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Frasers Hospitality plans ambitious expansion in China

Frasers Hospitality, an international serviced apartments and hotel residences owner and operator, will continue to vigorously expand its portfolio in China as it remains confident in the country’s rise as a global economic powerhouse.

The Singapore-headquartered company plans to open 10 more properties in China’s key cities within the next couple of years, apart from its existing China network which currently stands at 14 properties.

The new launches will be located in Tianjin, Wuxi, Chengdu, Shanghai, Shenzhen, Nanchang, Dalian and Changsha, and will cover three of its brand offerings including Fraser serviced residences, Modena by Fraser serviced residences and Capri by Fraser hotel residence brand.

“With the exponential growth that we have witnessed over the last 11 years, there is no question that China is, and will continue to be an integral growth market for Frasers Hospitality,” said Choe Peng Sum, chief executive officer of Frasers Hospitality. “Our growth strategy is very much parallel to that of China’s plans to develop new infrastructure and master planned cities as they present tremendous growth opportunities.”

The strengthening of Frasers Hospitality’s portfolio in China, which is right on track to reach its goal of 30 properties with 7,000 units by 2019, is a significant contributor to the company’s global expansion target of 30,000 units by 2019.

The company’s portfolio worldwide, including those in the pipeline, stands at 139 properties, or 22,800 units, across more than 80 cities, according to the company.

Commodities cool after Dalian exchange moves

Steel and iron ore futures in China steadied on Thursday, while other commodities fell as a key exchange stepped up measures to combat speculation behind a recent market surge.

Financial investors have charged into Chinese commodities futures this year, driving up contracts including iron ore, rebar, cotton and even eggs, leading many to warn of similarities with a boom in the country’s stock markets, which reversed into a sharp crash last summer.

This week has seen a marked pullback as exchanges raised the cost of trading to avoid mirroring the outcome in stocks.

Coking coal futures were the hardest hit on Thursday, falling by the downside limit of 6 percent, after the Dalian Commodity Exchange imposed higher transaction fees for the fourth time in a week.

Dalian doubled the transaction fees on key steelmaking raw materials, coking coal and coke futures, from Thursday. It will also widen the trading limit for both contracts to 7 percent from 6 percent from Friday and increase the minimum margin to 9 percent from 8 percent

Steel rebar on the Shanghai Futures Exchange, the leader of last week’s big spike, closed up 0.8 percent at 2,539 yuan ($391.8) a ton.

Cotton on the Zhengzhou Commodity Exchange fell 3.8 percent, Shanghai aluminum dropped 2.8 percent and Dalian soybeans fell 2.7 percent.

Future mobility in global talent grab

Tesla Model X attracts visitors at Auto China 2106 in Beijing, which runs through May 4. Smart and electric cars are becoming more popular in China as young customers favor greater connectivity in vehicles.

Move signals company’s drive to take smart and electric car market by storm

Future Mobility Corp Ltd, a Chinese startup aspiring to make electric and smart cars and which has the backing of Tencent Holdings and Foxconn Technology Group, has hired two senior managers from Tesla Motors Inc in its latest hunt for global talent, according to sources familiar with the company’s moves.

Marc Duchesne, director of Tesla’s supply chain manufacturing and assembly engineering, will join the Hong Kong-registered company as vice-president of manufacturing, said the sources, who asked for anonymity.

Paul Thomas, Tesla’s senior vehicle engineering manager, is moving to Future Mobility as vice-president of engineering, according to the sources.

A spokesperson from Tesla China declined to comment on the matter.

The two hires from Tesla come less than 10 days after Bloomberg reported that three managers from BMW’s i brand joined Future Mobility as vice-presidents of software and connectivity, design, and marketing.

In addition to the three BMW managers, Future Mobility has hired Carsten Breitfeld, the former project manager for BMW’s i8 electric sports car, as its chief executive officer. Daniel Kirchert, the former president of Infiniti China, also joined Future Mobility as chief operation officer.

Duchesne managed Toyota’s production in Canada for more than two decades before he joined Tesla in September 2011. Thomas worked at Aston Martin for over 16 years before June 2014.

Future Mobility, launched in February, said it plans to create “a premium brand with roots in China and a global reach”. Its other parent company is China Harmony New Energy Auto Holding Ltd, a major auto dealership group. Tencent is the largest internet firm in Asia and Foxconn is a major assembler of Apple Inc products such as iPhones and iPads.

Yale Zhang, managing director of consultancy Automotive Foresight (Shanghai), said Future Mobility, which he called a “new but ambitious entrant” will continue to seek more talents from established global carmakers.

“It appears more reliable than other electric and smart car startups because it could have strong backing from three shareholders in terms of capital, internet technologies and manufacturing know-how,” Zhang said.

Marc Duchesne (left) and Paul Thomas.

Future Mobility plans to assemble cars in China. It will have its research and development base in Shenzhen, Guangdong province, but will also have research and development units in Europe and Silicon Valley to concentrate on powertrain and autonomous driving. It has yet to reveal details for its product plans.

COO Kirchert said on Wednesday through WeChat that “demand and experience for individual mobility will witness profound changes globally. Connectivity, autonomous driving and environmental friendliness will redefine the future of cars. We will combine internet thinking and solid car manufacturing quality. This is our unique advantage.”

