemployment and labour shortage is seemingly contradictory, it is observed in labour markets not only in China but also in many other countries. Even though it is impossible to eliminate imperfect information in the actual economy, there is room for improvement. If the matching efficiency in the labour market increases, it seems possible to lower both the labour shortage and the unemployment.

This article was originally published at VoxEU.org. Reproduced with permission.

Big five banks plan bond sales to boost capital

A Bank of China branch in Yichang, Hubei province. China’s top five banks will raise 128 billion yuan ($20.8 billion) over a two-week period.

China’s top five banks will raise 128 billion yuan ($20.8 billion) in a two-week bond offering spree following a yearlong hiatus, as regulators signal a willingness for lenders to aggressively tap fixed-income markets.

The country’s banking regulator began phasing in new higher capital adequacy requirements last year, in line with global rules known as Basel III, and aggressive implementation of the third Basel accord is a key element of China’s plan to fortify banks against risks from a slowing economy.

China Construction Bank Corp and Agricultural Bank of China Ltd, the country’s second and third-largest banks, respectively, have announced plans to raise 50 billion yuan worth of Basel III-compliant Tier 2 capital via domestic bond issues on Friday.

Bank of Communications Co Ltd, the country’s fifth-biggest lender, plans to raise 28 billion yuan on Monday.

The issues follow two large offerings last week, the first from the country’s top five banks since early 2013 and China’s transition to Basel III.

Industrial and Commercial Bank of China Ltd and Bank of China, the country’s largest and fourth-largest lenders, together offered 50 billion yuan of bonds last week.

The flurry of offerings shows Chinese regulators have signed off on the giant deals despite their potential drain on market liquidity, and are comfortable with the new Basel III-compliant bond structure, sources told IFR Asia, a Thomson Reuters publication.

China’s economy showed further signs of softening in July despite a burst of government stimulus measures, and banks have tightened lending to risky areas such as the property sector.

The government embarked on a massive credit-fueled economic stimulus program from 2008 to 2010 to pull the economy through the global financial crisis. Many analysts expect a large portion of bank loans extended during that time to turn sour.

The fundraising spree still leaves China’s top lenders lagging regional counterparts.

Asian banks (excluding Japan and Australia) have raised more than $32 billion in Basel III compliant securities to date, which includes $26 billion issued in 2014, in local and international markets, according to Moody’s data.

Steven Chan, a banking analyst at Maybank Kim Eng, a Singapore-based research firm said the amount being raised was small viewed against the assets of China’s top lenders. “It’s very small compared with the trillions of assets,” he said.

China’s big State-owned banks have announced plans to raise $43.5 billion in on- and offshore Tier 2 capital by the end of 2015.

Agricultural Bank of China plans to sell 50 billion yuan of Tier 2 securities, Bank of Communications is in for 40 billion yuan and China Construction Bank for 60 billion yuan. ICBC is eyeing a total of 60 billion yuan, while Bank of China will make a play for the same.

All that makes for a total of 270 billion yuan in Basel III compliant bonds that will hit the market – more than from any other single country.

Lenders are issuing to replace old-style Tier 2 bonds that are about to mature and hold yields down, Chan said.

“If you don’t repay bondholders, the yield will increase automatically, so the best way is to issue bonds at a similar or lower rate to repay the earlier one.”

A total of 93 billion yuan of subordinated bonds from China’s commercial banks will mature next year, according to China Central Depository & Clearing, a State-owned clearinghouse for onshore bonds.

Beijing housing sales slump 30 pct

Beijing home sales fell at a slightly slower pace in the Jan.-July period as price declines drove potential home buyers to snap up bargains last month.

Real estate developers in the city sold 5.05 million square meters of housing during the first seven months of this year, down 30.3 percent year on year, the municipal bureau of statistics said in a statement Thursday. The decline for the first half of the year was 35.2 percent.

Housing starts edged 3.8 percent lower to 8.04 million square meters against the backdrop of a gloomy property market.

Sales of commercial buildings, which include residential and commercial property, fell 31.5 percent, compared with 34.8 percent for the first half. The sales reached 6.77 million square meters, it said.

China’s property market remains weak prompting dozens of cities nationwide to lift three-year-old purchase limits in a bid to revive sales and boost the economy.

Nationwide, property sales witnessed a steeper decline in the Jan.-July period. Sales in terms of floor area dropped 7.6 percent year on year, 1.6 percentage points higher than the decline seen in the first half.

Tencent earnings in Q2 up 58%, beating estimates

Mobile platforms continue to give a lift to Internet company’s portfolio

Tencent Holdings Ltd, China’s largest listed Internet company, reported strong quarterly earnings on Wednesday as the company further deepened mobile engagement across its social, gaming and media platforms.

