Archives April 2014

ZTE banks on patents to expand

ZTE Corp, a leading Chinese telecom equipment and smartphone manufacturer, aims to increase its presence in international markets and establish itself as a multinational firm through boosting the number of its patents.

“We’ve made the development of intellectual property rights our company’s core strategy, especially when expanding to overseas markets,” said Guo Xiaoming, vice-president of the company, which is based in Shenzhen, Guangdong province.

Guo said that if a company doesn’t have a solid foundation in intellectual property rights, it will be very difficult to establish itself in overseas markets, especially in matured markets such as the United States and Europe.

“We’ve been putting the development of intellectual property rights on top of our company’s agenda. We’ve also been investing heavily in research and development,” he told a media briefing on Monday.

Guo said ZTE invests about 10 percent of its annual sales on research and development every year. It has injected more than 40 billion yuan ($6.42 billion) on R&D over the past five years.

According to a report from the World Intellectual Property Organization in March, ZTE filed 2,309 Patent and Cooperation Treaty applications in 2013, becoming the world’s second largest patent filer.

Panasonic Corp of Japan – with 2,881 published applications — was the top applicant last year. ZTE was the top applicant in 2011 and 2012, while Panasonic headed the applicants’ list in 2009 and 2010.

Rather than the quantity of patents, Guo said ZTE eyes their quality.

“The cost of filing a patent in Western countries is quite high — usually 50,000 to 80,000 yuan for each application. We only file those inventions that have the biggest potential in monetization,” he said.

Weibo makes debut on Nasdaq


Weibo Corp, Twitter Inc’s counterpart in China, made its debut on the Nasdaq in the United States on Thursday, becoming the first publicly traded Chinese social media company.

The micro-blogging service, owned by Sina Corp and Alibaba Group Holding Ltd, priced its initial public offering at $17 per share, which was at the bottom of its planned range between $17 and $19. It opened unchanged at the issue price.

The Beijing-based company, which began trading publicly under the ticker WB, said it hopes to sell 16.8 million Class-A American depositary shares, less than its original plan of selling 20 million shares.

The IPO would allow Weibo to raise up to $328.44 million in capital. Twitter Inc raised $1.8 billion from its IPO in November 2013.

Charles Chao, chief executive officer and chairman of the board of Sina Corp, said the setting of any IPO price is based on demand and supply in the stock market.

“Because of the recent downturn of the IPO market in the US, we are happy that we can still set Weibo’s IPO price at the bottom of our initial targeted range,” Chao said at an online media briefing to a group of reporters on Thursday night Beijing time, ahead of the IPO.

Weibo, which reported a monthly active user base of 144 million as of March this year, first filed for its IPO on March 14, joining seven other Chinese Internet companies seeking capital in the US. That doesn’t include China’s e-commerce conglomerate Alibaba, which is approaching a highly anticipated IPO in the US.

Alibaba agreed a year ago to buy a 19 percent stake in Weibo for $586 million and plans to exercise an option to raise that stake to 32 percent.

Weibo was established in 2009. The company has only been profitable in the fourth quarter of 2013. The company reported a net loss of $47.4 million in the first quarter of this year. This is more than twice the $19.2 million loss it posted in the same quarter last year.

Revenues of $67.5 million in the first quarter of this year were more than double the previous year’s, but they fell about 5.5 percent from the previous quarter. The company attributed the shrinking revenues to the seasonal effects of the Chinese Lunar New Year, saying the performance was in line with its expectations.

Analysts worried that Wall Street investors may not be as enthusiastic about Weibo as they were about Twitter’s IPO five months ago.

Tian Hou, chief analyst with T. H. Capital LLC, an independent research and investment advisory firm, said it was no surprise Weibo failed to reach its initial target of raising $500 million as it suggested it would in its Securities and Exchange Commission filings.

“The primary reason is the downturn of the overall stock market in the US. Many US-listed Internet companies, such as China’s e-commerce company Vipshop Holdings Ltd and China’s search giant Baidu Inc, saw their share prices drop in recent weeks,” Tian said.

Wang Xiaofeng, an analyst with US-based consultancy Forrester Research Inc, said Weibo missed the best time to go public because of the changing dynamic in the Internet industry in China, which has seen more powerful competitors emerging over the past year.

