Friday, January 30, 2015

Alibaba´s Jack Ma losing shine as China´s richest man - Wei Gu

Wei Gu
Wei Gu
Alibaba´s shares took a firm dive this week, and as a side-effect chairman Jack Ma might be losing his position as the country´s richest man, writes wealth editor Wei Gu in the WallStreetJournal. Property mogul Wang Jianlin might replace him.

Wei Gu:
A little-known new energy entrepreneur and a property tycoon are set to surpass Internet mogul Jack Ma as China’s richest man. 
Ma, 51, and the founder and executive chairman of Alibaba Group, saw $1.4 billion of his fortune wiped out Thursday following revelations earlier this week by a Chinese regulator that the company had lax oversight on counterfeit goods sold on its market places, as well as other alleged illegal activities on its sales platforms. 
On Thursday in New York, Alibaba shares fell as much as 11% before closing down 8.8% following its lackluster earnings report, as its revenue growth of 40% missed analysts’ expectations, despite its sites hosting a record-breaking online sales day in November. Ma owns 8.8% of Alibaba, according to the company’s IPO filing. 
Alibaba’s shares are still trading  31% above their  initial public offering price in September, when its blockbuster $25 billion listing vaulted Mr. Ma to become China’s richest man. His wealth is now estimated to be $23.1 billion, down from $24.2 billion in mid-December, according to Chinese wealth tracker Hurun Report and a Wall Street Journal tally. 
More Alibaba shares could flood the market when a lock-up period for shareholders expires. Some shareholders can sell up to 40% of their holdings 180 days after Alibaba’s listing in mid September. That would mean around mid-March. 
Chinese property mogul Wang Jianlin, chairman of Dalian Wanda Group, 61, has now surpassed Mr. Ma in terms of wealth. After successful listings of its commercial properties arm in Hong Kong in December and a cinemas unit in Shenzhen in January, his wealth has jumped to $28.1 billion, up from $23.4 billion in mid-December, according to Hurun and The Wall Street Journal’s calculation.
More in the Wall Street Journal.

Wei Gu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´ request form.

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Apple takes top spot as luxury gift - Rupert Hoogewerf

Rupert Hoogewerf
Rupert Hoogewerf
US tech giant Apple has taken over the number one position as most popular gift from designer good maker Hermes, according the the newest Hurun luxury report. Travel is the main driving force, says Hurun founder Rupert Hoogewerf as Chinese buy 7 out of 10 luxury products overseas, according to Reuters.

Apple Inc has taken the number one luxury gifting spot in China from designer goods maker Hermes International SCA, according to a Hurun luxury report on Thursday, reflecting the iPhone maker's recent hot streak in the country. The U.S. tech firm's focus on glitzy stores and high prices helped it post a 70 percent rise in sales in China in the last three months of 2014 and powered the company to the largest profit in corporate history. 
Spending on gift-giving overall dropped 5 percent in 2014, after a 25 percent drop the year before, according to the Hurun Chinese Luxury Consumer Survey. Beijing has been cracking down on corruption and luxury spending among public officials, weighing down sales of premium liquor to handbags. 
Domestic luxury spending in China dipped for the first time last year, according to consultancy Bain & Co, with increasing numbers of shoppers looking to spend money overseas. 
"Travel retail continues to change the dynamics of luxury in China, with 7 out of 10 luxury goods bought by Chinese now being bought overseas," said Hurun Report Chairman Rupert Hoogewerf.
More at Reuters.

Rupert Hoogewerf is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form.

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US visa for Chinese billions in real estate - Wei Gu

Wei Gu
+Wei Gu 
Chinese visa seekers to the US provide developers with almost rent-free capital, a brisk business that seems to benefit all parties involved, despite the risks involved. 11,000 EB-5 visa petitions were filed in 2014, representing US$5.5 billion, WSJ wealth editor Wei Gu learns from immigration lawyer Jean Francois Harvey.

Wei Gu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´request form.

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Wednesday, January 28, 2015

Apple leaves troublesome past behind - Shaun Rein

Shaun Rein
+Shaun Rein 
For a long time, Apple did not get it right in China. Business analyst Shaun Rein notes that now the American giant is doing things right and ships more smartphones to China, even more than Xiaomi. From Mercury News.

