economy - Big names entangled in Shanghai bribery

The story that two Shanghai employees of consultancy firm McKinsey were detained already emerged last year, but on Friday more names of larger foreign companies emerged in the domestic media, writes the International Herald Tribune.
Over twenty people from higher management Whirlpool, McDonald's, McKinsey and ABB in Shanghai are mentioned in a case that is said to involve US$ 500,000 in bribes. From the few reactions it can be deducted that the cases are already playing for months, but it is unclear why media started to write about it yesterday.

economy - Foreign top-brands fail quality inspections

More news from the state-owned Shanghai Daily. What have Burberry, MaxMara, Dior, Armani, Zara and Ermengildo Zegna in common? Not only are they famous brands, but they also belong to the 17 brands that failed a quality check of the Shanghai Industrial and Commercial Administrative Bureau.
The products were sold at the high-end department stores including Plaza 66 on Nanjing Road, Gateway Mall in Xujiahui, Les Charmes Outlet Boutiques near Pudong International Airport and the Paris Spring Shopping Center on Huaihai Road.
Now, why would Shanghai get nasty on the big brands?

internet - New earthquake brings more damage to cables

Repairing the undersea telecommunication cables might take till Spring Festival, as a new earthquake south of Taiwan caused more damage, the Shanghai Daily says, quoting the Shanghai Securities News of Friday.
The earthquake of 5.2 on the scale of Richter on Wednesday morning forces the repairships to order more cables to fix the new damage. Weather might still cause further delays.

However, "the mainland's international fixed-line telecommunication services have been re-established and 70 percent of Internet services have been restored through alternate routes," said an official with the Shanghai Telecom.

It just ain't enough.

labor - Wages went up 7.94% over 2006, Mercer, or not?

Recruiting in China comes with a few figures on average wage increases in China over 2006. According to human resources firm Mercer salaries in China did not rose 8 percent, no only a poor 7.94 percent.
There are a few figures more, but I stopped looking into those details when I found some very odd contradictions. I'm very bad in figures myself, but when the average wage rise is 7.94 percent, why then sees Shanghai "the strongest pay surge" with 7.7 percent? It just does not add up.
Anyway, I must be today in a "so-what" mood, since I think all these figures are too generic to makes sense. Even when some are split, it give only a very unclear picture of what is really happening.

Update: Xinhua comes with exactly the same article and exactly the same mistake, but they attribute it to the China Daily. Recruiting in China failed to come up with such an attribution and that is wrong for at least two reasons. First, you steal the work of somebody else, but that seems hardly a good argument talking about China. Secondly, when you copy-and-paste a stupid mistake, you look foolish in stead of the original author.

internet - IT firms join forces against censorship

I'm not really sure what it might mean, but overnight an agreement was disclosed to develop guidelines "guiding company behavior when faced with laws, regulations and policies that interfere with the achievement of human rights" John Palfrey blogs from Harvard. Also Rebecca MacKinnon has been involved in the behind-closed-door discussions that include Google, Yahoo, Microsoft and Vidaphone, to mention the most important corporate participants in this discussion.
Cisco is notably absent.
US-firms have been under fire for sometimes actively supporting the convictions of Chinese journalists (like in the case of Shi Tao and Yahoo), or supporting governmental censorship in other ways.
From the news I get that they now all agree to work on common guidelines. Since those guidelines are not yet there, there might be a few more meetings needed in the future.

internet - SeeISee launched

Mostly I do not announce new weblogs here: they have to prove themselves, I find. But for SeeISee I have to make an exception for two reasons. First, it is the company blog of Sam Flemming's CIC Data who has now abandoned his popular China Word of mouth. I'm sure the new weblog will continue to be a see of information as was Word of mouth.
Second, I believe it will serve as an example for other companies who can learn how to deal with information in this era of online conversations. In the US corporate blogging started in the IT, but has since expanded into almost every industry. Expect the same to happen in China too.

