Category News of China

Industry group enters fray in Qualcomm probe

Mobile phone chipmaker Qualcomm Inc may be facing tough headwinds in China after a telecommunications trade union submitted “substantial evidence” to the country’s top economic planner in the midst of an antitrust probe.

Mobile Phone China Alliance, comprising some 30 handset makers and telecommunications equipment providers, has submitted an investigative report to the National Development and Reform Commission, calling Qualcomm’s business model “detrimental to China’s mobile phone industry”.

Overcharging on patent fees and bundle-selling of services are two major accusations leveled at the world’s largest chip manufacturer, according to the alliance’s secretary-general, Wang Yanhui.

“What’s happening to China’s mobile phone industry now is like what happened to its DVD industry years back,” Wang told China Central Television on Sunday.

“Patent holders levied exorbitant licensing fees and grabbed the majority of profits,” he said.

Licensing has become a crucial revenue stream for Qualcomm, according to the report, which said it charges from 4 to 6 percent of the wholesale price of a handset. And that does not include chipset charges if mobile phone companies pay to install Qualcomm’s chips.

The US giant has even established a subsidiary exclusively for charging patent fees, said Wang, which he said “draws a thin line between proper licensing and monopolistic moves”.

Qualcomm was put under antitrust scrutiny in November as Chinese authorities vowed to lay out more assertive plans for antitrust enforcement in six emerging industries.

The government agency has yet to disclose details of the investigation, citing the sensitivity of the issue.

Qualcomm’s China-based spokesman couldn’t be reached for comment on the latest development.

Its chief executive officer, Paul Jacobs, said in January that he was “not aware of” any activity violating China’s anti-monopoly law and that his firm had handed over requested documents to the NDRC, which helps oversee antitrust issues.

A Beijing-based lawyer who is providing legal advice on antitrust issues to Qualcomm said the investigation could last at least a year, because of the complexity of the case.

The lawyer, who declined to be identified, urged the government to take into consideration the time, resources and money that the company has invested in its research and development process.

“It is for the same reason that pharmaceutical producers are sometimes allowed to receive a higher profit in the first couple of years after a new drug is produced. It is a way to protect intellectual rights and encourage innovation,” he said.

The probe and the potential fine — which could end up totaling more than $1 billion — come as China gears up for the launch of high-speed fourth-generation LTE mobile communication networks.

As the world’s largest smartphone market, China is now the single biggest source of revenue for Qualcomm, representing 49 percent of its sales in the past fiscal year.

Heavyweight smartphone makers, from Apple Inc and Samsung Electronics Co Ltd to domestic players Lenovo Group Ltd and Yulong Computer Telecommunication Technology Co (the maker of Coolpad), all have adopted its telecommunications chipsets.

According to research firm Strategy Analytics, Qualcomm maintained a 53 percent share of the global market for smartphone processors by the second quarter of 2013.

“Royalty rates are critical, notably when we are transitioning into a 4G era,” said Coolpad’s deputy general manager, Li Bin.

Shipments of 4G-enabled smartphones are expected to top a half-billion units in China by 2015, according to data collector Canalys.

Qualcomm was the star of the 3G era, but its dominant position is being somewhat eroded by companies like MediaTek, maker of cheap smartphone chipsets, said Xu Zhen, a researcher for d1net, an information technology portal in Shanghai.

Qualcomm’s current edge lies in its particularly strong adaptation in chips that communicate with both LTE and other older cellular technologies, Xu noted.

“Since the nascent 4G network has yet to be fully established, mobile phone chips should support seamless handovers for both voice and data to cell towers with older network technologies such as GSM. Such smooth transaction can only be, at least for now, realized by Qualcomm,” said an analyst with China Mobile Co Ltd, the country’s top mobile communication carrier, who declined to be identified.

Qualcomm is no stranger to substantial fines.

In 2009, South Korea’s Fair Trade Commission fined the company 273 billion won ($252 million), the agency’s biggest ever penalty against a single company, for abusing its dominant position in CDMA modem chips.

