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Ad market reverses sales drop

China’s overall advertising market edged up 0.1 percent in the first three quarters of this year, reversing from a 3.5 percent drop over the same period a year ago.

Traditional ad spending in the first nine months fell 5.5 percent, narrowing from the loss of 7.3 percent a year ago and a 6.2 percent drop in the first half of this year, CTR said in its quarterly report yesterday.

TV ad grew 1.4 percent in September, the biggest monthly gain since the start of this year, due to rising spending from key industries such as transport and real estate.

Newspapers saw worsening ad income which plunged 40 percent in the first three quarters, with property, commercial services and entertainment companies all cutting spending. Magazines also suffered a 29.9 percent loss in ad income from a year earlier.

Ad spending in movie theaters was the fastest growing sector in the first three quarters, jumping 57 percent.

Double-digit growth in Hangzhou

Hangzhou’s gross domestic prod-uct for the first three quarters was 778.07 billion yuan ($116.13 billion), up 10 percent from a year earlier. The economy remained in the double-digit figures for six consecutive quarters, faster than the national average of 6.7 percent and the provincial aver-age of 7.5 percent, according to official statistics.

The city’s service industry reported 475.19 billion yuan in added value, a year-on-year increase of 13.4 percent. The manufacturing industry achieved 281.54 billion yuan, up 5.4 percent while agriculture edged up 1.5 percent to 21.34 billion yuan.

The information sector, a key industry in the city’s economic re-structuring, expanded 23.1 percent year-on-year to 186.58 billion yuan, and accounting for 24 percent of the city’s GDP.

Retail sales rose 10 percent to 369.5 billion yuan, online retail sales jumped 29.3 percent to 210.7 billion yuan, and online consumer spending expanded 30 percent to 92.63 billion.

From January to August, the city registered 59,100 new companies, 26.3 percent more than the same period of last year. The average in-come for urban and rural residents reached 42,225 yuan and 21,404 yuan, respectively, up 8 percent and 8.4 percent.

Baidu executive resigns due to economic problems: media reports

Baidu Inc Vice President Li Ming-yuan resigned after he was reportedly accused of “economic corruption,” said media reports.

The domestic Internet titan sent its employees a public letter via e-mail on Friday night, confirming “three blames” about Li.

First, it said, when Li participated in one of Baidu’s acquisition projects, he had a “private economic exchange” worth an enormous amount, with the head of the company being taken over, the Beijing Youth Daily reported Sunday.

Second, within Li’s business management scope, he had huge private economic exchanges with some partners in the game sector, the report said.

Also, Li didn’t inform Baidu when other companies he held stakes had business links with Baidu.

“Li is a senior employee of Baidu and has made great contributions to the company … but nothing can be accomplished without norms and those who violate Baidu’s rules will be strictly dealt with,” the company was quoted as saying in the letter.

Li started his career in Baidu as an intern in 2004 and became the youngest vice president of the company nine years later in 2013 when he was 29.

Media speculated that Li was possibly involved in Baidu’s acquisition of mobile application store 91 Wireless in 2013 and had since started to have economic exchanges with the latter.

After the acquisition, Li was assigned to be in charge of the Baidu mobile application distribution team, said media reports.

“The fact is that Li broke the company’s rules, but the violations are not so serious that he will not be handed over to judicial organs,” Li Chengdong, a Beijing-based independent analyst, told the Global Times on Sunday.

Currently, there is no firm evidence of which acquisition cases should be designated as those accounting for Li’s private economic exchanges, said Li, the analyst.

Lots of netizens expressed doubts about the term “economic exchanges” mentioned in Baidu’s letter and guessed that it meant Li was involved in corruption.

“I am not involved in corruption … do not underestimate Baidu’s determination to tackle corruption. No matter who is involved in corruption, the company will call the police and discharge him and will never tolerate the mistake. No one can be an exception because this is the rule and the law, and it cannot be changed by someone’s preference,” Li was quoted as saying in his WeChat account on Saturday.

Li also said that the “economic exchanges” were normal economic exchanges and were not improper.

This kind of rule-breaking is often seen in Internet companies, noted Li, the independent analyst. “The vice president might have become a victim of political struggles in Baidu.”

Traditional retail business faces recession in China

Traditional retailing business is facing a severe recession in China as the Japanese department store Ito-Yokado closed another outlet in Beijing on Nov. 1.

On Oct. 31, only the first floor and the underground supermarket of the six-floor department store in the Shilipu neighborhood of Beijing were open for service. And the two floors closed early at 7:00 p.m.

The closing of the Shilipu outlet is of great significance to Ito-Yokado, as it was the group’s first outlet in Beijing.

Cheng Ning, head of the publicity department of Ito-Yokado’s Beijing branch, said that the outlet was closed mainly because its sales remained low even after business adjustments.

After the closure of the Shilipu outlet, Ito-Yokado only has two outlets and one food store in Beijing, and Cheng said Ito-Yokado will “try all means to ensure the smooth operation of the stores.”

In the past three years, Ito-Yokado has closed seven outlets in Beijing without opening any new ones.