telecom - Chinese WiMax deployed

Beijing Xinwei is preparing a listing at the Shenzhen stock exchange, writes the China Daily today. Xinwei is a joint venture between China's Datang and the US firm, focusing on developing a Chinese standard WiMax called McWill It is a Chinese standard for a technology that is up to now dominated by Intel.
A domestic IPO will allow Xinwei to further deploy McWill. China Mobile has already started to install the technology in Chongqing and China Netcom in Guangdong.
WiMax can be used as an alternative or an addition for 3G technology, as it delivers high speed broadband and is cheaper and easier to install compared to the 3G-technology. Xinwei also has been at the core of the development of the Chinese standard for 3G TD-SCDMA.

Tencent, internet and trends to watch in 2007 - the WTO-column

(This is a revised edition of a story I earlier published on my weblog)

2007 is going to be a dramatic year for the internet industry in China. Some of the current trends are very positive, others will lead to disaster and consolidation. Do not expect a boom or but story: both are going to happen.

• Shenzhen-based company Tencent is the internet company to watch. Starting from a successful instant messaging operation called QQ, it now claims to have more than 200 million accounts. Over the past year it has used its leverage over the 136 million Chinese internet users by expanding successfully into webloghosting, where it is now the number one in terms of users. It has pushed sohu.com out of the top-3 internet portals and has recently started to move into video-sharing. Its virtual money system has been so successful, it is now threatening effectively the state monopoly on issuing money. Tencent combines three elements that explain its success: it has a huge reach, it is able to expand that reach into different sectors of the internet, and can monetize its operation. Only Alibaba.com and Sina.com seem to be able to do the same with a certain degree of success.
• The amount of money internet users spend online is rather marginal. Although the Internet Society of China cheered that over 2006 internet users spend almost 50 percent more compared to 2005, the total of three billion US dollar in 2006 is still fairly low. Of the 170 Renminbi per user per month, 120 Renminbi go to the telecom companies, leaving 50 Renminbi or 6 US dollar per month per user for games, online purchases or other activities.
• Although Chinese spend about 20 percent of their media time online, only a fraction of the advertisers' budget goes to online operations. Clear figures are not available, but experts estimate that 0.6 percent or 1.5 billion US dollar of the USD 250 billion budget for China is spend online. Media experts say it is not a problem of huge advertisers who not want to spend more of their budget online, but but the problem occurs at the level of the internet companies. When those advertisers go to bigger players like Baidu.com, they can only get a few banners and no real added value. As the budget for advertisement will be going up in 2007 ahead of the Beijing Olympics that problem has to be addressed. Only the huge players in the top-5 of the industry as mentioned in my first point will profit from that change, if they can offer a decent media package. Other players will most likely not profit as larger advertisers will prefer to talk to the big guys.
• The future looks grim for those who are not part of the internet top league. Too often their success is now measured in units that have no value: the number of webloggers, page-views, IM-accounts or video-downloads. When a valuation is not backed up with a unit that as a value - as in Renminbi of QQ-coints - they might be ripe for the dustbin of the second internet bubble.
• First indications in the US market are that a market adjustment is just around the corner. Some analysts suggest that making money with user-generated video's is an illusion and that is bad news if you are a stand-alone video-sharing operation, of which China has over 60, 17 of whom received in total USD 100 million in VC funding over the past two years. An embattled video-sharing service in the United States is offering ten US cent for every download to the filmmakers. Such a strategy would be impossible in China, market leader Tudou would have to pay more than one million US dollar per day, and seems a sign of senseless desperation as we know it from the end of first internet bubble. Then, it took one year before the crash in the US reached China. Now, it will be shorter and I expect VC's pulling plugs within six month after the US bubble starts bursting.
• Mobile communication is going to change the online world as we know it. The fight for the consumer might get fierce, as a part of the revenue available will go to possible new subscriptions and new mobile devices. Without a decent strategy for mobile delivery, a position in the top-5 internet companies will be impossible. The fight - for example here between Tencent and China Mobile - has already started. As the official launch of both 3G and Mobile TV has been delayed till 2008, mobile content and services providers will be at the mercy of quasi monopolist China Mobile. Its "duplicate and destroy" model will bring havoc to the industry.

