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China Roundup: Alibaba’s Youku Tudou Stake and China, the World’s Largest Economy?

by Neelima Mahajan

May 4, 2014

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The week that was: China may trump the US to become the world’s largest economy soon; the Chinese P2P lending sector to get new regulations; Xiaomi shells out a cool $3.6 million for a two-word domain name.

China to be the World’s Largest Economy Soon

For the last decade pundits have been prophesizing that China is on its way to becoming the world’s largest economy. It was no longer a question of ‘whether it would’ but of ‘when’. As of last week, the question of ‘when’ has been laid to rest or at least so it seems. If data from the International Comparison Program (hosted by the World Bank) is to be believed, China will become the world’s largest economy this year itself, leaving behind the US which has been at the top since 1872.

This is happening far sooner than predicted previously. According to The Huffington Post, “the OECD estimated China would become the world’s largest economy in 2016; China itself pegged 2019 as the year it would happen. The Centre for Economics and Business Research put it as far off as 2028.”

The report has highlighted the importance of “middle-income” countries: India features as the third-largest economy while Russia, Brazil, Indonesia and Mexico feature in the top 12 in global trade. Collectively the middle-income countries account for 48.2% of global trade while high-income countries make up 50.3%.

Good news for China, right? So you think. China is downplaying the news. An Associated Press article says, “China’s National Bureau of Statistics, which took part in the study, rejected its conclusion, according to the World Bank report.” The bureau “expressed reservations” about the study’s methodology and refused “to publish the headline results for China”.

Now why would China do that? While the real reasons are not known, it is being speculated that being the world’s largest economy may increase pressure on China on several fronts, such as in greenhouse gas emission limits. Other things could come under the scanner too: such as the currency, economic reform, state-owned enterprise reform, etc.

Alibaba Picks up a 18.5% Stake in Youku Tudou

It wasn’t a good week for Sheldon Cooper’s fans in China. The State Administration of Press, Publication, Radio, Film and Television ordered China’s online video sites to axe four shows: The Big Bang Theory, The Good Wife, NCIS and The Practice. Even as outraged fans protested against the ban on social media, the Alibaba group, the world’s largest e-commerce company, picked up an 18.5% stake for $1.22 billion in Youku Tudou, China’s biggest online video website.

According to the Financial Times, “Under the deal, Alibaba will own 16.5 per cent of Youku Tudou and 2 per cent will be owned by Yunfeng Capital, a fund co-founded by Jack Ma, Alibaba’s chairman. Jonathan Lu, Alibaba’s chief executive, will join Youku Tudou’s board of directors.”

There are some clear wins in this deal. A Wall Street Journal report quoted Barclays analysts as saying that both companies could benefit as “merchants on Alibaba could embed ads into Youku content; the two companies could develop a smart TV business; and shared user data could help sharpen services at both companies”. But it also sounded a note of caution: one being that Alibaba is paying way too much “for an unprofitable company”.

In recent times, Alibaba has spent more than $6 billion in deals aimed to bolster its video offerings, including a 20% stake in Wasu Media Holding and a 60% stake in ChinaVision Media Group.

China’s P2P Lending Sector Faces Possible Clampdown

Earlier last week China’s biggest search engine Baidu announced that it had started checking peer-to-peer (P2P) lending sites and “all of its paid search clients would be temporarily removed from search results for further investigation”. Consequently it removed 800 P2P sites. This announcement was triggered by a recent scam in which P2P lending platform Wangwangdai vanished after raising a lot of money from investors.

Wangwangdei is not the only such case. The P2P lending space in China is rife with frauds, defaults and illegal fund-raising. According to Xinhua, “P2P lending, which boasts much higher returns than bank deposits, is very appealing to ordinary Chinese whose investment channels are quite limited. In 2013 transactions through such platforms stood at 106 billion yuan (US$17 billion), but over 70 platforms had difficulties in repayments or disappeared in 2013.”

As a result, the China Banking Regulatory Commission is finally stepping in to regulate and clean up the sector. More details are awaited on that. We’ll keep you posted.

Xiaomi’s ‘Little’ Big Buy

Xiaomi, the Chinese smartphone company that is often called the Apple of China, just splashed a whopping $3.6 million on the two-letter domain name mi.com. According to Quartz, this is the most expensive domain name purchase of this year. As the company goes global, it needs to have a simple and easy-on-the-tongue name. The name Xiaomi (pronounced ‘shao-mi’) may not be the best choice for a global audience unfamiliar with the nuances of Chinese pronunciation. The name and the domain name mi.com are being touted as a rebranding of sorts making it easier for the company to reach global audiences. As Hugo Barra, Vice-President, Xiaomi Global, and former Googler, tweeted: “Shorter name, bigger world :).”

As a Wired article pointed out, “According to Xiaomi, the ‘mi’ in both its logo and domain name stands for several things, including mobile internet and mission impossible.”

In recent times, some Chinese companies have started opting for shorter domain names. Ecommerce retailer Jingdong replaced the domain name 360buy.com for the short JD.com. Similarly, e-grocer Yihaodian junked its wordy domain name for the nifty yhd.com. It seems that easy recall was one of the key deciding factors.

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