Category News of China

More outside investments flow in mid-range smartphone market

Ni Fei, co-founder and CEO of Nubia Technology Ltd, delivers keynote speech on April 19, 2016 during the brand’s new product launch event held in Beijing.

More domestic smartphone makers are seeking out tycoons who are not directly connected to the industry for investments to compete in the mid-range segment.

In February last year, Alibaba Group Holding Ltd invested $500 million in Chinese smartphone vendor Meizu Technology Co Ltd, funding the expansion on retail channels and innovation.

In last December, Nubia Technology Ltd, another domestic smartphone maker originally owned by ZTE Corp, secured 1.93 billion yuan investment from Suning Investment Group, a separate investment arm of Suning Commerce Group, one of China’s largest electronics retailers.

According to a report released by research company IDC, the market growth rate slowed down by 4 percent year-on-year in the first quarter, the first decline in six years. Currently, 290 brands are available in the market, while 63 present of the total shipment volume is contributed by the top five players, said China Academy of Telecommunication Research (CATR).

“The profit margins of domestic makers are weak,” said CATR.

“The competition in China’s smartphone market has come into the value-chain level,” said Patrick Wu, senior analyst of GfK China. “Both the frequent launch of products and the integration between manufacturers, supply chains, distribution channels and telecom carriers is becoming a normal trend.”

He said that applications and services based on cloud computing services have played an increasingly important role in the sector, and the collaboration based on core competences between the industrial chain’s participates will be beneficial to the establishment of innovative systems.

Another trend that is about to catch on is the introduction of small-sized phones that have less than 5.2-inch screens.

By following the footstep of Apple Inc’s newly launched 4.7-inch iPhone SE, two Chinese manufacturers, Meizu and Nubia, have just unveiled their 5.2-inch Pro 6 and 5-inch Z11 mini respectively within one month.

Instead of feeding the demands of phablet lovers, the companies are believed to aim at luring more travel photographers or users who remain attached to smaller display and handy experience.

According to Wu, hardware configuration is not considered as the premier factor for distinguishing different segment markets of the terminal devices. Drawing a product roadmap that aims at feeding target consumers is a must in the industry, so the key point for planning the screen size is the consumer demand.

Accompanying the upgrade of China’s smartphone consumer market, handsets sold for more than 2,000 yuan ($310) will become a more valuable market. Manufacturers are keen on seeking their own value orientation so as to be competitive.

Pursuit of innovative tech shifts to China

When Shen Chongfei left China 20 years ago to study for a physics doctorate in the United States, the Silicon Valley was considered the world hub of innovation and technology.

Today, the drive for innovative technologies has shifted to China, along with Shen himself. The company he founded, Magnity Electronics Co, specializes in infrared imaging systems used in areas such as cyber physical system and industrial automation as well as smart city applications.

The technology he developed uses thermal perception in image recognition, rendering it more accurate in darkness or in adverse weather conditions like fog and haze.

Magnity, founded in 2008 in Caohejing High-Tech Park in Shanghai, began with 15 million yuan ($2.3 million) in financing and four technology experts.

Within six years, the company broke even and attracted an additional 35 million yuan investment. The investors included venture capital companies eager to finance promising startups.

Success stories like Shen’s are the pride of a nation striving to make its mark on evolutionary trends of the 21st century. They also highlight how many Chinese entrepreneurs who went to the US seeking their fortunes are now finding their best chance of success back home.

According to a US report released in late 2014, the US proportion of global research and development fell from 37 percent to 30 percent in the two years to 2012. China’s percentage, meanwhile, jumped from just 2.2 percent in 2000 to 14.5 percent in 2011.

Money, of course, follows talent. The report showed that 31 percent of Chinese undergraduates held degrees in engineering, while in the US, the figure was only 5 percent.

“Graduates majoring in software development and material sciences hired from Shanghai Jiao Tong and Zhejiang University are quite professional in application and innovation,” Shen told Shanghai Daily. In the Silicon Valley, it was hard to find the right partners for a niche field because researchers were focusing on their own independent innovation.

