Archives June 2016

Suning takeover of Inter Milan to enhance growth of Chinese soccer

The advent of China’s retail giant Suning Group as the majority shareholder of Inter Milan offers an opportunity for China to enhance its national soccer project, according to the management of the Italian club.

“Suning has already agreed to build its second academy in China, because now we only have one in Italy which is one of the best in Europe,” Inter president Erick Thohir said. “It is interesting to build a second project in China, which hopefully can be done by March or April next year,” he added.

The new academy, Thohir explained to Xinhua, will help talents from China become high-quality soccer players to be able to play in the Chinese national team and also in other parts of the world. “I really believe that China has the potential with its 1.3 billion population,” he stressed.

A news conference was held in Italy’s business capital Milan on Tuesday to officially unveil the Chinese shareholder to the local press.

Suning Sports, a newly established company under Suning Group, on June 6 announced the deal for 270 million euros (nearly 300 million U.S. dollars) sealing the acquisition of 68.55 percent stake of Inter Milan.

Indonesian businessman Thohir, who had previously owned the majority stake in the club, was staying on as the president with a 31.05 percent stake.

Suning, Thohir told Xinhua, will further help the financial restructuring of Inter Milan after “the debt that we had previously has being going down in the last two years, while revenues have been going up.”

Thohir explained to Chinese media on the sidelines of Tuesday’s news conference that a key reason why he chose a Chinese shareholder was because he was looking for a partner “with an entrepreneurial background, but who also loves soccer.”

He noted that Suning has already proved to be able to build a good quality soccer, when it bought Jiangsu Sainty last December and poured in more than 100 million euros (over 110 million U.S. dollars) during the winter transfer window to create a star-studded squad in the Chinese Super League (CSL).

“Suning chairman Zhang Jindong believes in the project, and this is a new era that we can take off with the new partnership,” Thohir pointed out.

The second reason why Thohir chose China was that “from 264 million fans, we have 194 million in Asia Pacific, and China is more than 100 million. It is a reality that we have to be there.”

Inter Milan, Thohir went on saying, is the number one Serie A team in China in terms of fan number. Yet, “the philosophy of Inter Milan is not only business” so that “to be present in China also means be open to work with China to develop a healthy soccer environment in China,” he added.

Inter Milan vice president Javier Zanetti also defined the entry of the Chinese shareholder as a great opportunity. “We have now to work all together in an aligned way to build a competitive team able to return to the highest level,” he told Xinhua.

Founded in 1908, Inter Milan has won 18 domestic titles and three UEFA Champions League trophies.

Zanetti told journalists he was particularly hit by the enthusiasm of Inter Milan fans during his trips to China.

“China’s football is developing and becoming increasingly important, and the relation with our club will further contribute to the growth of a sector with great potential,” he highlighted.

China’s local consumer brands gain more market share

Workers pack dog food at a factory in Qingdao, Shandong province. The growth rate in the value of fast-moving consumer goods in China was 3.5 percent in 2015.

The growth rate in the value of fast-moving consumer goods in China reached a five-year low of 3.5 percent in 2015, according to an industry report.

The fifth annual China Shopper Report, issued by Bain & Company and Kantar Worldpanel, suggests that the rise of the service sector in China and its higher paying jobs has helped boost growth among brands in premium categories, such as yogurt and pet food. It also says that foreign brands are continuing to lose battles to local brands in this sector.

Brands in categories that traditionally cater to blue-collar workers are suffering as many manufacturing jobs move to lower-cost countries. For example, in 2015, sales of instant noodles declined by 12.5 percent and beer by 3.6 percent.

Last year, local companies’ sales grew by nearly 8 percent and continue to gain share over their foreign rivals. Their biggest advance occurred in skin care, baby diapers, hair conditioners, toothpaste and shampoo.

Foreign companies generated their greatest share increase in fabric softener, infant formula, instant noodles and beer. However, foreign brands overall declined by 1.4 percent in 2015.

“Local companies have wider distribution networks particularly in lower-tier cities where growth is higher. They can make faster decisions and are more adaptable in the digital environment than their foreign peers, achieving a higher growth rate,” said Jason Yu, general manager of Kantar Worldpanel China.

For example, Shanghai Jahwa uses its knowledge of Chinese herbal beauty therapy to win over consumers.

The country’s retail landscape has also evolved with smaller formats continuing to gain momentum. Notably, convenience stores generated 13.2 percent growth in value last year, catering to cash-rich and time-poor urban consumers.