Fons Tuinstra

internet - Bloody internet cables

I had just been discussing the internet situation with a few fellow internet users and my conclusion was that the situation had been improving already a bit. That means the situation will perhaps normalize slowly in the month till Springfestival. Well, the rest of the day my weblog interface failed. Error message: "No connection".
I was too lazy and too busy with other stuff to really find a way around my interface today (there are two or three at least).
When you see this message I must have arrived at another internet connection that is better than the office I'm in today.

law - On banned businesses

The China Law Blog summerizes a hilarious discussion they had a potential client who wanted to set up a business in China that is banned by law.

Steve and I would explain that what the company was proposing is prohibited in China. The company would respond by noting how good its business would be for China's economy. Steve and/or I would then explain the risks of the government shutting down the business once it became at all visible. The company would then talk about how difficult it would be for the government to shut down a business that was doing so much to help so many Chinese businesses.

As many of my readers might have: it is very recognizable. Especially in a few sectors on my agenda, like media and telecom, I have had similar conversations so often, in some cases with companies that were already doing their illegal thing in China. I do not think the other side is listening, I guess they will look for another law firm that wants to earn a buck here.

media - Limited foreign TV-channels in hotels

Yesterday I was interviewed for a securities paper on the recent decision bij the central government not to approve the application by the New York Stock Exchange (NYSE) and NASDAQ to open an office in Beijing. The official explanation: China first has to make rules on this kind of offices before we can allow it.
My feeling was that the reporter thought there might be an anti-US slant in this decision, but for me that seemed fairly unlikely. "They are bureaucrats, making rules is their life. When they get the opportunity to make new rules, they will do so," was my line of thinking.
I thought about that when I saw in the Shanghai Daily this article about our friends at the State Administration of Radio, Film and TV (SARFT), who in their endless wisdom have decided that hotels for foreigners can receive no more than 31 foreign channels, including fortunately "Cuba Vision International".
So, should we take our illegal satellite dishes then in our luggage? Fortunately, we have the internet.

internet - "No money in user-generated video"

Will user-generated video make any money? That question has become more urgent as the number of video-sharing companies has been growing and VC's have been putting in the past two years close to a 100 US dollar in funds into 17 Chinese enterprises. Tencent seems also to be moving into the video-sharing market, possibly the start of a consolidation of the sector.
New research in the US market, here picked up by the Cyber Journalist, suggests there is no money to be made in this branch of the internet industry.

Market research analyst Screen Digest predicts that although 44 billion video streams -- 55 percent of all video content consumed in the U.S. -- will be created by 2010, the market will only account for 15 percent of total revenues.
"It is the nature of content itself. How do you monetise free content? That is the core debate," Arash Amel, a Screen Digest analyst who wrote the report, told Reuters.
"No one has found a way to make real money from the huge audiences who participate on these sites," he added.

Of course, 15 percent is not no money and the US market is different from the Chinese, but the signal is rather troublesome. The whole report might be only affordable for VC's, but you can have a look at the content here.
In a separate development, indicating the fierce competition, US-based dovetail.tv is offering its amateur filmmakers ten us cent per download, according to Venturebeat. Imagine, a similar move by marketleader Tudou, claiming over 10 million downloads per day, would cost a whoppy one million US dollar per day. According to my estimation, competition in China will be tough but not that tough.

A new year, a new doomsday scenario - the WTO-column

When the news tide is low, because of holidays or of a cut internet cable, it is a safe bet to expect the reemergence of a few classic China stories. One is about the dramatic shortage of women, causing social unrest. The other is about the upcoming collapse of China at large. For the men in Shanghai I have good news: I did a headcount on my way to the office; women are still in the majority, so there is no reason for immediate panic.

