Archives October 2015

UCAR cooperates with Edaijia in domestic car-hailing sector

Firms will pool drivers to cope with intensifying competition

China’s leading car-hailing firm UCAR Technology Inc announced Thursday an agreement involving strategic cooperation with online car-hailing app Edaijia, in a joint effort to provide customers with high-quality services.

The companies will jointly promote the brand in the domestic market and seek cooperation in terms of capital, according to the press release sent by UCAR to the Global Times on Thursday.

UCAR and Edaijia will pool driver resources, the release said, and a premium driver training project will be launched.

“The cooperation will help the two companies to complement one another with the aim of creating the best mobile traveling service platform,” Lu Zhengyao, president of UCAR, said Thursday at a briefing in Beijing.

Yang Jiajun, CEO of Edaijia, noted Thursday at the same briefing that Edaijia focuses on the safety of its riders and will continue to offer them good services to expand its market share.

Edaijia, which specializes in offering online designated driver services, has been focusing on the sector for four years. These services are usually aimed at people who avoid driving their own cars after a night out drinking.

Media reports said the agreement was reached because UCAR didn’t have enough drivers to meet demand, while Edaijia had an ample pool of drivers. Experts said that the agreement would meet each company’s needs and allow them to battle rivals jointly.

The services provided by Edaijia will be available in 298 cities nationwide with more than 200,000 registered drivers, according to Yang.

UCAR faces fierce competition from numerous rivals such as US-based car-hiring firm Uber Technologies Inc and Didi Kuaidi, backed by domestic Internet giants Alibaba Group Holding and Tencent Holdings.

In the second quarter, UCAR was the third-largest Internet car-hailing firm in the Chinese mainland with 466,520 active users of its car-hailing platform, after Didi Kuaidi with 3.59 million and Uber with 649,640, Analysys International said in a report in August.

Cooperation among car-hailing companies will become more common as competition intensifies, Zhang Shuang, deputy manager of the Internet research center of Beijing-based research firm CCID Consulting, told the Global Times on Thursday.

“Such cooperation will soon change the competitive situation in the industry,” Zhang forecast.

Edaijia has encountered intensified competition from Didi Kuaidi, which launched designated driver services on July 28.

Edaijia aims to lower its operating costs and win more market share in this sector through sharing the platform with UCAR, Zhang said.

Unlike Uber and Didi Kuaidi’s customer-to-customer model (C2C), which connects private car owners with riders, UCAR uses a business-to-customer (B2C) model under which it serves riders with its own drivers and cars, which are primarily from its main shareholder Car Inc.

“UCAR created a new way for the government to manage the car-hailing sector as the company has stricter rules to manage its drivers and is able to make good use of resources,” Hu Dan, senior consulting manager at consultancy iResearch Consulting Group, told the Global Times on Thursday.

The cooperation agreement will play a vital role in making the sector more normal, Hu said.

Zhang said that given the market situation in China, UCAR’s B2C model will lead to a more sound business environment than Didi Kuaidi’s C2C model.

UCAR, which got listed on the Hong Kong stock market in fall 2014, secured $550 million in a second round of financing in September, after which UCAR was valued at $3.6 billion, a statement released in September by CAR Inc showed. And in the first round, which closed in early July, the company raised about $250 million, according to media reports.

Service industry helps with economic growth

A customer shops at a supermarket in Huaibei, Anhui province, on Oct 13, 2015.

Producer Price Index decline ‘may facilitate restructuring process’

Inflation edged down for consumers in September and producer prices continued to contract, suggesting that the rate of economic growth may lose steam in the third quarter as demand remains weak.

But an hopeful scenario could be seen in the service sector, where prices are rising rapidly. A boom in services can prevent a hard landing by the world’s largest emerging economy, economists say.

The Consumer Price Index, a main gauge of inflation, moderated to 1.6 percent year-on-year in September, down from 2 percent in August, the National Bureau of Statistics reported on Tuesday.

In the first three quarters, consumer prices were 1.4 percent higher than a year earlier, lower than the government target of 3 percent and below the 2.2 percent reading for the same period last year.

“The low inflation level can reflect economic weakness,” said Chang Jian, an economist at Barclay’s Capital in China.

Meanwhile, factory gate prices, as measured by the Producer Price Index, declined by 5.9 percent in September from a year earlier, extending its streak of negative readings to 43 months, compared with a 5.9 percent drop in August and a 5.4 percent fall in July, the statistics bureau said.

In the first nine months, PPI declined by 5 percent year-on-year.

