News | Mark Schlarbaum - Mainland China Business Collaboration

Tencent to Buy Majority Stake in China Music Corp., Creating Streaming Giant

Internet giant to increase stake to 60% from 16%

HONG KONG—Chinese internet giant Tencent Holdings Ltd. has agreed to acquire a controlling stake in China’s leading music-streaming company in a deal that values the firm, China Music Corp., at roughly $2.7 billion and creates a dominant competitor in China’s online-music market, people familiar with the matter said.

Tencent, China’s biggest social-networking and online-games company, which also runs its own music-streaming service, will boost its stake in China Music to about 60% from 16%, one of the people said.

The deal turns Tencent into a clear market leader in China’s online-music market, as it brings together the country’s top three mobile-music applications owned by the two companies. CMC owns Kugou and Kuwo, while Tencent operates QQ Music. Kugou is the largest mobile-music service in China, with a 28% market share, followed by QQ Music’s 15% and Kuwo’s 13%, according to data from research firm iiMedia Research.

In the first quarter, China’s mobile-music services had 449 million users, more than the entire population of the U.S., making it the world’s largest market by the number of users, according to iiMedia.

Tencent plans to combine the team operating QQ Music with CMC, the people said. The combined music businesses will be valued at roughly $6 billion after the deal is completed and will operate as a subsidiary of Tencent, the people said.

CMC had been planning an initial public offering of stock in the U.S. before agreeing to be bought by Tencent. That plan has now been put on hold, the people said.

The Wall Street Journal reported in May that CMC was working with Goldman Sachs Group Inc. and Morgan Stanley for an IPO that was expected to happen later this year. Although the amount of funds CMC was expected to raise hadn’t been decided at the time, some people familiar with the matter expected it to be between $300 million and $600 million.

Tencent could pursue an IPO of the combined company in the future, one of the people said.

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MARK SCHLARBAUM - Experienced in China - US business partnerships. Never giving up for those that never stop fighting! Help me join the fight against blood cancer and reach my fundraising goal! Visit My Fund Raising Page

Samsung Bets on China’s BYD for Growth

South Korean technology giant plans to invest in the electric vehicle and battery maker’s $2.3 billion share sale

SEOUL— Samsung Electronics Co. said it will acquire a stake in BYD Co. through the Chinese electric-vehicle and battery maker’s ongoing $2.3 billion share sale, as the South Korean technology giant bets on the automotive market to drive growth.

Neither company disclosed the size of the stake or how much it would cost Samsung. Details will be unveiled next week, when BYD’s share self-driving cars develop electric carssale via a private placement is completed, according to a person close to the matter.

Samsung’s move comes as technology companies are tapping into the automotive industry’s shift toward next-generation vehicles such as electric and self-driving cars. Google parent Alphabet Inc. and Apple Inc. are accelerating efforts to develop electric cars of their own.

“This investment will strengthen our chip business for electric cars. We’ll continue to expand our partnership with BYD in various sectors,” Samsung said in a statement Friday.

The company said it has no intention of participating in the management of BYD, which is backed by Warren Buffett’s Berkshire Hathaway Inc.

In a regulatory filing to the Shenzhen Stock Exchange, BYD said the two parties will work together in the future on electric-vehicle components, adding that Samsung’s plan reflects the Korean conglomerate’s confidence in BYD.

The Korea Economic Daily reported Friday that Samsung had agreed to buy 3 billion yuan ($449 million) of new BYD shares, which would give it a 4% stake in the Chinese auto maker. Samsung declined to comment on the report.

BYD has said it would sell 15 billion yuan of new shares to help boost its battery-production capacity and its electric-car output.

Sales of electric and hybrid cars in China, the world’s largest auto market, quadrupled to 331,000 units last year, helped by government subsidies.

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Chinese Billions Flood Soccer, Snaring Hulk in Record Deal

Hulk had quite the welcome to China. Shortly after his plane landed at Shanghai’s Pudong International Airport, hundreds of chanting fans mobbed the Brazilian soccer star as he pushed his way through the crowd on June 29. Hulk, who recently inked a record-breaking deal with Shanghai SIPG, is just the most recent soccer star to sign up.