“We are all aware that it has been ‘beaten up’ by Tencent Holdings Ltd’s WeChat, which is the most popular messaging app in China’s mobile Internet sector,” she said.

According to Wang, the two platforms differ in their potential for public broadcasting and promotional use, to which Weibo is currently better suited.

“The biggest challenge for Sina Weibo therefore is finding a way to increase the targeting ability of its current advertising and provide more effective marketing offerings to marketers before they find alternative social platforms on which to market or before user activity drops further,” she said.

Zurich Insurance hunts for M&A targets in China

Swiss giant, attracted by possibilities for growth, seeking Shanghai branch

Zurich Insurance Co Ltd is actively seeking merger and acquisition opportunities in China to fuel its business expansion, a company executive said on Thursday.

“We are looking for appropriate M&A opportunities to boost our presence and expand our business scope,” said Stuart A. Spencer, chief executive officer of general insurance for the Asia-Pacific region.

He said Zurich adopted a “defensive” stance during the global financial crisis. Now, thanks to a solid balance sheet, the company wants to be more aggressive.

“We have no preference as to whether the target should be a domestic one or an international one having operations in China, but it should be a strategic and cultural fit with our business,” Spencer said.

Last April, the China Insurance Regulatory Commission approved the Swiss company’s plan to transform its Beijing branch into a wholly owned subsidiary, making it easier to expand across the country.

Spencer said the company has since submitted an application to the CIRC to open a branch in Shanghai.

Zurich General Insurance Co (China) Ltd generated premium income of 496 million yuan ($80 million) last year, up 16.6 percent year-on-year.

“We expect to maintain a growth rate no lower than that this year,” said Spencer. “And we aim to achieve a healthy profit margin within three years.”

China’s economic growth has been slowing, but Spencer said that the company is still extremely bullish on its business prospects in the nation.

“China’s economy remains very resilient, and it is incredible for the world’s second-biggest economy to maintain such rapid growth,” said Spencer.

The country’s economic restructuring to give consumption more of a role is good news for the insurance industry, he said.

According to Spencer, the company doesn’t plan to be the largest player in the market. “We aim to generate underwriting returns, and we will not be seduced by mere rapid growth,” said Spencer. “Massive scale never interests us, but we do want to be bigger than the scale we have right now,” he added.

The company is closely watching conditions in the vehicle insurance market, but its focus remains on liability insurance and special financial insurance, according to Spencer. Profit margins in vehicle insurance are regarded as not very attractive.

China’s continued urbanization and rising household wealth will sustain the growth dynamics in the country’s nonlife insurance sector, but intense competition will further weaken the sector’s underwriting margins in 2014, Fitch Ratings Inc said in a report.

In light of contracting underwriting margins, Fitch believes small insurance companies with limited operating scale and less diversified insurance books will post weaker operating results in the coming year.

Nonlife players are likely to see premium growth of 15 to 20 percent over the next 12 to 24 months, according a report by Standard & Poor’s Financial Services LLC.

But the segment’s performance can be volatile and subject to unexpected natural disasters. Inadequate pricing, or underestimated risk profiles, of commercial property and marine lines in China are likely to persist because of stiff competition, according to S&P.

Major listed Chinese nonlife insurers will still achieve growth in their underwriting surpluses, albeit at a slower pace, because of diverse revenue streams and better spread of risk.

“Ongoing business expansion coupled with slower surplus growth will continue to pose a strain on insurers’ capital adequacy, although many insurers improved their solvency adequacy through fresh equity injections or subordinated debt issues over the past year,” said Terrence Wong, director of insurance at Fitch.

Jaguar Land Rover aims for sustainable growth in China


This year the Jaguar F-TYPE gains traction in Chinese market.

Jaguar Land Rover China finished the first quarter of 2014 positively, with sales of more than 29,500 vehicles, marking a year-on-year growth of 36 percent.

Models with 3.0L engines and less made up about 98 percent of the sales, due to their fuel efficiency and enhanced performance.

In line with the healthy market development, Jaguar Land Rover is starting a new chapter of sustainable growth in China, with a focus on customer satisfaction.