Shanghai becomes Asia’s most stylish city

Shanghai now reigns as the fashion capital of Asia, beating out Hong Kong and Tokyo, according to the latest research by Global Language Monitor, a United States-based firm that follows trends in word usage.

Survey lists it No 10 in world for residents’ focus on haute couture

Shanghai has surpassed Tokyo and Hong Kong to become Asia’s most stylish city, a new survey has found.

According to research by Global Language Monitor, a United States-based data research firm that catalogs trends in word usage, Shanghai is the reigning fashion capital of Asia, ranking 10th worldwide.

New York ranked first in the 10th annual survey on global fashion cities, followed by Paris and London.

Asia is well-represented in the top 20, with Tokyo at No 11, Singapore at No 19 and Hong Kong at No 20. Beijing didn’t make the top 55.

“As China further emerges onto the world stage, Shanghai leads the fashion charge,” said Bekka Payack, the New York-based fashion director for the outfit.

Global Language Monitor tracked more than 250,000 print media and social media channels looking for buzzwords associated with fashion and haute couture. It then traced the contextual usage and frequency of the words to set a gauge for ranking global fashion houses.

China’s commercial hub deserves to be Asia’s fashion capital, said Qi Xiaozhai, dean of the Shanghai Commercial Economic Research Center.

“Shanghai has made a triumphal return by jumping 12 places from last year’s ranking. It should return to its rightful place in the top 10,” Qi said.

Shanghai has become a hot destination for multinational brands seeking to engage a population with an increasing disposable income and craze for the latest lineups. For instance, Apple has four retail outlets in Shanghai, more than Tokyo and Singapore combined.

Besides, luxury shoppers in Shanghai continue to splurge on fancy items, with average consumer’s spending even more than New Yorkers. Shanghai residents spent an average of $1,000 on their last purchase, double the amount of their New York counterparts, according to Milan-headquartered marketing firm ContactLab.

Around 91 percent of Shanghai residents said they plan to make a similar purchase in the next six months, compared with 77 percent of New Yorkers.

Chinese account for 29 percent of the world’s luxury expenditures, a Bain & Co study found in December.

In world-class cities like Shanghai, shoppers have grown more sophisticated as they realize the only way to show their uniqueness and personality is through “fashion with personalized mix and match”, not with accessories that everybody can wear, said Brunno Lanes, a Bain partner in China and lead author of the study.

Shanghai residents have the style and figure to carry out the latest fashion trends, said Sujata Sahai, a translator and documentary writer from India who lives in Shanghai.

“I find people here are a lot more brand-conscious and spend a great amount on fashion. They all turn out very pretty,” she said.

Shanghai is ahead of Singapore and Hong Kong in terms of getting dresses properly matched, said Sahai, who has traveled extensively in the region.

The landmark China (Shanghai) Pilot Free Trade Zone is likely to gain further traction among foreign businesses lured by loosened investment curbs, said Sun Lijian, vice-dean of the School of Economics at Fudan University.

High-end retail chains, including Lane Crawford and Galeries Lafayette, have recently entered the Chinese market. Meanwhile, as mainstream Western labels have occupied nearly every street corner, domestic brands should aim to redefine China’s fashion trends, Sun said.

For instance, the biannual Shanghai Fashion Week, a festivity that once attracted the likes of Jean Paul Gaultier and Vivienne Westwood, is giving heed to local brands this year.

“Indigenous brands were given a boost after China’s first lady Peng Liyuan wore all made-in-China outfits during her foreign tour. Wealthy trendsetters will like distinctive high-end goods that require a trained eye to detect. These are opportunities for Chinese brands,” Sun said.

Private banks to be on the rise

Since China Minsheng Bank Corp became the first private bank in 1996, the government has not approved any others, although it has allowed a small amount of private capital to be invested in commercial banks. This will soon change as the government opens up the financial sector to private enterprises.

China now has five State-owned commercial banks, three policy banks, 12 joint-stock banks, 144 city commercial banks, 47 foreign capital banks and numerous banks in towns and rural areas. The introduction of private banks will introduce more competition to the industry to the benefit of private businesses strapped for capital.