Long a soccer backwater, China has gone on a buying spree unprecedented in the history of the game. Chinese money, of course, has been flowing into all sorts of sectors: technology, health care, retailing, you name it. And now it’s soccer, a move that follows Middle Eastern and Russian investments into the game.

What differentiates China is the speed and scale of the country’s new-found appetite for all things soccer. Chinese companies have invested $1.7 billion in sports assets — the vast majority soccer-related — since the beginning of 2015, according to Bloomberg data. As recently as five years ago, that number was zero.

“It’s insane,” said Brazil-based sports lawyer Marcos Motta, who’s worked on several player trades to China. “I have never seen anything like this before.”

Richest Men
Led by some of the country’s richest men, including Dalian Wanda Group Co. founder Wang Jianlin and Alibaba Group Holding Ltd.’s Jack Ma, Chinese businesses are at the table for almost every soccer asset up for sale. In recent months, a dizzying array of deals have roiled the industry — from signing soccer players and coaches to Chinese investments in storied clubs and buyouts of sports-media businesses.

Next year the Milan derby, one of European soccer’s most-prestigious games, will feature two teams recently purchased by the Chinese, assuming both deals conclude without a snag. Nanjing-based Suning Holding Group Co. in June paid 270 million euros ($298 million) for a 70 percent stake in 18-time Italian champion Inter Milan, while a separate consortium is nearing an agreement to acquire 80 percent of AC Milan, a seven-time European champion, from former Italian Prime Minister Silvio Berlusconi.

“There will be more acquisitions and of very famous teams,” said Feng Tao, chief executive officer of Shankai Sports, a Beijing-based consultant that has advised on deals, including Wanda’s $1.2 billion purchase of Swiss-based sports-marketing company Infront Sports & Media AG.

Imported Talent
Most striking of all, though, has been the sudden rush by teams to pay huge sums on importing talent. Chinese Super League clubs outspent those from any other country this past winter, spending a combined $280 million for European soccer stars. And Shanghai SIPG, a team owned by the Shanghai International Port Group, just broke the Chinese record again with its trade to acquire Givanildo Vieira de Sousa, popularly known as Hulk, for $61 million.

Hulk’s first game for the Shanghai club was short, but eventful. He scored after nine minutes on Sunday before leaving the field on a stretcher 12 minutes later. Still, Chinese fans are likely to see more new faces like his, as agreements with soccer’s top agents pave the way. Alibaba’s sports unit has a partnership with Cristiano Ronaldo’s manager Jorge Mendes.

The dollars doled out to China-bound players and coaches are infinitely greater than they could command elsewhere, according to Motta. It’s common for top imports to get 7 million or 8 million euros, more than five times what players of a similar standard would get in Europe, he said. Motta is working on a deal that will pay one player 13 million euros per year, he added — and that’s after taxes.

Audacious Goal
Chinese President Xi Jinping, an avid soccer fan, is fueling the spending spree. He’s eager for China to improve its global soccer standing: The national team is ranked 81st, just after Jordan and before Bolivia. And he covets hosting a World Cup — and winning it by 2050. That’s providing the green light for Chinese businesses, eager to please the government, to open their wallets.
Coinciding with Xi’s zeal for the game is an effort on the part of the government to promote sports and exercise to the new urban working class, recently transplanted from farms. A national plan announced last year contains the audacious goal of spurring an industry worth 5 trillion-yuan ($747 billion) by 2025, when 50,000 schools are expected to offer specialized soccer training.

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Steinway’s Grand Ambitions in China

NINGBO, China — Dozens of girls in tiaras and boys in tuxedos who dreamed of becoming China’s next musical sensation stared at the beast onstage. At nine feet long and nearly 1,000 pounds, with a steely black sheen and a price of more than $200,000, the Steinway & Sons D-274 concert grand piano seemed designed to intimidate.

There were whispers that the piano had come from far away, in Germany; that it could kill you in an instant if it rolled off the stage; that it had the power to turn even the sloppiest of scales into material primed for Carnegie Hall.

“It’s flawless, exquisite, with a special sound,” said Li Wei, the mother of an 11-year-old boy who had come to the theater to take part in the final round of the Steinway & Sons International Youth Piano Competition in China last winter.