In 2004 I have been explaining why missing 20 million women in China is only a statistical problem. Even now the number is 30 million in 15 years time, I'm still not impressed.

People who have been following my articles might know that I'm also highly sceptical about nationwide doomsday scenario's for China. When I started to work in China, Deng Xiaoping was on his prolonged deathbed. Everybody I met at the time was sure that his death would cause chaos, mayhem and in the end the collapse of China. Since then, the number of times we were convinced China would be near its end have been countless. The banking crisis, the handover of Hong Kong, bureaucratic infighting, deadly diseases, global warming, corruption, tensions with the US over Taiwan.

What all those doomsday scenario's have in common is that they did not materialize. It took a while, but I have become a sceptic when it comes to doomsday scenario's for China as a whole.

The author Will Hutton fell earlier this month short of predicting an immediate collapse, or a collapse within five years as Gordon Chang did six years ago, he came very close. He describes China as a Leninist structure, incapable of changing and an unstable entity that might threaten the world.

There is no shortage of legitimate problems that have caused, caused and will cause a lot of serious disruption. When you look at the political system, the traditional media, the educational system, the health care, sometimes you wonder why it all still works. That is partly my explanations for the fact that a full collapse of China is not happening. Collapse is so much part of the country's daily routine, it has developed an excellent crisis management to deal with those problems, although it seldom happens on a timely way.

Picking a few of those problems, ignoring existing or possible solutions and voila: that makes a rather convincing doomsday scenario and a possible bestseller. But when you are living in China, watch the enormous changes taking place, you see what falls short on all these scenario's. The lack of internal coherence is both a problem and a blessing. The people who sell remember the few times when Mao Zedong was able to get the noses of the whole nation in the same direction know that China's inefficiency is also a blessing in disguise.

Fons Tuinstra

The Writing on the Wall: Why We Must Embrace China as a Partner or Face It as an Enemy

labor - Permission employers not needed for trade union

Workers do not need the approval of their employer for setting up a trade union, said a top-official of China's ACFTU, the only allowed federation of trade unions, according to this dispatch by the official news agency Xinhua.
In the past trade unions always permission from the company to set up a branch, but last year at Wal-Mart they forced the strongly anti-union retailer to accept trade unions in all its branches and recently it also happened to the Taiwanese manufacturer Foxconn. Foxconn produces amongst others iPods for Apple and got last year into heavy water after it was accused of ignoring the labor law.
According to the law companies not only need to have trade unions, but those organizations also have the right to cash in a few percent of the payroll.

internet - Cable trouble might last another month

Telecom executives in Taiwan are not very confident the eight (the number does increase) broken telecommunication cables will be repaired very soon. From the International Herald Tribune:

Chunghwa Telecom in Taiwan, part of a consortium that owns four of the eight undersea cables cut during the Dec. 26 earthquake, said Tuesday that bad weather and rough seas had hampered repair efforts. The damage was also more extensive than initially thought, the company said, with its cables severed in at least 10 places.
The company now estimates that the first cable will not be repaired until early next week, with the three others fixed by the end of the month. The Hong Kong Telecommunications Authority said in a statement Monday that repairs on all the damaged cables would not be completed until the middle of February, weather conditions permitting. The original estimate for final repairs was mid-January.

I must say that by now most basic functions are working slow but it is doable. Heavy duty stuff like youtube or my bank accounts are still out of reach. But this might be part of a psychological process where you tend to adopt to a bad situation and when taken hostage start to understand the position of the hostage takers.

life - Mobile Monday, the better business event

Had I already told you that Mobile Monday in Shanghai is not only for the information and panel that is provided by the team of Bruno Bensaid, Sage Brennan and Ranjit Singh. It is also a must-be social event where you find many of your online contacts in person.
So, I met Sage Brennan of Pacific Epoch for the first time, although I tap into his online wisdom very often. Shaun Rein of the China Market Research Group, quoted regularly here, did apologize for not being there, but he did so by sending Natalie Zhu, one of his people. That made much good and we might forget about Shaun if he keeps on sending Natalie as a replacement.
A surprise was also Isaac Mao, a friend I met for the last time in Rotterdam, when he spoke at a conference. Again: a must-be event.