Mercury News:
One gusher of growth the company has yet to fully tap is the Chinese market. The company raked in $16.1 billion in revenue there during the quarter, up 70 percent year over year. For the first time, Apple shipped more smartphones in China than any other manufacturer during the fourth quarter of last year, according to research firm Canalys. But Apple still has ample room to grow in the country, with smartphone market share of about 12 percent, according to Counterpoint Research. 
Shaun Rein, managing director of China Market Research Group, said Apple has come a long way in China, where it previously had struggled to compete without larger phones. "Now with iPhone 6 Plus, they have become the must-have item," he said. "It's really quite remarkable how much people are adopting it." 
Apple CFO Luca Maestri said the company is on track to have 40 stores in greater China by mid-2016. 
But Apple will need to step up the pace of store openings to make the most of the opportunity and give as much attention to the Chinese market as it gives to the U.S., Rein said. 
"Apple is succeeding in spite of itself in China because they have bad distribution," he said. "It's bigger, and people are willing to pay more." 
Analysts will also be closely watching the sales for other Apple products such as the Apple Watch, the company's first brand-new product since the iPad.
More in Mercury News.

Shaun Rein is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´ request form.

What are the new trends for China in 2015? Here are our seven trends.  

How shadow banking fired up China´s stock markets - Sara Hsu

Sara Hsu
+Sara Hsu 
Shadow banking seemed for a short while on the decline, but the industry is back in force, writes financial analyst Sara Hsu in the Diplomat. The recent rally of China´s stock markets was caused by shadow banking.

Sara Hsu:
Shadow banking experienced declines last year, as fewer funds were channeled to the property market via trust and wealth management products. Some of the funds that entered the shadow banking industry in search of yield were reoriented to the climbing stock market and recently, perhaps ironically, channeled to the stock market through shadow banking products. Fewer funds went into trust and entrusted loans during mid-year 2014, but this trend reversed in December 2014 as the shadow banking industry took advantage of the stock surge by promoting assets that included both stocks and more shadowy products such as trust and entrusted loans. 
A recent crackdown on margin regulation has also served to induce investors to use wealth management products to purchase stocks through shadow banking channels. Although margin trading rose through 2014, the China Securities Regulatory Commission (CSRC) on January 16 reiterated that the minimum account threshold for opening an account (to be potentially used in margin trading) was 500,000 RMB ($80,000). In addition, the CSRC banned Citic Securities, Haitong Securities, and Guotai Junan Securities from opening new margin accounts for three months. Funds have increasingly been transferred to the stock market via umbrella trusts, which use both wealth management product proceeds and private investors’ funds. Private investors can make a profit on such assets as long as the stock market rallies. 
In China’s relatively shallow financial markets, increasingly sophisticated investors have eagerly sought higher returns. The shadow banking sector provided such returns through mid-2014, lost its luster through November 2014 as the stock market rose, and rebounded in December 2014 in tandem with a stock market surge. 
The bull market for stocks reveals that investors continue to hunt for yield, and equally importantly, that investors have a positive market outlook. This perspective reflects statements made by the leadership that the economic slowdown is not a product of declining prowess, but of restructuring toward a more advanced economy. It indicates belief in the ability of the leadership to restart the economy going forward. Although some analysts have viewed the stock rally as a byproduct of irrational investors, recent research by Ya, Ma and He (2014) has shown that China’s stock market increasingly reflects fundamentals and is not as driven by herding activity as in the past. 
While the stock upswing reflects positive investor sentiments, regulators are wary of overleveraging in the stock market as they have been in the shadow banking market. Excessive undertaking of debt for investment purposes led to high leverage for margin trading, thus inciting the recent crackdown. Stop-loss positions for stock investment via wealth management products may exacerbate a stock downturn when it occurs. Continued monitoring by authorities will help to curb the worst practices and control the feeding frenzy in China’s stock markets as bullish investors pour funds into this “new” old financial channel.
More in the Diplomat Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers´ request form. Are you looking for more financial experts at the China Speakers Bureau? Do check out this list.  

Monday, January 26, 2015

Why Alipay might become bigger than Alibaba - Ben Cavender

Ben Cavender
+Benjamin Cavender 
Much attention has gone to the massive e-commerce giant Alibaba and its IPO, but its financial arm, Alipay, might in the long run become the bigger operation, says business analyst Ben Cavender in the Technology Review.

