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Much is being written about the flurry of H7N9 bird flu cases in and around Shanghai, but few of the stories are focusing on the impact the outbreak is having on businesses. Chicken farmers and sellers are taking an obvious hit, but restaurants with a heavy presence of chicken and pork on their menus and Shanghai-based event organizers and supporting industries like hotels and airlines are also likely to suffer in this current bird flu event. Read Full Post…
I want to take a look today at Gree (Shenzhen: 000651), a major home appliance maker that is casting an interesting spotlight on a new kind of risk faced by major state-owned firms due to a central government campaigns against excessive spending and corruption. Gree usually makes headlines because of its prominent President Dong Mingzhu, who was named last year by Forbes magazine as one of Asia’s 50 most powerful women. But this time it has been in the news for far less glamorous reasons, as its internal party secretary Zhou Shaoqiang has been stripped of his posts for his lavish spending at a recent banquet.
Media are buzzing with the latest news on Amazon (Nasdaq: AMZN) in China, which is turning up the heat in the country’s overheated e-commerce space with the opening of a store on its Chinese site selling electronic books for its Kindle tablet PCs. (English article; Chinese article) Since Kindle products are not yet available in China, the site also offers free software that allows consumers to read Kindle-formatted books using other devices, including Apple (Nasdaq: AAPL) smartphones and tablet PCs, and similar devices based on Google’s (Nasdaq: GOOG) popular Android operating system.
A flurry of fund-raising news is making the headlines today, showing that private equity and venture capitalists are still hard at work investing in China, even as many of their traditional favorites in the overheated Internet space are getting the cold shoulder. At the same time, the inevitable has finally happened with the first concrete report that cash-challenged clothing retailer Vancl has re-started its long-delayed IPO process, with an aim of making a public listing in New York potentially by the end of this year.
The latest sign of distress in the battered e-commerce sector is coming from online clothing retailer Vancl, with media reporting the company has slashed operations at its package delivery arm in what looks like a desperate cost-saving move. Frankly speaking, I wholeheartedly support this kind of move, if it’s really true, as I personally believe that e-commerce companies shouldn’t be delivering parcels to begin with, and instead should leave that part of the business to professional specialists like UPS (NYSE: UPS) and China’s own China Postal Express, which itself is preparing for a domestic IPO to help fund its ongoing expansion. (previous post)
US construction equipment giant Caterpillar (NYSE: CAT) is taking an interesting new direction in China, following in the path of a growing number of firms that once relied on domestic sales but are now turning their attention to exports to offset a slowing home market. China’s big domestic car makers like Chery and Geely (HKEx: 175) have also increasingly looked to exports to offset their rapidly slowing sales at home, where they face not only weakening demand but also stiff competition from more experienced foreign competitors like GM (NYSE: GM) and Volkswagen (Frankfurt: VOWG).
I’m going to break with my usual style of starting each posting with the news, and say that shares of leading online travel site Ctrip (Nasdaq: CTRP) look like quite a bargain to me based on the non-stop sell-off of a stock for what looks like quite a solid company to me. That sell-off continued on Wednesday, when Ctrip shares lost 10 percent of their value after the company reported earnings that showed the overheated competition in China’s online travel space continues. (earnings announcement)
The news keeps coming thick and fast for Xiaomi, arguably China’s hottest company right now in the overheated tech space, which has just raised a tidy $216 millon in funding as its low-cost, high-performance smartphones become the latest must-have item in China’s mobile market. That kind of new funding for young high-tech companies hasn’t been seen in China for nearly a year now due to concerns about an Internet bubble, making this capital injection all the more impressive for a company like Xiaomi which only launched its first product last fall. The big size of the funding leads me to suspect that Xiaomi’s investors are aiming to boost not only the company’s manufacturing capacity and profile, but also its valuation in the run-up to either an IPO or perhaps a sale of the company as early as by the end of this year.
The latest signs of trouble in China’s overheated Internet sector are bubbling into the headlines again, with word that group discount leader LaShou has scrapped its troubled IPO while another high level executive has resigned from e-commerce giant Jingdong Mall, also known as 360Buy. Both developments have some company-specific issues behind them, but more broadly speaking they also reflect an overheated China Internet that has seen internal turbulence grow at many companies as they struggle for dominance and simply survival.
