Category News of China

Asia holds Yahoo’s secret weapon

Yahoo! Inc’s secret weapon in its effort to squeeze a higher offer out of Microsoft Corp resides in Asia’s surging Internet market.

Yahoo has investments worth US$13.8 billion in Alibaba.com Corp, parent of China’s largest online trading site, and Yahoo Japan Corp. That accounts for almost one-third of the US$31 a share Microsoft is offering, Bloomberg News reported.

In one year, the value of those stakes may balloon 15 percent to US$15.9 billion, according to analyst estimates.

Unlike the United States search market, where Microsoft and Yahoo have been beaten down by Google Inc in text advertisements, Asia is geared more toward graphical banner ads where Google has less of a presence.

In China, the world’s second-largest Web market, online trading between companies may almost quadruple to the equivalent of US$1.05 trillion by 2010.

Yahoo investors may benefit as Microsoft pays more to gain access to this growth.

“Alibaba is a good franchise in the fastest-growing Internet market,” said Kevin Landis at Firsthand Capital Management in California.

“Stubbornly, these Yahoo shares didn’t respond to that.

”I think if you gave it time, they would.”

In rejecting Microsoft last week, Yahoo Chief Executive Officer Jerry Yang cited investments in Alibaba and Yahoo Japan as reasons the offer “substantially undervalues” Yahoo.

No competing bid has yet emerged.

Yahoo is in talks to combine Internet operations with those of Rupert Murdoch’s News Corp, sources said.

However, Yahoo spokeswoman Tracy Schmaler and News Corp spokeswoman Julie Henderson declined to comment.

Alibaba stake

Yahoo in 2005 swapped US$1 billion and its China units for 39 percent of privately held Alibaba.com Corp in Hangzhou.

The initial public offering last year of its Alibaba.com Ltd unit raised HK$13.1 billion (US$1.68 billion), the biggest IPO for an Internet company since Google in 2004.

Alibaba.com Corp also owns Web-auction site Taobao and online payment unit Alipay.

Sales from Taobao’s site more than doubled last year as rising incomes in China lifted the number of Internet users by 53 percent.

The amount of goods and services traded on the Web by Chinese companies may increase to 7.54 trillion yuan (US$1.05 trillion) in 2010, from 2.1 trillion yuan last year, according to Ping An Securities Co.

Stifel Nicolaus analyst George Askew in Baltimore valued Yahoo’s holdings in Alibaba.com Corp at US$4.93 billion as of a week ago.

With 33 percent control of Yahoo Japan and a 10-percent stake in South Korea’s GMarket Inc, Yahoo’s Asian investments equals US$13.6 billion, or US$9.74 a share, Askew said.

“Yahoo’s stronger position in Asia is one of the rationales for Microsoft’s takeover bid,” said Ivan Li, an analyst at Kim Eng Securities (HK) Ltd in Hong Kong.

Microsoft is pursuing Yahoo to bolster competition with Google in an online ad market that may double to US$80 billion by 2011.

Yahoo Japan, the country’s most popular Website, attracted 88 percent of local users in December, compared with 56 percent for Google.

It also offers access to a mobile-phone market where more than half of subscribers surf the Web.

China key

The Asian properties would be a boon for Microsoft, whose Internet business there lags behind competitors, said Claus Mortensen, a Hong Kong-based analyst.

Microsoft handled 1.2 percent of search queries in Asia in December, compared with Google’s 38.2 percent and 24.9 percent for Yahoo.

Display ads are 52 percent of the online market in Asia, compared with 20 percent for search.

In the US, search accounts for 40 percent, versus 31 percent for display and video.

Almost all of Google’s US$16.6 billion in sales last year came from search.

Microsoft faces challenges retaining Alibaba and Yahoo Japan clients wary of the world’s biggest software maker, said JupiterResearch analyst Neil Strother.

“On paper it gives Microsoft a bit of a leg up,” Strother said.

“Can they hold onto customers or do the customers decide that Yahoo Japan or Alibaba have just become the same as Microsoft?”

