Athletic apparel makers cash in as domestic consumers become more active

After four years’ losses, Chinese leading sportswear Li Ning Co reported on Thursday that it had returned to profitability in 2015. A few weeks earlier, one of its competitors, the German sportswear manufacturer adidas AG, announced its financial results for its business in China in 2015. As sports become a larger part of people’s lives in China, both foreign and domestic sportswear manufacturers have been making out. However, they have different strategies to gain market share. Foreign companies such as adidas plan to further expand their presence across the country, especially in lower-tier cities, while domestic companies need to further strengthen their research and development capabilities.

Even though he had just bought a pair of Li Ning athletic shoes, a civil servant surnamed Peng recently decided to pick up a new pair of Nikes for his semiweekly badminton matches in Yichang, Central China’s Hubei Province.

“Nike has a better design. When I play badminton, I feel more comfortable wearing their lightweight running shoes,” the 48-year-old told the Global Times on Wednesday.

Peng has seen sports become a bigger part of people’s lives in Yichang. In his badminton club, a dozen players meet every Tuesday and Thursday to bat the shuttlecock around.

As more Chinese take up sports in their spare time, both domestic and foreign brands of athletic apparel have been gaining momentum in recent years, said Lin Jing, a senior manager at China Investment Consulting Co.

Leading domestic sports brand Li Ning Co announced on Thursday that the company returned to profitability in 2015 for their first time since 2011, according to its annual report.

The company’s revenue grew about 17 percent to 7.09 billion yuan ($1.10 billion) in 2015, when it reported 14 million yuan in profit attributable to equity shareholders.

Other sportswear makers including Germany’s adidas AG and its Chinese competitor Anta Sports Products Ltd also reported rising revenues and profits in 2015.

Adidas’s sales rose 18 percent on a currency-neutral basis on the Chinese mainland, Taiwan, Hong Kong and Macao, according to the financial report Adidas released on March 3.

Adidas said it is confident that its new “Creating the New 2020 Greater China” strategy will allow it to “outpace the competition” and remain the best sportswear brand in the market, Colin Currie, managing director with adidas Group Greater China, said at a press conference on March 4 in Shanghai.

“Adidas and its major rival Nike Inc each reported double-digit growth in China, with both sportswear makers accounting for about 12 percent of the market in China as of September 2015,” Lin said on Thursday. “Competition between the brands is likely to further heat up in 2016.”

The stakes are rising as more people in China take up regular sports and exercise. That number is projected to hit 500 million people by 2025, creating a market worth an estimated 5 trillion yuan, Lin noted.

Targeting lower tiers

Liao Xuchun is a loyal buyer of Anta basketball shoes, as well as those produced by another Chinese sportswear maker Peak Sport.

“Patriotism aside, the domestic companies make basketball shoes that are less expensive than those produced by Nike and adidas, even though the latter two have the endorsements of NBA stars,” said Liao, who lives in Jianshi county in the Enshi Tujia and Miao Autonomous Prefecture in Hubei Province.

Liao said it is also easier to find domestic sportswear brands in his neighborhood, especially after some of the foreign sportswear stores closed in recent years.

“If I want to buy Nike or adidas shoes, I have to go to the downtown shopping malls,” he told the Global Times on Wednesday.

Some foreign brands, such as adidas, believe that small and mid-sized cities will remain an important part in their corporate strategies.

Under adidas’s 2020 strategy, “60 percent of our growth will come from lower-tier cities,” Currie told the Global Times on March 4.

The company says more people in China’s lower-tier cities will enter the middle class as their cities urbanize, Currie said. And as their incomes grow, they will be more willing to trade up to buy the adidas brand.

When contacted by the Global Times on Friday, Nike, adidas’s biggest competitor in China, refused to comment about foreign sportswear companies’ marketing plans for China’s lower-tier cities.

On Tuesday, Nike is scheduled to release its financial results for its most recent fiscal quarter.

Although Nike and adidas have immense international profiles, Chinese companies have taken sizable portions of the domestic sportswear market.

According to a survey by FT Confidential Research, Anta was China’s third most popular sportswear maker and scored particularly well among lower-income households, the Financial Times reported in February. The Fujian-based company caters to an estimated 520 million people living in China’s smaller cities.

Different segments

Considering the prices of their products, foreign sportswear brands such as Nike and adidas will continue to target middle and high-end customers in larger cities, said Zhang Qing, CEO of Beijing Key-Solution Sports Consulting Co.