“After our pivotal year in 2013 when China became both Jaguar and Land Rover’s single largest global market, this year we are glad to see continued growth as even more Chinese consumers appreciate our British brands,” said Bob Grace, regional president of Jaguar Land Rover Greater China.

“Moving forward, our customers remain at the heart of everything we do, as we target sustainable development in China. As we do so, we are also endeavoring to further our efforts to give back to the communities we operate in with our CSR programs,” he said.

Making drivers feel ‘alive’

With customers attracted to its “Alive” brand, Jaguar grew a healthy 49 percent year-on-year, selling more than 6,100 units.

Sales of consistent bestsellers, like the Jaguar XJ and XF, were driven by the appeal of the 2.0L I4 turbocharged and 3.0L V6 supercharged engine variants, which offer added efficiency without sacrificing performance.

This year, the dynamically capable, performance-focused Jaguar, the F-TYPE, also gained traction in Chinese market, as an all-aluminum two-seater sports car engineered for high performance.

Determined to “never stop achieving”, Jaguar plans to go even further in the market with new products and campaigns featuring new ambassador David Beckham who embodies the brand spirit.

Innovating premium SUVs

Land Rover strengthened its position as a world-leading premium SUV maker with its first quarter sales of more than 23,400 units, up 33 percent.

Popular models like the Freelander 2 and the Range Rover Evoque with the world’s first 9-speed automatic transmission, continued to lead the line-up.

The success of the all-new Range Rover and Range Rover Sport, which feature the lightweight all-aluminum monocoque body structure, prove that customers appreciate the benefits of advanced engineering and an enhanced driving experience.

As Land Rover celebrates 25 years of the Discovery, it will feature its Discovery Vision Concept Vehicle at the upcoming Beijing Auto Show.

Putting customers first

Leveraging its network of 248 authorized and 144 operational dealer partners throughout China, Jaguar Land Rover is committed to serving its customers as best it can.

As the automaker enters a period of sustained development in China, its “customer first” philosophy will continue to drive its foremost goal of delivering excellence, whether in products, services, or brand experiences.

Disney-Shanghai partnership portends a creative boost

Walt Disney Studios and Shanghai Media Group Pictures will co-develop stories with Chinese elements, says an executive of the Magic Kingdom.

“The deal focuses on the weakest point in the Chinese film industry, the storytelling,” says Stanley Cheung, managing director of The Walt Disney Company, China.

Under the deal, US-based action, adventure and fantasy writers will team with locally based Chinese writers and filmmakers to develop stories and scripts that bear all the hallmarks of Disney films and feature authentic Chinese elements fit for local co-production and aimed at the international market.

The two sides will jointly set up a fund, collecting scripts in both English and Chinese and co-owning the copyrights.

“SMG is proud to work with Disney to create a new era of classic content featuring uniquely Chinese storytelling elements for audiences around the world,” says Su Xiao, chief executive officer of SMG Pictures.

“The combination of our media coverage and understanding of the China market and Disney’s long-standing success in telling magical stories will surely spark a brand-new chemistry that transcends age and borders.”

China’s box-office revenue has sustained rapid growth over the past decade. In 2013, the year’s gross was 21.8 billion yuan ($3.5 billion), second only to the United States.

The first quarter of 2014 has seen a 31-percent rise over the same period last year, reaching 6.7 billion yuan.

For Hollywood blockbusters, only 34 of which can be imported for theatrical release every year in China, the country has become a tempting territory.

“The Chinese market is absolutely an important market now,” says Cheung. “Films with Chinese elements should sell.”

The cross-cultural exchange will expand training opportunities between Chinese and US writers and filmmakers.

In 2012, Disney joined with the Ministry of Culture’s China Animation Group to be a founding partner of the National Chinese Animation Creative Research and Development Project. The initiative, now in its third year, aims to advance China’s animation industry and train local talent and promote the development of Chinese content and franchises.

In the Beijing Film Festival, which opened on Wednesday, Disney will host a forum on animation, to be attended by the producer and visual artist behind Frozen, the Academy Award-winning Disney film that has generated nearly 300 million yuan in ticket sales in China.

The nongovernmental communications between filmmakers in the two countries have also been expanding.