New Labor Contract Law Raises China’s Labor Costs

As millions of migrant workers are about to return to factories across costal provinces in Southeast China after the lunar new year, a report from China’s most high profile domestic investment bank, the China International Capital Corporation Ltd. (CICC) concludes that many small and medium-sized labor-intensive enterprises believe the new Labor Contract Law will increase labor costs and affect their recruitment plans.

CICC’s investigation in Jiangsu and Zhejiang provinces reveals that in most areas there is little room left for further rural labor transfer. Due to a relatively insufficient labor supply, wages for migrant workers in recent years have been growing at an annual average rate of 10-15%. Meanwhile, the productivity of private enterprises has been increasing at the same speed, if not faster.

The Yangtze Delta, in which Jiangsu and Zhejiang are located, is one of China’s most important export-oriented economic zones. Most of the private enterprises in these two provinces are in labor-intensive industries, areas that have a great need of migrant and technical workers. The report indicates that the diminishing supply of workers has added to the difficulty in recruiting new workers. To retain workers, private enterprises have had to increase wages, resulting in wages maintaining an annual growth rate of 10-15%. However, most of the companies looked at as part of the investigation claimed they could afford such growth because the productivity of the businesses had also increased. They also predict that wages in 2008 will continue to grow by at least 10%. However, the New Labor Contract Law will have little impact on large enterprises and high-tech enterprises.

The kind of small and medium-sized labor-intensive enterprises surveyed in Jiangsu and Zhejiang province did not pay social security premiums for all their employees. The new law, which forces them to pay the premium, will raise labor costs in these companies. Regulations about overtime wages in the new law will also add to these costs. Most companies investigated believe the new Labor Contract Law will significantly increase potential risks for labor-capital disputes and could therefore influence the company’s recruitment plans.

Many companies are unsatisfied with the new law. They claim that unequal rights and duties in the new law could be easily abused by employees and will add to the implicit costs of companies. The new law aims to provide migrant workers with endowment insurance, but this isn’t suitable for China’s current situation and can’t be enacted anyway because of the high mobility of the rural labor force and the current social security system which has yet be unified nationwide. Meanwhile, most migrant workers are unwilling to pay the social security premium, as they would prefer to receive more cash in their pay packet. So neither companies nor workers welcome the new law. Some entrepreneurs even believe the government is attempting to shift its social responsibility onto private businesses.

Another concern about the new law lies in the inflation problem that is likely to worsen due to raised labor costs. The investigation shows that incremental labor costs may not be completely shifted to the product price. Because of the low technical content and low threshold, there is fierce competition in labor-intensive industries. Despite the constant increase in raw materials and labor costs, most small and medium-sized private enterprises have not shifted incremental costs onto consumers. Instead, they have offset these costs by improving productivity. In fact, the majority of these companies are operating within meager profit margins.

A clothing company based in Wenzhou, a city in Zhejiang province famous for highly developed private sector economy, estimates the new Labor Contract Law may add an extra 15% in labor costs to companies. But because of the acute competition they are unable to offset these costs by lifting prices, but may rather have to reduce prices in order to promote sales.

The report concluded that while the new law may not cause apparent inflation pressures in the short-term, it would possibly affect companies’ income and employment prospects. Large enterprises and state-owned enterprises will basically remain unaffected as they have long been paying social security for all their employees; High-tech companies, benefiting from a high added-value, small number of employees and regular social security payments, are also unlikely to be influenced. But for those small and medium-sized enterprises with low added value, the new law will undoubtedly raise labor costs. And fierce competition among them makes it difficult to shift cost pressures by lifting product prices. Seen from a mid and long-term perspective, the negative influence on the income of small and medium-sized enterprises may promote purchases and mergers among such industries. This will lead to an increased degree of concentration within the sector and ultimately see labor cost increases reflected in higher product prices. Therefore, pressures on commodity prices brought about by the new Labor Contract Law can’t be ignored

Baidu profit beats estimates as company wins users

Baidu.com Inc, operator of China’s most used Internet search site, reported profit and sales that topped analysts’ estimates after services to find celebrity news and videos helped attract users from Yahoo! Inc.

