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FTZ to support Shanghai’s innovation plan

Shanghai’s pilot free trade zone will beef up support for the city’s initiatives to build a global technology innovation center and a world financial hub, the zone’s regulator said.

“The expanded free trade zone is off to a good start in its first month of operation. Progress is being made on all fronts,” said Sun Jiwei, executive deputy director of the zone’s administration and head of the Pudong New Area.

The FTZ’s steering committee has set 39 tasks it wants to accomplish this year to push forward reforms. They include the transformation of the government’s role and follow-up management, as well as the promotion of the “four centers,” Sun said, without elaborating.

To support the city’s goal to become a world-class center of innovation, the zone will boost finance’s role in the technology sector, reform the management of venture capital and private equity funds, expand government-led funds and boost participation of private capital, he said.

The regulator is also considering setting up an investment bank in Zhangjiang High-Tech Park. The regulator will encourage the park to work with financial institutions to develop financial products and services for firms in the technology sector, Sun added.

Efforts will also be made to further boost trade facilitation for high-tech companies, such as streamlining clearance procedures for imports and exports of biological materials in a bid to cut research and development costs for biomedicine firms, Sun said.

The FTZ is seeking to attract more multinational financial institutions after the BRICS New Development Bank chose Lujiazui for its headquarters.

Sunac drops Kaisa takeover offer

Indebted firm may solve its problems on its own

Tianjin-based developer Sunac China Holdings announced Thursday morning that it has decided to terminate the offer to acquire a stake in heavily indebted developer Kaisa Group Holdings because “certain conditions precedent have not been fulfilled.”

Kaisa later on Thursday also announced the termination on the Hong Kong bourse, but it did not offer details on how it will deal with its debts and whether it is searching for a new acquirer.

On February 6, Sunac announced the offer to acquire a 49.3 percent stake of Kaisa for the price of HK$4.55 billion ($587 million), which was considered a lifeline for the troubled company.

However, Kaisa had to meet some conditions in order to proceed with the deal. Kaisa’s debt defaults needed to be resolved, its debts had to be restructured and all irregularities in Kaisa’s operations needed to be resolved, according to a filing from Sunac on the Hong Kong bourse on February 6.

Under the termination agreement, Kaisa will now have to refund HK$1.16 billion, half of Sunac’s pre-payment, to Sunac before Friday and the rest before December 28, which may be a challenge for the indebted firm, analysts said.

Efforts to reach Kaisa failed as of press time.

Shenzhen-based Kaisa has defaulted on some of its debt payments in the past few months, which is partly the reason why its acquisition deal has drawn much attention, according to analysts.

Kaisa announced on April 20 that it had failed to pay $51.6 million in interest due from two offshore bond notes, becoming the first domestic company default in the offshore bond market.

The company also said it failed to pay a HK$400 million loan from HSBC in January. Kaisa said in a filing in February that its interest-bearing debts had reached 65 billion yuan ($10.48 billion) by the end of 2014.

“I think Kaisa may be seeking to resolve its debt problems on its own [after the deal termination], as the country’s overall property market is warming up, which may help improve the company’s cash flow,” Wang Danqing, a partner at Beijing-based ACME Consultancy, told the Global Times on Thursday.

The central bank has cut the interest rate twice since the beginning of this year, which is also good news for indebted developers, Wang noted.

There were early signs hinting at the possible termination of the deal.

Media had reported on May 26 that Kwok Ying-shing, Kaisa’s chairman, had reported to the Hong Kong securities authorities about irregularities in Sunac’s acquisition.

The move, if true, showed Kwok’s reluctance to sell the stake to Sunac, analysts said.

Kwok resigned from Kaisa as its chairman in December for “health” reasons after he was reportedly involved in an anti-corruption probe against Jiang Zunyu, a former senior Party official in Shenzhen. But Kwok reclaimed the position in April.

Li Zhanjun, an analyst from Shanghai-based housing market research firm E-house China, also said that Kaisa may seek to solve its debt problems on its own, otherwise “it would have held on to Sunac’s acquisition offer.”

This is not the first time that Sunac is seeking to acquire a developer as it looks to expand in southern China.

Sunac proposed to acquire Hangzhou-based developer Greentown China Holdings in May 2014, but the deal was also terminated in December.