Until now, the names of more than 40 private bank applicants have gained pre-approval from the State Administration for Industry and Commerce. However, the success of Minsheng, which was founded at a time when loans for small and medium-sized enterprises were relatively undeveloped, is unlikely to be repeated today given the many financial products fighting for customers’ attention. Some private banks are bound to fail if they do not have a sound risk-control system.

With the opening up of the banking industry to private capital after 14 years of hiatus. The biggest change in the policy is that private enterprises have seen their status elevated from “equity participator” to “initiator”, according to the guidelines issued by the State Council in July that encourages more private capital to enter the financial industry.

Private banks that are filing for approval fall into two categories. First, there are enterprises or business associations that seek easier financing channels for the industry. For instance, Suning Commerce Group Co Ltd, a leading home appliance retailer, was the first listed company to announce its plans to apply for permission to launch a private bank. Other public corporations have also formed groups to create their own private banks.

The second category is more ambitious. This sector is the Internet companies that want to build a line of services on their own financial platforms, such as Tencent Technology (Shenzhen) Co Ltd.

Companies aiming to get a pieces of the pie in private banking cover a wide range of industries including e-commerce, real estate, food, garments, electrical equipment, technology and aviation.

Why does private banking look so enticing?

The Chinese banking industry has been enjoying lucrative profitability. According to the half-year profit statements of 2,467 A-share companies in 2013, the total net profits of the 16 listed banks amounted to 619.1 billion yuan ($102.1 billion). up 13.54 percent from the same period last year, accounting for 54.3 percent of total A-share profits. Although profit margins in banks have been decreasing in recent years, the large net profits still have a great appeal to private businesses.

Private banks can ease the difficulties in financing and acquiring loans by private enterprises. According to a study conducted by Qianzhan Industry Research, a Beijing-based research group, a mere 1.3 percent of small and medium-sized enterprises could conduct direct financing. Others accumulate capital through bank loans and private capitalization. However, because of their relatively low credibility, high management costs and banks’ preferences for large-scale companies, only 10 percent of SMEs have access to bank credit. It is predicted that SMEs will need 17.5 trillion yuan in capitalization in 2014.

Possible bankruptcy

Severe competition in the banking sector stands in contrast with the private sector’s enthusiasm. The profits in the banking industry are highly concentrated. Among the 16 listed banks, the profits of the top five State-owned banks made up 75.5 percent of the total profits in 2012. The total assets of city commercial banks accounted for a mere 9.4 percent of the total assets held by banking financial institutions.

Experts have been applauding the opening up of the banking sector to private capital. However, there are bound to be risks ahead.

Jin Liqun, chairman of the sovereign wealth fund, China Investment Corp, said some of the private banks are bound to go bankrupt.

State-owned banks are not going to go bust because customers are assured their deposits will be safely managed because the central Party and the government will not cheat their own people, said Jin. Private banks, on the other hand, face the risk of bankruptcy. But people don’t have to be overly concerned because development comes with risks, he added.

“Deposit insurance needs to be put in place to protect customers’ interests in case of bankruptcy,” said Jin. “I heard of opposition from large banks that claim the insurance system is nothing but a burden because they are not going to go bankrupt. However, these banks have been given government protection to be exempt from bankruptcy, which attracts customers to put their money into their accounts. What is the cost of establishing an insurance system compared with their vested interests?”

Experts also warn that the current enthusiasm may not pay off.

“Private companies should remain cool-headed before they enter the industry,” said Ba Shusong, deputy director-general of the Financial Research Institute of the State Council Development Research Center. He cited a case in Taiwan in which 16 private banks gained approval in 1992, but where only six remain.

Generally speaking, banks see no profits within the first three years after their establishment. Companies should wait until the industry has undergone consolidation before they try their luck.

4G’s high cost has mainland buyers balking

Salesman explaining 4G mobile phones at a Samsung outlet in Beijing, on Jan 2, 2014.