Fourth-quarter net income rose 79 percent to 219.8 million yuan ($30.5 million), or 6.32 yuan per American depositary receipt, from 122.8 million yuan, or 3.54 yuan per ADR, a year earlier, Baidu said in a statement. Sales more than doubled to 571.1 million yuan.

Chief executive officer (CEO) Robin Li lured visitors away from Yahoo and Sohu.com Inc, extending Baidu’s lead in a market that’s home to 210 million online users. The company today forecast sales this quarter may double as user gains counter Web traffic disrupted by the country’s worst snowstorms in 50 years.

“People tend to travel during the Chinese New Year holiday and that will cut Internet traffic,” JPMorgan Securities Inc analyst Dick Wei, who called the fourth-quarter results “respectable.” The snowstorm “also hurt traffic as a result of power failure or infrastructure damage.”

Wei rates Baidu stock “overweight.”

Analysts had estimated its fourth-quarter profit of 184.1 million yuan, according to the average of seven estimates compiled by Bloomberg. They projected sales of 548.3 million yuan, based on 12 estimates.

Baidu rose as much as 7.2 percent to $280 in US after-hours trading following the earnings announcement. The ADRs, which each represent one Class A share, climbed $15.66 to $261.09 today in regular Nasdaq Stock Market trading.
Baidu predicted first-quarter sales of 533 million yuan to 548 million yuan, which would mean an increase of as much as 99 percent from a year earlier. The forecast missed the average estimate of seven analysts surveyed for revenue of 566.7 million yuan.

“First-quarter sales will be affected by the snowstorms and the holidays,” CEO Li said on a conference call today. Internet “traffic typically goes down quite a lot during the Chinese New Year holidays.”

China’s worst snowstorms in half a century clogged travel in the nation before the Lunar New Year. More than three weeks of storms knocked out power to half the country’s provinces and closed road, rail and air routes.

“There’s a little bit of concern on the forward outlook,” Colin Gillis, an analyst with Canaccord Adams Inc. in New York, said in a Bloomberg Television interview today. Gillis rates Baidu “sell.”Market Share

Baidu’s share of the Chinese search market rose to 60 percent in the fourth quarter from 58 percent a year earlier, according to Analysys International. Google Inc’s share climbed to 26 percent from 17 percent, while Yahoo’s fell to 9.6 percent from 13 percent. Sohu’s share dropped to 1.2 percent from five percent, the Beijing-based research firm said.

“Baidu is the dominant search company in China, and no rival is near to overtaking them,” Eric Wen, an analyst at BNP Paribas in Shanghai, said before the announcement. He advises investors to buy the shares.

Shen Haoyu, vice president of business operations, will oversee the company’s financial operations until a replacement for Chief Financial Officer Shawn Wang is found, Li said. Wang died on Dec. 27 in an accident in China.

China added 73 million Internet users in 2007, making the nation the world’s second-largest Internet market after the U.S. according to the government-backed China Network Information Center.

Fourth-quarter development spending at Baidu more than doubled to 46.5 million yuan after the company added workers. Sales and administrative expenses rose 86 percent to 132.2 million yuan as Baidu expanded its direct sales staff.

The Web company has started a service in Japan and plans to open a consumer trading site this year to compete with Alibaba.com Corp.

Yahoo, which rejected a takeover bid from Microsoft Corp. this week, became Alibaba’s single biggest shareholder in 2005. Alibaba owns China’s biggest trading Web sites for individuals and businesses.

Baidu plans to introduce a service in 2008 that will compete for users with Alibaba’s Taobao.com, a Web site where individuals sell goods to one another. Alibaba.com Corp is the parent of Hong Kong-listed Alibaba.com Ltd.

Baidu’s Li said the company is “open to all kinds” of share-listing options, though it’s “unlikely” the company will sell stock in Hong Kong in 2008.