More later on the Mobile Monday weblog.

media - Shanghai media groups miss target for advertisements

The two Shanghai TV-stations have missed their targets for advertisements for 2007 sources inside the company say. Both Shanghai TV and the Oriental TV-station have been losing audiences and obvious the advertisers are following them.
According to a rating of TV-channels by CTR over the first six months of 2006 the top-5 provincial TV stations are those of Hunan, Anhui, Beijing, Jiangxi and Jiangsu. The advertisers are now following that track and putting their money in those stations. Both Shanghai and Fujian have been dropping compared to earlier ratings.
It signals a mood that might have broader implications. Ahead of the Olympic Games in 2008 advertisers might be looking for more opportunities in China. Industry sources suggest that although larger advertisers in for example internet companies, those companies in most cases are still unable to deliver the value for money those advertisers expect.

media - Mobile TV: heading for disaster

Mobile Monday Shanghai convened this week to discuss the future of Mobile TV with a 5-person strong panel, representing a wide range of mainly foreign companies with an interest in the matter. Despite the generally optimistic tone of the speakers, at the end of the evening I found only one way to describe the developments: what a disaster.

China will be offering two ways into mobile broadband communication, 3G and mobile TV. Since 3G is a delivery method, it could also deliver mobile TV, but for China-specific reasons both tracks will be rather different. On Monday the panelists insisted that both systems would be complimentary, but stiff competition will also be unavoidable.

What is going wrong with mobile TV in China? There are at least two major problems. First, all major government departments and other stakeholders are involved in the regulatory process of mobile TV. The ministry of information industry (MII), the State Administration of radio, film and TV (SARFT), the traditional TV-stations, China Mobile. All these stakeholders hate each others guts, so it is very hard to get consensus about anything. Even an agreement on the standard that is going to be used does not exist. They agreed to stop the international standards, but otherwise there is no agreement. Most likely a Chinese standard is going to be used, but since that is not sure, no hardware or applications can be developed. When that agreement does not emerge very soon, the system will miss its political deadline: the 2008 Olympic Games.

Content is king, we learned on Monday too. Apart from pricing, adoptation by the consumers would depend on the content. That would be the first time in China, since official media were driven by political correctness and commercial greed, but never put the wishes of their audiences on the first place. Can we trust those traditional content providers, under the stifling direction of SARFT and other censorship systems, to focus on the wishes of the consumers?

During Q&A one person pointed out that adult content is the largest money maker for similar systems elsewhere in the world. It looks very unlikely were are going to see anything like that.

3G is not doing much better at this stage in terms of getting the official process rolling. Licensing providers might have been postponed till 2008, although big scale experiments are on its way and the Chinese standard of TD-SCDMA seems a sure winner. More important, the 3G track has been able to avoid the second pitfall that is now hampering Mobile TV. It is seen as a pure telecom project and will avoid any link with terms like "broadcasting". The main purpose: keep the SARFT-like forces out. The telecom companies have only one interest: recoup their investment as fast as possible.

In a few years time, we will all be enjoying mobile broadband for a afforable price, but just like when China adopted the internet: it just takes too long to get its act together.

internet - Tencent moves into video-sharing

Only last Friday I predicted that the next move of Shenzhen-based internet giant Tencent would be into the video-sharing. Yesterday, at the Mobile Monday meeting Sage Brennan of Pacific Epoch confirmed that on his QQ VIP account with Tencent he could since yesterday upload and download video's.
The move has not yet been announced and is not available for ordinary subscribers, but is going to make another splash in the industry. Tencent, better know from their IM-service QQ, has been using their leverage by systematic expanding into other related fields. They now have positions as a portal and a host of weblogs. They will most likely also wipe away a large number of the now estimated 150 video-sharing sites in China.