While the many tech-savvy young people in Hong Kong are rushing to embrace the faster and better mobile service offered by fourth-generation technology, their counterparts in the major cities of the Chinese mainland have been stunned by the high cost of entry into the new world of communication.

How costly is it? 4G services offered by China Mobile Ltd on the mainland are almost five times the equivalent package offered by the same company in Hong Kong.

China Mobile is the first among three mainland carriers to offer 4G services, initially covering 13 cities, including Beijing, Shanghai and Shenzhen.

Of the five different China Mobile monthly packages, three are currently available. The cheapest costs 138 yuan, with 0.6 gigabytes of Internet usage and 500 minutes of domestic calls. The most expensive one costs 338 yuan, including two gigabytes of mobile data and 2,000 minutes of calls nationwide.

However, the company offers totally different and much cheaper packages at its Hong Kong branches.

China Mobile Hong Kong provides local users with two packages. For a monthly fee of HK$218 ($28) users can have 5GB of Internet usage and unlimited calls within Hong Kong. The other package includes 1GB of mobile data and 1,800 minutes of phone calls. This one costs only HK$128 — 100 yuan a month.

The huge price difference in 4G services between the Chinese mainland and Hong Kong has drawn criticism of and suspicion about Chinese telecom operators.

“I do not think it is fair for the same company to charge differently for similar services,” said 27-year-old Zhang Hui in Shanghai. She said she wanted the speed that 4G can provide but balked at paying the high cost.

“But what can you do? We do not have a choice,” she said.

Gao Shu, a spokeswoman for China Mobile’s Beijing branch, refused to comment on the monthly fee, saying that it is a subject for users.

Gao added that China Mobile does have an extra package of 180 yuan for 5GB of mobile data. There will be 1GB free of charge, if subscribers make the purchase before March 31.

Telecom analysts on the mainland attributed the high initial cost to the lack of real competition. In Hong Kong, they said, the stiff competition among the many carriers and service providers is instrumental in keeping prices low.

Jane Zhang, principal research analyst in carriers and mobile services with Gartner Inc, a US information technology research and advisory firm, said it is comparatively easier for carriers to promote 4G services in Hong Kong, given the benign infrastructure and popularity of mobile Internet. However, the mainland requires a huge initial investment to cultivate the market.

“For the time being, the 4G network by China Mobile can only cover major parts of Beijing. It takes time before the services and network become mature. The company has to set a high price to cover the initial cost.”

Ashley Sheng, a telecom analyst with Shanghai-based securities company Shenyin & Wanguo Securities Co, said the price gap comes from the fierce competition among various telecom operators in Hong Kong.

“China Mobile is in a monopoly position on the mainland, so it can set a very high price for the new technology. While in Hong Kong, where 4G has been quite popular and China Mobile has so many local competitors, the company has to follow the local scenario.”

Sheng said the price is not unreasonable, given the higher speed and huge demand for the 4G services.

4G technology has enabled mobile service users to enjoy data download speeds many times faster, at 80 Mbps, according to China Mobile’s tests.

On average, it will take about one minute to download a high-definition movie of 700 megabytes.

“It creates a dilemma,” Sheng said. “While the 4G network should drive up demand for video streaming, file-sharing and browsing services over mobile networks with faster and better quality, subscribers have to be very careful when using it. Otherwise, it will take about a day or two to use up the 0.6 GB.”

Its counterparts in Hong Kong, on the other hand, are providing cheap and convenient 4G services.

At present, there are five telecom operators in Hong Kong, namely China Mobile Hong Kong, CSL Ltd, Hong Kong Telecommunications (HKT) Ltd, Hutchison Telephone Co Ltd and SmarTone Mobile Communications Ltd, all of which provide comparatively cheaper 4G services to local users.

PCCW Ltd, the parent company of HKT, charges HK$148 for 1GB of usage and unlimited calls in Hong Kong. At a price of HK$238 users can have 5GB of usage. Another operator, Three Hong Kong, charges HK$239 for 5GB of usage a month.

Sheng said that the environment for telecom industries in Hong Kong is quite different from the mainland’s.

