Archives 2014

China’s state sector leaders embrace pay cuts of up to 60%

The corporate reporting season for China’s largest state-owned enterprises, which concluded last month, featured an unusual theme. Despite earning far less than their international counterparts, the men who steer the country’s largest companies welcomed recently announced plans to cut their pay.

“The biggest difference between China and western countries is that we pursue the goal of getting rich together,” Fu Chengyu, head of the country’s largest refiner, told reporters. “If you want to earn big sums, you should not be an SOE executive.”

As Sinopec chairman, Mr Fu earned Rmb863,000 ($141,000) in 2012, a paltry figure when compared, for example, with the more than $3m earned by Christophe de Margerie at the French oil major Total. The contrast in other sectors is even starker. The president of Bank of China, one of the country’s “big four” lenders, was paid Rmb997,000 ($163,000) last year – or less than 1 per cent of the $20m pocketed by JPMorgan’s Jamie Dimon.

According to local media reports, leaders of the country’s top 50 SOEs will face pay cuts of up to 60 per cent as the government imposes an annual pay cap of Rmb900,000. President Xi Jinping announced plans to rein in executive pay in August, but the new guidelines have not yet been released by the ministries of finance and human resources.

In August Zhang Yun, president of Agricultural Bank of China, said he would “firmly support and strictly implement the decision”. Mr Zhang, who earned just over Rmb1m in 2013, faces a pay cut of at least 10 per cent.

Those who welcome Mr Xi’s initiative, which coincides with China’s most ambitious anti-corruption campaign, argue that it is misleading to compare SOE executives with their international counterparts, especially in industries that are protected from overseas and private sector competition.

“SOEs enjoy a lot of policy support from the government,” says Gao Minghua, a corporate governance expert at Beijing Normal University. “Those factors must be removed before you can compare SOE executives to multinational executives.”

The more important comparison, he adds, is between SOE executives and their own employees: “There is a large income gap in China that is having a negative impact on society. The salary gap between senior executives and average employees must be appropriate. If too small, it will lessen executives’ initiative. If too big, it will lead to social instability.”

According to a recent pay study co-authored by Mr Gao, senior executives at listed Chinese financial companies are paid 50 times as much as the average worker.

“It doesn’t make sense to benchmark Chinese SOE executives against western – and especially American – executives,” agrees Kjeld Erik Brodsgaard, director of Asia research at the Copenhagen Business School. “None of these guys are ever going to become the head of GE or a big American financial institution. They stay in China and move around as civil servants. In a Chinese context they are supermanagers.”

Mr Fu at Sinopec is a classic example of a Chinese supermanager. He had previously run China’s largest offshore oil company, Cnooc, and his transfer to Sinopec was decided neither by the refiner’s board nor by the State-owned Assets Supervision and Administration Commission.

Better known as Sasac, the government commission is nominally charged with administering China’s largest SOEs; in fact, it is overshadowed by the Communist party’s powerful Organisation department, which both transferred Mr Fu to Sinopec and appointed his successor at Cnooc. “Sasac was supposed to manage and control these companies but it never really happened,” says Mr Brodsgaard. “Sasac was not authorised to receive dividends from these companies and doesn’t even appoint their chairman and chief executives.”

Sasac’s authority was further undermined last year by the arrest of its former head, Jiang Jiemin ; the former SOE oil executive was caught up in a larger investigation into his patron, Zhou Yongkang, who once sat on the Communist party’s all-powerful standing committee and ran China’s domestic security services.

Additional reporting by Wan Li

Banking on growth in mobile tech

A visitor reads a brochure in front of a promotional board at the opening of the 2014 China Internet Conference on Aug 26 at the Beijing International Convention Center.

Early-bird advantage bound to help ‘unconventional’ 99wuxian.com

Mobile devices will soon play a more important role in everyday lives and encompass a range of activities like locking a door, driving a car, booking a table at a restaurant, paying utility bills and shopping, said Zhang Li, president of 99wuxian.com.

