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China Roundup: China Powers US Business Growth; Fosun’s Silicon Valley Venture Arm; and China’s Manufacturing Woes

by Major Tian

April 25, 2014

Chinese flage in a keyboard

The week that was: China’s manufacturing activity is still in contraction; US multinationals report robust growth in Chinese operations; and Fosun sets up $100 million venture capital arm in Silicon Valley.

China April flash PMI still below 50

A sneak peak of China’s manufacturing activity in April by Markit and HSBC shows that the sector is still in contraction, according to CNBC. The flash Markit/HSBC Purchasing Manager’s Index (PMI) ticked up slightly to 48.3 from March’s 48, but the benchmark is still below 50, a threshold between expansion and contraction.

Analysts say the rebound is hardly “improvement”, but “stabilization” at best, since China PMI usually advances in April, and this month’s 0.3 point increase from March is relatively weak. Nomura’s China economist Zhiwei Zhang told CNBC that the HSBC data weighs more on exporters, who are decreasingly important to the Chinese economy, as the government is leading an effort to shift the growth driver to domestic consumption. He added that the real estate market is cooling down, painting a gloomy picture of the second quarter GDP.

While China’s economic transition posts challenges to commodity exporters and machinery makers, Caterpillar’s business hasn’t been negatively affected, the company’s CEO Dough Oberhelman told CNBC. He pointed to the 30% sales growth in China in the first quarter and said that Caterpillar is still expanding throughout the country. “Our outlook assumes that China’s economy will grow near 7.5% in 2014, similar to the past two years,” he said in an earnings press release.

China drives US business growth in the first quarter

Deemed by some analysts to be a major risk to the global economy, China is driving, not dragging, American companies’ earnings in the first three months of 2014, Reuters reported.

Big names like Coca-Cola, General Motors, McDonald’s and United Technologies Corp (UTX) all reported good results from their China operations, while many others are hopeful for strong growth in the world’s second-largest economy. UTX’s Chief Financial Officer Greg Hayes told Reuters that the fact that China’s economy remains strong is “a little surprising”.

But to Oliver Pursche, President of Gary Goldberg Financial Services, “that’s not surprising,” because “while overall economic growth may be slowing, from a consumption perspective, that’s rising internally”.

Among the American businesses that are doing just fine in China, Yum! Brand’s first quarter comeback is very meaningful to the company. After last year’s avian flu concerns and food safety rumors took a toll on Kentucky Fried Chicken, Yum’s main brand in China, same-store sales roared back 11% year on year in the first quarter, while overall sales (including brands like Pizza hut) jumped 17% in China. KFC, meanwhile, is heading for a makeover in China with a new menu and a brand rejig.

Latest targets of China’s anti-pornographic campaign

China is good at porn and prostitution crackdowns—you never know when, or whom the government will strike next.

On Tuesday, dozens of police officers raided Qvod, a Shenzhen-based movie player company, according to the state news agency Xinhua. Qvod is alleged to have distributed pornographic materials. The company does not produce content directly, but its player software is used by many small online video-streaming services.

While Qvod is a relatively small brand in the tech industry, a much bigger name has also been accused of hosting porn and erotic novels. Sina, whose subsidiary Weibo, a Twitter-like microblogging service, just went public in New York last week, has been stripped of its online publication and video production licenses due to its failure to censor illegal content on its video and e-book platforms, according to the Chinese media. The authorities identified two dozen books and several videos that they say contain pornographic materials on Sina, one of China’s biggest web portals. The Beijing-based company has the right to appeal, reports say, and so far its video and e-book websites are updated as usual, despite an official apology posted on the latter.

Fosun launches venture arm in Silicon Valley

The Chinese conglomerate that wanted to buy Forbes has set foot in the valley, setting up $100 million venture capital arm a few months ago to compete with the most successful venture capitalists in the world, according to the Wall Street Journal.

The company is interested in mobile games, chat, payment, healthcare and cloud computing (in other words, all the hip things), said Guo Guangchang, Chairman of Fosun International, one of China’s largest privately-owned (as opposed to state-owned) companies. According to its annual report, the company’s investment arm managed $7 billion in capital last year.

Founded 22 years ago with less than RMB 40,000 (about $6,700 today) in funding, today Fosun is positioning itself as a global investment firm that somehow resembles Warren Buffett’s Berkshire Hathaway. It has attracted attention for its $725 million purchase of the One Chase Manhattan Plaza in the city of New York, the biggest acquisition of US real estate by a Chinese firm. Fosun also owns or has a controlling stake in brands like St. John, Folli Follie and Club Med.

Labor strikes drive away Adidas orders

Yue Yuen, the world’s largest branded shoemaker and supplier to Adidas, Nike, New Balance and Puma, is planning to increase wages for its 40,000-odd workers, many of whom are continuing their strike that started on April 14th, demanding higher compensation and better welfare. It’s likely the largest strike in China’s modern history, some media reported.

The Hong Kong-listed firm’s announcement sent the share price 5% down—the biggest single-day fall since July 2013, according to Bloomberg. The company offered to add a living allowance of RMB 230 (about $37) every month for its employees in Dongguan, Guangdong province, while advancing to a better social security benefit plan originally slated for 2015.

Earlier this week, Nike said in a statement that the Beaverton, Oregon-based company continued to monitor the dialogue; and yesterday, according to Bloomberg, Adidas spokesperson said the German sportswear maker is moving some future orders away from the strike-struck Chinese factory to other suppliers. The Chinese authorities are also weighing in, according to the Wall Street Journal. A spokesperson from the Ministry of Human Resources and Social Security told the press today that Yue Yuen did fail to make proper social-insurance payments, and the ministry has demanded immediate corrective measures by the shoemaker.

And finally, WeChat’s bizarre TV commercial

To prepare you for a weekend mood, take a look at WeChat’s advertisement in South Africa that featured a weeping Mark Zuckerberg (or at least that’s who we think he is) and his shrink, reported by TechinAsia.

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