Archives 2015

Wanda ‘a work in process’ as it pursues shift to e-finance empire

Dalian Wanda Group Co Ltd announced moves over the weekend that it said will support its transformation into a services empire by 2018.

The conglomerate said that it would establish a financial group and that it would accelerate its acquisition of banks, securities firms and insurance companies in the second half of the year.

The moves were announced by chairman and founder Wang Jianlin during a strategy presentation in Beijing on Saturday.

Wang said that the vision for the financial group entails a focus on Internet finance, a strategy that will allow Wanda to distinguish itself from traditional financial enterprises.

As part of its transformation, Wanda will reduce the number of physical stores to cut costs and raise profits with the help of e-commerce and online payments, according to Wang.

Wanda now conducts its business in the financial sector mainly through 99Bill Corp, a Shanghai-based online payment service provider in which Wanda bought a 68.7 percent stake for $315 million in 2014.

In June, Wanda and 99Bill Corp jointly launched an Internet financial product to raise funds for Wanda to build shopping plazas.

The crowdfunding effort raised 10 billion yuan ($1.61 billion) within two weeks, according to the presentation.

In terms of expansion and diversification, Wanda will complete the acquisition of three domestic companies and three foreign enterprises in the second half, according to a press release posted on Wanda’s website on Saturday. None of those companies was identified.

Wanda spent more than 15 billion yuan in acquisitions in the first half, taking a 20 percent stake in the Atletico Madrid football club in January, acquiring Swiss sports marketing firm Infront in February and buying a dozen cinemas in China and abroad in June.

It also invested 3.58 billion yuan in Suzhou-based online travel platform Tongcheng Network Technology Co on July 3.

Wang said that the group aims to derive more than 65 percent of income from services by 2018, which would be a decisive shift away from its current focus on property.

Alibaba to get boost from rural e-commerce

Group expects turnover to jump as more farmers trade online

Alibaba Group Holding said in a press release Thursday that it would generate more than 3 trillion yuan ($483 billion) in transactions this year, as the company is actively introducing e-commerce to rural areas.

“We believe that our global transaction volumes this year will surely surpass that of Wal-Mart Stores Inc,” Zhang Yong, Alibaba’s CEO, was quoted as saying in a press release e-mailed by Alibaba to the Global Times Thursday. The company handled 2.4 trillion yuan worth of transactions in 2014.

Alibaba’s market valuation will rise if it can persuade 700 million people in China’s rural areas to embrace e-commerce, according to the press release.

“Alibaba pins hope on rural e-commerce, which not only can generate new growth for the leading online shopping platform operator but also boost the rural economy,” said Zhang.

As an example of the huge potential of rural e-commerce, the company revealed in the press release that in June, hundreds of thousands of residents in the rural areas shopped on its online marketplaces every day.

The e-commerce leader has already made strides in rural e-commerce, touting goods on its online consumer-to-consumer marketplace taobao.com to rural residents by painting advertisements on walls since 2013.

And in October 2014, Alibaba announced that it would invest 10 billion yuan to build 1,000 county-level and 100,000 village-level e-commerce service centers around the country within three to five years.

Its arch rival JD.com Inc (JD) also actively carved out space for rural e-commerce, running over 800 e-commerce service centers to support delivery and home appliances maintenance in more than 30,000 villages, a PR representative from JD told the Global Times Thursday.

The companies’ foray into the rural market is in line with the aggressive push by central and local governments to promote rural e-commerce.

As the country’s rural heartland, Henan Province in Central China had opened in Xinxiang 300 e-commerce service centers as of December. It plans to establish 1,200 in the city alone this year, according to an announcement on the Henan government’s website in December.

The Ministry of Commerce and the Ministry of Finance in May reportedly announced that a group of 200 counties in China’s central and western regions would receive 2 billion yuan in financial support from the central government as part of a rural e-commerce pilot program.

Premier Li Keqiang, who continuously emphasizes the key role of e-commerce in boosting the real economy, encouraged graduate students and migrant workers to start their own business such as e-commerce in the rural areas during a routine State Council press conference in June.

In May, some rural merchants reaped in as much as 16,000 yuan per month in profit by selling goods on taobao.com, according to media reports.

E-commerce, which can attract investment into and promote sales of local specialties, will play a key role in boosting the rural economy, Feng Lin, a Hangzhou-based independent analyst, told the Global Times.

Data from Ali Research, a market research arm under Alibaba, showed that online sales in rural China are expected to hit 460 billion yuan in 2016, compared to 180 billion yuan in 2014.

Feng’s view was also shared by Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting.