The Hong Kong-incorporated company operates an online marketplace that can be used on smartphones and other handheld devices and allows consumers to purchase physical and intangible items through online service providers. “It (mobile devices) is certainly the future,” said Zhang.

Shopping via mobile phones is something that is already familiar to most Chinese consumers, says Zhang, adding that she buys groceries from the online supermarket Yihaodian.com while waiting for a train or plane. But what her company is doing is something much more than that. 99wuxian, often likened to an unconventional B2B2C platform, serves as a bridge that connects the commercial banking system and product providers on its mobile phone e-commerce platform.

According to Tianjin-based Tian Hong Asset Management Co Ltd, the number of users who have bought the popular online financial product Yu’ebao introduced by Alibaba exceeded 100 million by mid-July, with the total volume of the product amounting to over 574 billion yuan ($93 billion).

It is trends like these that have made commercial lenders realize the magnitude and importance of Internet technologies and the role that they play in long-term growth, said Zhang. “The Internet technologies have helped the commercial lenders get connected to more stores and users and thereby more profits.”

99wuxian.com was officially launched in 2011 and considers itself a bridge that caters to all needs. The company says that several online and offline stores are connected to commercial lenders through its mobile phone platform. Thanks to the growing number of products and services on the platform, 99wuxian also earns good revenue.

At the same time, Zhang admits that the changing market landscape was not something that she envisaged when the company was set up. “I used to believe that payment channels are indispensable for the future development of mobile Internet. But over time, I have realized that it is more important to provide value-added services to customers. Demand for payment services will increase along with the growth in the products and services on the platform,” she said.

Zhang believes that transactions made from mobile phones will ultimately define the future consumption trends. “Though mobile e-commerce started rather late in China, in 2009 to be precise, it has evolved rapidly from 2012 onwards. Several e-commerce leaders such as Alibaba and JD.com have included mobile payment results in their financial reports lately, and such business accounts for 20 to 30 percent of their overall revenue.”

Mobile Internet, Zhang says, is one sector where companies like 99wuxian are in the same boat as others. “Every player is at the same stage. On the other hand, in e-commerce, companies like Alibaba are way ahead of competition. We have decided to focus on mobile Internet, as it is our core capability and inherent advantage and something for which we have abundant resources. More importantly, we are one of the early birds,” Zhang said.

99wuxian managed to make profits just a year after it was established, which is rare among e-commerce companies. Its total transaction volume amounted to 4.96 billion yuan last year, while profits during the first six months of the year stood at about 5.9 million yuan.

Currently, 99wuxian has 32 million registered users. But the company and the lenders it has been working with have around 330 million consumers who have downloaded the smartphone applications. In this sense, about 10 percent of 99wuxian’s partners’ customers have turned into its users, Zhang said.

“What this means is that there is ample room for growth. We plan to increase the total number of registered users to 100 million by the end of next year,” she said, adding that the company is already the market leader in the B2B2C sector in China.

Though 99wuxian successfully listed its shares in Australia last year, Zhang says that the company’s rapid growth has not been truly reflected in its share prices. “We are considering other capital market options so that they truly reflect the company’s value. We also have a rich treasure trove of valuable customer data.

“Every Internet company will follow a zigzag path when they are trying to expand their businesses. This is something that no one can avoid. Therefore, we don’t want to go a roundabout way when it comes to the capital market. That’s why we decided to go public. I am happy that we are on the right track for continuous, rapid long-term growth,” she said.

To Zhang, everything is about timing. “You have to pick the right timing. One cannot start too early, as there is no mature market yet. But you cannot start too late either, because that would mean lagging behind,” she said.

Describing herself as “an old soldier in the Internet industry”, Zhang says she has remained with the Internet industry all through her career. During her first three years of working at Hong Kong’s largest information and communications technology company PCCW, she worked with the team to promote broadband Internet and helped boost revenue of the business by over 40 percent within two years. After that, she joined Ctrip in 2000 and soon became the general manager of Ctrip Hong Kong, where she managed to bridge the gap between today’s largest online travel agency and overseas hotels.