“Everyone wants a Steinway,” said Xiao Yunchu, a quiet 13-year-old who favored the pyrotechnics of the Hungarian composer Franz Liszt. “But none of us can afford it.”

Steinway, one of the world’s most prestigious musical instrument brands, is looking to China to breathe new life into lackluster sales. To succeed, the company will need more than smart marketing. It will need to fine-tune a cultural mind-set in a country that once dismissed pianos as bourgeois luxuries.

Steinway dealers have to convince their wealthier clientele that the instruments make good investments, avoiding the overly aggressive sales tactics that tripped up some early efforts. They have to educate parents about the potential payoff of buying a piano that can cost as much as an apartment. And they need to woo music students who are increasingly turning to lower-cost keyboards and so-called smart pianos, which use lights, iPads and other technical tools to teach basic skills.

The company, known for its painstaking craftsmanship, has grudgingly entered the digital game. The new Steinway Spirio is a high-tech take on the jazz-era player piano, loaded with standard classical fare as well as Chinese tunes, including local pop hits like “The Moon Represents My Heart” and compositions like “The Yellow River” Piano Concerto, a piece that dates to the Cultural Revolution.

Founded in 1853 in a Manhattan loft by a German immigrant, Steinway flourished for generations by selling high-end pianos, each crafted by hand from materials like Sitka spruce and cast iron, in the United States and Europe. But the company has suffered as piano playing wanes in the West. Music schools and concert halls have cut back on orders. Piano stores have closed. In the face of uncertainty about its future, Steinway was sold three years ago to an investment firm owned by the hedge fund billionaire John A. Paulson.

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What slowdown? GM, Ford sales rise in China in June

DETROIT — Led by hot demand among Chinese consumers for SUVs, America’s two largest automakers saw sales boosts in China in June.

New vehicle sales in China rose for both General Motors and Ford and their joint venture partners, culminating a strong first half in the world’s largest auto market.

GM and its partners sold 273,563 vehicles last month, up 11.2% from June 2015. Sales by Ford and its joint venture partners in China rose 2.5% in June.

For the first half, GM and its joint ventures sold 1.8 million, up 5.3% from a year earlier. Ford’s first half sales rose 6% to 577,097.

“Sales of Cadillac and Buick remained strong throughout 2016,” said Matt Tsien, president of GM China. “We’re also seeing very high demand for our Baojun entry-level passenger car brand.”

Dave Schoch, Ford group vice president and president of Asia Pacific said, “Even as the pace of growth slows and the market matures, customers continue to respond well to our products, particularly our world-class SUV lineup.”

SUVs drove most of the increase as sales of the Ford EcoSport, Kuga, Edge, Everest and Explorer; and Lincoln MKC, MKX and Navigator rose 27% in the first half to more than 150,000 vehicles.

Related: Ford has now sold more than 1 million F-150s with EcoBoost
Sales of Ford’s two largest China joint ventures, Changan Ford Automobile and Jiangling Motors Corp., increased in June by 4% and 5%, respectively.

Changan, which produces passenger cars, reported a 10% sales increase for the first half, compared with a year earlier. Jiangling’s first-half sales fell 7% as demand softened for the commercial vehicles it makes.

Lincoln’s sales in China nearly tripled in the first half of 2016 to 12,450.

Buick sales in June increased 10% to 86,054, led by the Excelle GT sedan (more than 26,000).

Cadillac sales in June surged 34% to 9,552. But Chevrolet posted a 25% decline to 35,648. The new Malibu XL just recently went on sale in China and the new Cruze will be launched later this summer.

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McDonald’s Said to Narrow Bids for $2 Billion China Rights

McDonald’s Corp. selected bidders including China Cinda Asset Management Co., the nation’s second-biggest bad-loan manager, and dairy producer Beijing Sanyuan Foods Co. to make binding offers for its operations in China and Hong Kong, people with knowledge of the matter said.

Sanpower Group Co., the Chinese owner of U.K. department store House of Fraser, and GreenTree Hospitality were also invited to submit second-round bids in September, according to the people. McDonald’s is selling 20-year mass franchise rights in China and Hong Kong, which could fetch about $2 billion, the people said, asking not to be identified as the information is private.