According to Li Jing, an economist at HSBC Bank, “Prolonged weak inflation will not only weigh on firms’ profits and add to their debt burdens but also lead to poor market expectations regarding incomes and prices.”

The bank predicted more decisive policy easing in the coming months to counter the potential deflation risks.

However, some economists have seen positive signals in the expansion of the service sector.

Data from the NBS showed that service prices rose 2.1 percent in September from a year earlier the strength of domestic tourism, box office receipts and restaurant spending, among other things.

A research note from Goldman Sachs said booming service prices, together with the easing of industrial product prices, suggests that policymakers are successfully transferring the economic growth pattern away from investment and toward consumption.

It is also a wise choice to stop the country from entering the so-called middle income trap, the research said.

Lian Ping, chief economist at the Bank of Communications, said the PPI may continue to decline for the rest of this year, which may help reduce the backward production capacity while facilitating the restructuring process.

China’s producer prices fall for 43rd month

China’s producer prices continue to fall in September, signalling prolonged weakness in aggregate demand, data from the National Bureau of Statistics showed on Wednesday.

The producer price index, a measure of costs for goods at the factory gate, fell 5.9 percent year on year, unchanged from the rate seen a month earlier.

The reading also marked the 43th straight month of decline.

Minsheng Securities reckons the index will stay in negative territory in the foreseeable future as China still has a long way ahead to digest its over-capacity in upstream industries.

In addition, the country’s ongoing economic restructuring means a trending slowness in demand for traditional industrial goods, which will restrain prices.

Month on month, producer prices in September edged down 0.4 percent.

Output prices of production materials fell 7.7 percent in September, contributing 5.8 percentage points of the PPI drop during the month, while those of consumer goods edged down 0.3 percent during the period.

The data came along with the release of the consumer price inflation index, which edged up to 1.6 percent in September, slightly below the market forecast of 1.8 percent and 2-percent rise in August.

The downcast PPI and slowing CPI highlighted deflation pressure for China, Minsheng said, projecting a high possibility of further cuts in interest rates and the bank reserve requirement ratio in the fourth quarter.

China is battling a property downturn, industrial overcapacity, sluggish demand and weak exports, which dragged growth down to 7 percent for the first half of the year. Growth data for the third quarter is due next week.

IMAX targeting wealthy Chinese

IMAX is looking to target high net-worth individuals in China and real estate developers in the country with its new $400,000 home theater system, according to a company executive.

Robert Lister, chief business development officer for IMAX Corp, told China Daily that the company is looking to target three segments of the market: wealthy individuals, high-end real estate developers, and home designers that individuals consult when they furnish their homes.

“Before we even launched the product, a lot of the market research we did were on things like Bentleys and Ferraris – things that are the very, very high-end of luxury goods and there seems to be a great appetite for that in China as more capital flows to the middle class and the upper class,” he said. The product has only been available since June, and Lister said the company is optimistic about sales. “We do have a lot of confidence,” he said.

IMAX China, a subsidiary of IMAX that focuses on China, listed on the Hong Kong Stock exchange last week. It teamed up with TCL Multimedia Technology Holdings Ltd to manufacture the 20-feet-by-10-feet screens that will play IMAX movies at the same time they are available for release in theaters. Homeowners will pay a fee for movies, a figure that IMAX is negotiating with various studios, according to Lister.

The company unveiled the luxury home-entertainment system at Le Royal Méridien Shanghai for customers in the summer. The system features sound isolation, acoustics, wall treatments and audio-visual content from IMAX.

“Our strategic partnership with TCL, one of the world’s leading entertainment technology manufacturers, strengthens both companies’ positioning in China, with its rising demand for premium entertainment, and creates an ideal launch-pad for global expansion in the home entertainment sector,” said Lister at the time of the product launch.

Eric Wold, an analyst with B. Riley & Co who follows IMAX, said that the home-theater system’s price point means that IMAX doesn’t need a huge number of sales to make the venture economically viable.

“It’s not as much of a gamble as it would be. They’ve spent 20-30 years developing the technology, so to partner with TCL and launch a smaller system, it’s expensive but you don’t need a lot of sales to make it work,” he said. “The people that can afford this are not the people who go down to your local multiplex on a Saturday night and sit next to the riff raff and pay $12. They’re happy to sit in their homes. There’s a market for it.”