Online shopping continues to define the modern retail environment in China. Over the last four years, e-commerce in China has grown at an annual rate of about 37 percent and generated revenue of nearly 4 trillion yuan. The report has found that baby-related categories and skin care continue to dominate the e-commerce market.

Deloitte to open more offices around China

Deloitte opens more offices around China to seek greater share of lucrative market

Deloitte, a global audit and advisory firm, will continue to set up new offices and build new partnerships with companies in China’s central and western regions as the country is undergoing an industrial upgrading boom, said Gary Coleman, Deloitte’s global industry and senior client advisor, on Monday.

Eager to enhance its earning ability, the company set up two new offices in Changsha and Hefei in the first half of this year, after establishing offices in Wuhan, Chengdu and Chongqing over the past few years.

Coleman said China’s fast growing 4G network would build a solid foundation for its manufacturers. This in turn would benefit greener, more efficient and sustainable development.

Indeed, manufacturing will be a key factor in determining competitiveness. Many countries have identified digital, intelligent and green sectors in the drive to develop high-end manufacturing.

China has been implementing a plan titled “Made in China 2025”, aiming to enhance the country’s manufacturing capacity under the guidance of technological progress, knowledge-based transformation and green development. This will help the Chinese economy grow at a faster speed.

“Connected industrial operations will consume less energy, since they are organized to optimize machine usage, labor, and product and service delivery,” Coleman said. “Large Chinese manufacturers are already in an upgrading boom, while small and medium-sized companies also have the chance to benefit from this transformation.”

He said that to achieve these goals, advanced software and internet applications in the field of big data analysis have to be established so that all parts of the value chain can communicate with each other.

Deloitte will deploy more resources in China to meet fast-growing demand for these services, focusing on the country’s central and southwestern regions.

Supported by more than 13,000 employees, the financial and industrial service provider currently has 24 offices in China including Beijing, Guangzhou, Shanghai and Shenzhen.

“Such a major shift in manufacturing philosophy will affect global industry for years to come, and China will not be immune to this development,” said He Jingtong, a professor specialized in modern manufacturing management at Tianjin’s Nankai University.

Geely opts to sell interests in micro carmaker

ZD’s fully-electric two-seaters roll off the production line in the Lanzhou plant in Gansu province, Jan 11, 2015.

Geely Automobile Holding has opted to sell its interests in micro-sized electric carmaker Zhidou, to enable the company to operate as an independent entity as a prerequisite to get listed in the nation’s new energy vehicle catalog.

The Hongkong-listed Geely Automobile said in the news release on Friday that getting its products listed under the brand ZD is imperative for Zhidou’s future, and will allow it to compete independently in the market. Under current regulations and conditions, the product can only be referred to as Geely ZD.

Geely Automobile announced a framework agreement on June 22 to sell part or all of its 45 percent interests held by two subsidiaries, Zhejiang Jirun Automobile Co and Shanghai Maple Guorun Automobile Co, in Ninghai Zhidou Electric Vehicles Co to a China-listed company. Detailed terms of the agreement have yet to be determined.

Jia Xinguang, senior analyst with the China Automobile Dealers Association, said: “The move could be a strategic adjustment made when Geely found the mini-sized electric car project might not be in line with its long-term plan. Another possibility is that Zhidou is growing stronger and seeking independence.”

Zhejiang Geely Holding Group Co planned for new-energy vehicles to make up 90 percent of its sales by 2020, and about two-thirds of Geely’s new-energy vehicle sales will come from plug-in hybrids and gasoline-electric hybrids by the end of the decade, with the rest coming from battery-electric vehicles.

Geely Automobile joined with Taizhou Xindayang Group Co to establish Xindayang Electric Vehicle Technology Co in January 2015 to manufacture ZD-branded electric cars in Lanzhou, capital of Gansu province in northwestern China.

Local media reports cited industrial data which indicated that the ZD brand failed to close a single deal in the first four months of this year, after registering 25,300-unit sales in 2015.

The ZD brand was expected to achieve an annual sales volume of at least 500,000 by 2020, 20 times that of ZD’s 2015 sales, according to Hu Hesong, a partner in the venture capital fund GSR Ventures, one of the investors in Xindayang EV.

There are now two mini-sized two-seater models being offered by the ZD brand, the D1 and D2, with prices ranging from around 30,000 to 50,000 yuan ($4,600 -$7,700) taking national and local subsidies into consideration. The ZD car models are eligible for an NEV plate in cities where gasoline car sales and usage are restricted.