Hong Kong has a high penetration rate for mobile devices and the most sophisticated telecom market in the world, which has resulted in low prices.

The first commercial 4G service was launched in Hong Kong in November 2010. At present, all five mobile network operators in Hong Kong have deployed 4G services utilizing Long Term Evolution (LTE) technology.

According to Hong Kong government statistics, as of December of 2013, the number of mobile service subscribers was 17 million, representing one of the highest penetration rates in the world, at about 236 percent. Among them, about 11.5 million were 3G/4G service customers.

There are also about 20,000 public Wi-Fi access points in the city, giving free Internet access to the users.

A spokeswoman from the Office of the Communications Authority in Hong Kong told China Daily that the telecommunications market in Hong Kong has been fully liberalized, and prices of mobile service plans are determined by market forces.

“Factors behind the competitive 4G prices include the comparatively higher population density in urban areas, availability of affordable backhaul connections from fixed network operators and a tech-savvy population that is willing to adopt new technologies,” she said.

Customers have ample choices of mobile network operators, based on their preference of pricing, promotion and product offerings, and network coverage.

On the other hand, operators in Hong Kong are competing for users and continually upgrading their network coverage and capabilities to meet customer demand, she added.

Sheng said Hong Kong telecom operators can only maintain a very narrow profit margin of 7 percent to 8 percent generally, given the intense competition. China Mobile can hardly make any profit with its packages in Hong Kong, given its small user number and market share.

“China Mobile has a very high gross profit in general, about 20 percent. The company does not rely on its Hong Kong operation for revenue. It is more like an overseas promotion for its brand,” she said.

Zeng Jianqiu, a professor with Beijing University of Posts and Telecommunications, said it is quite common for operators to charge high fees with the latest technology.

“When the 2G or 3G services were first launched, we all experienced high prices at the beginning.”

He added that as 4G user numbers increase, telecom operators may adjust monthly fees.

Sheng said China Mobile will probably lower the price once 20 percent of its 767 million users are using the latest 4G services. Before that, the company may sell extra usage packages to users if their monthly amount runs out.

She added that ultimately, the price for 4G services will be the same as its current 3G services, or about 100 yuan for 2GB of data. But the pricing will never be as cheap as that in Hong Kong.

China’s 2013 urban unemployment rate at 4.1%

Over 13 million jobs were created in China in 2013 while the urban unemployment rate in the world’s second largest economy stood at around 4.1%.

The unemployment rate edged up to 4.05% at the end of the fourth quarter from 4.04% at the end of the third quarter, the Chinese Ministry of Human Resources and Social Security said today.

A total of 13.1 million new jobs were created in urban areas last year, and 5.66 million people were re-employed, state-run Xinhua news agency reported.

Gross revenue of social insurance funds increased 13.8% year on year to 3.29 trillion yuan ($ 539.03 billion), while gross expenditure totalled 2.65 trillion yuan, up 19.6% from a year ago, ministry spokesman Li Zhong said.

China’s social insurance funds contain five parts: basic pension funds, basic medical insurance, unemployment insurance, work-related injury insurance and maternity insurance.

Wechat’s ‘Licaitong’ attracts 800m yuan, challenging Yu’E Bao

Tencent’s Wechat users transferred more than 800 million yuan to the app’s wealth management platform, “Licaitong” on Jan 22. Provided to China Daily

Tencent’s Wechat users transferred more than 800 million yuan to the app’s wealth management platform, “Licaitong” on Jan 22, the day it was launched, Morning Express reported Thursday.

The newcomer “Licaitong”, which literally means a wealth management facility, serves as a spear for Internet giant Tencent, which wants to do full justice to its popular instant messaging smartphone app, Wechat, and gain a foothold in China’s increasingly competitive Internet finance sector.

“Yu’E Bao”, the first such wealth management tool, received 350 million yuan on June 13, 2013, the day it was rolled out by e-commerce giant Alibaba’s payment platform Alipay. Search engine Baidu’s wealth management product “Baifa” ushered in one billion yuan on its launch day in October last year, due to the claimed eight percent annualized return rate.