The Chinese box office is the second-largest in the world, earning $4.8 billion in 2014, a 34 percent increase over the previous year. China is ranked right behind the US, which took home $10.4 billion last year, a 5 percent decrease from the year prior. Many analysts predict that China’s box office will overtake the US’ by the end of the decade.

IMAX has 251 screens in China, and is planning to build 217 more. IMAX announced on Oct 8 that it reached a deal with Chinese company Omnijoi Cinemas to open an additional 15 IMAX theater systems in China. Its box office revenue was $183 million last year

IMAX China made its Hong Kong Stock Exchange debut on Wednesday, becoming the first Hollywood company to list shares in Hong Kong and raising $248 million to do so. It priced its shares at 31 Hong Kong dollars ($4), and closed at 34.25 Hong Kong dollars on opening day, about a 10 percent increase. Shares were 36.5 Hong Kong dollars at market close on Oct 9.

“Going public has been part of our long-term China strategy, and we believe the introduction of local Chinese investors into the business will further solidify our position in the Chinese market,” CEO Gelfond said on opening day.

Wold said that the company is clearly aiming for the Chinese market, where a third of its business now exists, adding that there will be a continuation of growth trends within the movie industry and increasing demands from customers who will pay to watch films.

“IMAX China’s stock’s up 18 percent in the two days since it became public, so clearly the valuation has gone higher already,” he said. “They haven’t seen a degradation in demand, they haven’t seen a degradation in box office numbers per screen. It’s held up. That bolsters optimism.”

Opportunity knocks for EU and China over next five years

This month, President Xi Jinping has two priorities on his schedule, one at home and one overseas.

First at home, he will join China’s other top decision-makers in a plenary session of the Central Committee of the Communist Party of China, which is expected to roll out a draft of the development program for 2016 to 2020. This, it is believed, will mainly aim to give a final push so China’s per capita income doubles from its 2010 level by 2020.

And abroad, after his September state visit to the United States, Xi is due pay a visit to the United Kingdom, during which he is likely to further explain to the world how China intends to play its due role as global stakeholder.

Xi will also likely outline the opportunities China’s new five-year plan offers the UK, Europe and the rest of the world.

With China deepening its efforts to restructure its economy, the Europe Union and China are becoming increasingly interlinked in trade, investment and people flows, due to their natural complementary as a result of their differing development stages.

In fact, this may produce a second wave of growth after the first wave brought about by China’s accession to the World Trade Organization in 2001.

In that year, the bilateral trade volume was $76.6 billion. It had soared to $615 billion by the end of 2014.

The coming five years offer a golden opportunity for China and the European Union to solidify the foundations of their bilateral partnership, if both sides demonstrate enough vision and determination to push forward the existing momentum.

That is to say, China’s accession to the WTO was the incentive for China and the EU to deepen their trade and economic relationship. Now, Beijing and Brussels have realized the urgency of injecting new momentum into their relations after taking advantage of the WTO dividend for years.

The two sides have decided to speed up their bilateral investment talks and will try to finalize the text for negotiations by the end this year. They have signed a memorandum of understanding that makes China the first foreign country to join the European Union’s 315 billion euro Investment Scheme, and Brussels has shown its intention to get a piece of the pie that China’s Belt and Road Initiative is creating. An EU-China fund may also be in the works.

More importantly, many European Union countries have become founding members of the Beijing-led Asian Infrastructure Investment Bank, despite Washington’s disapproval.

To sum up, on top of their already active economic and trade activities, a bilateral investment pact, a joint government-led fund and a new international financial institute are set to be three crucial important institutional arrangements between China and the EU in the coming five years.

The bilateral investment pact and a joint fund to facilitate investment into each other’s mega programs still take time to realize. But most likely, the three important arrangements can all be put into operation by 2020.

And Brussels and Beijing can do more.

Both sides should show more ambition and vision and announce their agenda for starting free trade talks soon. China and the EU account for a population of nearly 1.9 billion people and about one-third of the global economy, which are telling statistics showing the potential if the market barriers between them were to be removed.

Europe is still mired in economic difficulties as a result of the global financial crisis, and the euro’s fate still hangs in the balance to some degree. China too has been experiencing an economic slowdown.

Therefore, the leaders of both sides should lay solid institutional foundations for achieving common prosperity, they should not risk letting the opportunities of the coming five years slip through their hands. That will be benefit both sides, not only by 2020, but beyond.

Dianping, Meituan form O2O JV as sector becomes more competitive

Dianping Holdings and meituan.com, China’s two largest online-to-offline (O2O) services providers, on Thursday announced that they have formed a new company that will become “a leading platform in the Chinese O2O sector.”