It is “unlikely” that they will lower their prices when they enter lower-tier cities, Zhang noted.

“One possible solution is that they could further strengthen their positions in promoting athletic lifestyles, especially in lower-tier cities,” Zhang told the Global Times on Wednesday.

Also, big foreign sports brands need to work more closely with their franchise owners to come up with more specialized strategies for China’s second- or third-tier cities, Zhang said.

Adidas plans to have about 12,000 stores in China by 2020, Currie said. The company will take into account the preferences of customers in small and medium-sized cities.

When competing for a larger market share in China, domestic brands, which started from lower-tier cities, should focus more on branding, which is not the same thing as signing partnerships with star athletes, Lin noted.

“They should invest more in R&D (research and development) to become a more innovative sportswear manufacturer,” Lin said.

ZTE in talks with U.S. govt over trade curbs

Beijing calls on Washington to handle the issue ‘with discretion’ to avoid harming growth of ties

ZTE Corp is in talks with the United States government over the telecom equipment manufacturer’s alleged violations of a U.S. trade restriction.

Opinions are split on whether the negotiations could help resolve the dispute, which, if it remains unresolved, could have a negative impact throughout China’s IT industry.

Minister of Commerce Gao Hucheng on Tuesday said China is “greatly dissatisfied” with the U.S. decision to ban the Shenzhen, Guangdong-based company from buying parts from U.S. suppliers.

“I hope the U.S. could handle the issue with discretion to avoid harming the stable, healthy development of Sino-U.S. trade ties,” said Gao. He added ZTE has sent a delegation to Washington to discuss the issue with the U.S. authorities.

The U.S. Commerce Department confirmed to The Wall Street Journal that negotiations are under way.

“These discussions have been constructive, and we will continue to seek a resolution,” said the U.S. newspaper, citing an unnamed senior official at the department. ZTE did not elaborate on the details of the talks, saying no final decision has been made.

The U.S. Commerce Department last week banned ZTE’s suppliers in the U.S. from selling components to the Chinese company amid claims that ZTE exported prohibited products to Iran.

The U.S. suppliers, including mobile chip giant Qualcomm Inc, will need to apply for permits from the U.S. government before selling products to ZTE.

ZTE said in a statement its operations were in compliance with the laws and regulations in every local market. The company pledged to cooperate with the investigation.

Hu Lu, an analyst at Changjiang Securities Co Ltd, said the punishment was related to a multi-million-dollar hardware and software export deal ZTE signed with Telecommunication Company of Iran in 2012. The U.S. forbids a long list of U.S.-made IT products from being sold to Iran.

“It was not the first time for the U.S. to investigate Chinese IT companies. Due to strong government interference, ZTE and Huawei Technologies Co Ltd are finding it difficult to penetrate the U.S. market,” Hu said. “But considering that talks are taking place, and the obvious negative influence on the trade relationship with China, the U.S. government is likely to ease the punishment.”

The export ban on the second-largest Chinese telecom equipment maker quickly unfolded into a diplomatic issue, with Foreign Minister Wang Yi saying the punishment “only hurts others and does not benefit oneself”. U.S. component makers rely heavily on Chinese enterprises such as ZTE, Huawei and Lenovo Group Ltd for sales.

But Nicole Peng, research director at research firm Canalys China, said the U.S. may not back off on the case.

“The U.S. Commerce Department will not easily lift the ban on ZTE in order to set an example for other companies,” she said. “The uncertainty of the outcome is the factor that will do the most damage to ZTE’s business.”

Zhu Jinsong, an analyst at Shanghai-based Haitong Securities Co Ltd, said the export restrictions on ZTE will deeply affect the Chinese IT industry.

“The matter is out of ZTE’s control. The restriction reflects a battle between the Chinese and U.S. high-tech industries. Although U.S. suppliers could ask for permission to sell products to ZTE, the U.S. authorities will definitely deny such a request,” according to Zhu.

Traded in Shenzhen and Hong Kong, ZTE stocks remained suspended as of Wednesday.

Ctrip made 10.9 billion yuan net revenue in 2015

The net revenues of Ctrip.com International Ltd grew to 10.9 billion yuan ($1.7 billion) in 2015, with a 48 percent year-on-year rise, the largest online travel agency in China announced on Wednesday.