Recognizing the trends is also important for companies to succeed, she says, adding that most of 99wuxian’s early customers were in the age group of 23-35. But the same has now changed to 18-47. “It is just a matter of time,” she said.

“We seldom bought things online in the past. But now consumption habits have changed tremendously. Mobile phone users are always more active than the personal computer users and Internet companies develop more rapidly than traditional industries in general. Mobile users tend to rapidly pick up new habits,” she said.

Holiday bank card outlay climbs 25%

Bank cardholders spent 51.6 billion yuan ($8.4 billion) through China UnionPay’s payment network during the seven-day National Day holiday, up 25 percent from the same period a year ago, as travel-related expenditure increased.

The volume of interbank transactions also jumped 27 percent from a year ago to 420 million, the country’s sole bankcard transaction firm said yesterday.

Shopping contributed the most — 80 billion yuan — during the holiday, China UnionPay said.

Railway and airline tickets as well as other transport-related spending jumped 56 percent from a year ago. The spending at scenic spots and hotels rose 39 percent and 10 percent respectively.

The size of cross-border bank card transactions through UnionPay network rose 9 percent while the number of transactions soared 36 percent.

Total spending at restaurants and eateries gained 7 percent while the average amount of each transaction fell 8 percent.

China Mobile plans to enter Internet market

China Mobile, the country’s largest mobile carrier by subscribers, is mulling to set up an Internet firm, media reported Wednesday, a move experts said is aimed at boosting its instant messaging (IM) service.

Lin Zhenhui, chairman of China Mobile International Ltd, would serve as general manager of the preparatory group, according to domestic telecom information portal ccidcom.com.

China Mobile did not respond to the Global Times’ request for comment by press time.

The new Internet company may integrate and further develop China Mobile’s IM business Fetion, Ma Jihua, an industry expert at Beijing Daojing Consultant Co, told the Global Times Wednesday.

Given the carrier’s large subscriber base, China Mobile’s Fetion has the potential to compete with the country’s Internet giant Tencent, operator of China’s most popular IM app WeChat, said Ma.

Fetion, launched in mid 2007, was initially used by China Mobile’s cell phone subscribers, but has now lost traction.

Fetion has garnered only 6.47 million users as of July, according to its website, while WeChat had accumulated over 438 million monthly active users by the second quarter.

The decision to establish an Internet firm may boost China Mobile’s earnings and help the company win back some consumers, Fu Liang, a Beijing-based independent telecom analyst, told the Global Times Wednesday.

China Mobile failed to report expected financial results in recent quarters.

The net profit of China Mobile fell by 8.5 percent year-on-year during the first half of the year, according to its financial report released in August.

“In addition, it seems to be a good timing for China Mobile to enter the Internet market, as the company has made an early start in the 4G market, making it possible to offer Internet services using 4G networks at greatly improved speed,” Ma noted.

Lenovo closes purchase of IBM’s x86 server business

China’s leading PC computer maker Lenovo Group Ltd announced Monday that it would close an acquisition of IBM’s x86 server business on Wednesday for a purchase price of approximately $2.1 billion, an important move for the company to step into the global server market.

The acquisition will make Lenovo “the third-largest player in the $42.1 billion global x86 server market,” according to a press release from Lenovo and IBM e-mailed to the Global Times.

Lenovo noted that it is buying IBM’s x86 server business intact and is committed to following the IBM x86 product roadmap, including Flex and x86-based PureFlex integrated systems.

IBM will continue to provide maintenance delivery on Lenovo’s behalf for an extended period of time, said Lenovo, without specifying a period.

The acquisition will enable Lenovo to extend its “capabilities in enterprise hardware and services,” and make it “a strong number three in the global server market,” Yang Yuanqing, chairman and CEO of Lenovo said in the press release.