Follow-up: Foxconn Promises To Pay Security Guards Before Spring Festival

February 1, 2008
Foxconn has told local media that with the coordination of the Shenzhen Labor Department, it has reached an agreement with the security guards who asked for more pay and will pay them before the Spring Festival holiday.

Foxconn says that the security guards’ request for back-pay was caused by some misunderstandings. A rumor that Foxconn will dismiss all securities guards had made the guards uneasy, and the salary the guards are receiving right now has already included the back-pay, but the security guards were unaware of this, according to the company. Foxconn says that it is reviewing its salary structure and revising it according to the Labor Contract Law in China.

Foxconn claims that it has signed an intercession letter with the security guards and will compensate them for the extra work hours before the Spring Festival based on the business accounting of the labor department. However, Foxconn has not disclosed the accounting results of the labor department.

Foxconn has also made a response to the report that it has put one of the security guards under house arrest, saying that the person was actually transferred to work at another factory of Foxconn under his own decision.

On January 29, more than 200 security guards of Foxconn gathered at the gate of company to ask for more payment for their extra work and another 40 went to Shenzhen Municipal Labor Department to appeal for help.

Beijing ‘recruiting households’ for Olympics

The city of Beijing is ‘recruiting’ households to provide rooms for visitors for the 2008 Olympic Games in China, reports claim.

Local tourism authorities are looking for about 1,000 welcoming homes that can boost the level of accommodation available for the event, which is expected to bring a massive influx of visitors into the Asian country.

More than 500,000 overseas visitors are expected during the Games, with the largest daily inflow expected to be around the 300,000 mark, the Xinhua news agency reports.

Beijing currently has just over 800 star-ranked hotels offering 220,000 beds, while other accommodation providers have some 640,000 beds, but Xiong Yumei of the Beijing Tourist Bureau said that this may not be enough.

‘The guest room supply may still fall short of demand, especially for hotels close to the sports venues,’ she said.

The homestay concept, which is popular in many western countries, is relatively new to China and its use indicates the anticipated level of interest in this year’s Olympic Games.

ZTE profit forecast looks rosy for 2008

ZTE Corp, China’s second-biggest telephone-equipment maker, said 2007 profit increased 50 percent to 70 percent, fueled by rising sales overseas.

The company posted a profit of 807 million yuan (US$112 million) in 2006, or 0.84 yuan a share, ZTE said in a statement to the Hong Kong Stock Exchange. It didn’t give a figure for 2007 profit.

ZTE won contracts from carriers in Tunisia, India, and Portugal last year by selling equipment for as much as 30 percent less than rival Ericsson AB, Steven Liu, an analyst at DBS Vickers Ltd, told Bloomberg News. Sales from outside China would surpass its domestic revenue for the first time in 2007, the Shenzhen, south China-based company said in June.

The company’s Hong Kong-listed shares rose 5.4 percent to HK$37.20 (US$4.76) at the end of trading on Friday. The Shenzhen-listed shares fell 0.1 percent to 79.55 yuan.

ZTE is scheduled to announce its earnings for 2007 on March 20 in Shenzhen.

China’s army turns to schools for recruitment, modernization

By Maureen Fan

The Washington Post

ZHOU HAO

Zhou Hao, left, and Tan Zhenwen are juniors at Beijing’s Tsinghua University who have signed up for the army. Zhou, who wants to work in government after college, said, “I think my experience in the army will help me to get a position.”
BEIJING — The fliers circulating last month on the campuses of China’s most prestigious universities showed three soldiers positioned against a Chinese flag and an appeal that read in part: “Carry Your Pen to the Army to Become More Accomplished.”

In ancient times, the phrase was “Throw Away Your Pen and Join the Army,” a challenge to China’s intellectuals to stop wasting time and help defend the country. Now, the People’s Liberation Army is recruiting college students in an ambitious modernization program designed to attract smart soldiers who can handle sophisticated equipment and transform the 2.3-million-strong force into a high-tech adversary.