Popularity is growing in China for smart and electric cars as young customers favor more connectivity in vehicles and become more environmentally conscious. The government is also boosting innovation in the auto industry and sales of new-energy cars to help alleviate pollution.

The government is subsidizing buyers of new-energy cars, including fully-electric and plug-in hybrid models.

As a result, many startups are emerging to produce smart and electric cars in collaborations with traditional carmakers.

At the beginning of this month, NextEV Inc, backed by Tencent and Hillhouse Capital, sealed a 10 billion yuan ($1.54 billion) deal with Shanghai-listed JAC Motor to produce new-energy and smart cars. The first electric model will hit the market at the end of 2017.

In February, internet company LeEco, founded by entrepreneur Jia Yueting, set up a joint venture with Aston Martin to manufacture smart electric cars. The first model, the Rapide E, will be launched in 2018 with powertrain and connectivity technologies from LeEco.

LeEco also plans to produce smart and electric cars under its own LeSEE brand. It unveiled a LeSEE concept car during the ongoing Beijing auto show.

LeEco has recruited a slew of executives from traditional car companies since last year, such as Zhang Hailiang, former vice-president of SAIC Motor, China’s top auto group. Zhang joined LeEco earlier this month as the company’s president and COO in China.

Last year, sales of new-energy vehicles in China more than quadrupled to 331,000 units, according to the China Association of Automobile Manufacturers.

JD.com raises $1 bln on global bond market at lower cost

An advertisement for e-commerce retailer JD.com Inc in Shanghai.

China’s second-largest e-commerce platform JD.com Inc has made its global bond market debut, securing a relatively low borrowing cost when raising $1 billion in debt.

The company secured a Baa3 rating from Moody’s and BBB-from Standard & Poor’s, the lowest rating in the investment-grade category. The five-year $500 million tranche was sold at 3.125 percent and the 10-year $500 million tranche at 3.875 percent.

The investment-grade ratings to a loss-making company are due to expectation that its profitability, remaining weak at the moment, would improve in the upcoming months, due to its expanding product offering through direct sales and the marketplace, rating agencies said.

S&P noted that JD’s market share has climbed to 56.9 percent in terms of gross merchandise value, from 36.8 percent in 2011. The value of consumer electronics, which usually means low profitability, as a share of gross merchandise value has declined from 80 percent in 2011 to 51 percent in 2015.

However, a number of brokers argued that JD should be considered a high-yield credit because of its unprofitable status and the fact that it is more of a capital-intensive and hence inherently more volatile tech company.

The offering came following rising unease in the onshore bond market as a few default cases pushed yields high.

J.D. Power projects 7% growth for China auto market in 2016

The vehicle market in China is expected to grow at about 7 percent this year and the low car penetration rate offers great potential, said Geoff Broderick, vice president and general manager of Asia-Pacific Automotive Operations at consultancy J.D. Power.

Compared with developed markets like the US, the car penetration rate is “tiny” in China, especially in lower-tier cities, so the consultancy is very “optimistic” about market growth, Broderick told the Global Times during an exclusive interview on Saturday.

The development of vehicle financing also offers potential, since only some 30 percent of Chinese consumers use financing, while in the US, “very few people buy cars for cash,” he said.

Broderick noted that the strong momentum seen in the sport utility vehicle (SUV) sector will continue, as Chinese consumers generally prefer roomier cars. Low oil prices are supporting that trend.

First-quarter vehicle sales in China rose 5.98 percent year-on-year, with SUV sales surging 51.46 percent, data from the China Association of Automobile Manufacturers (CAAM) showed.

Broderick noted that as the base number gets bigger, it will be hard to maintain double-digit growth, so the consultancy views the current growth rate as “healthy.”

He said that 2015 was a watershed year for the industry in China.

“Until recently, all car manufacturers could basically sell whatever they could produce [in China], but now there is much better alignment between supply and demand.”

Last year, domestic brands accounted for about 41.32 percent of China’s passenger car market, up 2.86 percentage points over 2014, CAAM data showed.

J.D. Power experts said these brands will continue to see strong growth, with improving quality.

“The quality of cars made by domestic auto brands is expected to be able to match that of joint venture automakers by about 2018,” Wang Qinghua, research director at the Analytical Center of Excellence at J.D. Power, told the Global Times Saturday.

But Broderick noted that Chinese brands still need to build their brand images and improve customers’ experience, where they still lag behind joint venture brands.

Broderick also see bright prospects for new-energy vehicles (NEV) in China.

“Chinese consumers are more open to embrace new things,” thus the adoption rate for NEVs in China will be faster and domestic brands may take a leading role, Broderick said. “But the challenge is building infrastructure.”

Lenovo to increase share in domestic market

Lenovo Group Ltd, which acquired Motorola Mobility last year, aims to increase its share of the domestic smartphone market by unifying brands and launching new phones.

Lenovo has unified independent brands including Motorola and Zuk into Lenovo Mobile, which is expected to become a new growth engine as the personal computer business faces an industry slump. It’s time that Lenovo starts to return to its market leader position in the domestic smartphone market, said Chen Xudong, senior vice president of Lenovo, the world’s biggest PC vendor.

Most of Lenovo’s smartphone sales were overseas. Lenovo will raise investment in brand and distribution to expand into the domestic market, Chen added.

“We will release more game-changing smartphone models, including a new Motorola in June,” said Yang Yuanqing, chief executive of Lenovo.

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.”