McDonald’s is revamping its ownership structure in Asia as it pursues an international turnaround plan put in place after Chief Executive Officer Steve Easterbrook took the reins last year. The fast-food chain said in March it is seeking franchise partners in mainland China, Hong Kong and South Korea to invest fresh capital and facilitate local decision-making.

Unlike in its other major markets — including the U.S.– most McDonald’s outlets in north Asia are company-owned. The fast-food chain aims to eventually have 95 percent of its restaurants in the region under local ownership, it said in March.

“Refranchising has been a big trend in the last two years, and it just kind of continues that trend,” said Jennifer Bartashus, a Bloomberg Intelligence analyst. “You shift a lot of the operational risk onto the franchisee.”
‘Ideal Time’

With the financial health of Chinese consumers uncertain as the nation’s economic growth slows, “it’s kind of an ideal time to go into this transition,” she said.

Shares of McDonald’s rose 0.1 percent to $120.76 at 12:02 p.m. in New York. The stock gained 2.1 percent this year through Wednesday, lagging the benchmark Standard & Poor’s 500 Index’s 2.7 percent advance.

China National Chemical Corp., known as ChemChina, didn’t proceed to the second round, the people said. The state-owned enterprise, which agreed to buy Swiss pesticide maker Syngenta AG for about $43 billion in February, was among companies considering bids for the Chinese operations of McDonald’s, people with knowledge of the situation said last month.

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Virtual reality heats up in China

The virtual reality (VR) market in China is expected to reach $860 million in 2016 and accelerate to $8.5 billion by 2020. In the last six months alone, the Chinese VR market has seen a flurry of investments, partnerships and new ventures involving both local and international players. With capabilities in low cost, mass scale manufacturing, a hot investment climate, and international support, China could become the epicenter of the global VR market’s growth.

While the country has been seen as a copier of Western technology, VR is a new medium that could foster innovation and drive China’s future market. The limited number of U.S. head-mounted device (HMD) players and the lack of their presence in China have created a vacuum that is quickly being filled by a growing group of entrepreneurs, many of which are heavily focused on mobile and standalone HMDs. E-commerce behemoths Alibaba and Taobao have reported total sales of over 300,000 units of VR headsets a month (this number excludes offline sales). There are over 100 types of VR headsets in China, with most of these on the lower end, comparable to Google Cardboard. Early leading HMD manufacturers include 3Glasses, DeePoon, and Baofeng Mojing.

During the first quarter of 2016, Baofeng sold 1 million units of its $30 headset through its network of 20,000 brick-and-mortar stores — and it’s targeting 10 million headsets by the end of the year. To put this into perspective, Google Cardboard announced it was shipping 5 million Cardboard headsets in its first 19 months. With the head start Chinese headset makers have gotten, they are more quickly iterating based on market feedback and have the potential to leapfrog the U.S. in mobile VR. Baofeng, for example, is now working on its 5th generation HMD. In the last six months, major brands ZTE, LeTV, and Huawei have also entered the competitive space with their own VR headsets.

With the hardware market booming, what China needs most is compelling content. While none of China’s biggest tech companies – Baidu, Alibaba and Tencent – have released an HMD yet, they each have ambitious plans for VR: They have opened their platforms and are providing seed funding for China’s VR startup space, especially for content creators. Subsidiary video services of all three are working with content partners and investing in VR film, TV, and game content. International efforts are also fueling the content market. 500 Startups will be investing in 20 early stage companies in China. Shanghai Media Group partnered with U.S.-based Jaunt to form Jaunt China and has plans to develop 500 VR productions in the next two years.

Another area of growth in VR, and one that offers immediate monetization opportunities, is out-of-home and location-based entertainment. “VR stores,” such as an in-mall VR roller coaster experience priced at $6, have existed across the country since last year. Because the high-end, PC-based VR experiences are not accessible to most of China, out-of-home experiences provide the average consumer with curated, high quality VR content, accessible through Internet cafés, malls, other commercial venues, and theme parks. Taiwan-based HTC recently announced plans to open over 10,000 out-of-home VR experiences throughout China in partnership with Chinese electronic retailers Suning Commerce Group and Gome Electrical Appliances Holding Ltd. LA-based SPACES and Songcheng Performance Development Co, one of the world’s largest theme park operators, have recently formed a joint venture to bring VR to its theme parks and also develop standalone parks in China. These are just two of many ventures and partnerships contributing to the burgeoning VR out-of-home market and promoting overall consumer awareness.