In 2013, Paramount Pictures and the Motion Picture Association of America invited five Chinese directors, including Xue Xiaolu of Finding Mr. Right and Wuershan of The Painted Skin series, to visit their studios and see a preview of the films for summer 2014. The directors also met with executives of different departments and exchanged their visions for the industry.

The MPA is also hosting a film workshop during the Beijing Film Festival. Hollywood producers and executives and established Chinese filmmakers will spend two days together, during which rising directors will pitch their stories.

“Creativity is not built in one day,” says Cheung of Walt Disney.

“But I have full confidence that we will finally find appealing global stories with a Chinese touch.”

Internet recruiter aims for base of millions

Liepin.com, China’s leading Internet-based recruitment service provider, plans to set up a global talent development center with a base of 20 million professionals by the end of 2014, its CEO said on Tuesday.

The company announced on the same day that it received C-round financing totaling $70 million from equity investment companies Warburg Pincus and Matrix Partners China, which amounts to the largest investment in the sector for the past five years.

Liepin.com previously received A – and B-round financing totaling about $10 million from Matrix Partners China.

The new funding will be used to set up a global talent development center and promote the company’s brand, Chief Executive Officer Dai Kebin told China Daily.

Dai said the company has already signed up 11 million professional staff, and the candidate base will reach 20 million by year-end.

Dai said Liepin.com has more than 100,000 enterprise clients, and each pays the company more than 10,000 yuan ($1,600) annually.

“Our profits mainly come from enterprise clients and employees,” said Dai, adding that the fees for enterprise clients are very competitive compared with those charged by traditional recruiters.

A headhunter in China will charge an employer about 20 percent to 30 percent of an employee’s annual income, but Liepin.com charges only for a package of services, said Dai.

“Liepin.com will promote the healthy development of the Chinese recruitment services market because we solve the problem of information asymmetry,” said Dai.

Dai said headhunters who only can provide employees’ resumes will be less competitive.

“Warburg Pincus has been following the Internet-based recruitment sector closely in recent years and was impressed with Liepin’s unique business model and the changes Liepin has brought to the recruitment sector,” said Julian Cheng, a managing director of Warburg Pincus.

Cheng said traditional Internet-based recruitment agencies basically operate as advertisement platforms for employers, but Liepin.com has created an online model that is built around the needs of professionals and members.

“After witnessing the rapid growth of Liepin.com in the past three years, Matrix Partners China is more and more convinced that Liepin’s business model is shaking up the current Internet-based recruitment sector and has singled itself out as the one to win,” said David Zhang, a founding managing partner of Matrix Partners China.

Zhang said the new investment will help the company improve its vertical platform, which incorporrates personal computers, mobile and call center services. That in turn will maximize the value it will provide to its professional members.

According to Zhang, Matrix Partners China favors investing in platform companies, and Liepin.com is a career development platform connecting employers, headhunters and professional managers, and catering to their recruitment needs.

“But operating a good platform company is very difficult, and Liepin.com has made it, so we are not afraid that the Internet giants such as Baidu, Alibaba or Tencent will enter the market,” said Zhang.

Beijing ranked most global city on the mainland


Beijing has made it into the top 10 of the world’s most global cities for the first time, ranking eighth in the A.T. Kearney Global Cities Index.

The index, introduced in 2008 by the global consulting firm, includes 84 cities.

Beijing scored an overall 3.5 in five categories, including business activity, human capital, information exchange, cultural experience and political engagement. It stood out from other Chinese cities in terms of the number of Fortune 500 companies, international schools, broadband subscribers and museums.

New York, London and Paris have held fast to their positions as first through third since 2012.

“The increasing global importance of Chinese companies has helped catapult Beijing to fourth place on the business activity dimension. This, together with some improvement in scores for human capital and cultural exchange, has been more than enough to offset declining relative performance in information exchange and international political engagement,” A.T. Kearney experts explained.

Johnson Chng, managing director of A.T. Kearney Greater China, said, “Clearly Beijing went up in the ranking due to its rising importance as a business center in addition to being the political center of China.”

However, he added, the air pollution issue is now a growing concern for many Beijing residents that, if not addressed soon, will cause an outflow of talent.

“In fact, many of my friends and business associates have moved out of Beijing in the last six months, and many are indeed contemplating the idea, too, for the sake of their family,” he said.