ZD brand’s annual production capacity totaled 300,000 units, a figure that also accounts for the integration of Xindayang Electric Vehicle Technology Co and the earlier establishing of Shandong Xindayang, according to the company.

Xindayang EV took over Geely Automobile’s Lanzhou plant after a 300 million yuan-plus upgrade in 2014, with the aim of obtaining a permit to manufacture passenger vehicles.

Huawei ‘plans to create proprietary OS’ to lower reliance on Android

Telecommunications giant Huawei Technologies Co is undertaking a confidential project to develop its own operating system (OS), domestic news portal sina.com reported on Thursday, a move expert said aims to reduce its reliance on Google’s Android OS and capture overseas markets.

Technology news sites have reported rumors circulating in the industry that Google might strengthen its control of the Android system over third-party devices or restrict original equipment manufacturers’ (OEMs’) use of functions and supporting services within the Android system.

Android OS has been a free, open-source software for years, and Google allows OEMs to customize and adjust its functions as they wish.

If Google is changing its policy on Android, then Huawei should come up with an alternative to avoid being plunged into an embarrassing situation, the sina.com report noted.

That’s a major reason for Huawei’s reported pursuit of its own OS, and it also explains why South Korea-based Samsung has released a mobile OS called Tizen.

Also, Huawei is pursuing expansion in overseas markets, especially in the US and Europe, where it faces strong competitors like Apple and Samsung in the mobile industry, expert said.

“Huawei’s increasing revenues give it the capital to develop a unique OS that is resembles neither Android nor [Apple’s] iOS, while meeting the demand of Western consumers,” Wang Yanhui, secretary-general of the Mobile China Alliance, told the Global Times on Thursday.

In line with the company’s development goals, former Apple creative director, Abigail Brody was hired by Huawei in 2015 as the chief user experience designer.

Huawei didn’t respond to an interview request from the Global Times as of press time.

Media reports indicate that the OS project is still in its infancy, with a team in Scandinavia that includes former Nokia engineers.

Although innovative strides made by Huawei make the project’s future a bright one, Wang also warned that it will take time to develop an entirely new OS.

“Any mobile OS relies heavily on its ecosystem. Currently, almost all the mobile applications have two versions – Android and iOS. But are they willing to develop a new and unique version for Huawei?” Wang said.

“So Huawei will opt to apply the OS first on its smartwatches and bands, and then gradually to other consumer electronic products like set-top boxes and finally to its mobile,” Wang noted.

In 2015, Huawei’s research and development spending increased 46.1 percent year-on-year to 59.6 billion yuan ($9.2 billion), accounting for 15 percent of its sales revenue, its financial statements show.

The company also leads in terms of international corporate patent filings with a record of 3,898 filings in 2015, topping the global list for the second consecutive year, according to the Xinhua News Agency, which cited the World Intellectual Property Organization.

Chinese e-commerce giant JD.com,Wal-Mart partner to expand business

China’s second largest e-commerce platform JD.com partnered with global retail giant Wal-Mart with the latter trading its China online unit for JD.com’s stakes, a strategic step expected to expand Wal-Mart’s reach to more Chinese customers.

Under the deal, JD will take ownership from Wal-Mart Stores of the Yihaodian brand, website and app while giving about a 5 percent equity stake to Wal-Mart, worth about 1.5 billion U.S.dollars at JD’s current valuation, the company announced Monday night.

The deal is expected to give Wal-Mart access to JD’s online traffic and bolster its presence in the extraordinarily lucrative, but increasingly competitive, online marketplace.

Wal-Mart Sam Club China will open a flagship section on JD.com, and both companies will leverage their supply chains and broaden the range of imported goods to meet the growing demands from increasingly affluent and quality-oriented Chinese consumers.

In a statement issued Monday, Wal-Mart CEO Doug McMillon said JD had “complementary business and was an ideal partner.”

Yihaodian has a strong presence in eastern and southern China, selling food and beverages, home goods and electronics.

JD chief executive Richard Liu expects the alliance to help improve the customer experience and boost business for Yihaodian thanks to JD’s logistics capabilities and wide range of products.

JD has nearly 6,000 delivery and pickup stations in about 2,500 counties and districts across China, with a huge customer base and an outstanding same-day delivery network.

The company launched a 20-day long online shopping promotion campaign starting from June 1 to June 20, which received orders worth over 100 million yuan, about 85 percent of transactions were on mobile devices.

The NASDAQ-listed Chinese online retailer saw its shares surge nearly 8 percent before trading was halted Monday.