“With the rise of China, China needs a powerful army,” said Tan Zhenwen, a junior at Tsinghua University in Beijing who recently headed to Guangdong province to join the South China Sea Fleet. “… I don’t worry about the low social status of soldiers. With more and more college students joining the army, the situation is changing and getting better.”

While China’s rising diplomatic power has helped fuel a desire for a more professional army, military commanders also need highly educated soldiers to maintain the “information-based” military power that has become increasingly important — both internationally and as a means to dissuade Taiwan from declaring independence.

Domestically, the army already has come a long way. A military that 18 years ago was most readily associated with the shooting of protesters in Tiananmen Square is increasingly helping in relief efforts after floods and other natural disasters. The army has also been the driving force behind recent achievements in space exploration.

In a speech in August marking the 80th anniversary of the army, President Hu Jintao called for accelerated modernization of weapons and equipment, enhanced personnel training and strengthening of combat capabilities through technology.

One of the most important aspects of the modernization is a huge effort to shed the impoverished farmhands who have traditionally signed on as a way to ensure three solid meals a day. The once-bloated force had 4.2 million people two decades ago but has gradually reduced its infantry. It has, however, increased the number of personnel who serve in the navy, air force and Second Artillery Corps, which maintains China’s nuclear missiles.

The army now advertises itself as an opportunity for young people to acquire technical skills and experience not easily attained in the private sector. This year, for the first time, the army took out full-page advertisements in newspapers. The ads featured an astronaut, a naval college professor and Peking University’s first recruit since its students began signing up in 2005.

Six years ago, 26 universities produced roughly 1,400 army recruits through a special government program similar to the U.S. military’s Reserve Officers’ Training Corps, or ROTC. This year, the program has grown to include 110 universities, and officials hope to recruit 11,000 students, including some majoring in philosophy, law and medicine.

“Compared with the private sector, army salaries are not very high. But in recent years, the army has increased the salary for soldiers and officers,” said Li Shengqiang, an officer at the army’s Beijing Recruitment Office. “Because the army is trying to equip itself with advanced weapons and equipment, the quality and knowledge of soldiers has become correspondingly higher. … In the 1980s, primary-school graduates could join the army. But now, no way.”

Recruits are lured by financial incentives and programs that allow students to return to university after two years in the army with preferential standing for graduate school. Officials have introduced psychological tests to weed out unsuitable candidates and imposed penalties for ineligible applicants who try to bribe their way in. Also this year, for the first time candidates who want to be air force pilots must pass a language test in English or Russian.

Undergraduates from outside Beijing may be offered Beijing residency, an important perk, in exchange for two years of service, according to a new policy under discussion, said another recruitment official who spoke on condition of anonymity because a decision has not been announced.

For Zhou Hao, 20, a third-year journalism student at Tsinghua University, joining the army had been a childhood dream. He was unaware that university students were eligible until he spotted a recruitment poster and discovered financial rewards for signing up. Last week he headed off to join the Second Artillery Group in Chuxiong city, Yunnan province.

“I prefer to work for the government after I graduate, and I think my experience in the army will help me to get a position,” Zhou said. “I don’t think I really give up anything for the army. But one thing is that more eyes will look at you. So, there must be more pressure, which will force me to do my best.”

China’s growing military budget has generated intense debate in Washington, where some analysts believe China’s defense spending is much higher than the $45.3 billion officially earmarked.

Whatever the amount, one Beijing-based military expert added that some of that money is going toward China’s military-education system.

“We didn’t use all those funds just for missiles or defense” but also for “better welfare” for troops, the expert said, noting that more than $1 million has been spent recently on uniforms.

“Maybe five years ago IBM had the most advantage. Most students wouldn’t have joined the army. But now the situation is different,” he said. “The army now offers higher salaries, higher status than before and more opportunities for advancement. If you wore the uniform before, maybe you couldn’t get a girlfriend. Now, even that’s different.”

