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News from China
China’s Great Wall Auto interested to make offer for Fiat Chrysler
22nd August 2017

 CHINA’S Great Wall Motor Co is interested in bidding for Fiat Chrysler Automobiles, a company official said yesterday, confirming reports it is pursuing all or part of the owner of the Jeep and Ram truck brands.

 
There has been speculation over Chinese interest in FCA since Automotive News reported last week that an unidentified “well-known Chinese automaker” made an offer earlier this month, triggering a jump in FCA’s Milan-listed shares.
 
“With respect to this case, we currently have an intention to acquire. We are interested in (FCA),” an official at Great Wall Motor’s press relations department said by phone. He declined to give his name and gave no further details.
 
FCA Chief Executive Sergio Marchionne is seeking a partner or buyer for the world's seventh-largest automaker to help it manage rising costs, comply with emissions regulations and develop technology for electric and self-driving cars.
 
In a statement, Fiat Chrysler said it had not been approached by Great Wall Motor, and was busy with implementing its current five-year business plan.
 
A move for FCA by Great Wall Motor, China’s largest sport-utility vehicle and pick-up manufacturer, would be audacious, however.
 
At a time when China’s attitude to outbound deals has cooled, if Great Wall bought FCA, which has a market value of almost US$20 billion, it would be by far China’s largest overseas automotive industry deal — and possibly one of its largest ever overseas purchases — dwarfing Geely’s acquisition of Volvo cars in 2010.
 
FCA is also larger than Great Wall, which has a market value of closer to US$16 billion.
 
Earlier yesterday, two people familiar with the matter said Great Wall Motor had asked for a meeting with FCA, with the aim of making an offer for all or part of the group. Also yesterday, citing an e-mail from Great Wall Motor President Wang Fengying, Automotive News reported Great Wall had contacted FCA to express interest specifically in the Jeep brand.
 
The industry publication cited a Great Wall spokesman confirming interest, but saying the Chinese automaker had not made a formal offer or met with FCA’s board.
 
“Our strategic goal is to become the world’s largest SUV maker,” Automotive News quoted the spokesman as saying. “Acquiring Jeep, a global SUV brand, would enable us to achieve our goal sooner and better (than on our own).”
 
“Jeep is the most logical choice since (Great Wall) wants to be the largest SUV maker in the world,” said Yale Zhang, head of Shanghai-based consultancy Automotive Foresight.
 
Ram could be an option, but “the Jeep brand is recognized globally. I think Great Wall Motor is eying a global strategy, not just the United States,” Zhang added.
 
Marchionne told analysts last month that a new five-year strategy — to be unveiled next year — could include asset sales.
 
While he acknowledged that Jeep, Ram, Maserati and Alfa Romeo could exist on their own, he appeared to pour cold water on the idea that any of them would be sold — at least not without leaving behind a less profitable “stump” that may struggle on its own.
 
Jeep SUVs and Ram trucks, the two most coveted of Fiat Chrysler’s brands, have become a major profit engine and a driver for Fiat’s North American operations.
 
Jeep, which traces its roots to the iconic World War Two military vehicle, targets sales of 2 million vehicles in 2018, up from 1.4 million in 2016. Marchionne has said deliveries from the SUV brand could eventually rise to as many as seven million a year as demand for sporty vehicles is set to keep rising.
 
In a recent note, Morgan Stanley estimated Jeep’s enterprise value at 23 billion euros (US$27 billion) — nearly 150 percent of the whole of FCA’s market value.
 
A move for FCA or one of its main brands would be challenging to finance, and would have to overcome serious regulatory hurdles — but it would boost Great Wall’s position in the US market and globally.
 
It would also allow it to get around the politically charged issue of manufacturing in the United States to sell there, something that would otherwise take decades to build up.
 
Great Wall’s founder and chairman Wei Jianjun saw opportunity when China began to fall in love with SUVs, and invested heavily in its Haval brand, cutting back on sedans. Within a few years, it was a top seller, with its H6 model topping sales charts going back to 2014.
 
The people familiar with the matter told Reuters that Great Wall had been making plans for the United States for some time, mainly by upgrading some key products and improving branding.
 
It earlier this year officially launched a new “Wei” brand, named after the chairman, of potentially US-market ready vehicles.
Source: Shanghai Daily, August 22, 2017
Can car purchase be like buying a cola?
21st August 2017

 IMAGINE buying a car as easily as a can of Coca-Cola from a vending machine. Sound impossible? Perhaps not anymore.

 
E-commerce giant Alibaba Group is planning to have a “vending machine” selling new cars to Chinese consumers by the end of this year. Buyers will be able to choose a car via an app on their mobile phones, make an online payment and pick up the vehicle 20 minutes later from a storage facility.
 