Shen’s team, which now numbers 30, has developed thermal imaging cameras for industrial and commercial use, unlike in the past when they were used only by the military. His independent research has drastically reduced the cost of such devices. Previously night vision devices for the US military may cost more than US$100,000, but Shen’s products for industrial applications in China cost below US$776.

Beginning this year, Shen’s company has managed to undercut the prices of competitors such as FLIR Systems, the world’s largest thermal imaging camera producer.

The Chinese government is placing great emphasis on creativity at home. This month, 14 model districts of startup incubators have been approved across China.

Magnity owns seven patents for thermal imaging and packaging technologies. It has been invited to participate in the China (Shanghai) International Technology Fair this week as an example of how smaller, innovative companies can develop their potential and find success.

The theme of the fair, to be held from Thursday to Saturday, is “Innovation boosts technology development.” The fair adopted the theme from remarks made by Premier Li Keqiang at an executive meeting of the State Council in March, when he urged governmental bodies to do more to nurture innovative startup companies.

“I was right to come back to China,” Shen said of the current environment. There are incentives to support innovation here.

“In the Silicon Valley, intense competition squeezes profits and research time. China eases both. We have been able to position ourselves to compete on an equal footing with global competitors.”

Lin Zhuo would agree with that. He works for a company called Alien Technology, a world innovator in radio frequency identification.

Cyber Physical System helped Wal-Mart, an Alien customer, to save over US$8 billion annually with a rapid-speed scanner that can read hundreds of items with track tags in under one second.

In December 2014, Chinese technology service provider Rui Zhang Technology Co merged with Alien in a 30 million yuan deal. It helped Alien anchor in the Chinese market through its ties with over 1,500 institutional customers and more than 300 brokers working in system integration.

Grade-A office and retail rents are rising

The new supply of Grade-A office space in Shanghai decreased 67.8 percent year on year in the first quarter of this year.

While Grade-A office rents in Shanghai increased 2.3 percent quarter on quarter, retail rents rose 0.7 percent to 55.7 yuan ($8.59) per square meter per day in the first quarter of this year, according to a latest report by independent global property consultancy Knight Frank.

In the first quarter, only about 100,000 square meters of new Grade-A offices were launched in Shanghai.

The new supply of Grade-A office space decreased 67.8 percent in the first quarter year on year. Only two office buildings were completed, including UOB Building in the “Little Lujiazui” area, providing 30,000sqm of office space, and Technology Innovation Tower Phase II in Caohejing, which added approximately 70,000sqm of offices to the market. Several office buildings are scheduled to be completed in secondary and emerging business districts in the second quarter, providing approximately 400,000sqm of new supply.

During January-March period, Grade-A office rents rose 2.3 percent quarter on quarter to 9.6 yuan per sqm per day.

With the increasing asking rents and vigorous demand from local financial institutions and consultancy industries, the market saw upward movements in rental values. By the end of 2015, there were about 1,000 domestic financial institutions based in Shanghai, accounting for 70 percent of financial firms in the city. The Little Lujiazui area is preferred by these financial institutions, which became major tenants in the area. Law firms and consultancy enterprises preferred office buildings along Nanjing Road W. and Huaihai Road M.

The average Grade-A office vacancy rate dropped 0.6 percentage point quarter on quarter to 4.2 percent in the first three months. The vacancy rate remained low due to vigorous rental demand in the emerging business districts. In the first quarter, net absorptions in emerging business districts doubled to 150,000sqm compared with the previous quarter.

Relocation activities among multinational corporations are expected to drive up the vacancy rate in core CBD areas in the short term.