It is the only Chinese online travel agency that earned continuous revenue growth during the past years.

Ctrip’s net income attributable to its shareholders was 2.5 billion yuan in 2015.

Ctrip’s investment last year of 1.2 billion yuan in India’s largest online travel agency, MakeMyTrip, as well as a significant minority share purchase of Qunar, another of China’s largest online travel agencies, positions the company well for future earnings.

Strong fiscal growth that surpassed analysts’ estimates, smart investments and a continually growing middle-class in China with increasing disposable income indicate positive future financial prospects for Ctrip.

Analyst projections for 2016 expect a full year revenue growth of 65 percent, even higher than the growth seen in 2015.

Ping An profit up 38% on life insurance, investment returns

Ping An Insurance Group yesterday reported a nearly 40 percent jump in net profit last year on stellar life insurance sales and investment returns.

Ping An, Asia’s second-largest insurance company by market value, said its net profit rose 38 percent to 54.2 billion yuan ($8.3 billion) in 2015, the highest since 2003.

Strong life insurance sales and a surge of investment returns partly from the bullish Chinese stock market in the first half of last year helped drive up the profits.

The company reported that premiums for life insurance rose 20 percent to 299.8 billion yuan, and the gross investment returns jumped 80.1 percent to 114.75 billion yuan last year.

Timothy Chan, the group’s chief investment officer, told reporters yesterday that he expected more uncertainties this year and would seek more investment opportunities in blue-chip stocks, preferred stocks and fixed assets, especially logistic infrastructure in first and second-tier cities.

Guotai Junan Securities said in a note that Ping An’s investment returns this year is likely to fall but its core insurance business remains in good shape.

The life insurance sector has benefited from greater focus on offering protection type of policies than capital-consuming investment-related ones.

The property and casualty sector has also outperformed industrial average in managing costs, the note said.

Analysts also said the group’s more than 10 Internet financing branches spanning wealth management, e-commerce, health care consulting, and home sales will bring more revenue as well as clients.

Working in Disneyland a dream job for many

A prospective candidate facing the interview board in Shanghai in October, 2015. The Shanghai Disney Resort, expected to open early next year, is set to create more new job opportunities in the city.

As Shanghai Disneyland stands 98 days away from unveiling its wonders to the public, employee recruitment becomes the priority this month, Shanghai Morning Post reported Thursday.

The tempting benefit and career development the company provides keep job hunters willingly lining up in the cold. It takes five to six hours to finish the interview.

Ms. Shen, who walked out of the Disneyland recruitment office at 3pm Wednesday, told a reporter that she arrived at 10 am and had just finished the interview. Trying to get a job with the retailing service booth, she didn’t make a reservation online and found herself waiting with other 30 people early in the morning.

“If your online application got accepted, you can just walk in and join the next round of interviews,” she said.

“Many applicants got denied because of the lack of experience or their age… sometimes they eliminate an applicant within a minute.”

The reporter found that few applicants got job offers. Ms. Zhang, a college student, got a job as an intern and could only be hired after she graduated and make through the trial phase of the job.

Ms. Shen was one of the lucky applicants who made it to the final interview. “I was told that all positions are very popular,” she said.

Even though all positions are filled at this point, there’s still a ‘waiting list’ posted by the company’s HR department. Anyone on the list has a chance to be hired once there’s a job opening, the newspaper said.

Taiwan inflation rises on surging food prices

Taiwan’s consumer price index (CPI) rose at its fastest pace in three years in February, the island’s statistics agency said on Tuesday.

The 2.4 percent year on year rise was mainly due to higher prices for vegetables, fruits, aquatic products and household electricity, the agency said.

The authority said vegetable supply was limited by a cold front that hit Taiwan in January, and meanwhile food demand was higher around the Chinese Lunar New Year holidays.

In the first two months, the CPI rose 1.6 percent year on year.

The wholesale price index declined by 4.93 percent year on year last month, mainly due to the price of metal, crude oil, coal and chemical products falling, the agency said.

Online vendors promote the digital wallet

In the battle for third-party payment users, fees may loom large in artillery.

Internet giant Tencent recently stirred heated debate among netizens by slapping a commission charge on users who transfer 1,000 yuan ($154) or more from their WeChat “pocket money” to debit cards.

The commission amounts to 0.1 percent of the transfer amount once it exceeds the 1,000-yuan life-time free allowance.