In response to the move, China’s top search engine Baidu Inc, the operator of another O2O services provider Baidu Nuomi, said late on Thursday that it will not be challenged by the new firm.

In a joint statement, China’s leading group-buying website Meituan and top business review site Dianping said the new company will adopt a co-CEO governance structure, with Meituan CEO Wang Xing and Dianping CEO Zhang Tao becoming the new company’s co-CEOs.

The former rivals said that they would retain their respective personnel management structures, brands and independent business operations.

Other details including the name of the new company and financing were not announced.

But the combined company could be worth as much as $20 billion, and it could raise $2 billion to $3 billion in the first round of fundraising, according to media reports.

Media also said the move could pose a serious threat to Baidu Nuomi, run by Baidu, which announced in July that it would invest as much as $3.2 billion in Nuomi over the next three years.

Baidu shrugged off media claims, saying that it was the new company that would be threatened by Baidu Nuomi.

“We believe that this merger is an extreme measure that shows just how seriously Meituan and Dianping view the threat from Baidu Nuomi,” Baidu said in a statement e-mailed to the Global Times on Thursday.

Baidu said that the difficulties Meituan and Dianping have had in raising money and the rapid erosion of their respective market positions in the face of Baidu Nuomi’s growth drove them to the merger.

Baidu also pointed to its performance in the O2O market as evidence that it will be strong in the face of any competition. It said Baidu Nuomi has been gaining about 2 percentage points a month in market share by gross merchandise volume, while Meituan’s market share has been declining.

Liu Xuwei, an analyst with market research firm Analysys International, agreed overall with Baidu’s assessment.

“I think the major point behind this cooperation is to raise capital,” Liu told the Global Times Thursday, noting the overall capital market is in bad shape.

Liu also noted that Meituan and Dianping are facing strong competition in an increasingly competitive O2O field with major players such as Baidu Nuomi.

But Baidu Nuomi will also face pressure from the Meituan-Dianping venture, he said.

Liu believes Meituan and Dianping’s new venture will help them to gain profits, given the two companies’ huge market share and the “enormous” market for O2O businesses in China.

Uber, Didi Kuaidi seek lawful status in China

Car-hailing service provider Didi Kuaidi and the U.S.-headquartered rival Uber Technologies are to apply for legal status in China as the market, crucial to both, is expected to fill its regulatory gap soon.

Didi Kuaidi, a firm valued at $16 billion and backed by Chinese Internet giants Alibaba Group Holding and Tencent Holdings, said it had received a license to offer privately-registered car bookings in Shanghai, and was seeking permission from other cities.

Uber China also said on Thursday that it was “actively preparing” documents to apply for the car-booking license to meet new regulations governing the sector expected to be announced soon.

Shanghai’s initiative to close regulatory grey zones came as China is moving to release its first regulation on ride-hailing services via mobile apps, and could prompt other cities to follow.

According to Uber, the company is opening a subsidiary in the Shanghai Free Trade Zone at the same time, as it plans to invest a total of 6.3 billion yuan ($991.5 million) in the country.

The two car-hailing giants are locked in a turf war in China, investing billions of dollars to lure passengers with steep discounts and subsidies to drivers.

However, as in many countries, regulatory issues remain the major uncertainty for car-on-demand service providers.

Didi Kuaidi is currently the dominant player, as according to data from consulting firm Analysys International, it provides 3 million daily rides covering 80 Chinese cities through private car services for 80 percent of market share.

Fashion brands get makeover in China

Customers check out outfits at the fast fashion chain Topshop’s first retail outlet on the Chinese mainland. It opened in Galeries Lafayette’s store in Beijing this summer.

French store Galeries Lafayette has come up with a new approach to entice customers with affordable, exclusive labels from the likes of Topshop

Fast fashion chain Topshop’s first retail outlet on the Chinese mainland opened in August, with lines of young women eager to see what the British brand had to offer.

But this was not just another store opening in one of the countless malls that have sprung up across urban China during the past decade, it was an indication of the subtle shift in the nation’s shopping culture.

The brand chose to make its first foray into the Chinese mainland on the sixth floor of Galeries Lafayette (China) Ltd, a 50-50 joint-venture between French department store veteran Galeries Lafayette and I.T Apparels Ltd.

“The introduction of Topshop here sends a strong message,” Paul Burke, chief executive officer of Galeries Lafayette China, said in an exclusive interview with China Daily.

“A message to bring more traffic here for people to see something else, because people are not frightened by the price of Topshop.”