The Grade-A office market in core CBDs is expected to face challenges brought about by the increasing vacant space left by relocated companies. Vacant offices in good locations with lower rents were absorbed more easily. For example, a law firm rented two floors in The Centre in the first quarter previously occupied by WPP. Premium Grade-A office vacancies with high rents in core CBD waited longer to be absorbed amid an uncertain economic climate. Architecture consultant AECOM was scheduled to relocate from Wheelock Square on Nanjing Road W. to Hopson International Center in Wujiaochang in the second quarter, due to global economic uncertainties and the slowed local real estate industry. Merck Sharp and Dohme China also relocated from Park Place to Caohejing Business Park.

Co-working pattern continued to emerge, with WeWork from the US entering Shanghai.

With the increasing support to small and start-up businesses from the local government, co-working patterns from abroad have become increasingly popular in China, with its low rents and flexible lease terms attracting start-up companies. A buoyant local co-working market has attracted many mature international brands to enter the Chinese market. WeWork, the first co-working operator in the US, made its debut in China in Jing’an District, renting two floors covering 3,000sqm in WE Creative Park. In the coming years, WeWork plans to set up two more offices in Shanghai to meet the increasing leasing demand from start-ups. Meanwhile, 36Kr, another well-known local co-working operator, also rented 1,000sqm of office space in Yangpu District.

Rental growth in core CBD is set to slow down in the second half of this year.

The Shanghai office market will see more than 2 million sqm of new supply in 2016. Rentals are expected to face pressure due to huge supply. Moreover, many MNCs are scheduled to relocate away from core CBD this year, which will drive up the vacancy rates in core CBD.

Property investors still keen for Shanghai

Investment appetite for office assets remained strong in Shanghai in the first quarter of this year while retail and logistics properties would also draw growing attention from investors, major international real estate services providers said.

Four key real estate deals valued at a combined 4.3 billion yuan ($662 million) were concluded during the three-month period, with decentralized office accounting for 55 percent of total sales consideration, global property advisor Savills said in its latest quarterly report. Serviced apartments took the remainder.

“Domestic investors played an active role at the beginning of this year, concluding three deals that took up more than 80 percent of the total value,” said Chester Zhang, associate director at Savills China Research. “Looking forward, retail and logistics segments are expected to see more portfolio and platform deals, as international investors want strategic interest in these sectors.”

Leading international property consultancy JLL also saw continuously robust demand for Shanghai office assets.

“Domestic capital, benefitting from looser regulation and greater access to financing instruments, is seeking stabilized office assets not only in the CBD area but in decentralized and business park locations as well, with a focus on high-quality properties with stable rents,” said Johnny Shao, head of capital markets for JLL Shanghai and East China. “Moreover, in the retail sector, both foreign and domestic institutional investors are expected to show greater interest for portfolio deals than single asset transactions while interest in logistics sector will continue to be seen with entity-level deals remaining the sector’s major investment activity rather than en-bloc transactions.”

China’s manufacturing activity rebounds

China’s manufacturing activity rebounded to the highest level since last August in March, thanks to the government’s continued structural reforms, official data showed on Friday.

The purchasing managers’ index (PMI) came in at 50.2 in March, up from February’s 49, according to the National Bureau of Statistics (NBS) and the China Federation of Logistics and Purchasing.

A reading above 50 indicates expansion, while a reading below 50 reflects contraction.

NBS statistician Zhao Qinghe attributed the rebound to the government’s pro-growth measures, as well as the rising demand of manufacturing imports and exports.

The price rebound of major international commodities spurred purchases. Technology upgrades also contributed to improvement of manufacturing sectors, said Zhao.

The sub-index measuring production stood at 52.3, up 2.1 points from a month earlier, with that for new orders settling at 51.4, up 2.8 points.

The sub-index for imports came in at 50.1, up 4.3 points from February, the highest reading since December, 2013.

300,000 clothing merchants relocated from Beijing to Hebei

(ECNS) — About 300,000 clothing merchants whose factories are based in Zhejiang Province have relocated their business from Beijing to neighboring Hebei Province, part of a broader plan for the integration of Beijing, Hebei and Tianjin Municipality, Beijing Youth Daily reported.

