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China Roundup: The Tesla China trademark row; raid on Mercedes-Benz; and rules for WeChat

by Major Tian

August 8, 2014

Skyline-of-Beijing-China

This week, Mercedes-Benz faced an anti-monopoly probe; the Tesla China trademark episode finally came to an end; WeChat got new rules for news while Line and Kakao Talk got axed in China; Xiaomi edged ahead of Samsung; and Priceline invested in Ctrip.

For the China Policy Wonks… 

The Chinese government made a lot of headlines this week, as investigators raided another western company looking for evidence of monopoly.

On Wednesday, authorities from the National Development and Reform Commission (NDRC) paid a sudden visit to Mercedes-Benz’s Shanghai office, where they reportedly searched multiple computers and questioned every single employee on the scene. The German carmaker later confirmed that it’s “fully co-operating” with the government on an anti-monopoly probe.

The Daimler-owned company has been accused of setting floor prices for its local distributors and service centers as well as banning cross-region sales, which violates China’s anti-trust laws. The recent wave of government scrutiny has pushed foreign car brands, including Audi, Land Rover and Jeep to cut prices for whole vehicles or auto parts. Prior to the raid, Mercedez-Benz also announced a price cut of 15% on average for secondary market parts.

While slashing luxury car prices isn’t necessarily a matter of concern for the public, Beijing’s move to curb free speech online is sending a worrying signal.

On Thursday, the State Council Information Office released new rules that prohibit “ordinary” public accounts on WeChat from disseminating political news. Tencent’s messaging app, which reportedly has more than 5.8 million public accounts, has risen to challenge Weibo, China’s equivalent of Twitter, as a comprehensive news source, where users can share news links and follow public accounts to receive news messages.

Under the new rules, among public accounts, only those from legitimate news organizations can post political news; new users of WeChat also need to register with their real identities as well as sign a statement to obey Chinese information regulations.

As for foreign social network apps that are beyond the government’s control, there is a simple solution: just block them. Yesterday China formally confirmed that services of South Korea’s messaging apps Line and Kakao Talk have been cut off in an effort to crack down on terrorism, although reports of disruptions had occurred weeks earlier.

Those apps are by no means the only “victims” of China’s plan to enhance its cyber security. Microsoft’s Windows 8 operating system was banned from government usage earlier this year due to security concerns. On Thursday Bloomberg quoted a source as saying that Beijing had “banned” Apple products in government procurement, citing a product list from the Ministry of Finance that excludes Apple.

But Chinese media soon reported that the list is an energy-efficient product list, which only consists of a part of government purchase, and a procurement officer with the Ministry of Finance said that Apple didn’t make the roster because it didn’t apply for it.

Other media accounts said that Apple wasn’t aware of the “ban”.

On a more positive side, China seems to still be on track regarding financial reforms, after recent reports that questioned Beijing’s willingness to actively push the agenda forward.

Starting this week, foreign companies in the Qianhai district in Shenzhen can convert any amount of foreign currencies into the RMB at anytime they want. This is the government’s latest ‘baby step’ to loosen the country’s capital flow restrictions.

Firms outside the 15 square-kilometer economic zone are still required to file for approval when buying the RMB with foreign exchange. Economists and observers once predicted that China would fully liberalize its capital account by 2020, but recent media accounts quoted “policy insiders” as saying that regulators are reluctant to make further moves, fearing sudden large-scale capital outflows. China’s central bank is believed to have helped depreciate the RMB in the past six months, which analysts say is a measure to reduce the amount of hot money coming into the country.

And in Company News… 

Tesla had some comforting news in China this week, as the electric carmaker cleared the last hurdle to use its Chinese trademark in the country.

The Chinese translation of Tesla’s name was registered in 2006 by a Chinese businessman called Zhan Baosheng, who in fact runs a cosmetics company. Last month, he sued Tesla for trademark infringement and asked the court to halt all sales and marketing of Tesla cars in China.

But a month later, Zhan had “amicably” settled with Tesla, charging the company nothing to cancel his registration, according to the Palo Alto-based firm. He also handed over the domain names of Tesla.cn and Teslamotors.cn, but a Tesla spokesperson declined to talk about the financial terms regarding the transfer.

The news for Samsung, however, is not so encouraging. According to technology research firm Canalys, Chinese phone maker Xiaomi has dethroned its South Korean competitor in the second quarter in terms of shipment. Between April and June, Xiaomi shipped 15 million smartphones in China, a jaw-dropping surge of 240% from the same period a year ago. Samsung shipped a little less—13.2 million, down from the 15.5 million it logged in the second quarter of 2013. Xiaomi’s strong sales have also boosted its market share to 14%, bigger than Samsung’s 12%. To see how the tables have turned just take a look at the first quarter numbers: Samsung was still the leader with 18.3% market share, when Xiaomi was trailing by almost 8 percentage points.

In the internet industry, it’s been a relatively quiet week. But there was one noticeable deal—Priceline, a popular US travel booking site, announced that it would invest $500 million into its Chinese peer Ctrip.

The investment will be done through a convertible bond, which means that Priceline will buy this debt from NASDAQ-listed Ctrip with the option to convert it into equity or cash it in the next year. The deal allows Priceline to own as much as 10% of Ctrip’s shares, and the two companies will share their portfolio of hotels and other services.

Uber, the much-hyped taxi-hailing company, is localizing its service in Beijing. On Monday, the company rolled out a not-for-profit ridesharing program called the “People’s Uber”. It’s basically a carpool function built in the existing app, where users can offer and choose rides with the help from the app’s real time location service.

This is not the first time that such services have been made available to Beijingers—similar carpool apps had appeared in 2012, but failed to generate much traction. However, the following boom of taxi apps might have laid a good foundation for Uber to give the concept a second try.

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