The acquisition by Lenovo is an important step for the PC maker to extend its business globally, Xiang Ligang, president of cctime.com, a telecommunication news portal, told the Global Times. “It will be a new engine for Lenovo following its PC business.”

Despite the fact that IBM’s x86 server is low-end server, the acquisition, “which is just beginning for Lenovo to set foot in the server sector, will enable Lenovo to win more business clients globally,” Xiang noted.

Lenovo acquired IBM’s PC business, including the ThinkPad line of PCs, in 2005.

Some observers were quoted by Reuters as saying that they “expected the deal would take longer to close because of uncertainty about how US regulators might respond to a Chinese company buying a server business during a time of cyber-security tensions between the US and China.”

But Lenovo said that its transaction “satisfied regulatory requirements and conditions, including clearance by the Committee on Foreign Investment in the US.”

Consumer attention shifts to smartphones

Joseph WebbHead of digital at TNS Asia-Pacifi c

While television sets still sit in almost every Chinese home, television no longer commands the dominance it once did. Consumer attention, especially during evening prime time, is increasingly being diverted by smartphones and tablets.

Two thirds of Chinese watch television every day, while 33 percent watch online videos daily, either on personal computers, tablets or mobile phones, according to TNS, a research firm under the Kantar division of the WPP Group.

In its most recent Connected Life report, TNS said the ratio of those forsaking television for online entertainment is higher than the global average of 25 percent.

Globally, nearly one third admit to “screen-stacking,” a phenomenon whereby they use multiple devices at the same time, for instance, using their mobile whilst watching TV.

Out of the average of 3.9 hours that Chinese Internet users spend online everyday, mobile devices make up 2.2 hours.

Joseph Webb, head of digital at TNS Asia-Pacific, sat down with Shanghai Daily in an exclusive interview to discuss the research findings and what they mean to advertisers.

Q: What’s the biggest change you see in this year’s Connected Life report?

A: The shift is toward mobile devices, with more and more lower-priced smartphones available on the market. Local handset makers such as Xiaomi and Huawei give a wider group of consumers access to online media.

Last year, we saw the trend appear in the 16-30 age group. This year, it is extending to mainstream mass consumers.

The surprising thing is the change in the media landscape brought about by the shift toward mobile. Smartphones and tablets are driving online video watching. Compared with mature markets like Europe and the US, Chinese consumers watch less TV and more online videos.

Q: Was there anything surprising in your findings?

A: Despite all the talk about China being the biggest e-commerce market in terms of money spent, it is actually very underdeveloped in terms of the proportion of people buying online. Major concerns are still security of payments and product integrity. Once information transparency is resolved and consumers feel more assured, more value can be realized through online retailing.

Q: What about attitudes toward advertising?

A: There is usually a greater level of cynicism toward advertising in mature markets. The more advanced an economy, the more consumers are bored by advertising.

But it’s different in China. Here, there isn’t such a long-term legacy because the earliest advertising dates back only about 35 years. The advertising industry has enjoyed huge growth since then, and consumers have not yet grown cynical. Maybe the next generation will be, but for now, most consumers are quite open to branding. There is a huge potential for marketers.

Q: Which advertising formats work best with consumers?

A: Brands need to fight harder to cut through the media congestion during the evening prime time, so there are three major trends at the moment. First, a quiet, focused time for the message is essential — for example, before office hours or during commuting periods. The second is finding a brand relevant to those times — working out when your message is most likely to resonate with people. A coffee brand, for example, would find the morning hours most ideal. The third trend is integration of formats, rather than just relying on a single channel.

My advice? Don’t advertise on just TV alone. You need to combine different formats to maximize the impact on people during prime times.

Technology and the media landscape in China have changed very quickly into a polarized market. Residents in first-tier and second-tier cities have the latest handsets, but some may still be using a feature phone and a sharing TV with their families.