“Sunac’s offer to acquire the two companies played a crucial role in helping them [Kaisa and Greentown] weather the tough times,” Li told the Global Times Thursday, as the pre-payment may have improved their cash flow.

But analysts said it is still too early to say that Kaisa is out of trouble now. Finance news portal yicai.com reported Thursday that Kwok is negotiating with overseas creditors on debt restructuring plans.

Kaisa still has not released its 2014 financial report.

Earlier media reports said that serious irregularities may have been the reason for the delay.

Sunac’s shares on the Hong Kong bourse dropped 5.73 percent after trading resumed on Thursday. Trading in Kaisa shares was still halted Thursday.

Hainan makes industry advances, but further development needed

Tourism services and resources have continued to improve in Hainan province over the past six years, despite a global recession, a report has found.

The first of its kind to be issued in Hainan, the report offers data and consulting services for building the southern island province into a world-class tourist destination.

The overall situation of the province’s tourism industry is evaluated under categories that include resources, the market for visitors, services and the environment.

The Hainan International Tourism Island Development Index Report (2015) was issued by the Hainan Provincial Tourism Development Commission, the Index Institute of the National Financial Information Center and the Hainan bureau of Xinhua News Agency.

From 2009 – when it was launched – to last year, the index, which measures the quality of the province’s tourism industry, increased from a base of 100 with average annual growth of 17.95 percent. It stood at 228.34 in 2014.

Lu Zhiyuan, director of the provincial Tourism Development Commission, said the report provided detailed references for tourism authorities to make decisions when developing the industry, and also for companies to make investment plans.

Despite the achievements, Lu said the goal of establishing Hainan as an international tourism island has not been realized. “It needs to further improve the quality of its tourism products and services,” Lu said.

He Lin, a marketing manager at a tourism agency in Haikou, said Hainan lacks high-end tourism brands, such as Macao’s casinos.

“Hainan needs to further improve its infrastructure and services,” he said.

China’s campaign to simplify administration encourages foreign investors

Japanese fashion manufacturer and retailer UNIQLO opened its first store in Ma’anshan City in east China’s Anhui Province earlier this year, thanks in part to China’s campaign to streamline administration.

With the help of a local subdistrict office, Fast Retailing (China) Trading Co., Ltd. managed to obtain a business license, despite lacking an important document.

“We needed the department store’s certificate of title for our business license before making orders and employing people. However, the construction work was not done yet and we didn’t have much time to wait,” said Qiang Lili, a manager with the company.

The company went to the city’s government affairs service center for help and learned that Ma’anshan had just launched a new regulation simplifying business location registration.

According to the new rule, which went into effect on December 31, 2014, those who temporarily lack the certificate of title for business license applications can submit proof of location from the local subdistrict office instead.

“We know the streamlining campaign is going on and we experienced the convenience this time. It’s encouraging,” said Qiang.

In addition to making business registration easier, Ma’anshan has also shortened the vetting period for investment projects. For example, the approval time for industrial projects was slashed from more than 30 to just 17 days.

“Foreign investors came for business opportunities, but the better government affairs services gave us more confidence,” Qiang said.

In the first quarter of this year, Ma’anshan City’s utilization of foreign direct investment reached 347 million U.S. dollars, up 12.8 percent year on year.

Similarly, foreign direct investment in other provinces also achieved steady growth in the first quarter of this year.

In Hubei, utilization of foreign investment hit 2.24 billion U.S.dollars, up 10.1 percent year on year. In Jiangxi, utilization of foreign investment reached 2.21 billion U.S. dollars, up 10.3 percent, and in Tianjin, it hit 6.37 billion U.S. dollars, up 10.5 percent.

Since 2013, China’s State Council has been streamlining government administration to reduce government control and unleash market vitality.

In two years, more than 700 approval items controlled by central government departments have been canceled or delegated to lower agencies, more than a third of all approval items handled by the State Council prior to streamlining.

Following the steps of the central government, local administrations also explored ways to simplify the approval process and lower the threshold for investment.

On May 12, Chinese Premier Li Keqiang again called for more efforts to streamline administration procedures at a national teleconference attended by senior and mid-level officials.

Li said the government will cancel more approval items, make business registration easier and waive administrative charges it deems unreasonable this year.

