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China Round-up: More Chinese IPOs in the US; Alibaba Buys UCWeb; and Inflation Woes

by Major Tian

June 13, 2014

Beijing-Animal-figurines-on-roof-650x400

The week that was: Alibaba continued to make waves with its UCWeb buy and China Post tie-up; Baidu tied up with Vanke; and expect more Chinese IPOs in the US.

Alibaba Remains Active Before IPO

China’s dominant e-commerce giant Alibaba continues to make headlines this week, as the company buys out UCWeb for an undisclosed amount. Alibaba already owned about 66% of the popular mobile browser company and decided to acquire the rest of the shares before its upcoming IPO.

UCWeb, founded 10 years ago in the feature phone era, became the leading mobile browser in China, as Google’s Chrome suffered when the company exited the mainland China market in early 2010. UCWeb’s CEO Yu Yongfu told Bloomberg that his company is valued at more than twice the $1.9 billion Baidu paid to acquire 91 Wireless, a mobile app store.

In addition, Alibaba this week announced a strategic partnership with China Post, the government-run postal service, to collaborate on developing a smart logistic network in China, South China Morning Post reported. Last year, the company made a $350 million investment in appliance maker Haier’s logistic arm to get more access to China’s fourth-tier cities and the rural areas. You may recall that recently Alibaba bought a stake in Singapore Post and also entered into a deal with Australia Post.

In a different move, Alibaba launched a new invitation-only online shopping platform in the US named 11Main.com, according to CNN Money. Currently in a beta phase, small businesses and shoppers need to request an invitation and wait for permission to use the site.

Baidu Ties Up With Vanke

China’s largest developer by sales revenue Vanke, according to South China Morning Post, is teaming up with China search giant Baidu to integrate internet technologies into its commercial real estate business.

Traditionally known as China’s biggest residential developer, Vanke is expanding in commercial property, planning on 20 new projects across major Chinese cities in the next three years. The company has also formed an alliance with more than 40 retail brand operators.

Vanke hopes to utilize Baidu’s location-based service (e.g. Baidu Map) to better market its retail businesses. Baidu is reportedly working on a pilot program at one of Vanke’s shopping complexes in Beijing.

This is not the first case of a partnership between an internet company and a real estate developer—earlier this year, Wanda Group, which bought theater chain AMC in 2012, started selling movie tickets on Alipay, Alibaba’s mobile payment platform. The group is also placing big bets on the online-to-offline (O2O) model, exploring more collaboration with either Alibaba or Tencent.

More Chinese Tech Companies Go to the US for IPOs

Zhaopin.com has followed the precedent set by nearly two dozen Chinese tech firms by doing an IPO in the US this year. According to China Daily, the online job-hunting site raised $75.7 million on New York Stock Exchange on Thursday at $13.5 a share. The stock closed at $14.65 on the first day of trading, up 8.5%.

Thunder, or Xunlei, will likely be the next well-known Chinese company to IPO in the US. According to NASDAQ, the download accelerator/manager company filed with SEC in May to raise up to $100 million through the exchange. The Shenzhen-based company owns the most popular download software that supports peer-to-peer file sharing as well as a video streaming platform similar to China’s Youku.

Dianping.com, a business review website, also known as China’s Yelp, is exploring the opportunity to list in the US as well. According to South China Morning Post, the company is working with Goldman Sachs, Morgan Stanley and Deutsche Bank on an IPO valued between $500 million to $1 billion. Users can rate and write reviews on businesses as well as buy coupons and get group discounts.

The Shanghai-based company is backed by Sequoia Capital and Lightspeed Venture Partners but has not yet turned a profit. The company CEO Zhang Tao expected the company to start making money this year.

Will a “Targeted Reserve Cut” Help the Economy?

People’s Bank of China (PBOC), China’s central bank, announced on Monday that it had cut the required reserve ratio—the deposits banks have to keep at the central bank, by 0.5% for banks that lend to the rural sector and small businesses. The move is meant to encourage lending and thus boost the slowing Chinese economy.

Economists believe that the measure could release about RMB 100 billion (roughly $16 billion) into the banks’ kitty, a relatively small amount compared with the total bank deposit of about RMB 111.7 trillion,  The Wall Street Journal reported.

While economists agree that the required reserve ratio (RRR) cut can only do so much to help the economy, given its limited size, they made different predictions about whether the central bank would expand the cut to more big banks. Shen Jianguang at Mizuho, a Japanese bank, told WSJ that he expects a cut soon, arguing that the current measure is not enough to reduce the financing costs for companies and first-time homebuyers. But Ma Xiaoping at HSBC believes that an overall RRR cut is unlikely in the near term, as PBOC will need time to monitor how the current measures affect the economy.

Rising Inflation complicates Easing Effort

As Beijing is taking cautious steps to help the economy, the authorities may have encountered another variable—rising inflation.

According to the Financial Times, China’s consumer price index, or CPI, rose 2.5% in May from a year earlier. While still below the level that sets alarm bells ringing, it’s an obvious increase from April’s 1.8%. China’s CPI has important ramifications not only economically, but also politically, as consumer goods prices directly affect public opinions and social stability.

Government economists attribute the rise partially to a “carryover effect”, which means that prices last May were relatively lower. The index rose a modest 0.1% compared to April 2014. The gauge is still far from the 3.5% target cap set by the government, and economists believe that prices will not rise faster than 3% throughout the year.

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