Automotive vending is the latest chapter in the convergence of online and offline sales. It dovetails with new consumption patterns where shoppers prefer using mobile phones to buy what they want.
 
Alibaba announced the new plan last month, triggering some lively discussion among Chinese netizens. The company received about 7,700 posts and 500 replies on Sina Weibo after it posted a video about the car “vending” service.
 
“It represents not only a vending machine, but also a way to combine online and offline buying through the use of mobile apps,” said Fu Xingxing, a student from Tongji University. “Consumers will be able to pay online and pick up their new car. It shows that the Internet is profoundly changing our daily lives, including shopping patterns.”
 
He is among the millions of potential, mostly younger car buyers who seem fascinated by the new business model. About 60 percent of consumers born in 1990 or later said they would consider buying a car through online channels, according to a survey of 900 car owners and potential buyers conducted by market research firm Ipsos.
 
Alibaba is squarely targeting that generation of people, who use mobile phones in almost every facet of their lives and don’t necessarily need to “kick tires” before selecting a car.
 
“In the past, it took consumers a long time to make a final decision about purchasing a car,” said Yu Wei, general manager of the automotive division of Tmall, the online sales platform of Alibaba. “In the future, we aim to provide a flexible and convenient car-buying experience to young consumers through the use of the automotive vending machine.”
 
New retail strategy
 
The concept is part of the company’s new retail strategy focused on new car sales. Alibaba set up its automobile business unit more than two years ago and is now in partnership with up to 60 car brands in China.
 
During a sales campaign in June, more than 30,000 vehicles were sold online via Tmall within three days, according to Alibaba. That equates to a full-year sales number for many large car dealerships.
 
The idea of automotive vending machines has raised eyebrows. Some auto analysts regard it cautiously, saying the new business model has a long way to go in proving itself. They cite high operating costs related to facility sites, logistics and procurement. There are also considerations such as competition from traditional car dealers and complicated after-sales procedures.
 
Alibaba hasn’t revealed a specific location for its first auto vending machine.
 
“If it is located in the central area of a big city to attract customers, the facility will come at a huge cost,” said independent market observer Liu Xiaofeng.
 
Ye Sheng, auto research director at market research firm Ipsos, said traditional car dealers have certain advantages in terms of pricing and after-sales service.
 
“That’s because they have been working with car manufacturers for such a long time,” he said.
 
“And consumers may raise a lot of questions relating to matters such as license plates, car insurance and after-sales maintenance. Many customers will feel more comfortable with face-to-face communication provided by traditional car dealers.”
 
David Zhang, an independent automotive consultant, tends to take a similar view.
 
“Buying a car is much more complicated than simply buying a Coke or Sprite from a vending machine,” he said. “Consumers have more than 100 automotive brands to choose from, compared with a handful of soft drink brands.”
 
Zhang said he has seen vending machines selling mobile phones in airports.
 
“However, the life cycle of a car is much longer than that of a mobile phone,” he said. “Car owners hold onto a car for three to five years before buying a new one. Mobile phone users may change their handsets once a year.”
 
Tongji student Fu said he’s not surprised by all the online chatter about automotive vending.
 
“Anytime anything new appears, there’s always lots of discussion,” he said. “As a consumer, I just wait and see what happens before embracing any new trend. So far, e-commerce has delivered a lot of good changes.”
Source: Shanghai Daily, August 21, 2017
Listed firms halt trading on Unicom investment
18th August 2017

 SEVERAL listed firms stopped trading yesterday because they are involved in investing a huge volume of private capital into state-owned China Unicom.

 
On Wednesday, China’s second-biggest telecommunication carrier said it would raise about 78 billion yuan (US$11.7 billion) from a dozen investors, including Alibaba and Tencent. But China Unicom deleted the related statements later for "un-confirmed issues". The final details of the deal may be released on Monday.
 
The listed arms of the investors, including electronics retailer Suning Commerce Group Co, software giant Yonyou Network Technology and network service provider Wangsu Science & Technology Co, announced yesterday a halt to trading.
 
The deal represents the largest capital raising in the Asia-Pacific region since 2010. It will also be the biggest deal in recent years under China’s mixed-ownership reforms, which seeks to integrate and merge state-owned assets and private capital, industry insiders said.
 
“The spot light of the deal is not only the capital, but new opportunities and business operation and structure of China Unicom,” said Guosen Securities in a report.
 
Shares of telecommunications equipment makers rose yesterday as it is expected they will benefit from 5G and China Unicom’s reform.
 