The 7-day annualized return rate of “Licaitong” was 7.5290 percent on Jan 23, while the return rate of “Yu’E Bao” was 6.4859 percent, according to Morning Express.

Full steam ahead for Shanghai Disney in 2015

Visitors take photos of Mickey and Minnie Mouse at the exhibition commemorating the Walt Disney Company’s 90th anniversary in Zhengda Square in Shanghai on Dec 18, 2013. Provided to China Daily

Shanghai Disney Resort will have completed operational plans this year for traffic and safety, as well as coping with a flock of visitors ahead of the resort’s opening at the end of 2015.

“We’ll make plans taking into consideration the particulars of the domestic market based on the experience of holding the 2010 Shanghai World Expo,” said Fan Xiping, chairman of Disney’s Chinese joint venture partner in Shanghai Disney Resort, Shanghai Shendi Group.

“For example, large visitor flows are expected during the National Day holiday and the weekend after the national college entrance exam,” Fan said on Wednesday.

“We’ll be committed to ensuring a safe and orderly operation, especially when there’s a huge visitor flow or bad weather, to keep the best service standards and create an immersive and unforgettable experience for guests,” said Fan.

Construction of six themed zones in the resort as well as two Disney-themed hotels and retail, dining and entertainment districts are also on track in the 3.9-square kilometer resort in Pudong.

Construction of a “mountain”, an attraction in the resort’s Magic Kingdom-style theme park, started last week. The mountain will be the second highest structure at Shanghai Disney Resort after the Enchanted Storybook Castle. On completion, it will stand as the highest mountain in Pudong, according to the public communications department of Shanghai Disney Resort.

“The main projects in Disneyland will be completed this year and people will see the outlines of the castles and themed lands,” Fan said.

They are also promoting the development of surrounding projects in the Shanghai International Tourism and Resorts Zone, which will include an outlet complex and ecological gardens.

Some political advisers urged Shanghai to introduce more world-class cultural and entertainment projects to build the zone into an international attraction.

“The Shanghai tourism department may talk to more first-class projects that have global recognition, who I believe will be interested and confident of the prospects of the zone in Shanghai, to build the city into a destination for travelers from around the world,” said Guo Guangchang, a member of the Shanghai Committee of the Chinese People’s Political Consultative Conference and chairman of Fosun International, which is involved in industrial operations and asset management.

These projects should be complementary to Disneyland so that visitors will have rich and novel experiences, he said.

Chen Chao, another committee member, said prestigious cultural influence is an important factor when tourists look for a destination.

Chinese tertiary industry soars in 2013

Economic numbers from China’s tertiary industries have exceeded those of the country’s secondary industries for the first time in 30 years.

Tertiary industries include things like the service sector.

The new numbers suggest a change in direction for the Chinese economy, including a stronger focus on enforcement in tertiary sectors.

NBS Commissioner Ma Jiantang says those sectors combined to make up more than 46% of China’s economy last year.

NBS spokesperson Sheng Laiyun says researchers are now trying to figure out whether the emergence of the tertiary market last year is a trend, or just a blip.

He states that he believes the change is the result of years of policy changes and adjustments, affecting business structure and development.

Chen Fengying, director of the Institute of World Economic Studies, says changes in the Chinese economy fit nicely with current global trends.

“The world economy has experienced a downturn in the past few years, China has seen a decline in its exports in the past two years. China cannot rely on exports alone; it must stimulate domestic consumption as well. The rise in its tertiary sectors is a success for the central government and its policies regarding economic transformation.”

Lu Zhengwei, chief economist at Industrial Bank, says e-commerce is one result of the transformation in economic structure.

“New shopping habits and powers have emerged, such as the young generations’ shopping online; 2013 has seen a significant rise in e-commerce. This is different from the trend in commodity sales and it shows the power the young generation has in e-commerce.”

As a manufacturing power traditionally, China’s secondary industry faces new challenges.

Chen Fengying says that China stills needs it to create more jobs and boost the economy.