The garment association under the Zhejiang Chamber of Commerce in Beijing said some 500,000 people are expected to move to Hebei as their companies relocate.

The relocation plan aims to promote the coordinated development of Beijing, Tianjin and Hebei, to create new growth sectors and address challenging issues including population control and environmental protection.

Among the companies, more than 70 have set up new headquarters in Yongqing County of Hebei’s Langfang City.

The capital city is home to around 800,000 businessmen from the coastal Zhejiang Province, a region historically known for its entrepreneurship, and 300,000 of them work in the garment industry, said Lu Jiansheng, executive vice-chairman of the Zhejiang Chamber of Commerce in Beijing.

These people mainly arrived in Beijing in the 1980s and 1990s, but the businesses face growing costs related to human resources and land, so the relocation will provide a new opportunity, added Lu.

Lunzhuo Clothing Co. Ltd. was based in Beijing’s Daxing District and mainly sold clothes wholesale at the capital’s most well-known clothing market Dahongmen since 1997.

Zheng Chunfa, a native of Zhejiang province and also president of Lunzhuo, said his company faced difficult conditions in Beijing, including a 27-square-meter dorm crowded with eight employees.

Now the company has moved to Langfang, where it has its own buildings and better conditions for employees.

Le Sports completes 2nd round of funding, valued at 21.5b yuan

A Le Sports stand at a golf merchandise expo in Beijing.

Latest cash injection of $1.23 billion puts company on way to building sports ‘ecosystem’

Internet-based company Le Sports has completed a second round of financing, worth 8 billion yuan ($1.23 billion), which analysts said gives it a significant edge over rivals.

Jia Yueting, CEO and chairman of parent company LeEco Holdings Ltd, said on Sunday its sporting offshoot is now valued at 21.5 billion yuan.

The latest cash injection means Le Sports’ investors include HNA Capital Group Co, the investment unit of Chinese airline giant HNA Group Co Ltd, and a number of individual investors such as Sun Honglei, a famous actor in China.

Jia said the latest round was “recognition of our broad plan to build an ecosystem, which spans sports, video streaming, electric vehicles and smartphones”, adding the company continues to integrate resources from various industries.

No details were given on how the latest investment might affect LeEco’s majority ownership of Le Sports, but the firm added in a statement the new cash will be used to enrich its sports-related online content, and develop new smart equipment to meet people’s growing desire to stay fit.

Le Sports, which became an independent unit from LeEco’s video-streaming service two years ago, is one of the fastest-growing companies in China’s sports sector.

In May, it raised 800 million yuan from investors including Wanda Investment Co.

Its second funding round comes as Chinese Internet heavyweights are rushing to branch into the sports sector, an industry that is winning favorable policies from the central government.

Alibaba Group Holding Ltd and Tencent Holdings Ltd, for instance, are both expanding their presence through investment and partnerships.

Jiang Qian, an analyst at Beijing-based Internet consultancy Analysys International, said the deal demonstrated investor confidence in Le Sports.

“Le Sports has won exclusive online broadcasting rights to a series of top-tier competitions in recent years, which is a strong proof of the company’s marketing and organizing capabilities,” Jiang said.

In February, Le Sports spent 2.7 billion yuan on becoming the exclusive online broadcasting partner of Chinese Super League, the country’s top soccer event, after winning the broadcasting rights of the English Premier League and the National Football League in the United States.

“Its abundant sports content is the biggest advantage of Le Sports, from which the company can build a sizable user base and offer other services such as selling sports game tickets and lotteries,” Jiang said.

China’s industrial profits return to growth

Workers are occupied on a production line at a factory in Xinzhuang industry zone in Shanghai, east China, July 30, 2015. China’s economy grew by 6.9 percent in 2015.

Profits of China’s major industrial firms rose 4.8 percent year on year in the first two months of 2016, reversing the downward trend of last year, official data showed Sunday.

Profits at industrial companies with annual revenues of more than 20 million yuan (about 3.1 million U.S. dollars) totaled 780.7 billion yuan in the Jan.-Feb. period, the National Bureau of Statistics (NBS) said.