Jobs tough to find for women

MORE than 31 percent of women have faced gender discrimination while job hunting, a recent survey of 1,600 people by Shanghai Women’s Federation shows.

The survey also found 70 percent of women are unhappy with re-employment projects in the city, saying they didn’t help at all. And nearly 10 percent of women who lost their jobs want to find work as a domestic worker.

Among the interviewees, 41 percent of women are unemployed. They said increasing age and the lack of skills were the greatest hindrance to finding a job.

Yet 66 percent of those surveyed said they are more likely to hire a local woman as a domestic helper rather than a woman from outside the city, indicating a huge market demand.

Meanwhile, more than 96 percent of women interviewed thought they had good skills in housework and 62 percent had some basic knowledge of nursing.

Shanghai Women’s Federation said it will offer more training to women to help them find a job. The federation also encourages women, either those laid off or university graduates, to start their own business. It has recently issued 200,000 yuan (US$27,027) in awards to some women to help start their businesses.

Job search about more than sending out CVs, report says

JOB seekers should adjust their goals rather than continuing to send resumes blindly if they do not receive an employment offer after applying for more than three positions, officials at the Shanghai Employment Promotion Center said yesterday.

According to a report released yesterday by the Shanghai Labor and Social Security Bureau, job offers do not rise proportionately to the number of resumes sent.

A survey conducted by the Shanghai Job Placement Center’s Website, the city’s only government job placement organization, showed the success rate reaches 38.6 percent, the highest, when job seekers apply for three posts, followed by 36.9 percent for two positions.

However, those who apply for more than three positions have less of a chance at receiving a job offer, with the success rate dropping to 26.6 percent when applying for four posts, and 22.5 percent for those applying for more than five jobs.

“Applicants who register for only two or three positions tend to be successful because they usually have a clear objective and they know what kind of jobs are most suitable to their skills,” said Huang He, an analyst in the bureau’s service center.

“In comparison, those who send resumes to more employers are often blind in seeking jobs,” he said. “So if they fail after more than three tries, they should pause and set a career goal for themselves.”

In order to guide applicants, the bureau organized a series of lectures in communities for unemployed individuals. The lectures will continue for one month.

Yesterday’s lecture showed applicants how to obtain more job opportunities.

Lu Danmeng, a senior consultant at the job service center, gave the first lecture to unemployed young people in Hongkou District.

Lu said most people want to become white-collar workers, but that more blue-collar opportunities are available.

She said there are some great job opportunities in Shanghai’s suburbs.

According to the report, a record 501,300 people applied for jobs at the Shanghai Job Placement Center’s Website (jobs.12333sh.gov.cn) during the third quarter this year. About 168,800 succeeded in finding work.

Risky job at Citigroup

CITIGROUP Inc replaced David Bushnell as chief risk officer, two weeks after the largest United States bank said writedowns on mortgage-related investments may lead to its first quarterly loss since at least 1998.

Jorge Bermudez, 56, whose 30-year career at Citigroup includes experience in risk management and operations, takes over for Bushnell effective immediately, the New York-based bank said in a statement. Bushnell, 53, a 22-year veteran who also serves as chief administrative officer, will retire on December 31.

Bushnell is at least the fifth executive to be forced out or reassigned at Citigroup as this year’s credit-market turmoil in the US ravaged the bank’s investments in subprime mortgages and related bonds. The company’s board ousted Chief Executive Officer Charles Prince on November 4, three weeks after Prince himself replaced three top trading executives.

“They’re addressing a situation that should have been addressed two years ago,” William Smith, who manages about US$80 million, including 71,000 Citigroup shares as president of Smith Asset Management, told Bloomberg News. “Heads have to roll, and Bushnell’s head was next to roll.”

The company’s stock has tumbled 39 percent this year.

Citigroup said earlier this month bad subprime investments might result in as much as US$11 billion of writedowns this quarter. The losses are on top of US$3.15 billion of writedowns on subprime mortgages and leveraged loans reported for the fourth quarter.