Career development main reason for job-hopping

Career development and more room for personal growth are the primary reasons that Chinese change their jobs, global recruitment consultancy Robert Walters reported on Tuesday.

Eighty-one percent of the 400 Chinese respondents surveyed said they will change jobs in 2014. Of those, 47.1 percent said the reason was to seek more room for personal growth, while 20.2 percent of them sought promotions in new companies, according to the Robert Walters 2014 Global Salary Survey.

Salary increase, though not weighing as much now as in the past, is still a significant driver of job-hopping. People who stay in their current position can expect a salary increase of between 8 and 10 percent. But for those who change jobs, salaries can jump 15 to 25 percent.

Arthur Wang, managing director of Robert Walters China, said employers should help their employees to map out a clear career path. “If promises are not kept, employees will definitely leave the company,” he said.

Lenovo said to be eyeing IBM’s server unit

China’s Lenovo Group, the world’s largest personal computer vendor by shipment, said Tuesday that the company was in preliminary talks about a potential acquisition, which some insiders said would be International Business Machines Corp (IBM)’s server division.

A filing posted on the Hong Kong Stock Exchange on Tuesday showed that Yang Yuanqing, Lenovo’s chairman, refused to disclose detailed information of the third party as well as the deal.

“The company has not entered into any definitive agreement in relation to the potential acquisition,” Yang said.

Unnamed sources familiar with this matter was quoted by Reuters as saying that Lenovo has restarted negotiations of purchasing IBM’s low-end (X86) server business after the two failed to reach a deal in early 2013 due to their divergence on the cost.

According to media reports in May last year, IBM expects to offer the unit for sale for between $4 billion and $6 billion while Lenovo was only willing to put in $2.5 billion.

Lenovo refused to comment on the possible acquisition when reached by the Global Times on Tuesday. IBM did not reply to the Global Times’ e-mail inquiry by press time.

In pursuit of high profits, IBM is very likely to sell its lower-end server operation at a satisfactory price, largely because this segment has become increasingly mature, leaving little room for robust growth, Cao Yujie, director of consultants for Beijing-based IT market research agency CCW Research, told the Global Times Tuesday.

According to Morgan Stanley’s estimates as quoted by media reports Monday, IBM’s X86 server unit generated around $4.9 billion of the total $15.4 billion in its overall server business in 2012.

Data from the US IT research firm Gartner released in December indicated that in the third quarter of 2013, worldwide X86 servers saw low levels of growth at 2.1 percent year-on-year in shipments, with revenue rising 4.4 percent. The whole server revenue declined 2.1 percent year-on-year in the third quarter.

Despite the low margin, an acquisition of a server business run by market veterans like IBM would significantly boost Lenovo’s market share and enable it to stand out from domestic competitors as well as better compete with foreign peers, said Cao.

Lenovo bought IBM’s Thinkpad PC unit in 2005 for $1.75 billion, which helped it leap to the top of the worldwide PC market.

In the fourth quarter of 2013, the company accounted for 18.1 percent of worldwide PC shipments, ranking first, according to Gartner.

The company has already dipped its toe into the server market in an attempt to diversify its product range beyond PCs.

In early January 2013, it set up a joint venture with the US computer storage service provider EMC Corp to further develop its X86 server business.

However, it does not perform well in this sector due to its lack of advanced technology and brand recognition, Zhang Yi, CEO of Shenzhen-based Internet research firm iiMedia Research, told the Global Times Tuesday.

According to Gartner, Lenovo ranked seventh with a market share of 2.3 percent by worldwide server shipments in the third quarter of 2013, while HP topped the rankings with 26.9 percent and IBM was in third with 7.9 percent.

Zhang believed that Lenovo could win more customers if the acquisition of IBM’s low-end server unit can be finalized successfully.

But he was concerned that the deal may invite scrutiny from US authorities, as servers pose a more important security issue than PCs and handsets due to their being used by governments and enterprises for data storage and processing.

In October 2012, Huawei and ZTE, China’s two leading telecommunications equipment makers, faced charges by a US congressional panel of posing a national security threat to the US.