With both the proliferation of VR platforms and out-of-home experiences, there has never been a better time for great content creators to dive in.

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China is building the world’s largest city — and it already has more people than South Korea

For the past decade, China has been on a mission to build the world’s biggest city by combining a number of large cities into one giant megacity.

With a current population of roughly 57 million housed inside a 15,000-square-mile perimeter, the Pearl River Delta is a region roughly the size of West Virginia but with 30 times more people.

It’s made up of the cities of Shenzhen, Dongguan, Huizhou, Zhuhai, Zhongshan, Jiangmen, Guangzhou, Foshan, and Zhaoqing.

Each city’s population ranges from nearly 2 million to more than 14 million, which, by 2030, China hopes to unite into an all-powerful megacity with an economic output around $2 trillion.

Whether that’s feasible is still a mystery, but it’s one the country is set on solving.

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Intel’s Supercomputer Chips Get KO-ed By China and IBM

The world’s top chipmaker gets left in the dust in the supercomputer race.

Intel (NASDAQ:INTC) likely won’t power the world’s top supercomputers anymore, following two stunning announcements from the Chinese government and IBM (NYSE:IBM).

The Chinese government unveiled Sunway TaihuLight, a supercomputer which has theoretical peak performance of 124.5 petaflops, making it the first supercomputer to break the 100 petaflop barrier. A single petaflop equals about one quadrillion calculations per second. The TaihuLight runs entirely on Chinese hardware, using ShenWei CPUs developed at the Jiangan Computing Research Lab in Wuxi. That means Intel, which previously provided Xeon chips for the country’s Tianhe-2 supercomputer, has been cut out of China’s supercomputer loop.

Shortly afterwards, IBM revealed details about its new supercomputer, Summit, which will be deployed in the U.S. Department of Energy’s Oak Ridge National Laboratory in early 2018. The machine was originally intended to run at 150 petaflops, but IBM now claims that it could achieve peak performance of 200 petaflops. The Summit also doesn’t use any Intel silicon — it runs entirely on IBM’s Power9 microprocessors and Nvidia’s (NASDAQ:NVDA) next-gen Volta GPUs.
How did Intel fall behind?

Intel’s sudden drop in the supercomputer charts occurred for two main reasons. First, the U.S. government blocked Intel from selling new Xeon chips to Chinese supercomputers last April, citing concerns about their role in nuclear research. The Chinese government had ordered tens of thousands of new Xeon chips from Intel to upgrade Tianhe-2’s average speed from 33 petaflops to over 110 petaflops.

That interference was controversial, as was Intel’s compliance, since the U.S. Department of Energy had run its own nuclear tests since live tests were banned in 1992. Sequoia, the weapon-testing supercomputer, had been the fastest in the world until it was dethroned by Tianhe-2 in 2013, so it seemed like the Xeon ban was just a petty way to kneecap China in the supercomputer race.

Meanwhile, IBM has been pairing its Power processors with Nvidia’s high-end GPUs for a simple reason — GPUs generally outperform stand-alone CPUs in machine learning. IBM claims that pairing Nvidia’s Tesla K80 GPUs with its Power-based chips enables its Watson AI platform to answer questions 1.7 times faster. Nvidia claims that the K80 runs key science applications “two to five times” faster than Intel’s Xeon Phi 7120 CPU. The combination of the new Power9 CPUs and Volta GPUs in the Summit could yield even more impressive results.
What does this all mean for Intel?

Losing the Chinese supercomputer orders last year reportedly cost Intel between $1 billion to $1.3 billion in revenue. That’s equivalent to about 6% to 8% of its $16 billion in Data Center revenue in fiscal 2015.