Net profit for the quarter ending in June jumped 58 percent year-on-year to 5.83 billion yuan ($947 million). Revenue in the quarter climbed 37 percent to 19.75 billion yuan.

The solid performance in the second quarter beat analysts’ estimates of 5.73 billion yuan in revenue, a Reuters report said.

Ma Huateng, chairman and chief executive officer of Tencent, said in a statement that the company’s ecosystem continues to expand as it pursues the strategy of working with category leaders, including NavInfo, a mapping service provider, and 58.com, a local listing platform.

“We are seeing the benefits of this approach, as evidenced in the successful listing of JD.com. Looking forward, we will continue to grow our platform, invest in areas such as online-to-offline business and content production, and enhance our user experience,” he said.

The Shenzhen-based Tencent seems to have succeeded in integrating its social networking tools, such as mobile messaging tools mobile QQ and WeChat, with companies in which it invests, such as JD.com Inc, China’s largest online direct sales platform.

Tencent, which has engaged in a buying spree along with e-commerce conglomerate Alibaba Group Holding Ltd since late last year, has made a lot of investments, including taking a 15 percent stake in JD.com in March.

Through connecting its core social capabilities with JD.com, users of Tencent’s WeChat, a dominant mobile social tool in China, can purchase directly from the e-commerce giant through a direct access point on the app. Tencent said that the combined monthly active users of WeChat, both in and outside China, increased by 57 percent year-on-year to 438 million by the end of June.

Neil Flynn, head equity analyst at chineseinvestors.com, a leading analysis firm for US-listed Chinese companies, said a year-on-year profit growth of 58 percent was very impressive given the size of Tencent.

The Beijing-based Baidu Inc also reported a net income that beat analysts’ estimates in the second quarter in late July. The search giant saw its net income grow by about 34 percent year-on-year to 3.55 billion yuan in the quarter that ended in June, fueled by strong growth in mobile applications.

“Out of China’s big three tech firms, Tencent has a major advantage over Alibaba and Baidu because it has the WeChat messaging platform, which is simply untouchable,” said Flynn, who has followed China’s Internet sector for years.

Alibaba last year tried to launch a similar service called Laiwang, but it just could not compete.

“What we are seeing is that Tencent is adding more and more features to its platforms, such as a permanent link to JD.com, so that users never have to leave the Tencent ecosystem,” Flynn said. “I think we will continue to see more of these features because Tencent can help other firms get greater exposure to customers through its QQ and WeChat platforms.

“WeChat will essentially become a portal for users where they can not only message friends but also shop and play games. From this, we will see stronger advertising revenues because advertisements can be personalized for each user,” he said.

Tencent reported that its online advertising business increased by 75 percent quarter-on-quarter to 2.06 billion yuan in the second quarter. The company’s financial report noted that “this primarily reflected more favorable seasonality in the second quarter, as well as the positive impact of the FIFA World Cup and our strategic cooperation with JD.com.”

China unveils support for insurance industry

The Chinese government on Wednesday unveiled measures to develop the insurance industry, vowing to raise premium incomes to 5 percent of GDP by 2020.

The package, announced on the State Council website, let the insurance industry play a bigger role in the fledgling social security network.

The second of its kind since 2006, the package could see citizens paying an average of 3,500 yuan (565 U.S. dollars) per capita in premiums by 2020.

Commercial insurance will become the primary undertaker of individual and household programs and an important supplier of corporate pensions and health insurance.

The insurance will be given a bigger role in the prevention and relief of disasters and accidents through the introduction of catastrophe insurance products.

Insurance funds will be encouraged to invest in bonds and equities to support major infrastructure projects, urban renewal and urbanization.

The government will encourage the house-for-pension insurance experiment and launch a pilot program to introduce compulsory insurance for environmental pollution, food safety, medical accidents and campus safety.

Zhao Xianghuai, an analyst with Guotai Junan Securities, believes the package will open more space for China’s insurance industry, which had a total assets worth 9.4 trillion yuan by the end of June this year.

“The package has elevated the position of the insurance industry and created new room for development,” Zhao said.

Boosted by the announcement, Chinese insurers rose across the board on the stock markets, with New China Life Insurance Co., Ltd. leading the gains, up 3.57 percent to 25.27 yuan.

Shanghai GM staff says antitrust probe report incorrect

Having struggled for a long time to make a dent in China, LG Electronics expects to seek a fresh start in the market with its recently released flagship smartphone.

The G3 smartphone was launched in China by the Seoul-headquartered consumer-electronics giant on Fridaytogether with South Korean actor Lee Min-ho, who enjoys huge popularity in China after playing leading roles in South Korean shows including Boys Over Flowers.

The sale of the handset started exclusively Monday via jd.com, China’s second-largest online retailer by market share. PR representatives with JD.com Inc and LG refused to reveal the sales figures when contacted Tuesday.