In a recent study we did for a premium car brand, we found they were seeking to target a female audience without diluting the nature of a very masculine brand. It’s hard to achieve that through TV alone. It would be a lot easier to identify what TV shows and websites attract female audiences and then deliver a targeted message.

Q: There is a lot of discussion about dwindling TV viewership. What do you think about the role of TV sponsorship?

A: Castrol recently launched a campaign during the Chinese Idol program, where viewers vote for the candidate to keep in the game. It’s a clever move to reach a large viewing audience through sponsorship, while at the same time driving engagement through a Castrol mini-site to give viewers a further impression of how engine oil can protect a vehicle and give it better performance.

Brands are trying to use online channels to forge long-term, lasting relationships with consumers.

Only 64 percent of Chinese viewers devote undivided attention when watching TV while 36 percent are simultaneously engaged in some form of digital activity, slightly lower than the global level of 41 percent.

The growing challenge is that the number of people who exclusively focus on watching TV will get even smaller in the future. The rest will be split over various forms of media because their attention will be more fragmented. Marketers need to be prepared for TV’s role to be weakened in the future, although, at the moment, it’s still where most advertising expenditure goes.

Q: What about mobile shopping?

A: In global markets where a mobile device is the only access to the Internet, there is very little e-commerce because of trust issues.

In China, the proportion of online sales completed through mobile channels is still less than 20 percent, yet this is one of the most advanced markets for mobile commerce. There are more innovative business models here because software like WeChat offers a convenient payment channel.

This could become a big challenge for a platform like Taobao, which may see commerce increasingly turning to WeChat.

Chinese tech companies love to go it alone and are constantly trying to take other players’ market share. For example, Alibaba is adding social features to Taobao and Tmall, while Tencent hopes to catch up with e-commerce through new WeChat functions.

Marketers need to focus on categories where people are dedicating more time to research and reading online comments. It’s important to capitalize on that trend because people are more likely to pick up their smartphones and search for price and product information.

In China, categories in the lower price range — such as personal care, cosmetics, baby care and household products — are driving online research as people try to find the best deal for themselves.

Travel and personal care are the top categories where consumers are willing to engage with brands and offer user-generated content.

Mobiles also offer a good channel for brands with normally low levels of engagement because they are much easier to search and interact with.

‘More progress lies ahead’ for FTZ

Officials say crude oil futures trading may be the next innovation in zone

Officials of the China (Shanghai) Pilot Free Trade Zone on Friday promised there would be more progress, including the launch of crude oil futures later this year, ahead of the first anniversary of the experimental area.

The Shanghai International Energy Trading Center, a new arm of the Shanghai Futures Exchange, may launch crude oil futures this winter, said Zheng Yang, head of the Shanghai Financial Service Office, at a briefing on Friday.

The trading center was established last November, and it was the largest company registered in the FTZ with registered capital of 5 billion yuan ($815 million). It aims to serve as a platform for international futures trading of oil and other resources.

According to Zheng, the energy trading center is preparing for the launch of crude oil futures.

The Shanghai Stock Exchange also plans to set up a trading platform for international financial assets, said the official.

The FTZ was officially launched on Sept 29, 2013. Its major achievement in the past year has been the streamlining of administrative procedures.

The “negative list” approach, which aims to make it easier for foreign companies to enter the Chinese market, has reduced the number of banned items from 196 to 139.

As of Sept 15 this year, there were 12,266 new companies set up in the FTZ, of which foreign companies accounted for 13.7 percent, and 283 foreign-funded projects were launched in the FTZ.

“The momentum of foreign enterprises is improving, which means the free trade zone has passed the initial evaluation,” said Ai Baojun, director of the FTZ, who is also deputy mayor of Shanghai. Ai said logistics costs in the zone have declined by 10 percent.

In late October, the FTZ management committee will release another list that will refine its power and procedures, increase transparency and broaden market access for investors in the FTZ.