“Rural residents like to shop on online marketplaces, which offer an easier and convenient access to various products sold around China and abroad, while farmers can sell their agricultural products online,” which will also contribute to the local governments’ fiscal revenue, Lu told the Global Times Thursday.

Given China’s current economic slowdown, total government fiscal revenue stood at 3.64 trillion yuan in the first quarter of the year, up 3.9 percent from a year earlier. In the same period of previous year, the growth rate was 9.3 percent.

However, analysts said that much work remains to be done to ensure product quality and availability of capital.

E-commerce companies also expect to have specific regulations covering the rural e-commerce category.

JD told the Global Times in an earlier interview in May that the company is working together with local governments to improve distribution standards and quality control system for agricultural goods sold online.

Logistics is another bottleneck in the development of rural e-commerce, as not all express companies have distribution networks covering rural areas, said Lu.

Construction workers ‘semi-unemployed’ as real estate market cools down

Migrant workers wait to find new jobs.

(ECNS) — Chinese migrant workers have become “semi-unemployed” as a drop in the real estate market has cooled the construction industry.

About 503 million square meters of construction work was initiated in the first five months of 2015, while the decrease rate dropped 1.3 percent to 16 percent. About 351 million were related to residential houses, which saw a 17.6 percent decrease.

Although real estate is still managing to attract funds, the growth rate has dropped. Despite raising 3.2 trillion yuan (about $520 billion) in investments, the nominal growth rate still dropped 0.9 percent to 5.1 percent. Of the 3.2 trillion, 2.1 trillion was invested in residential houses. The increase rate was 2.9 percent, which was much lower than last year’s 14.7 percent.

The construction industry employed more than 61 million or 22.3 percent of Chinese migrant workers in 2014, according to data from the National Statistics Bureau. Right now, a considerable number of migrant workers are finding themselves “semi-unemployed” in a lagging real estate market.

Construction workers have been “chilling” in a “semi-unemployed” mode, according to a construction contractor called Hu Cheng from Jiangxi province. Hu has been actively seeking construction businesses in east China for the past six years.

Since the Spring Festival, China’s New Year in 2015, real estate construction work has seen more halts than starts in Nanchang, the capital of Jiangxi.

“Cranes just stand still out there,” says Hu. “It’s been half a year and I’ve worked for only about a dozen days. It used to be about one hundred days in previous years.”

Pegatron adds staff in anticipation of more orders

Taiwan-headquartered contract electronics manufacturer Pegatron Group is reportedly expanding its workforce, a move analysts said on Monday is aimed at gaining more orders of Apple’s next generation product at the expense of rival contractor Foxconn.

Pegatron’s plant in Shanghai has launched a large-scale recruitment activity, planning to hire 40,000 staff in August to prepare for the mass production of Apple’s new generation smartphone, widely tipped to be named iPhone 6s, Shanghai-based newspaper IT Times reported Monday.

Calls to Pegatron remained unanswered by press time, but according to information on the company’s website, its Shanghai factory is schedule to hire people in July.

“I heard that Pegatron is hiring a large number of people in Shanghai” and another round of recruitment is expected to take place in September, Wang Yanhui, head of Shanghai-based Mobile China Alliances, told the Global Times on Monday.

The mass recruitment drive indicates that Pegatron has already got large-scale orders from Apple, which usually produces a batch of new devices in advance to cope with the peak sales period right after the introduction of new products, said Wang.

Apple is likely to announce its next smartphones in September, Forbes reported on Friday.

Pegatron Chairman Tung Tzu-hsien was quoted in a February press release posted on its website as saying that without doubt, the company will this year maintain at least the same level of product delivery for Apple as 2014 or slightly higher.

Wang noted that Pegatron is encroaching into Foxconn, another major Apple contractor from Taiwan, in part due to lower costs.

A report issued by New York-based nongovernment organization China Labor Watch in February showed that Pegatron’s plant in Shanghai possessed an 8 percent cost advantage over Foxconn’s factory in Longhua, South China’s Guangdong Province, in 2014, translating into a $61 million advantage per year at just one of many Pegatron factories that serve Apple.

When contacted by the Global Times about whether Foxconn also has plans of expanding Apple production lines, the company’s spokesperson said that they are not allowed to make any comments related to its clients.

Against this backdrop, Foxconn has already started diversifying its business, launching its online e-commerce marketplace in March to mainly sell consumer electronics products in the Chinese mainland market.

“Companies like Foxconn and Pegatron need to expand into other businesses to offset the costs of idle labor, because their major client Apple usually demands huge amounts of deliveries in the first and second quarter. Demands for Apple products are prone to decline in the third and fourth quarter, as consumers wait for launch of new versions,” said Wang.