In a recent survey conducted by MRIC Group, an international executive recruitment firm, 47.3 percent of the 269 respondents in Beijing said they would like to relocate this year because of air quality concerns. The most-preferred destinations are North America, Shanghai, Europe, Hong Kong, Singapore and New Zealand.

As human capital is weighing ever more among the five categories, some companies have to improve the working environment to retain talent regarding the air quality in Beijing.

“Companies should prepare air purifiers especially when the buildings don’t have such machines,” said Robert Parkinson, founder and managing director of the international recruitment group RMG Selection.

Shanghai, ranking 18th in the index, was the only city on the Chinese mainland that came close to Beijing. In fact, it scored higher than Beijing in human capital, given its larger foreign-born population. Shanghai also performed well in business activity.

Beijing lags behind Shanghai in human capital because of the capital city’s “size of the foreign-born population, scores of universities in the global 500, number of inhabitants with tertiary degrees, international student population and number of international schools,” explained Chng from A.T. Kearney.

On the other hand, Shanghai ranked lower due to a less-ideal score in political engagement. Specifically, Shanghai is home to a smaller number of international organizations, embassies and consulates, think tanks, political conferences and local institutions with international reach.

The Shanghai Pilot Free Trade Zone will certainly help the city’s globalization in the long term. However, the impact and the speed of that depends on policy implementation as there are still lots of details to be sorted out in terms of how exactly Shanghai FTZ will work, Chng said.

“In the short term, I do not see any material change as most companies are simply trying to take advantage of the FTZ to help with the existing business rather than attracting significant new business,” said Chng.

Other Chinese cities in the list saw their rankings drop.

Guangzhou dropped from its rank of 60 to 66 this year due to a significant decrease in political engagement. Shenzhen dropped from 65 to 73 due to a decline in its human capital score.

Tencent seeks innovation with Qianhai bank

Tencent is scouting for innovation opportunities in Internet finance in the Qianhai Economic Zone in Shenzhen as the company has won the license to set up a private bank.

“Tencent will initiate the establishment of a privately-owned bank in Qianhai, Shenzhen,” the Internet giant said in a statement yesterday. Qianhai has been picked as a special economic zone in Shenzhen to boost cross-border trade and investment with Hong Kong.

Tencent, whose private bank proposal is currently being reviewed by the China Banking Regulatory Commission, will leverage its advantage in the Internet industry to focus on online finance innovation to better serve its users more efficiently, according to the statement.

Tencent is hiring senior managers to develop the new bank’s strategy, China National Radio said on its website yesterday, citing unnamed sources from the Shenzhen Financial Services Office which, however, didn’t comment.

Chen Zhiwu, professor of finance at the Yale School of Management, said at the Boao Forum last week that private banks should operate in regions that lack financial services and where state-owned banks don’t have a presence. He suggested Gansu, Yunnan and Shaanxi provinces and the Guangxi Zhuang Autonomous Region.

The State Council has approved the program to set up five private banks in Shanghai, Tianjin and the provinces of Guangdong and Zhejiang.

Wal-Mart to shut down outlet in Hangzhou


A customer shops at Wal-Mart’s Zhaohui store in Hangzhou on Tuesday. Wal-Mart, the world’s largest retailer by revenue, decided to shut down more than 20 outlets in China this year.

Closing part of company’s plan to jettison underperforming stores

Wal-Mart Stores Inc, the world’s largest retailer by revenue, plans to shut down another underperforming store?in Hangzhou, Zhejiang province?in late April, while a compensation dispute with employees from an inland store that closed in March remains unsolved.

Hu Yinghua, a saleswoman at Wal-Mart’s Zhaohui store in Hangzhou, said they had a meeting on Wednesday afternoon as a formal notice of the closing of the store by the end of this month.

“The informal notification came on Tuesday night via text message. We have to choose before April 23 whether to be sent to other Wal-Mart stores in the city, or leave the company with a certain amount of compensation,” she said.

Hu said upper-level managers explained during the meeting that the closure was strategically necessary.

There were a few customers at the store on Wednesday, but some shelves were already empty.

Shirley Zhang, media director from Wal-Mart China’s Department of Corporate Affairs, confirmed that the store will close on April 23 as a part of the company’s plan of shutting down those failing to make a profit.