The situation is no better for other department stores nationwide.

So far, 29 listed department stores, supermarkets and chain stores have released their Q3 financial reports, and 16 of them registered decline in sales as compared to the same period of last year.

The Dalian-based Friendship Group and the Wuhan-based Zhongbai Holding Group reported bigger declines among the 16 companies.

The Friendship Group, mainly engaged in the retail, hotel operation and real estate development, reported quarterly revenue of 492 million yuan (U.S.$72.79 million), down by 23.67 percent yearly. In the first three quarters, its shareholders saw a total loss of 162 million yuan (U.S.$23.96) in net profits, down by 799.02 percent yearly.

The Zhongbai Holding Group, mainly engaged in retail and logistics businesses, registered a total revenue of 11.64 billion yuan (U.S.$1.72 billion) from January to September, down by 6.07 percent yearly. Its shareholders saw a loss of a loss of 174.82 million yuan (U.S.$ 25.86 million) in net profits, down by 201.39 percent year on year.

In contrast to the sluggish situation in traditional retail sector, China’s e-commerce industry is booming.

China’s e-commerce powerhouse Alibaba posted robust revenue growth for its second fiscal quarter ending Sept. 30. Its revenue growth rose 55 percent yearly to 34.3 billion yuan (U.S.$5.07 billion) for the quarter.

Farmers use e-commerce to maximize profits

After harvesting potatoes on his plot, Hao Jinde saved some for his family to eat and sold the rest, over 500 kg, making 600 yuan (88 U.S. dollars).

Instead of peddling on the street as in the past, this year Hao sold them to a store belonging to the online shopping platform, Lecuntao, at his village in Jingle County, a potato growing region in northern China’s Shanxi Province.

“Compared with selling to the local guys, I got about 50 yuan more,” Hao said.

Lyu Yaofeng, manager of the platform’s Jingle County branch, said the platform could purchase the potatoes at a higher price, as they would sell them for a much higher retail price to villages about 100 km away where they do not produce potatoes.

At the same store, Hao and other villagers now have direct access to pears and other produce that can be delivered to their village at lower than market price.

“Most of the produce online come straight from where it is grown, which ensures lower prices,” said Li Erping, manager of the store in Hao’s village.

Lecuntao is an e-commerce platform aimed at the rural market, which sets up physical stores in rural villages. Since it was launched in 2014, its physical store network has grown to over 70,000 villages in China’s 25 provinces. Rural customers can either order online or make their purchases at the physical stores in their village.

While the Chinese government is advocating e-commerce in rural area as part of poverty reduction efforts, online shopping platforms, including Alibaba’s Taobao and JD, are also expanding their services to rural villages, which have helped with sales of agricultural produce.

In late October, Chinese authorities for the Internet, national planning and poverty alleviation jointly released a plan on poverty reduction using the Internet, encouraging e-commerce in rural areas and promising to expand broadband coverage to 90 percent of China’s poverty stricken villages by 2020.

According to the Ministry of Commerce, the number of online shops selling agricultural produce exceeded 1 million by September this year, bringing sales to 170 billion yuan, and they are expected to hit over 220 billion by the end of the year; that is 6.3 percent of total online sales, and a 35 percent increase year on year.

When farmers have difficulty selling produce, the Internet is now a major channel to turn to.

According to an official in Linxian County, a date growing area in Lyuliang, dozens of online platforms were used to sell slow-moving date stocks last year. Thanks to the online sales, date sales increased by 30 to 40 percent, saving local farmers from financial losses.

“The ‘Internet+’ concept has changed rural China,” said Fan Wusheng, director of the poverty alleviation office in Jingle County. “With their produce sold online, farmers are now able to make maximum profits.”

Self-made chip rivals foreign ones

A Shanghai-based company yesterday unveiled China’s first self-developed chips used in computers and servers and in the process broke the dual monopoly held by US chip giants Intel and AMD.

Cooperating with industry partners Lenovo Group and other domestic personal computer vendors, Shanghai Zhaoxin Semiconductor Co plans to sell 1 million computers with the new chip by 2018, said Ye Jun, chairman and chief executive of the developer.

“We don’t want to replace Intel and AMD immediately at the current stage. But it does make sense that we have another choice from a Chinese chip designer,” Ye said during an interview at the company’s booth at the China International Industry Fair yesterday.

The advantage of the self-developed chip is its high-level security, which will be used in government bureaus, state-owned firms and the military. Lenovo desktops featuring the chip are already used in some local government bureaus.

Rail-sea cargo service to slash costs

The new Taiwan-Pingtan-Europe rail-sea transport route will slash cargo costs between China’s Taiwan province and Europe, an official from Pingtan in Fujian province said.

Once the services on the connected routes become regular, it will cut transport costs, said Qian Peng, deputy director of the transportation and construction bureau of Pingtan, which is part of the China (Fujian) Pilot Free Trade Zone established in 2014.

The trial run of the rail-sea link took place in November in 2015, which saw cargo transported from Taiwan Island to Pingtan, and eventually to Hamburg in Germany.