Fast fashion labels ride e-commerce boom

In February, one month before its first-year anniversary in China, Old Navy served as a sponsor of China’s annual New Year’s Eve gala.

This was a huge entertainment event that Chinese families watched together during the vacation period. Gap, its trendier sister brand, was also a sponsor.

“It was a promotion where Old Navy gets mentioned and you shake your phone and marketing and campaign messages appear,” said Mike Barnes, Old Navy’s general manager for greater China.

“Just in that one night?one shake?we got over 800, 000 shakes of people on WeChat. That’s a staggering number when you think that we only have eight stores here.”

At the time, it only had seven. It is targeting up to 15 by Christmas.

Western apparel and fast fashion brands have been flooding the Chinese market in the last few years. Many, like Zara, H&M and Gap, have succeeded.

Some, like Britain’s Marks & Spencer, have erred. A fair chunk accelerated their migration to online sales in the second half of 2014.

Consulting firms like A.T. Kearney predict that China’s apparel sector could grow by 15 percent a year until 2020?spurring a feeding frenzy from foreign brands.

“China today is the second-largest apparel market in the world. In five to 10 years it is believed that China will be bigger than the United States,” Barnes said. “That’s just a ton of opportunity, and that is why you see all the global competitors coming here.”

Another “Super Cash” campaign, where customers earned “Old Navy money” that they could either share with friends via social media or redeem off future purchases, was so successful it may even be transferred to the United States.

“Sharing with friends?that is something we have never been able to do in the US,” Barnes said. “It is an example of where China is leading the way.”

Art Peck, the new CEO of Gap Inc, which also owns Banana Republic, Athleta and Intermix, discussed the shift from bricks and mortar to online and mobile under the term “Retail 3.0” in an interview with Fast Company.

Picking up on this thread, Barnes said: “In markets where you have a store presence, you have a stronger online business. Is there showrooming going on? Sure. Right now we see a need for both to exist. But it is rapidly changing.”

Gap reported global online sales of $2.50 billion for 2014, up from $2.26 billion a year earlier.

Although it does not disclose country-specific figures in Asia, media reports said its China revenue hit $300 million in 2013, a number the group was expecting to see triple by 2016-17.

In China, total online retail sales surged 53.6 percent in 2014 to 2.8 trillion yuan ($450 billion), according to a March 31 report by Knight Frank. This accounted for 10.6 percent of all retail sales in the country, up from 7.6 percent in 2013.

Both Gap and M&S now have online stores on Tmall.com and JD.com, the country’s leading online marketplaces. M&S saw clothing sales on the former spike 200 percent in the last quarter of 2014. In January, it launched a new dedicated kidswear store on Tmall offering more than 300 lines.

“Continuing our ‘bricks & clicks’ strategy, we are leveraging e-commerce to strengthen brand awareness and reach across the country,” said a spokeswoman for M&S China.

H&M, based in Sweden, launched an online store in China in September and Zara, based in Spain, followed suit on Tmall, the largest B2C website in China, in October.

Old Navy has also jumped on the Tmall bandwagon as it finds non-traditional marketing methods to be the new normal in this country of 1.4 billion, half of whom now live in cities. “Our commercial plan is integrated, whether it’s social, digital, omni-channel,” Barnes said. “All the pieces should tie together.”

Gap reported that its first-quarter global net sales contracted 3 percent year-on-year to $3.66 billion?it did not explain why?but there is no doubt that Old Navy’s global success led the conglomerate’s fortunes in 2014

Gap posted net sales of $16.44 billion in 2014, up 2 percent from 2013. Gap’s sales were down 5 percent during the period. Old Navy’s rose by the same margin.

In fact, one of the largest apparel brands in the US?Old Navy is bigger than Levi’s, Adidas and Gap?will remember 2014 as one of its most successful years to date in its home market, where it has over 1,000 stores.

Now it must see if it can gain enough traction in China to carry Gap if the same happens here?after first enjoying a nice little piggy-back ride into the market.

“Brand awareness of international fast fashion brands has rapidly improved in China in recent years,” said Regina Yang, director and head of research and consultancy at Knight Frank Shanghai.

“They have been successful because their small inventories and quick turnover allow them to adapt to changing consumer demands.”

Fast fashion sells because the brands offer lower prices, fashionable designs, immediately available trends, high product variety and a strong global image.

Even though media reports claim it takes H&M and Zara three months to get new product ideas into their stores?or 10 months in Gap’s case?clothes can go from the catwalk to the shelf in as little as four weeks.