Online reaction to the new fee drew comparisons with Tencent archrival Alibaba, whose affiliate Zhejiang Ant Small Financial Services Group operates the popular online payment service Alipay.

In 2013, Alipay started to charge commissions on transfers between Alipay accounts for users on desktop computers. The rate ranges from 0.15 percent to 0.2 percent. Transfers from smartphone users’ Alipay balance accounts to debit cards remain free.

Tencent set its threshold at 1,000 yuan because most users’ pocket money balances are below that figure. Users who register a separate WeChat account or debit card won’t be exempt from the rules.

China had 358 million mobile payment users at the end of 2015, up 65 percent from a year earlier. The proportion of online payment customers among smartphone users grew to 58 percent from 39 percent at the end of 2014, according to a report published in January by the state-backed China Internet Network Information Center.

Walking around downtown Shanghai, it’s easy to find convenience stores, coffee shops and snack bars that accept Alipay and WeChat payment services, not to mention the existing point-of-sale machines.

Tencent said its WeChat can be used for payments at more than 300,000 offline vendors nationwide, and Alipay’s offline payment network operates on a similar scale.

Market response

Most of my friends say the impact of the new rule is marginal.

“Several hundred yuan of pocket money is really no big deal with WeChat payment services available at so many online vendors and offline merchants,” said Shanghai resident Chris Xu, who is in her early 30s.

Others are more pragmatic. “I will ask my friends to transfer money directly to my bank accounts or Alipay accounts since I don’t want to pay any additional fees if I wish to move my money from my account to my debit card in case of emergency,” said Shanghai office clerk Doris Li said.

Very few consumers have undying loyalty to only one payment service. Most people choose whatever discount is available from either of the payment service providers.

An internal survey of more than 17,000 urban WeChat users by Tencent shows that nearly 30 percent who receive e-Hongbao (or digital “red envelope” money) have transferred their balance into debit cards, while only 12 percent have used their balance to pay for online shopping orders.

More than 78 percent of users passed e-Hongbao on to other friends and colleagues.

Some 200 million people have connected their credit or debit cards to their WeChat accounts.

A Tencent official insisted the new fee is to cover part of the cost of online payment services that connect with banks and to optimize support for small-sum transfers between WeChat accounts, which would be free of charge compared with a daily free-of-charge limit of 20,000 yuan.

Explanations aside, it’s obvious that Tencent is hoping to create a de-facto virtual bank account system where one can use pocket money either to pay bills or buy merchandise from offline vendors.

Independent industry watcher Wang Yunhui said the exponential growth of e-Hongbao lands Tencent in the dilemma of transaction sizes and ever-climbing costs to connect its payment service with banks’ online small sum payment systems.

“Tencent needs to give users incentives to use their account balance for online or offline payments,” he added.

Besides, that would be a boost for wealth management products sold on the WeChat platform, he said. The wealth management platform, which is a stand-alone feature in the WeChat application, currently connects with 10 mutual fund and insurance companies, with combined transaction volume of about 100 billion yuan.

Currently, WeChat’s pocket money can be used to pay credit card bills at 23 domestic banks.

Alipay, which is expanding its service network, drew more users during its Chinese New Year campaign last month. Its continuing efforts to team up with offline vendors and wealth management companies and financial institutions ratchets up the battle for users.

Now with Apple’s contactless payment service Apple Pay available to Apple’s smartphone users, consumers will have even more options. That opens up a wide horizon for more innovative services to be introduced.

Air-conditioner maker Gree to buy electric car company

An outlet of Gree Electric Appliances Inc in Yichang, Hubei province.

Gree Electric Appliances Inc, a leading Chinese home appliances maker, is planning to branch into new-energy vehicles by acquiring a local electric car producer which controls a Nasdaq-listed US battery firm.

It’s the latest effort by China’s largest air-conditioner manufacturer to diversify its business, as dwindling air-conditioner sales weigh on revenue and profitability.

Gree is planning to issue new shares to buy Zhuhai Yinlong New Energy Co, which itself is the controlling shareholder in Altair Nanotechnologies Inc, a Nevada-based lithium battery company, the company said on Sunday.

Headquartered in Zhuhai, Guangdong province, Gree did not disclose what stake it would take in Zhuhai Yinlong or the possible investment value. A spokesman for Gree said details are sill under discussions.

Zhuhai Yinlong was China’s seventh-largest seller of electric buses in 2015, after racking up 7,000 orders and producing more than 3,100 electric vehicles, data from its official website show.