The Technology Review:
Alibaba and Alipay, which has been incorporated as a separate company since 2011, helped drive the very rapid expansion of online sales in China—now the world’s second-largest “e-tail” market. McKinsey Global Institute estimates that by 2020, Chinese e-tailing could generate as much as $650 billion in sales, and China’s market “will equal that of the United States, Japan, the United Kingdom, Germany, and France combined today.” 
As much as Alibaba has driven China’s booming e-commerce market, it’s possible that Alipay will ultimately have the bigger impact on the Chinese economy. Alibaba and Alipay “are integral to each other’s success,” says Ben Cavender, principal at China Market Research Group in Shanghai. “But I wouldn’t be surprised if, in the long term, Alipay turns out to be the more important business—it’s so flexible and has so many potential uses.”... 
With ... new mobile payment technologies, China has leapfrogged both checkbooks and desktop banking. Jane Yang, for example, went straight from paying rent in cash to paying via Alipay. According to PricewaterhouseCoopers, 79 percent of Chinese consumers surveyed said they were happy to receive coupons via their mobile devices, versus just 53 percent globally. And 55 percent of Chinese consumers said they expected their phone to be the main way they made purchases in the future, versus 29 percent globally. 
This is a remarkable turnaround for a country that for years seemed to be stuck in a far earlier, low-tech era of consumer financial services. “The banks did nothing to make customer service easy,” says ­Cavender, who notes that for many years paying a credit card bill required standing in line at a bank. It could not be done through the mail or online. Only those who had significant funds to invest and lived near large bank branches had easy access to wealth management options.
More in the Technology Review.

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Saturday, January 24, 2015

Unlikely: Apple giving access to China - Ben Cavender

Ben Cavender
+Benjamin Cavender 
State media hailed a deal between Apple and the Chinese government to give access to Apple devices, including the source codes. An unlikely scenario, tells business analyst Ben Cavender to QZ.

Other analysts agreed Apple had probably promised to turn over its source code to China’s government, but disagreed about the consequences.
The access would allow the Chinese government to “run spot checks” on how Apple is protecting user information, and to determine whether other intelligence agencies are trying to snoop on China, said Ben Cavender, a principal at China Market Research Group in Shanghai.
If that is in fact what has been agreed, it’s a landmark deal, Cavender said, and Apple has not generally provided such information to other governments.
“This is a unique situation where China is such an important market to Apple, and they need to be in it. They don’t have the leverage they might ordinarily have,” he said. Still, Cavendish said any agreement would be limited in scope.
“I find it improbable that the Chinese government will have access to anything outside China,” Cavender said. And if the Chinese government did manage to snoop Apple users or services outside the country, “someone at Apple would probably notice,” he said, which would limit the risk for Apple’s worldwide customer base.
Inside China, users are likely to be blasé about any attempts by the government to use its access to snoop on Apple users. “People here kind of operate under the assumption that the government is already looking at what they’re doing,” Cavender said.
More in QZ.

Ben Cavender is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers´request form.
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Friday, January 23, 2015

New foreign investment law: long overdue - Mark Schaub/Xu Ping

Xu Ping
Xu Ping
Mark Schaub
Mark Schaub
The draft foreign investment law (FIL) is replacing the regulations from 1979. China has changed, and so a major overhaul of the law is long overdue, write lawyers Mark Schaub and Xu Ping in China Law Insight. They give an overview of the shortcomings of the current law, and the new features of the FIL. And it might only be the beginning.

Mark Schaub and Xu Ping:
The Foreign Investment Law, if promulgated in its current draft form, will fundamentally change the current foreign investment regulatory landscape. As such its implementation will rely on the formulation of relevant implementation rules as well as other complementary guidance, such as the Negative List, the national security review guidance and information reporting rules. While the circulation of the Draft FIL is an important first step in the context of the landmark reform, there is still a very long way to go in the establishment of a new foreign investment regime and the full implementation of the Foreign Investment Law. According to the Legislative Work Plan for the State Council in 2014, the amendment of the Three FIE Laws falls within the ‘research projects’ of 2014. MOFCOM, as the department responsible for drafting the Foreign Investment Law, has started to circulate the Draft FIL for public comments at the very start of 2015. This demonstrates the determination of the Chinese government to carry out reform. Upon expiration of the period soliciting public comments (approximately 1 month), MOFCOM will revise the Draft FIL on the basis of comments gathered from the public, and submit the revised draft to the standing meeting of the State Council for deliberation and then circulate an updated draft for the Standing Committee of the National People’s Congress to review. With the objective of establishing a “new open economy system” and along with the negotiation of Sino-US and Sino-EU bilateral investment agreements, we believe we are now at the dawn of the era of the new Foreign Investment Law.
More details on proposed institutional changes in China Law Insight.