This clearly appeals to Chinese consumers, who are known to be more fashion-forward and bigger risk-takers than their American counterparts. Often, the younger generation leads the way.

“Though both Gap and Old Navy are considered lower-grade and inexpensive among American consumers, their product lines and price points are attractive to Chinese youth,” said Chiang Jeongwen, a professor of marketing at China Europe International Business School, China’s top-ranked business school.

Old Navy’s China business appears to be flourishing despite it willfully trampling over some of the golden rules for success here?it refuses to localize its products, for example?and at least some credit is due to Gap.

Foreign money pours into Shanghai FTZ

Foreign investors have been flocking to the Shanghai Free Trade Zone (FTZ) as reforms in China’s economic testbed keep gaining momentum.

The Shanghai FTZ has attracted foreign investment worth 23.5 billion dollars in the first five months this year, Shanghai Municipal Commission of Commerce said on Wednesday.

The money was five times the amount registered in the same period last year, the commission said.

The Shanghai FTZ was launched in September 2013 to test reform policies.

Foreign investors set up businesses in the Shanghai FTZ as reforms have adapted FTZ regulations in trade and finance to international standards, said Shang Yuying, director of Shanghai Municipal Commission of Commerce.

The commission said reform policies in engineering, tourism, and telecommunications have been particularly effective.

Stock markets show signs of recovery

Chinese shares bounced back from early morning losses and closed sharply higher on Tuesday following a nightmarish two weeks.

After a two-week tumble, China stocks surged on Tuesday as a series of government measures bolstered investor confidence.

The CSI 300 Index, which monitors share prices of the largest companies listed in Shanghai and Shenzhen, jumped by 6.7 percent to 4,473.00 points, while the Shanghai Composite Index gained 5.6 percent to 4,277.22 points, the highest daily gain since 2009. The Chinese A-share market has fallen by about 20 percent from its peak in mid-June.

A series of measures to maintain market confidence have been introduced since Friday, including draft rules to allow pension funds to buy stocks, funds and equity-backed pension products.

That could channel more than 1.5 trillion yuan ($242 billion) into equity-backed investments, including about 15 billion yuan directly into the A-share market, Shanghai Securities News reported.

Pension funds may not be allowed to buy stocks before the end of this year, according to the draft rules, but investor confidence has been bolstered by the news, pushing up sentiments in the A-share market, researchers said.

“Although the pension funds may not help the A-share market in the short term, the draft measure, along with the recent cuts in the reserve requirement ratio and interest rates, show intentions to stabilize market incentives,” a research report by Haitong Securities said.

The country’s fund association said the falling prices presented valuable buying opportunities and it urged hedge fund managers to make rational investment decisions.

“Confidence is more important than gold,” the Asset Management Association of China said on Tuesday. “Sunshine always follows rainy days,” it added.

Brokerage firm Guotai Junan Securities said it would lower margin requirements for certain blue chips to lever-age investment values.

Leading asset managers echoed the sentiments to convince investors that the bull market was not yet over.

Managers of private equity funds also stated that they believe the market will continue to be bullish.

“From a mid-to long-term perspective, the foundations of the bull market have not been shaken. Instead, they have been consolidated amid corrections, and the market will be bullish in a more stable and lasting manner. We believe it is a rational decision and good timing for value investing,” said Wang Yawei, president of Shenzhen Qianhe Capital Management.

Technology companies and brokerage stocks rallied on Tuesday, with an average rise of the sectors reaching about 8 percent.

Biggest swing since 1992 sends stocks lower

Chinese stocks edged down amid volatile trade, with the benchmark Shanghai index swinging the most since 1992, despite the rate cut announced over the weekend.

The Shanghai Composite Index slumped 3.3 percent to close at 4,053.03 on Monday, extending the loss from its peak on June 12 to more than 20 percent. The gauge swung between a loss of 7.6 percent and a gain of 2.4 percent within the market hours.

The Shenzhen Component Index sank 5.8 percent to 13,566.27 at the close.

“Interest rate cut and targeted reserved requirement ratio (RRR) cut simultaneously are a dramatic move. But the market has been anticipating such a move,” said Hong Hao, chief strategist at BOCOM International Holdings, in a note released on Monday.

The People’s Bank of China has lowered the RRR by half a percentage point and the benchmark interest rate for a third time this year by 25 basis points, announced the central bank on Saturday.

The one-year benchmark deposit rate has been lowered by 115 basis points since the beginning of this year and is now 2 percent, while that of the lending rate has been cut down by 100 basis points in total to 4.85 percent.