“It is a positive trend,” said Wang Yukai, a professor from the Chinese Academy of Governance. “But to create a better foreign investment environment in the long run, the government management system should also be improved.”

Retailers take online route to keep e-commerce firms at bay

Customers browse bonded products at a Guangzhou Grandbuy store. The company, the largest department-store chain in the city, has opened cross-border e-commerce experience sections in three stores that adopt the online-to-offline mode.

Every retailer in China wants a piece of the growing cross-border e-commerce pie. Department stores are no exception, and they see the sector as a promising avenue of transformation in the era of online shopping.

Guangzhou Grandbuy, the largest department-store chain in Guangzhou, capital city of Guangdong province, opened cross-border e-commerce experience sections in three stores on May 15 that adopt the online-to-offline mode, which is “experience in store, purchase online”.

People can browse a display of bonded goods in the experience section with help from shopping guides and place orders on gbhui.com, Grandbuy’s e-commerce platform, in the store or at home.

“Most customers are not familiar with foreign goods so there is a great need for offline experience stores in cross-border e-commerce,” said Liang Hailing, general manager of the e-commerce department of Guangzhou Grandbuy.

Display sites for bonded goods are springing up across the country.

Seven such centers, including the three at Grandbuy, have opened in Guangzhou in the past month.

Similar centers have been set up in Dalian, Liaoning province and Chongqing municipality.

About 100,000 people made reservations to visit Guangzhou’s largest shopping and display store for bonded goods, located in the Nansha Free Trade Zone, during the three days after it opened on May 1, according to the Information Times.

But it is unclear whether the store can continue to draw crowds, since it is at least an hour’s drive by car or 90 minutes by subway from the city center.

Department store chains with many branches have an edge in terms of sales channels, convenient locations and after-sales service, according to Liang from Guangzhou Grandbuy.

“What we are doing is to open cross-border e-commerce experience stores ‘on customers’ doorsteps’. Grandbuy has 26 stores, which are its biggest resource to achieve the goal,” Liang told China Daily.

The company’s first three cross-border e-commerce experience sections are located in bustling shopping areas and convenient to visit by using public transportation. The retail giant will expand its cross-border e-commerce business to all its 26 stores in the coming two to three years, it said in a recent press release.

Customers can return unsatisfactory goods to the department store and get refunds, without the need to apply online and re-ship the goods to overseas sellers.

“Cross-border e-commerce is still new to many Chinese customers and department stores are a familiar and reliable platform for them to embrace the new shopping mode,” Liang said.

“Cross-border e-commerce and traditional e-commerce target different consumer groups. Those who will spend on imported goods … are middle-and high-end customers, a group that largely overlaps with department stores’ regular customers.”

Scenting a business opportunity, department stores in China have dipped their toes in cross-border e-commerce one after another.

Chongqing Department Store launched its cross-border e-commerce platform in September last year and opened an offline experience store a month later.

Department stores in Guangzhou, where cross-border e-commerce accounts for 70 percent of the country’s total, have also shown strong interest. The Guangzhou Friendship Store and Guangzhou Grandview are also preparing to launch such stores, according to Guangzhou Daily.

“Department stores in China are embracing the O2O?online-to-offline?business mode to address the challenge from online shopping. Launching cross-border e-commerce experience stores is one way to meet the challenge,” Gordon Lam, general manager of the southern China office of Li & Fung Development (China) Ltd, told China Daily.

“However, they should be careful and not just follow the trend. They need to make a careful review of their supply chain and logistics arrangements to avoid competition between bonded and duty-paid goods as far as possible and ensure efficient delivery.”

Ctrip buys eLong stake

Travel booking tie-up seen as boosting position

Ctrip.com International Ltd, China’s largest online travel service provider, acquired a nearly 40 percent stake in domestic peer eLong Inc, a move analysts said on Sunday will further solidify its position amid fierce competition from its main rival Qunar.com.

NASDAQ-listed Ctrip announced on Friday that it had bought 37.6 percent of eLong from U.S.-based online travel company Expedia Inc on Friday for approximately $400 million, according to a press release on its website.

Upon the completion of the deal on Friday, Ctrip and the US seller also agreed to cooperate with each other in terms of user bases and product offerings, according to the press release.