Shenzhen-listed telecom equipment giant ZTE Corp jumped 2.32 percent to close at 22.95 yuan while Tongyu Communication Inc rose 3.23 percent to 34.5 yuan, compared with a 0.5 percent rise in the Shenzhen stock index yesterday.
Source: Shanghai Daily, August 18,2017
China a sweet spot for US companies in Q2
17th August 2017

 TRADE tensions between Washington and Beijing may be running high but Corporate America is finding China to be a reliable source of profit growth this year.

 
Whether they sell construction equipment, semiconductors or coffee, many major US companies have reported stronger second-quarter earnings and revenue from their Chinese operations in recent weeks.
 
They are benefiting from a Chinese economy that is growing at almost 7 percent, several times the rate of US expansion, a Chinese housing boom, and a slide in the US dollar, which makes American exports more competitive and increases dollar earnings once they are translated from foreign currencies.
 
Chinese President Xi Jinping’s ambitious plan to build a new Silk Road that will improve links between China and dozens of countries in Asia and Europe, and includes many billions of dollars of new roads, bridges, railways and power plants — is also helping American firms to sell heavy equipment and other products.
 
Caterpillar Inc, a bellwether for industrial demand in China and beyond, reported its sales in Asia-Pacific rose 25 percent in the second quarter — thanks to China. Shipments of large excavators to Chinese customers more than doubled in the first half of the year.
 
“We now expect demand in China to remain strong through the rest of the year,” Brad Halverson, Caterpillar’s group president and chief financial officer, told investors.
 
Caterpillar’s Japanese rivals Komatsu and Hitachi Construction Machinery Co reported similar strength in demand for heavy machinery. Komatsu’s China sales almost doubled in the firm’s April-June quarter.
 
“China’s grown pretty well relative to the US over this period and the currency’s relationship has changed in favor of the US companies,” said Jim Paulsen, chief investment strategist at the Leuthold Group in Minneapolis.
 
Chinese companies are also benefiting from the robust domestic economy. For example, Chinese auto manufacturer Geely Automobile Holdings announced that its July sales climbed 89 percent year on year.
 
American companies in China have been collectively reporting better prospects even as they complain that the Chinese authorities are not allowing them enough access to parts of the Chinese market and discriminating against them as they seek to compete against Chinese rivals. US President Donald Trump’s administration said it will have a year to look into whether to launch a formal investigation of China’s policies on intellectual property, and has been considering punitive tariffs against a range of Chinese goods. The move could eventually lead to steep tariffs on Chinese goods.
 
And despite some negatives in the Sino-US relationship, a July report by the American Chamber of Commerce in Shanghai showed that 82 percent of US companies in China expect revenues to increase this year, up from 76 percent a year ago.
 
“In general China is still a growth market for lots of US goods and services... the Chinese consumer is driving more and more the growth in China itself — that’s a very positive shift in compositional growth for a lot of US companies that do provide goods and services for consumers, as opposed to building skyscrapers,” said Joe Quinlan, head of thematic investing at Bank of America, US Trust.
 
In the chip industry, Skywork Solutions, which gets about 85 percent of its sales from China according to Goldman Sachs, reported its fiscal third-quarter revenue rose 20 percent, thanks in part to demand from Chinese phone maker Huawei. And Qualcomm, which gets around two thirds of its revenue from China, said last month that China remained a strong growth story for the company.
 
And many other foreign companies are also doing well. The European liquor industry is benefiting from a resurgence in Chinese consumer demand.
 
Remy Cointreau, which battled a steep slowdown in China after Xi launched an anti-corruption drive in 2012 — hitting a lot of lavish wine and dine by businesses — said it saw a “clear improvement in consumption trends” this year.
 
“We see the fast-growing upper middle class driving strong consumption growth for our upmarket cognac brands,” the company’s Chief Financial Officer Luca Marotta said last month.
 
Closer to home, Kweichow Moutai, the Chinese maker of liquor and the world’s largest alcohol firm by value, saw first half profits gain 27.8 percent.
 
Chinese stock market gains this year have in turn helped confidence among retail investors.
 
“I feel the wider economy is improving,” said Ding Mingwei, 26, a manager at an education technology company in Shanghai.
 
Ding, who says his own investments are up this year, now plans to spend more on hotels, dining out and funding hobbies such as playing the guitar.
 
For some companies, China growth helped to offset problems elsewhere. Starbucks US growth cooled in the third quarter but same-store sales for the coffee chain in China rose 7 percent.
 
Among the Japanese companies to benefit, Sony’s sales in China were up just under 50 percent in the three months to June, making it the electronic group’s fastest-growing geographic segment.
Source: Shanghai Daily, August 17, 2017

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