The profits registered a 4.7 percent year-on-year fall in December and a 2.3 percent annual decrease in 2015.

He Ping, an official with the NBS Department of Industry, attributed the latest profit growth to increased sales and a milder decline in factory product prices.

In the first two months, revenues from the firms’ primary business climbed 1 percent year on year, improving from a 0.6 percent drop in December 2015 and a 0.8 percent increase for last year.

In the Jan.-Feb. period, China’s producer price index, which measures prices of goods at factory gate, slipped 5.1 percent year on year, narrowing from a drop of 5.9 percent in December and 5.2 percent for 2015.

Despite the recovery, part of the industrial profit growth was a result of the lower base in the same period of last year, He noted.

Industrial profits dipped 4.2 percent year on year in the Jan.-Feb. period of 2015, NBS data showed.

Compared with the same period of 2014, the Jan.-Feb. industrial profits of this year only inched up 0.4 percent, said He.

Chongqing, Zhoushan favorites as new free trade zones

Chongqing, and the coastal city of Zhoushan, in Zhejiang province, are being tipped by shipping experts as hot favorites to be chosen as new free trade zones for the third round selection, as the central government devotes more resources to developing the Yangtze River Economic Belt within its 13th Five-Year Plan (2016-20).

Eager to enhance the earning ability of inland regions, China has been keen to support the growth of city clusters in the Yangtze River Economic Belt, which comprises the Yangtze River Delta, the middle reaches of the Yangtze and Chengdu-Chongqing region, as well as encouraging more foreign companies to invest in central and western regions.

The central government is also likely to give priority to restoring the Yangtze valley’s ecological conditions, while pressing ahead with efforts to develop an integrated transportation and modern industrial corridor within the country.

China’s existing four FTZs offer a range of incentives, including more favorable interest rates, reduced tariffs on goods and trade, the use foreign currencies for payment, liberalized financing agreements, and other offshore financial services.

But with all of those in coastal regions, Dong Liwan, a shipping industry professor at Shanghai Maritime University, said Chongqing especially is seen as a strong likely new FTZ location.

“Selecting Chongqing as a new free trade zone would result in upgraded development of the Yangtze River Economic Belt, where growing shipping activities offer a diversified business platform for 11 provinces and municipalities including Jiangsu, Anhui, Hunan and Hubei,” said Dong.

Already officials have expressed an interest in accelerating the developing pace of Wuhan, the inland capital city of Hubei province, Chongqing and Nanjing as regional shipping and logistics centers, which can act as river-ocean and water-railway combined-transportation hubs.

Zhoushan, however, has become a favorite given its existing transshipment cargo and logistics facilities, and strong transport links with the rest of the country, both by water and rail.

The city has rare deep-water port facilities, and is located strategically, close to the T-shape intersection of the Yangtze River and the coastline.

The integration of Zhoushan Port and nearly Ningbo Port was started in 2006, and their throughput has been counted together since.

They officially merged into one in September 2015, and recorded container throughput of 20 million twenty-foot-equivalent units for the first time last year.

Chen Yingming, executive vice-president of the Shanghai-based China Ports and Harbors Association, said Zhoushan already has plans to focus on FTZ-related shipping and finance services.

China’s largest land port to expand capacity

Manzhouli, China’s largest land port, is expected to see its annual highway cargo handling capacity climb to 10 million tonnes within the year from the current 3 million tonnes.

The improvement will be the result of the first-stage of a project aimed at upgrading road services of the port, which borders Russia to the north and also sits close to Mongolia, according to the government of Manzhouli City, north China’s Inner Mongolia Autonomous Region.

The first-phase construction will be finished by the end of October. With an estimated investment of 1.03 billion yuan (about 159 million U.S. dollars), the construction of the overall project started in 2015 and is scheduled to end in 2017.

More than 65 percent of overland trade between China and Russia passes through Manzhouli.