Major Tian Authors

China Roundup: Baidu invests in Uber and the BYD stock price tumbles

December 18, 2014

This week, the BYD stock price fell sharply, as did Geely’s; Baidu invested in ride-sharing company Uber; and China’s factory activity slowed further.

It seems like China’s factory activity is continuing to slow this month, as shown by a flash reading of the manufacturing purchasing managers’ index (PMI) by HSBC/Markit. The gauge fell to 49.5, below the 50 threshold that separates expansion and contraction; it’s also the lowest reading in seven months.

Real estate is widely regarded as a main contributor to the industrial slowdown. Numbers released today by China’s national statistics office show that average new home prices in 70 major cities kept on falling in November, sliding 0.6% month-to-month. However, the Wall Street Journal noted that the pace of the price fall has been slowing in the past three months in a row, suggesting that the market may be stabilizing.

Some economists have been calling on China’s central bank to loosen the monetary policy further, after its unexpected rates cut last month. However, People’s Bank of China (PBOC) yesterday chose to roll over a portion of a three-month lending facility conducted in September, according to Bloomberg Businessweek. Chief Asia Economist at Mizuho Securities Asia Shen Jianguang told the magazine that the move may be a sign that PBOC is replacing an RRR or rate cut with more moderate measures, due to the concern of overheating the domestic stock market.

The Shanghai Composite Index has been hovering around a three-year high in recent weeks, as investors expect the long-awaited return of the bull. The side effect of that is that actual interest rates, in fact, rose after the cut of parity rates, which are not mandatory. A key rate that reflects bank liquidity, the seven-day bond repurchase rate, shot up to a high point of 7.55% on Wednesday; what’s more interesting is that despite the rise, PBOC again chose to do nothing on Thursday, when it usually performs open market operations such as executing or selling repurchase agreements.

It’s the seventh consecutive session that the central bank steered clear of operations, according to CNBC. Traders told the network that PBOC is trying to lower people’s expectation of easing. “They don’t want things to get too loose,” one said.

China’s dominant search engine Baidu has been quiet this year, compared with the clatter made by industry giants Tencent and Alibaba.

On Wednesday, the Beijing-based firm made headlines by announcing a strategic partnership with Uber, a US-headquartered transportation technology firm that’s going global. Uber currently operates in nine cities in China, far fewer than its Chinese competitors such as Didi Dache and Kuaidi Dache. Those two are backed by Tencent and Alibaba respectively, which allows them to spend hundreds of millions of dollars to expand their turf.

Uber and Baidu didn’t disclose any details on how the two companies are going to collaborate. It is rumored though that the Chinese search engine giant is investing $600 million in Uber. It’s reasonable for people to ask if a foreign internet company would be able to adapt to China’s local market, even with the help of a partner like Baidu. Uber CEO Travis Kalanick told the press in Beijing that they “have to do things differently in order to succeed” in China. He also said that Uber’s China efforts are going to be “more unique than anywhere else”.

Rumors about the Baidu-Uber marriage have long existed. But the one between Qihoo and Coolpad took many by surprise. On Wednesday the two, one anti-virus firm and the other a low-end smartphone maker, announced that they’ll form a joint-ventrue called Dazen to make smartphones. Dazen, or Da Shen in Chinese, is already a brand under Coolpad. The name literally means “big god”.

Coolpad is a top-five phone maker in China, and ranked among the top-ten list in the world. Most its phones sell under $170; the cheapest is about $65. Qihoo, which started as an internet safety company, is also making web browsers and other internet software; the NASDAQ-listed firm claims to have over 400 million users.

Chinese carmaker BYD’s stock took a mysterious 47% dive today in Hong Kong, confusing analysts and observers. Prices started to fall gradually in early afternoon trading hours, and then suddenly spiraled down shortly after 2pm. The stock recouped some loss before closing, but is still down more than 28%.

The company is backed by legendary investor Warren Buffett, whose firm Berkshire Hathaway owns a 10% stake of BYD. The stock is in downward trend since September, but apparent never fell by this much in a single day.

The incident occurred a couple of days after another Chinese carmaker, Geely, announced an earnings warning, which sent the company’s stock in Hong Kong down by almost 20%. Geely, which owns Volvo, told investors in a filing to the Hong Kong Stock Exchange that its annual profit this year is expected to drop 50% partially due to a slack in sales in Eastern Europe, including its largest exports destination Russia, which accounts for 30% of Geely’s overseas market.

Russia is in a serious geopolitical crisis in recent months, which resulted in a depreciating ruble and a tumbling economy. Geely said last year that the company wasn’t very exposed to foreign exchange risks because its assets and liabilities were mostly denominated in the RMB. But the company’s exports fell 49% in the first 11 months of this year, while total sales including those in China went down by 26% as well.

Even so, Geely is still the bestseller among China’s domestic carmakers so far in 2014. The second and third are Chery and BYD, according to the Chinese media. The auto market in China has met with sluggish growth this year, with sales rising 9.2% in in the first 11 months from the same period last year. According to the China Association of Automobile Manufacturers, the growth rate is expected to further slow down to around 7% in 2015.

Enjoying what you’re reading?

Sign up to our monthly newsletter to get more China insights delivered to your inbox.

Our Programs

The Biotech Innovation Program

Global Unicorn Program Series

This program equips CEOs and founders in the life sciences and biotechnology industry with the essential knowledge and connections needed to thrive in this rapidly evolving sector.

LocationUniversity of California, San Diego, USA

DateSeptember 9-13, 2024

LanguageEnglish

Learn more

CKGSB-ESMT Global Unicorn Program in Deep Tech

Global Unicorn Program Series

The program will provide practical business strategies to grow, scale, globalize, and potentially exit deep tech ventures and will touch upon the latest insights on deep tech advancements, such as AI, cutting-edge computing, and cybersecurity innovation.

LocationBerlin

DateOctober 28-31, 2024

LanguageEnglish

Learn more

Global Unicorn Program: Scaling for Success in the Age of AI

Global Unicorn Program Series

In collaboration with the Stanford Center for Professional Development (SCPD), this CKGSB program equips entrepreneurs, intrapreneurs and key stakeholders with the tools, insights, and skills necessary to lead a new generation of unicorn companies.

LocationStanford University Campus, California, United States

DateDec 09 - 13, 2024

LanguageEnglish

Learn more

Emerging Tech Management Week: Silicon Valley

This program offers insights into emerging technology developments and the skills required to innovate, grow, and transform your business strategy.

LocationUniversity of California, Berkeley, USA

DateNovember 3-8, 2024

LanguageEnglish

Learn more