“Traders will likely seize the fleeting technical reprieve to exit their positions, and continue to induce short-term volatility,” said Hong, adding that the outstanding balance of margin trades through non-brokerage channels can be double the official data of as high as 2 trillion yuan ($322.2 billion).

“The risk led by margin trading is manageable, as pressure tests have shown that the overall leverage ratio is still in check and below the cautious line,” said a spokesperson of the China Securities Regulatory Commission in a written reply to media enquiries on Monday.

The forced closure of margin trades over the past two trading days via the HOMS system amounted to no more than 4 billion yuan, and another 2.2 billion yuan was closed on Monday morning, added the spokesperson.

The outstanding balance of margin debt on the Shanghai Stock Exchange fell for a fifth day as of Friday, according to the bourse’s data.

Regulators are considering suspending initial public offerings to stabilize the country’s tumbling stock markets, reported Bloomberg citing insiders familiar with the matter.

The CSI 300 gauge closed at 4,191.55 points on Monday, down 3.3 percent.

Asia’s economic power triggers a capital flood into startups

Raising capital for a startup has traditionally been one of the most difficult parts of getting a business off the ground. But times are changing and many Asian startups have become billion-dollar success stories.

In just four years, Xiaomi Corp, China’s largest smartphone vendor, became the world’s most valuable technology startup with a valuation of more than $46 billion in December.

“Given Asia’s high GDP growth and rapidly growing market size, it was natural for investors to look at China and other parts of Asia as places to invest,” said Raman Chitkara, who leads the global technology practice at PricewaterhouseCoopers.

“They see the power of Asia?rapidly growing markets, rising new middle class, and growing urbanization?as accelerators for growth and high valuations. There is an entrepreneurial culture in Asia, particularly in China and India, and startups present a certain level of excitement.

“That, plus the potential for economic prosperity by building large-scale value over a short period of time, attracts people to start a business.”

Zhongguancun district in Beijing alone gave birth to 49 startups a day last year. The State Administration for Industry and Commerce said nearly 3 million people set up their own businesses for the first time in the nine months from March last year, after China reduced the threshold for those who want to register a business.

At present, China has more than 1,600 technology incubators and hosts more than 1,000 entities investing in startups, with total venture capital exceeding 350 billion yuan ($56 billion).

Early this year, the government decided to set up a new national venture capital fund to help startups and promising entrepreneurs. The $6.5 billion fund will be used to support seed-stage technology startups in the country.

Peng T. Ong, founder of Match.com, the pioneering online dating service set up 20 years ago, recalled his tough days of searching for an investor for his startup business.

“It was harder then,” said Ong, who now runs Monk’s Hill Ventures, a venture capital firm in Singapore that invests in technology startups in Asia.

“But things have changed dramatically. With more business successes, huge Internet penetration and more mobile telephones, the Asian startup scene is altogether different now.”

Flipkart, India’s largest retailer by sales, has a success story similar to that of Xiaomi. Now valued at $15 billion, it was started by two friends a few years ago with $6,000 saved from their earnings.

Ma Rui, partner for China at the seed fund and accelerator 500 Startups, said the spectacular success of Internet-based businesses is fueling startup growth.

“Tech entrepreneurship is one of the few ways a talented young person with few resources and dollars can create something that affects millions of people in a fairly short amount of time.”

Successful private enterprises are jumping on the bandwagon by developing incubation centers and investing in a growing number of tech startups in the region.

The Internet giant Tencent Holdings Ltd is building a center for technology startups in Chongqing, in partnership with the municipal government. It plans to develop 25 such ideas incubators across the country.

In April, Alibaba Group Holding Ltd announced it would set up a startup incubator for mobile Internet and mobile commerce in the Indian city of Bangalore, and Google has launched its startup incubator Campus Seoul in South Korea.

In India, startups have received some huge investments lately. Based on data compiled by a startup news website, YourStory, in the first quarter of this year 147 deals were put together. Indian startups raised $1.7 billion, registering a 300 percent annual growth. In the first quarter of last year alone, startups in the country raised $450 million. A total of 300 deals were closed last year. Kris Gopalakrishnan, co-founder of Infosys, one of India’s biggest IT companies, said most of the investments from global investors or venture capitalists are happening at the seed stage.

“Angel funding typically happens locally,” added Gopalakrishnan, who is also chief mentor of Startup Village, a technology business incubator in the southern state of Kerala.

Justin Hall, principal of Golden Gate Ventures of Singapore, said there is now more venture capital in the Asia-Pacific region than at “any other time in recent memory”.

“It has had a tremendous catalyzing effect on the formation of new startups, from Singapore to Indonesia. These are exciting times for the sector,” added Hall.