The French department store opened in Beijing in September 2013 just as China’s department stores?aimed at wealthy and high-spending consumers-started to feel the pinch from the central authorities’ anti-extravagance campaign.

Since then, it has been trying to find its place in Beijing’s Xidan area, a bustling shopping district traditionally associated with younger consumers with relatively low spending power.

Targeting customers aged between 18 and 35, the store has been left relatively unscathed by the impact of the anti-corruption clampdown.

“The young customers are not really involved with these things and they live on true incomes. Whatever they earn, they can spend some on food, clothing and other things to feel good about themselves,” Burke said.

Galeries Lafayette has moved into this market niche to distinguish it from traditional Chinese department stores, which have been in decline this year.

The rising middle class and the government’s promotion of consumption stimulated their business, said Burke of his peers in the sector, but as far as Galeries Lafayette is concerned, “we are different”.

“We are French, fashion forward, affordable and fun,” Burke said. “When we think about business, these four elements are in our thinking all the time.”

These four factors are the key elements deciding whether the firm will bring a brand to China. Creating a unique and diversified brand mix is also key to what sets it apart from other department stores in China.

Burke found that Chinese young women prefer to shop freely and have a greater choice of brands. Therefore, Galeries Lafayette’s Beijing store was designed with no walls separating the many labels on offer.

“People can experiment with different brands and shop freely in our store without being followed by sales staff,” Burke said, pointing to something that clearly sets his firm’s retail culture apart from those of its Chinese competitors.

And accompanying the introduction of Topshop’s first outlet in China, the department store has introduced other elements, which make it stand out from the crowd.

All Chinese department stores have the same brands, the same level of service and similar cafes, but they do not have the French cafe Angelina, Burke said.

Galeries Lafayette’s business model has concession brands, which the company directly buys, as well as its own labels and I.T’s products.

The concession model allows it to choose brands that are not already in China or Beijing yet. For example, it can select different lines from Red Valentino, which means customers can buy items that they will not find anywhere else in the country.

This means that Galaries Lafayette can fine-tune the range of merchandise and mix of brands to suit local consumers’ tastes. In addition, Galeries Lafayette constantly updates its stores and changes the brands on offer.

“You don’t want another five years of a brand which everybody hates,” Burke joked.

Galeries Lafayette has also discovered young Chinese designers in Paris and introduced them in Beijing, including Chi Zhang, Fiona Chen and Chictopia. The store cooperates with the Beijing Institute of Fashion Technology and showcases some of its designers’ best work.

“If customers like them, they stay,” Burke said. About 40 to 50 Chinese designers now work with Galeries Lafayette.

These local designs sell well because they are interesting and exclusive. There is also less chance that customers will experience the embarrassment of finding someone else wearing the same clothes.

And the quality of service on offer is what makes customers shop here instead of going online, Burke said. “The traditional department stores’ service level is quite low,” he added. “We have to make sure our environment is more interesting.”

Galeries Lafayette has introduced a VIP room and personal shoppers who will bring clothes that meet customers’ requests.

According to I.T’s financial report, Galeries Lafayette’s revenue increased about 30 percent in the first quarter of 2015 compared to the same period last year. Detailed financial figures have yet to be released.

But the department store is eager to increase its share of China’s retail industry, which has continued to expand during the past five years.

The store is also trying to attract more domestic tourists by working with major agencies, airlines and hotels, as its data show a large number of its customers are from outside Beijing.

Strong awareness of Lafayette labels among Chinese outbound tourists is a massive benefit to its expansion plan in the country, according to Burke. It will seek to cash in on the brand by opening 15 new department stores in China, with two due to be rolled out each year. As yet, the company has not revealed exact locations.

The new stores do not necessarily need to be of the same size as its first one in Xidan. “It could take two or three floors in a shopping mall or do things without food or beverages,” Burke added.

Guo Zengli, president of the China Shopping Center Development Association of Mall China, pointed out that Galeries Lafayette stands out among foreign department stores, such as Parkson Group, a division of the Malaysia-based Lion Group, which has performed poorly.

“Having a very different model from Chinese department stores, Galeries Lafayette has the patience to cultivate the market and it will see an increase in its sales as consumers in China become more mature and more diversified,” Guo said.

By working with its suppliers rather than only making money by renting out space, Galeries Lafayette has developed a competitive edge.

“To be responsible for the merchandise, pricing and consumers, means that once it gets a feel for the market, it will thrive,” Guo said.