Mark Schaub and Xu Ping are lawyers at King&Wood and Mallesons. They are also speakers at the China Speakers Bureau. Do you need them at your meeting or conference? Do get in touch or fill in our speakers´ request form.

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Thursday, January 22, 2015

Winners and losers at the new foreign investment law - Paul Gillis

Paul Gillis
+Paul Gillis 
The proposed law for foreign investments is up for discussion, and offshore VIE companies controlled by Chinese would be treated as domestic companies, legalizing current practices. Accounting professor Paul Gillis lists the winners and losers of the proposed law on his weblog.

Paul Gillis:
But there is a twist. If Chinese individuals or corporations control the foreign company (parent companies of overseas listed Chinese companies are typically incorporated in the Cayman Islands) then the foreign company will be treated as a domestic company for purposes of the foreign investment rules. That would mean the VIE is treated as being controlled by a domestic company and would not be subject to the foreign investment rules. 
Companies that are controlled by Chinese will have their existing VIE arrangements validated. That means that existing VIE contracts should be enforceable. At present, Chinese law will not enforce contracts where an illegitimate purpose is concealed under the guise of legitimate acts. The proposed law will legitimize foreign investment through a VIE when the company is controlled by Chinese. That should make the contracts enforceable. The new law will create winners and losers in China. 
Alibaba, Baidu and other companies with dual class share structures or other arrangements that keep founders in control. These companies can continue to use their VIEs. Hopefully, they will be allowed to transfer the VIE to the public company structure so that it becomes a WFOE. That would remove many of the operational difficulties associated with VIEs and provide some better legal protection for shareholders. 
Ant Financial Services Group (ANT), Alibaba’s finance arm formerly known as Alipay. Alipay was a former VIE of the Alibaba Group that was taken out of the group in 2011 by Jack Ma much to the chagrin of Yahoo! investors. Alipay has been the poster child for VIEs gone wrong. The new law may allow ANT to be listed in a U.S. IPO, since the new rules would appear to allow a company like ANT to have foreign investment provided it remained Chinese controlled. 
US Exchanges. Few stock markets permit the use of control structures that allow unders to remain in control of their companies even when they sell down their shares below 50%, but the US exchanges do. Those control structures usually involve two classes of shares – a Class A owned by founders with full voting rights, and a class B owned by public shareholders with identical rights as class A except for no right to vote. Alibaba achieved a similar result using the Alibaba partnership. Hong Kong and China do not permit companies to list with control structures, insisting on one share/one vote. The Hong Kong Stock Exchange lost the Alibaba IPO because of its unwillingness to change its rules. 
Losers Tencent,
 CTRIP, and other companies that are not controlled by Chinese. Some overseas listed Chinese companies have not used the control structures. Their VIEs are likely to be treated as foreign invested enterprises, and will need to comply with the negative list. The regulator could give special permission for these companies to continue to use their VIEs, and I expect they probably will.  An alternative may be for these companies to move their VIE to the Shanghai Free Trade Zone, which has indicated it intends to allow wholly owned foreign investment in e-commerce.  
Multinational companies (MNCs). Many MNCs use the VIE structure although this is rarely disclosed (Amazon is an exception, disclosing use of a Chinese VIE).  These VIEs will be subject to the negative list. I am less optimistic that MNCs will be able to obtain special permission, and may need to rely on using the Shanghai Free Trade Zone.  
Hong Kong Stock Exchange. Hong Kong does not allow companies to list using control structures to keep founders in control. The Hong Kong Stock Exchange lost the Alibaba IPO over this rule, and stands to never see another IPO of a Chinese company in a restricted sector if they do not change their rules.

More at ChinaAccountingBlog.

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