Pingtan is applying for the normal operation of the new link after the trial run.

Sea transport between Taiwan Island and Europe takes about 32 to 45 days. Air transport takes seven days but costs at least 10 times more than via the sea route. By comparison, the sea-rail link takes only around 13 days, Qian said.

Compared with the airlines, transport costs using the combined route are cut 80 percent for heavy cargo and 30 percent for light cargo.

The main products to be transported on the route will include electronics, seafood, hardware, and consumer goods from the island.

China’s electric carmaker BYD debuts budget light train

BYD, China’s leading new-energy vehicle manufacturer, unveiled its first light train Thursday, a low-cost overground metro system suitable for hundreds of medium and small cities.

The train system, “Yungui,” which when translated means Cloud Rail, costs one-fifth of a regular metro line and cuts the construction time by two-thirds, according to BYD chairman Wang Chuanfu.

He said compared to metro lines in Beijing and Shanghai, Yungui has been tailor-made for smaller cities or the tourist and commercial zones of big cities where a full-developed metro system is not viable.

BYD is one of at least five Chinese companies capable of producing urban light trains, said Zhong Jianhua, deputy director of the experts committee for China Association of Metros. The other manufacturers include China Railway Engineering Corp. and CRRC Changchun Railway Vehicles Co. Ltd.

Zhong said the light train was essentially “made in China” as about 90 percent of the equipment was produced locally and is expected to become a new driver for growth of China’s rail transport sector.

More than 20 Chinese cities have subscribed to building such light trains with a combined rail length of 3,000 kilometers, Zhong said, adding that demand would boost the country’s rail transport sector.

He said the China-made light rail had been equally welcomed in the developing world, particularly in Southeast Asia. Exports may begin when the market is mature.

Third-party payment licenses become increasingly valuable

Some see activity as way to expand overall business

The market value of third-party payment licenses, which help companies expand their business beyond online payments, will continue to grow in the short term in China, analysts said.

The People’s Bank of China (PBOC), the country’s central bank, stopped issuing new licenses in March 2015, and it has been enhancing its regulations of the third-party payment market. There are likely to be different impacts on different types of licenses, Mu Chu, an analyst from mpaypass.com.cn, a Shenzhen-based mobile payment intelligence provider, told the Global Times on Sunday.

“For example, a license for bill collection via bank cards will not be as valuable as before, as the profit margin in the bill collection business has been shrinking since the government lowered the bank card transaction fee,” he said.

The PBOC cut commission charges and fees for bank cards on September 6, according to its website.

Under the new policy, card-issuing banks can’t charge merchants more than 0.35 percent of the transaction amount for debit cards or more than 0.45 percent for credit cards, the PBC’s document showed. Previously, the transaction fee varied among sectors.

The move will drive out some small online payment companies that make profits through counterfeiting point of sales (POS) machines with different categories to avoid transaction fees, according to an article published on domestic news portal sina.com.cn in September.

A license that has multiple functions will be scarce but the most in demand, Mu noted Sunday.

“For example, a license that covers online payments, mobile payments and bill collection via bank cards that can be used nationwide will become more and more valuable,” he said.

At present, 269 third-party payment companies have licenses, and authorities have come up with more severe measures to crack down on illegal online transaction activities since 2014, according to a report by Beijing-based market consultancy Analysys International.

“Regulators will become more and more cautious in controlling existing licenses, but considering the added value that third-payment licenses can offer companies, their value will continue to increase,” Ma Tao, research director of the finance study at Analysys International, told the Global Times on Sunday.

A license cost about 50 million ($7.5 million) to 80 million yuan at the beginning of 2015, but it now costs more than 400 million yuan, the China Business Journal reported on Saturday.

Many licenses have been bought and sold repeatedly as supply is limited but demand remains high, the journal said, quoting anonymous industry insiders.

“It’s not a surprise that licenses are becoming so expensive, as they help companies access the online payment market initially then expand their business,” Li Chao, a senior analyst at Beijing-based research firm iResearch, told the Global Times on Sunday.

More and more companies are willing to pay more for licenses as they see the importance of the online payment market, and mergers between companies are aimed at offering a complete line of payment services, Li Zijian, vice president of Beijing-based third-party payment provider fullrich.com, told the Global Times on Sunday.

“Online payments enhance the connectivity between companies and customers and increase customer loyalty, which implies marketing opportunities,” Li said.

Since the beginning of 2016, 14 merger and acquisition deals have been undertaken to get online payment licenses, according to the journal. For example, Midea Group Co spent 300 million yuan to buy Shenzhen-based third-party payment service provider Shenzhou Tongfu in August, a way to enter the online payment market, mpaypass.com.cn reported in August.

However, the growth of China’s third-party payment market will slow in the near future. Total transactions in 2016 are expected to be 23 trillion yuan, representing a year-on-year growth of 52.8 percent, compared with 800 percent growth in 2013, the Analysys International report showed.

Companies should not look at obtaining online payment licenses and providing related services as an end in itself, as the market is close to saturation, Li noted. “To get more profit from the license, they should do more than offer online payment services,” he said.