"Best Buy" in Shanghai

economy - A bustling Best Buy

In a longstanding webloggers' tradition I first gave my opinion about the future of "Best Buy" in China, before I went there to have a look myself. A lazy, cold Sunday afternoon, so what better than to investigate new shopping possibilities?
I was not the only one who thought that: the huge store was pretty packed, apart from the counters, where it looked pretty empty in the hour I hang out there. A lot of foreigners too, although the Shanghainese of course dominated.
Huge amounts of staff, much more than I have seen in any of their US stores, hanging around doing very little. Obvious both staff and customers had very little to talk about since haggling was not a standard practise- although it is also happening up to a certain degree in the US.
Most perspective I see outside the field of computers, computer appliances, cameras, mobile phones and so on: competition next door will be killing and their prices looked rather in the high end. But they might have a chance in the very top-end of the market. The huge TV-screens simply do not fit into the little stores in the other electronic malls in Xujiahui. Also the more expensive foreign brand household appliances that do not match the agenda of the hypermarkets could be an interesting niche.
Otherwise: a very nice store, where Chinese competitors still can learn a lot.

economy - MG becomes "Modern Gentleman"

Rewriting history is an old habit, also in China, but the (only recently by me discovered weblog) China Car Times comes with a rather nice one. Nanjing Automotive has no feel for the name "Morris", so it has renamed it "Modern Gentleman". Very nice.

Internet: both bust and boom - the WTO-column

(I made a revised edition of this story here)

Bringing bad news as if it is good news is an art. So, I was first put on the wrong leg when I read the announcement of the internet society of China that China's internet users had spend almost 50 percent more online in 2006. Most of the media focused on that positive message. But when you look a bit further, the message become more troublesome.

In total the internet users have spent 23 billion Renminbi or three billion US dollar online over 2006. That means they have spent an average of 170 Renminbi per month. Of that money about 120 goes to the telecom providers, who seem to be the main beneficiars of this market. Games, online shopping and other online expenditure have only 50 Renminbi or six US dollar per month left. That means the industry needs a lot of years with an average growth of 50 percent, before this market can become mature.

The online industry gets an additional three billion US dollar from the advertisement industry, less than one percent of the total budget. Of course, the industry complaints about this low percentage since the Chinese spend on average 20 percent of their media time online. But, there are no reasons to expect a massive change here yet.

Waiting for the internet users to spend more money will certainly take too long; so, we hope for for more financial support through advertisements to reasonable levels that align more with the media-time Chinese spend online. But that is going to cause a massive consolidation of the internet industry with few winners and many losers, comparable to the first internet bust at the beginning of this century.

Most of the little advertisement money that is being spent on the internet goes to the big three: Netease, Sina and Sohu. When I read the figures over 2006 correctly Tencent has joint the leaders in the industry. But how to define market leadership in this market?

Alibaba is flushing Ebay out of the market by offering their auction services for free. Market leader in the video-sharing market Tudou celebrated it has now more than 10 million downloads per day.

When we want a mature valuation of the internet market and its leaders we might have to go back to one of the most important lessons of the first internet bust: eyeballs do not equal revenue. And whether those eyeballs are now called weblogs, IM-accounts or video downloads, they still do not equal revenue. I would plead for a more traditional approach of a market leader an focus on revenue. Taking a more traditional approach and defining market leadership in terms of revenue is needed for another reason. The industry is consolidating both in a technological and commercial approach. Portals, IM-services and weblog hosts are moving fast into the territory of their neighbors.

Comparing the strength of companies, based on their financials, might also make it easier for marketeers to move into this industry. Life has been very easy for them in the past when 80 percent of the advertisement money went to TV-commercials. But when that shift takes place that money will go in large parts to the top-5 internet companies in the industry, not to the hundreds of smaller players down the line.

That will lead to a massive consolidation of the internet industry, possibly already this year, driven by VC's who want to see their money back. It is not going to be nice.

Fons Tuinstra