Meanwhile, Expedia, which held a 62.4 percent share of eLong before the transaction, sold the rest of its ownership in eLong to other purchasers including Guangzhou-based hotel operator Plateno Group at an average price of $14.63 per share, according to a filing by eLong on its website on Friday.

The filing did not reveal the reason for the sale of eLong shares. Neither Expedia nor eLong could be reached for comment on Sunday outside of working hours.

“I’m not surprised to see Expedia divesting shares of eLong, which has suffered big losses and slow growth in its user base,” Wei Changren, CEO of Beijing-based Jinlü Consulting, told the Global Times on Sunday.

NASDAQ-listed eLong on April 30 recorded a net loss of 180.7 million yuan ($29.2 million) in the first quarter of the year, widening from 35.4 million yuan over the same period of the previous year.

Its total revenue, gained mainly from accommodation reservation, declined to 225.8 million yuan during the quarter from 262.7 million yuan a year earlier.

ELong cannot really generate a good performance, as its main focus on accommodation reservation cannot help the company steal consumers away from competitors – Ctrip and Qunar – that offer more comprehensive businesses, said Wei.

A report released by Beijing-based market research firm Analysys International on May 18 showed that transportation ticket booking is now the major activity Chinese people conduct via online travel websites, accounting for 71.3 percent of the total transaction volume in the first quarter of 2015, followed by accommodation reservation.

Zhu Zhengyu, an analyst with Analysys International, however, believes that China’s online hotel booking market is expected to foresee a fast growth in the following years.

The market reception currently is not warm, but online hotel booking will become heated amid online travel agencies’ active promotion and is estimated to reach 112.27 billion yuan in 2017, up 114.8 percent from 2014, wrote Zhu in a research note e-mailed to the Global Times on Sunday.

After the disclosure of Ctrip’s acquisition, eLong’s share surged 8.67 percent, closing at $22.44 on Friday, while Ctrip closed up 17.56 percent to $84.63.

By contrast, its rival Qunar saw its shares dropping 1.04 percent to reach $52.34 on the NASDAQ on Friday.

The acquisition of eLong can further Ctrip’s presence in the online hotel booking market, where the former provides budget and low-end hotel listings and the latter mainly targets high-end consumers, Zhu wrote in his report.

Both Zhu and Wei noted that with eLong as its new partner, Ctrip, which has also invested in rivals Tongcheng and Tuniu respectively in April and December 2014, will generate more pressure on Qunar.

“Merger and cooperation is likely an industry trend, especially in the mobile Internet sector where the accumulation of a user base is costly and uneasy due to a heated rivalry,” said Wei, calling for tie-ups between Qunar and Ctrip to help relieve a cutthroat price war between the two giants.

Qunar, backed by search engine giant Baidu Inc, posted a net loss of 1.84 billion yuan in 2014, a big increase from a loss of 187 million yuan in 2013.

The company’s final result for the first quarter of 2015 has not been made available to the public.

Ctrip on May 13 posted a net loss of 126 million yuan in the first quarter of the year, narrowing down from the previous quarter’s loss of 224 million yuan.

The two companies could not be reached for comment by press time.

Prada gets a makeover

Based on the 2015 spring/summer collection, Prada’s new store designs by some of the most acclaimed costume designers in the film industry, were shown for the first time in Beijing last month.

Top costume designers from Hollywood have re-designed the fashion label’s flagship stores around the world. Sun Yuanqing looks at their recent changes in Beijing.

Fashion and film have always been closely linked. In Prada’s latest project, Iconoclasts, they come even closer.

In 2009, the Iconoclasts, which literally means creating a classic by breaking the norm, recruited renowned fashion editors such as Carine Roitfeld, Katie Grand, Alex White and Olivier Rizzo to remodel Prada stores in Paris, Milan, London and New York.

This year, Prada invited some of the most acclaimed costume designers in the film industry to recreate its flagship stores, based on the 2015 spring/summer collection. First staged in New York, London and Paris during fashion weeks, the new store designs were shown simultaneously for the first time in Beijing last month.

Among the designers is Milena Canonero, the legendary Italian designer, who recently won an Oscar for her work on The Grand Budapest Hotel. It was her ninth nomination and fourth win at the Oscars. Her portfolio includes classic films such as A Clockwork Orange, Barry Lyndon and Out of Africa.