The multinational company has opened about 400 stores on the Chinese mainland since it entered the market in the mid-1990s. The company decided to shut down more than 20 outlets in China this year because those stores comprise about 9 percent of the total, but have contributed only 2 to 3 percent of the total sales volume from 2013 to date, she said.

“We take these moves to achieve quality of growth, and we think the strategy adjustment will help us to better meet the demands of customers,” she said.

Zhang said the company has tried to make proper arrangements for the employees affected by the closures, including allowing them to transfer to any outlet in China and subsidizing their relocation expenses, including transportation and accommodations.

However, the company’s retreat from Changde was not seen as reasonable or fair by most of its local employees. More than 70 out of 135 employees from the store have asked their trade union to seek better compensation from the company after Wal-Mart told the workers on March 5 that the store would be closed in two weeks.

Huang Xingguo, chairman of the Changde store’s trade union, said Wal-Mart did not provide an official notification to the trade union in advance for such a vital decision as the law stipulates and failed to show due respect to its employees.

“The day they announced the closure, employees from other cities arrived at the supermarket to replace our workers. It was humiliating and discriminatory,” said Huang, whom employees elected as the trade union chairman in 2013.

He said the union has asked city authorities for formal arbitration to seek workers’ rights in terms of collective negotiation, higher compensation for the mass layoffs, and pay for time not worked during the dispute.

“We ask Wal-Mart to double the existing compensation, but that is negotiable if the company is willing to resume dialogue,” he said. “However, the company is busy removing its assets and has refused dialogue since late March.”

Huang said Wal-Mart’s tough stance was backed by inappropriate intervention from the local government.

He said the district’s labor department provided written material to recognize that Wal-Mart closed its store in Changde legally, and police arrested several workers who took part in peaceful protests on March 21.

A labor inspection official surnamed Tan from Changde’s Wuling district, who has been working as a mediator in the case, said the situation is “complicated” and urged workers to resort to legal channels to defend their rights.

Zhang, the media director from Wal-Mart China, defended the company’s moves.

“Personally, I feel sympathetic toward these workers and understand their requirement for higher compensation, but our company has to handle that in accordance with the law,” she said.

But Chang Kai, head of the School of Labor and Human Resources at Renmin University of China who participated in the legislation work for the Labor Contract Law from 2006 to 2008, believes Wal-Mart lacks legal justification for its behavior.

“The Changde outlet is just a branch of Wal-Mart, so it can’t terminate employees’ contracts under the name of disbanding the enterprise,” he said. Under Chinese law, the company needs to provide an official resolution from a shareholders meeting to legitimize its decision to end its contracts with employees.

“What Wal-Mart did is actually a mass layoff, which requires the employer to inform workers one month in advance and listen to the trade union’s suggestion for staff reallocation, which Wal-Mart has failed to do,” he said.

Chang also said the trade union of Changde’s Wal-Mart seeking better treatment for workers is significant, as it will set an example for similar cases in the future.

E-membership shows strong potential in O2O business

An online membership product jointly launched by department store operator Intime Retail (Group) Co Ltd and e-commerce giant Alibaba Group Holding Ltd has showed strong potential for developing online-to-offline business by gaining 1.7 million users within a month.

According to a press release from Intime Retail on Wednesday, the virtual membership card helped Intime gain more than 1.7 million members in 30 days. The department store operator gained about 1.3 million offline members during the past 16 years since it was founded.

The e-membership, which launched on March 8, is the first online membership product in China that allows customers at brick-and-mortar stores to make payments for offline purchases through mobile phones.

The innovative e-product named Yintaibao is integrated with customers’ membership information. Members can enjoy the advantages of Intime membership by taking their smartphones to any brick-and-mortar store of the company across China, and can pay through mobile devices as well.

The e-membership product is a major move by Intime and Alibaba to develop their online-to-offline business.

Alibaba said at the end of March it had invested as much as HK$5.37 billion ($692.5 million) in Intime to develop its online-to-offline business.

The investment is expected to give Alibaba a stake in Intime of about 9.9 percent when the deal is completed. The convertible bonds are estimated to allow Alibaba to take no less than 25 percent of Intime when it converts those bonds into common stock shares within three years.