With three production bases across the country, it has the capacity to make 33,000 electric buses and 100,000 electricity-powered SUVs yearly.

Liu Buchen, an independent researcher on the home appliances sector, said its move comes as Gree is under mounting pressure to seek for new growth points.

“Gree generates about 95 percent of its revenue from selling air conditioners,” Liu said.

“But over-reliance on a single product is increasing the company’s financial risks, especially as the air-conditioner industry is having bad years.”

In the first three quarters of 2015, Gree’s revenue plunged more than 17 percent year-on-year to 81.5 billion yuan ($12.5 billion) due to overcapacity and weakening demand.

“Undoubtedly, the new-energy vehicle market boasts huge growth potential, but it is difficult to say whether that can be Gree’s opportunity, given the fierce competition,” he added.

Internet giants Tencent Holdings Ltd and Baidu Inc, as well as e-commerce heavyweight Alibaba Group Holding Ltd are all eyeing the sector through either partnerships or acquisitions, partly stimulated by strong policy support from the government.

Last year, sales of new-energy vehicles more than tripled to more than 331,000 units in China, including more than 247,000 pure electric cars and 83,600 plug-in hybrids, according to the China Association of Automobile Manufacturers.

The central government expects that cumulative sales of new-energy vehicles to reach 5 million units from 2012 to 2020.

Gree’s interest in new-energy vehicles is not the company’s first step to branch beyond the home appliances sector.

In 2015, it launched a 1,600 yuan smartphone designed to meet consumers’ growing demand for quality products, but sales failed to meet Gree’s expectations.

Adidas to add 3,000 outlets

Adidas aims to add 3,000 stores in China in the next five years to the current 9,000 nationwide as the German sportswear and apparel group expects emerging cities to contribute to over 60 percent of sales.

“More than 60 percent of our sales increase will be coming from emerging cities in the next five years thanks to an increase in consumer purchases,” Colin Currie, managing director of Adidas Group China, said yesterday.

The company’s sales in China rose 16 percent on a currency-neutral basis in the fourth quarter. Full-year sales jumped 18 percent to 2.5 billion euros (US$2.75 billion) in China.

The company also aims to open 20 women specialty stores in China by the end of 2020, compared with the current four outlets.

Women driving growth of online-to-offline business in China

Females have become the driving force behind China’s booming online-to-offline shopping sector, despite their minority position in the country’s overall Internet-using population.

According to a new report from group-buying e-commerce website Baidu Nuomi, women now account for 46 percent of the country’s Internet users, but they generate 62 percent of O2O revenues.

Baidu Nuomi claims it now accounts for a fifth of daily O2O sales?a rapidly growing market that enables online customers to pay online for bricks-and-mortar services, such as movie tickets and restaurant bookings.

Tang Lihua, a director at Baidu Nuomi, said the results show that attracting, then retaining, female shoppers has become critical for any O2O platform.

“We plan to provide more baby-related and beauty-related services and products, for instance, in order to further grow our business, as we think that’s likely to be strong selling-point for women,” she said.

The study showed that since the start of 2015, female O2O spending has far-outstripped that by males, and the gap is growing, particularly during the country’s flagship shopping events such as Qixi, Chinese Valentines Day.

As well as the beauty-related sector, women outspent men in other lucrative areas, too, including gyms and leisure, and hotels, said the report.

Gao Shuang, an analyst with China Internet Network Information Center, said the main reason is simple: Women are more decisive when it comes to shopping.

“They are not only buying for themselves, they are also shopping for their parents, their husbands and children,” she said, adding their pickiness, too, is also driving up improvements in services and product innovation.

According to the center’s statistics, the number of female online shoppers grew to 180 million by the end of 2015, more than double the number in 2010.

They also showed female online shoppers spend 4.17 hours a day surfing the Internet, against a daily average of 3.74 hours by all Internet users in China.

Restaurants, travel spending and movie trips were the top three O2O sellers for women.

Zhou Shu, a senior executive at Yuxiang Renjia, a restaurant chain specialized in Sichuan dishes, said it had certainly noticed that women have the stronger say when it comes to deciding where to eat.

“And they are more willing to try new services and new products,” she said.

“Most importantly, though, they are happy to communicate and exchange their feedback after eating at a new restaurant, which makes them more influential in the O2O market.”