Losing Xeon sales in China is bad for Intel, which posted just 9% data center revenue growth last quarter. That was well below its prior estimate for 15% annual growth between 2015 and 2019. The arrival of TaihuLight also indicates that Chinese data centers might not need Intel chips for much longer. The Chinese government wants to reduce its dependence on U.S. tech for security reasons, and Xeons could be gradually abandoned as part of that shift.

To make matters worse, IBM “open sourced” its server designs to the Chinese vendors that install its Power processors. The Chinese government and companies could favor that approach over buying Xeon processors, causing Intel to lose market share to Big Blue. Qualcomm also recently entered the Chinese data center market via a government-owned venture, which suggests that lower-powered ARM based chips could be more power efficient than Intel’s Xeons.
But it’s not all bad news for Intel

All that news sounds dire for Intel, but investors should remember that the chipmaker still controls about 99% of the global data center chip market. New ShenWei, IBM, or Qualcomm chips won’t likely cause that share to plunge anytime soon, since Intel has a “best in breed” reputation, and completely swapping out processors in existing data centers is costly and impractical.

Intel is also still winning supercomputer contracts. Last year, the U.S. government tapped Intel and Cray to build the Aurora supercomputer in the Argonne National Laboratory in Illinois. That computer is expected to achieve peak performance of 180 petaflops, which would beat TaihuLight but fall short of matching IBM’s Summit.
Should investors be concerned?

Intel investors shouldn’t get too worked up over the recent supercomputer headlines. But they should understand how China’s shift to homegrown processors could hurt Intel’s data center business, and how IBM, Nvidia, Qualcomm, and others could chip away at that pillar of growth.

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Buffett to Enter $450 Billion China Monorail Market

Buffett-Backed BYD to Enter $450 Billion China Monorail Market

BYD Co., the electric-car maker that counts Warren Buffett’s Berkshire Hathaway Inc. as a shareholder, is in talks with several of China’s smaller cities on building monorail systems to preempt traffic congestion spurred by rapid growth in automobile ownership.

Monorail systems are a potential 3 trillion yuan ($450 billion) market in China, based on an average 70-kilometer (44 miles) network in each of an estimated 300 cities, and will become a new major growth area for the company, according to Chairman Wang Chuanfu.

The elevated single-rail tracks can be built on road dividers and are especially suited for smaller, less-developed cities because they cost one-sixth the price of a subway system and are cheaper to maintain, Wang said. With the number of vehicles growing at an average annual rate of 15 percent in such cities and road space at only 1 percent, these urban areas are on course for the same gridlock gripping major Chinese cities like Beijing if they don’t adopt light transit, he said.

“Many third- and fourth-tier cities have approached us to discuss monorail,” Wang said in an interview Monday in Tianjin, adding those discussions are preliminary. “For many of these cities facing traffic congestion and financial constraints, if you can’t go underground, you have to go above.”

After leading BYD to top electric vehicle sales in China, Wang is steering the company into monorail as an area where he sees high barriers to entry and fewer competitors. This foray is taking place as industry sales of new-energy vehicles more than tripled last year, attracting a wave of startups touting their plans to build battery-powered cars. Besides autos, BYD’s other businesses include producing handsets and storage batteries.

“BYD is taking advantage of its relationships with municipalities and the know-how in urban public transport that it’s built through the years marketing electric buses,” said Steve Man, an auto analyst with Bloomberg Intelligence. “The foray into electric monorail expands the company’s electric propulsion and battery businesses.”

BYD’s Hong Kong-traded shares rose 2.2 percent to close at HK$45.90. The benchmark Hang Seng Index fell 0.3 percent.

Monorail elsewhere in Asia includes the system operated by Bangkok’s BTS Group Holdings Pcl, which uses 208 railcars built by Siemens AG and CRRC Corp. in Thailand’s capital, according to its website. BYD’s competitors in monorail-making will include Bombardier Inc. and Hitachi Ltd., Wang said.
Shenzhen Line

BYD will utilize its core technology in electric vehicles, batteries and materials to build the monorail systems, which will be paid for by local governments, he said. The company will begin operating a 4.4-kilometer line at its base in the southeastern China city of Shenzhen in September, he said. An eight-carriage train will be able to carry about 1,600 standing passengers.

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