When historians write about the China Internet bubble of 2011-2012 years from now, they are likely to feature Russia’s Digital Sky Technologies (DST) as perhaps the biggest foreign force that pumped in big sums of money and drove up valuations to unsustainable levels. The company, which rose to prominence as an early investor in Facebook (Nasdaq: FB), has been a steady investor in Chinese Internet companies, and is now making headlines yet again with another reported purchase of a stake in Xiaomi, an up-and-coming maker of low-cost, high-performance smartphones. (Chinese article) The Chinese headlines are buzzing with news of this major new investment in Xiaomi, including an interesting twist that saw Internet giant Tencent (HKEx: 700) withdraw from the new investor group after Xiaomi refused to shutter one of its services that competed with Tencent’s Weixin instant messaging service. But I’m digressing from the main subject of this posting, which is that DST has become a major force behind China’s Internet bubble, repeatedly making big new investments that drive up valuations for some interesting start-ups — many of them money-losing companies — to overinflated levels. In a similar pattern seen in DST’s previous investments, unnamed sources in this instance are saying this new capital raising values Xiaomi at around $4 billion — a number that puts it in the same ranks as much older names like Sina (Nasdaq: SINA) and NetEase (Nasdaq: NTES) that have much longer operating histories. I have little doubt that the unnamed sources in this case are inside DST, as similar unnamed sources have also flouted sky-high valuations after DST made other recent investments in e-commerce leaders Alibaba (previous post) and Jingdong Mall, which also goes by the name 360Buy. (previous post) I wrote about Xiaomi earlier this year, as it really does look like an interesting company that is full of market potential due to its niche as maker of low-cost, high-performance smartphones that sell for around $300 each. (previous post) The company previously raised around $90 million in new funding last year, and counts such big names as Singapore’s Temasek, leading chipmaker Qualcomm (Nasdaq: QCOM) and tech investment specialist IDG among its earlier investors. Furthermore, its CEO disclosed late last year that it sold nearly 400,000 of its first smartphone in 2011, and hinted its major new customers could include China Unicom (HKEx: 762; NYSE: CHU), China’s second largest wireless carrier. This kind of early progress is certainly encouraging, though I sincerely believe that DST isn’t doing Xiaomi or any of its other investments any favors by giving them more money than they probably need and filling the market with such high valuations. I’ve previously said that China’s overheated Internet space is in the midst of a much needed correction, which is already starting to see valuations for many companies come down. By the time the bubble finally finishes bursting, look for valuations of many of DST’s investments, and Internet companies in general, to be quite a bit lower than figures now in the market, more in line with peers from the US and Europe.
Bottom line: Russia’s Digital Sky is adding to China’s Internet bubble by investing in companies at inflated valuations, which will come down sharply by the time a current correction ends.
Related postings 相关文章:
◙ Xiaomi: A Fresh Face In Smartphones 小米：智能手机新面孔
◙ More Internet Froth in Alibaba Valuation, Dangdang Price War 阿里巴巴估值奇高凸显网络泡沫
◙ 360Buy — More Details But Still Pricey 京东商城值多少？
The latest signs of trouble for China’s sputtering car industry are coming from some lower-end auto dealers, who are reporting a rapid build-up in their inventories even as manufacturers keep adding new capacity planned when the sector was booming 2 years ago. The current cycle looks like a classic case of looming oversupply, caused by a sharp jump in demand around 2009 that led manufacturers to invest billions of dollars in new production facilities that are only now coming on stream. Unfortunately for the automakers, the demand that helped to push China past the US to become the world’s biggest auto market has now started to stumble as Beijing takes steps to cool the nation’s overheated economy. The latest warning sign is coming from China’s largest car dealer group, the China Automobile Dealers Association, which is saying that dealers for 3 or China’s top domestic auto brands, Geely (HKEx: 175), Chery and BYD (HKEx: 1211), now have more than 45 days worth of inventory in their showrooms. (English article) In addition, Honda’s (Tokyo: 7267) China dealerships are reporting similar inventory levels, prompting the Japanese automaker to take the unusual step of closing its China joint venture for 15 days during the recent May Day holiday. The 45-day inventory mark is important because that’s the point at which dealers start to worry that they are not selling cars quickly enough, and thus may start to offer vehicles at big discounts in order to reduce their levels. That could potentially spark a round of price wars with other dealers, who will risk seeing their own inventories rise to dangerous levels unless they start selling their cars for big discounts as well. I’ve previously said that the big domestic auto brands are likely to suffer first in the current slowdown, as they don’t have the resources or variety of new models to compete with better-funded joint ventures backed by global heavyweights like Volkswagen (Frankfurt: VOWG) and General Motors (NYSE: GM). The domestic brands also traditionally sell to the very low end of the market, and thus don’t really compete with the big global names that tend to focus on the higher end. But recent moves into the lower end of the market by names like GM and Volkswagen could make the pain even worse for the domestic brands, and indeed Geely, BYD and Chery all reported sales declines in the first 3 months of the year. Right now the higher end of the market seems to be more stable than the lower end, meaning the big foreign car makers won’t feel the same pain as the domestics for perhaps another year. But look for most of China’s big domestic brands to slip into the red in the next 12 months, and perhaps for even 1 or 2 to close or combine with rivals as the industry embarks on a needed consolidation.
Bottom line: Inventory build-ups at car dealerships for BYD, Chery and Geely indicate a price war may soon break out at the lower end of China’s car market, pushing many companies into the red.
Related postings 相关文章:
◙ Car Sales: Domestics Down, But Not Out 汽车销量：国产车下降，接近拐点
◙ Jaguar-Chery: Veto Ahead 奇瑞联手捷豹路虎建合资厂料难获批
◙ China Slams the Brakes on Automakers 中国为汽车行业踩刹车