Volkswagen to produce more electric cars in China

Volkswagen China said on Monday that it expects electric vehicles to account for up to 25 percent of its total auto production by 2025.

Vehicles driven purely by electricity will sell two to three million units by 2025 as Volkswagen expands its electric vehicle line to over 30 models in the next 10 years.

Batteries for electric vehicles could emerge as a new source of income, the automaker said, adding it is evaluating the research needed and potential income.

The automaker will continue to expand its business in China, such as customized auto services either through in-house research or acquisition.

Large shareholders selling spree spooks retail investors

A number of companies listed in Shanghai and Shenzhen have been reducing their holdings since the beginning of May, according to disclosures to the bourses concerned.

Market observers said this paring of holdings may dent small investors’ confidence and hurt prices of the stocks concerned.

In the first seven trading days this month, large shareholders sold 543 million shares worth 14.02 billion yuan ($2.13 billion) in various companies, according to the China Securities Journal.

This almost matched similar selling through all of May, which saw big shareholders’ sales of 435 million shares worth 14.43 billion yuan.

Each large shareholder holds more than five percent in a company’s stock.

According to the Journal, 45 companies, through 52 filings, disclosed large shareholders’ plans to sell 1.216 billion shares worth 29.14 billion yuan or $4.43 billion.

They will sell these shares gradually in three months to a year as per regulations. A big shareholder is required to disclose any substantial paring of its holding and complete such sales within a given timeframe.

Since the beginning of May, big shareholders in nine companies listed in Shanghai and Shenzhen disclosed that they are going to sell all their holdings. Among them, three firms will see big shareholders selling shares worth more than 1 billion yuan within 12 months.

Many of the companies that are seeing selling by large shareholders are small- to medium-cap enterprises in emerging sectors such as biochemicals and high-tech.

For instance, Shanghai Hile Bio-Pharmaceutical Co Ltd, a drugmaker, has seen heavy selling in their counters.

On May 3, the first trading day of the month, shares in Hile Bio-Pharma closed at 42.97 yuan in Shanghai. But by June 1, they fell to 16.37 yuan. They closed at 15.22 yuan on Friday, marking a 65 percent decline since May 3.

Although the meltdown is attributable to the automatic price shrinkage due to the company’s 13-for-10 stock split on May 4, the large shareholders’ selling is also believed to be a major factor.

A research note from Ping An Securities said quite a number of companies in emerging sectors listed recently, suggesting that large shareholders may be exiting to secure their gains.

Citing filings, analysts attributed the selloff to big shareholders’ desire to stay liquid.

A research note from Chang Xin Asset Management said recent paring of holdings had a limited impact on the A-share market so far, given the small size of sales relative to the whole market. But small investors holding shares in these stocks may feel the pinch due to falls in prices.

Zhang Shaofen, 56, a Shanghai-based small investor, said it is understandable if big shareholders like institutional investors reduce their holdings to boost their liquidity. But, if individuals such as company founders or senior executives, or their family members, are behind such sales, it could mean they are cashing out or eager to get rid of the company’s shares for some reason.

“Usually, individual large shareholders have close knowledge of a company’s profitability, operations and financial situation. If such individuals sell shares in bulk deals, small investors may interpret the move as a sign of erosion of confidence in the company’s future.”

But brokerages said block deals do not necessarily mean big shareholders are giving up on the company or that they are cashing out or exiting for good.

A research note from Guangfa Securities said some block deals could well be in anticipation of possible mergers and acquisitions. M&A activity usually stands a better chance of success when the equity structure is clear and simple.

Didi Chuxing nets $4.5b to fight off rivals

China’s most popular ride-hailing application Didi Chuxing said yesterday that it netted $4.5 billion in fundraising in its latest financing round to help it fight both foreign and domestic rivals.

The investors included Internet giants, state-owned enterprises and private firms such as Apple, China Life and Ant Financial, together with existing investors Tencent, Alibaba, China Merchants Bank and SoftBank.

The proceeds will be used to upgrade technology, Big Data research and operations to improve rider and driver experience, as well as exploring new businesses and opportunities.

“Didi is prepared to continue this momentum of growth with advantages in technology and platform synergies,” founder and Chief Executive Officer Cheng Wei said in a statement.

This marked the second financing round after Didi and Kuaidi, the two former leaders in the ride-hailing sector in China, merged to form Didi Chuxing in early 2015.

Didi Chuxing raised over US$3 billion in a previous fundraising exercise in September.

Didi said it handles an average of 14 million rides through its platform daily, serving close to 300 million users in more than 400 Chinese cities.