When asked about Dai Haibo, the former executive deputy director of the FTZ who was removed in early September, Ai said Dai’s removal was a normal change of personnel, and Dai was still carrying out his duties in the government, such as drafting the 13th Five-Year Plan (2016-2020).

Ai did not reveal the successor to Dai.

Time-honored brands eye young consumers

More than 200 Chinese time-honored brands across the country will exhibit their classic and new products in Shanghai at a fair starting from Friday, in the hope of developing popularity among younger consumers like they did in their parents and grandparents.

The four-day exhibition has been held for seven consecutive years in Shanghai, and 237 Chinese companies from Beijing, Tianjin, Chongqing, Shanghai and provinces of Guangdong, Fujian, Heilongjiang, Jiangsu, Zhejiang, Yunnan and Shandong will set up 385 booths in an area of 8,500 square meters this year.

These time-honored brands are eager to show that they not only preserve traditional Chinese culture but also keep up with times. These brands range from food and dining, clothing and accessories, to jewelry, arts, health-care, and modern service.

Some latest products, such as Warrior shoes, Seagull’s latest digital camera, will also be shown in the exhibition, and visitors will be allowed to try some of these new products.

Net foreign exchange sales ‘no problem’

The State Administration of Foreign Exchange on Thursday sought to allay worries about potential short-term capital flight, saying that the latest foreign exchange figures partly reflect increasing bank deposits in foreign currencies.

The August statistics showed that Chinese banks, for the first time in 13 months, sold more foreign currencies than they bought.

“There hasn’t been any substantial change in China’s capital inflows or outflows. The gap in the data exists in the form of growing foreign exchange deposits,” said Guo Song, director of the capital account management department at the SAFE.

Foreign-currency deposits rose by $15.4 billion last month while loans dropped $3.3 billion, according to Guo.

“It means that companies and individuals are more willing to hold foreign currencies, which is a positive change indicating that the market outlook on the exchange rate has become more reasonable,” he said.

In August, Chinese banks sold $147.4 billion in foreign currencies and bought $146.6 billion, yielding an $800 million deficit, according to the SAFE.

The regulator also emphasized taking a “prudent” approach toward the liberalization of the capital account, signaling no imminent or bold reforms in further opening the capital market.

But Guo said the SAFE will pursue the goal of gradually removing restrictions on the yuan’s convertibility, creating greater convenience and giving the market more investment freedom.

China has reduced the number of items that require administrative approval from 59 to 20 under the capital account, according to the SAFE.

The agency is studying how to liberalize the rule that imposes a $50,000 ceiling on individuals’ annual conversion of yuan to meet the growing demand for foreign currencies.

Adobe to shut China R&D unit, lay off 300, amid poor quarterly results

Computer software maker Adobe Systems Inc will shut its Chinese R&D arm, it said Wednesday.

The California-based company will maintain its China sales offices in Shanghai, Beijing, Guangzhou, Shenzhen, Hong Kong and Taiwan, Adobe said in a statement on Wednesday, but R&D operations will cease by the end of December.

Layoffs have already begun and will affect around 300 people, a person familiar with the matter told Reuters.

“Adobe’s presence in China will be focused on market development activities moving forward, and it will be dissolving and closing its R&D branch there,” the company said. “Adobe will maintain its sales presence in Shanghai, Beijing, Guangzhou, Shenzhen, Hong Kong and Taiwan.”

On September 17, Adobe reported its worst quarterly revenue for Asia in the last five years. For the three months ended August 29, sales in Asia fell 25 percent to $148.2 million.

Adobe’s overall net profit dropped 46 percent year-on-year to $44.7 million in the period.

Media reports Wednesday said that employees of Adobe will get compensation depending on how long they have worked at the company.

The company has been downsizing its business in the region in the past few years.

In 2012, the company closed its unit in Taiwan and said that its business in Taiwan would be moved to its Hong Kong branch.

Adobe, founded in 1982, makes popular software such as Photoshop and Dreamweaver.