The gadget appears to be something LG could bank on to fight its way to the top of China’s fiercely competitive smartphone arena.

Indeed, the G3 has received a lot of praise from the media and tech experts. US tech news network The Verge reported on May 27 that LG sets “the new benchmark for overpowered smartphones” with its G3 by being the first big name to apply a Quad HD display, nearly twice the resolution of Full HD display, to smartphones.

However, analysts said that the G3 may suffer a cold market reception as China has become increasingly tough for foreign handset manufacturers, except Apple Inc.

??Seeking a new start

“G3 is expected to make LG’s products more popular among consumers, which is the most crucial step toward the company’s revival in China’s phone market,” Shin Moon-bum, CEO of LG’s China unit, told reporters during a group interview held in Beijing Friday.

Yet, even after years of hard work in the Chinese market, LG has always been a marginalized brand. As early as 2012, there were even market rumors of its retreat from the market.

According to a report issued by US-based market research firm IDC in late July, the company did not even crack the top 10 list in China in the second quarter, despite being the fifth-largest smartphone vendor worldwide over the same period.

“I believe the G3 would contribute a lot to the company in the market…although we had a late start [in China’s smartphone market], we can make a difference in five years,” said Shin.

To cater to Chinese consumers and meet the requirements of local telecom carriers, the company appears to have put more effort in customizing its G3, which entered China nearly three months later than its public release in other markets.

For instance, the G3 for Chinese users supports dual SIM cards and 4G cellular telecom networks as well as 2G and 3G networks, in response to China’s ongoing transition from 2G or 3G telecommunication services to 4G.

Shin expected the sales of the G3 in China to more than triple that of its predecessor the G2, launched in the market on September 2013. He did not set a target date or reveal a specific figure but said that over 60,000 units of the G2 were shipped in China in its early stages.

Some analysts predicted that LG’s global G3 shipments would hit 3 million in the third quarter, according to media reports. However, those numbers are small when compared with the 108.5 million smartphones that US-based market research firm Canalys said were shipped in China during the second quarter.

The gadget has reportedly taken on Samsung’s Galaxy S5 at home, hitting sales of more than 100,000 units within five days after the phone’s release in the country in late May, while sales of the Galaxy S5 in South Korea stood at only 7,000 to 8,000 a day in its first week.

Uphill challenges

The success achieved by the G3 in its home market would be unlikely in China’s fiercely competitive smartphone battleground, Wang Yanhui, head of Shanghai-based Mobile China Alliance, told the Global Times Sunday.

LG’s G3 seems to have no distinctive advantage over feature-rich phones offered by local players such as Beijing-based Xiaomi Technology.

“Higher resolution is one of the G3’s major selling points, but it’s not a necessity for me and would further shorten the device’s battery life,” said Li Yu, a 29-year-old Beijing resident, who prefers cheaper homegrown Android phones over global ones which he said have failed to offer appealing features worth their high costs.

While LG priced the G3 at 3,999 yuan ($649.8) for price-sensitive Chinese consumers, which is much cheaper than its launch price of 899,800 won ($869) at home, that is still more than twice as expensive as phones developed by Chinese companies.

The company’s South Korean rival Samsung, No.1 global smartphone vendor in the second quarter, has already felt the squeeze in China.

Its share of the market by sales volumes reached 15.4 percent in the second quarter, down from 18.1 percent in the first quarter, while Xiaomi was second with 13.5 percent, Beijing-based market research firm Analysys International said on August 6.

Canalys even said in a report on August 4 that Xiaomi became China’s top smartphone vendor by sales in the second quarter with 14 percent, outselling Samsung for the first time. Canalys ranked Samsung second in the report but without disclosing its share in China.

Boosting brand

In order to stand out, foreign companies like LG and Samsung need to ramp up efforts in brand enhancement, said Zhang Yi, CEO of Shenzhen-based iiMedia Research.

“Foreign brands barely have any chance to snatch a slice of the medium- and low-end phone market, which is already dominated by local peers,” Zhang told the Global Times.

Zhang’s opinion was shared by LG’s senior executives, who believe the G3 can help the company build up a high-end image in the minds of Chinese consumers.

Both Zhang and Wang believe it is not easy for LG to stand out as a premium brand in the Chinese phone market, where its current brand strength is rather weak.

“For me and most people around me, LG is a global premium manufacturer of home appliances other than smartphones,” Beijing’s Li said. “Only Apple is a high-end phone brand.”

In addition to brand enhancement, LG also needs to broaden its selling network in China, said Wang. “The tie-up with the three local telecom carriers is significant for its future performance, as they account for 40 percent to 50 percent of handset sales in China.”

LG shows no intention of having local carriers sell the G3. While jd.com for now is LG’s only sales partner to cut distribution costs, the company said they will provide off-line options for Chinese consumers later.