Canonero re-created her design in Prada’s Paris store in Beijing’s In88 branch. She drew on the feng shui philosophy, reinventing the space with elements such as water, fire, air, earth and most importantly, human love. Mannequins wore Prada clothes, striking unconventional poses expressing love and loss of love.

The feng shui philosophy has harmony with nature at its core, which compliments the rich and diverse style of Prada’s new collection, Canonero says.

“It is very exciting to have this opportunity to display my project in China. I have a great love for this country, its history and traditions. I am interested in seeing how people will react to our Iconoclasts,” she adds.

Arianne Phillips, stylist on Kingsman: The Secret Service, was responsible for the re-design of the Shin Kong Place store.

Phillips is a two-time Oscar nominee for Walk the Line and W.E.. She was also nominated for the British Academy of Film and Television Arts awards for A Single Man. She is also Madonna’s stylist.

Phillips turned the store into a “cinematic dreamscape that tells stories and creates characters”. Natural elements like purple sand, rocks and trees, as well as moss and orchids, adorn the store windows.

“Nature to me is real beauty,” she says adding that the latest collection is as close to beauty as nature.

Now, mannequins in the store wear coats covered in patchwork and tribal designs, inspired by Prada’s new collection.

Phillips recently directed her first film, a five-minute short for Prada called Passage. The movie, shot in the desert in California, depicts a girl’s conceptual journey from one place to another.

The movie aims to give another view of the collection, she says.

Michael Wilkinson, who designed for the movie American Hustle, and his partner Tim Martin brought their work from Prada’s Broadway store in New York to its store in China World Mall. They transformed the venue into a party from the 1970s, a great period of self-expression. The store is envisioned as a place where “uptown meets downtown and celebrity meets street style”.

Mannequins are dressed in brocade from the Prada spring/summer 2015 collection mixed with archive pieces. The dresses are decorated with mirrored tiles, sequins and stones, as well as headpieces inspired by Peking Opera.

Miuccia Prada, designer and CEO of the fashion house, remains the biggest inspiration for the designers.

“She always surprises me. She doesn’t follow trend and we want to honor that spirit,” says Wilkinson.

Lenovo, Alibaba in ‘smart’ alliance

Smart TVs of Lenovo Group Ltd on display at a home appliance expo in Beijing. The company is setting up a new subsidiary to sell televisions online.

PC maker, e-commerce firm in partnership to sell television sets online

Lenovo Group Ltd is setting up a new subsidiary to sell televisions online, the company said on Wednesday.

Joining hands with Alibaba Group Holding Ltd’s cloud computing arm, the new company is Lenovo’s latest attempt to catch up with market leaders Xiaomi Corp and LeTV Holdings Co Ltd.

Lenovo had until now been a niche player in the TV market after more than three years of unsuccessful competition with Xiaomi and LeTV. Its strategy of relying on existing sales outlets and slow response to emerging demands, such as premium video content and streaming sports broadcasts, were the major reasons cited for its failure to catch up with peers.

Xiong Wen, who has been heading the Internet TV business for Lenovo, was appointed the CEO of the new company called 17TV. On Wednesday, Xiong introduced a 55-inch TV that can play ultra-high-definition and three-dimensional videos content. The product is priced at 2,999 yuan ($483), about 1,000 yuan cheaper than Xiaomi’s flagship TV.

Alibaba’s cloud unit, which runs a self-developed operating system YunOS, will be pre-installed on the TV sets of Lenovo. YunOS, a four-year-old system, is available on a small number of partners’ smartphones, tablets and TVs and its market share is nothing compared to Google Inc’s Android.

Xiong did not disclose details of the partnership with Alibaba. Besides operating systems, the Hanghzou-based company will provide video content and an online retail platform for 17TV, according to information acquired by China Daily. Online sales will be the main focus for 17TV.

The new company has also partnered with the video arm of Baidu and Shanghai-based BesTV New Media Co Ltd to provide more than 800,000 hours of content, according to Xiong.

“Lenovo is good at providing high-quality after-sales services and it will be a major strength for us,” he said, adding Lenovo-made hardware and service plus Alibaba’s software support will help 17TV acquire enough market share to be a strong player. Xiong did not disclose the sales target.

LeTV is looking to sell about 3.5 million TVs and Xiaomi is aiming at 1.5 million units, according to research firm All View Consulting.

Antonio Wang, a Beijing-based analyst at industry consultancy International Data Corp, said grabbing market share will not be the major target for 17TV. Instead, the company will help Lenovo find a way of doing business on the Internet.

“A smaller, more independent TV unit will give Lenovo flexibility and quicker answers to the market changes. Lenovo is desperate to accumulate online marketing capability,” Wang said. “Lack of online marketing experience saw it lag LeTV and other Internet-oriented vendors.”

Wang said giving Xiong’s team a bigger say over marketing may help Lenovo win some of the shipments in the long run.

Tencent Holdings Ltd, Baidu Inc and Alibaba Group Holding Ltd have all been in the smart TV sector for about two years, but stiff competition has driven most of the Internet giants out of the market. Xiaomi and LeTV are the strongest emerging players to challenge traditional TV makers such as Samsung Electronics Co, Sharp Corp and local vendors TCL Corp and Skyworth Group.

The market share of Internet TVs remains small in the Chinese TV market, but the growth is vibrant. About 8 percent of the TVs sold in the country during the first quarter were models that can be connected to the Web, while the proportion was 3 percent a year ago, said All View Consulting.

Tencent to launch ideas incubator in SW China

Tencent will build a center for tech startup in southwest China’s Chongqing in partnership with the municipal government, the company said on Tuesday.

The 28,000 sq meter shop, located at the new north zone of Chongqing, can house up to 230 startups and will open this year.

Tencent has plans for 25 such ideas incubators across China.

The plan is part of a broader deal between Tencent and Chongqing to let the Internet play a more active role in regional economic growth.

Chinese Premier Li Keqiang has promised to encourage innovation from the grassroots with various forms of government support including funding and office space.

Tencent, Alibaba and Baidu are investing in a growing number of tech startups, necessary in the intense competition to stay ahead in China’s internet sector.

Steel companies eye online success

An iron and steel company in Lianyungang, Jiangsu province. E-commerce is expected to help steel firms avoid overcapacity and address low profitability concerns.

The China Steel and Iron Association and several industry partners joined hands to set up the Steel E-commerce Research Center on Monday, with an eye on upgrading and transforming the industry reeling from low profits.

The research center, initiated by the China Metallurgical Industry Planning and Research Institute, will conduct preliminary research for steel companies taking the e-commerce route and also provide suggestions to policymakers to help the industry develop in a healthy and regulated manner.

Li Xinchuang, head of the institute, said existing problems for the industry include vicious competition, inaccurate trading data and improper disclosure of customer information, all of which need to be solved and regulated urgently.

According to industry data, there are 178 steel e-commerce trading platforms at present in China, accounting for about 27.6 percent of the domestic online commodity trading platforms.

Last year, steel e-commerce platforms reported total trading volume of more than 60 million metric tons and transaction value of over 200 billion yuan ($32.34 billion), accounting for about 10 percent of the total steel traded in the country.

Wang Changhui, co-founder of Zhaogang.com, one of the leading steel e-commerce platforms in China, said his platform has about 40,000 monthly active users and they have created a huge database that can be used by other steel companies.

“The logistics cost of steel trading in China is much higher than in other countries,” he said. “The platform will effectively cut logistics cost for steel traders by reducing intermediate links.”

According to Wang, the platform had an average trading volume of about 3 million tons of steel every month. “We will provide reliable storage, processing, logistics and financing services for small steel traders, which will help them survive in the sluggish market,” he said.

Nie Linhai, deputy director-general of the department of electronic commerce and information at the Ministry of Commerce, said China’s e-commerce sector had embraced rapid growth in the past few years and it is time to consolidate the gains.

“E-commerce transactions have seen a 40 percent year-on-year growth from last year during the first quarter of this year. However, medium and small-scale steel companies still should do proper due diligence before they take the e-commerce route to avoid risks because innovation is easy to talk about but difficult to achieve,” Nie said.

Gan Yong, vice-president of the Chinese Academy of Engineering, said taking the e-commerce route will help steel firms avoid the overcapacity situation and address low profitability concerns.