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Air pollution boosts companies in emissions analysis and filtration

It may just confirm what we already know — the smog is getting worse: China’s Meteorological Administration says that there were more smoggy days nationwide this year than anytime during the past 52 years. In Beijing, that includes half of the days in the month of October.

As if number alone is not alarming enough, several media articles cropped up this week that added a sense of urgency to the issue. Some such stories may seem anecdotal. On Tuesday, China News Service ran a headline shouting “smog causes cancer; youngest patient is only eight years old”. The story tells a sad tale of an eight-year-old girl who was diagnosed with malignant lung tumor, a disease that is usually associated with smokers and the elderly. Though grounded on little more than speculation, the article suggests a a cause by describing that the child’s home was next to a dusty road. On Wednesday, Hong Kong’s South Morning Post published an article that the smog might have a role to play in police’s failure to prevent a terrorist attack, in which a Uighur man smashed his vehicle against one of the bridges in front of Tian’anmen, killing everyone onboard and several passers-by on his way. Low visibility caused by smog can blind surveillance cameras, says the newspaper.

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Is Yili poised to gain from China’s milk shortage?

Yili, a leading Chinese diary brand, posted record quarterly revenues of 12.55 billion yuan for the third quarter of 2013. To put it in perspective, the number is more than the total revenues of Guangming, one of Yili’s domestic competitors, in the first three quarters of the year. Mengniu, another competitor has not yet released its results.

One factor frequently cited by Chinese market observers is Yili’s ability to secure its supply of raw milk. The company owns more diary farms than either of its competitors. Mengniu, for example, relies more on individual farmers, which makes it more vulnerable to quality problems that have sunk domestic brands such as Sanlu. Read more

Pharma companies set to enter direct sales of nutritional supplements and beauty products?

Two A-share market-listed pharma companies, Xiangxue Pharma and Kangmei Pharma, announced this week that they had obtained licenses to conduct direct sales.

Such licenses are under tight regulation for fear that they would be used to start pyramid schemes.
So far there are forty direct sales companies operating in China, most being cosmetics brands such as Avon or specialized health supplement brands such as Amway. Chinese media commentary on the two companies’ direct sales licenses has speculated that the companies are eying the dietary supplement market.

Xiangxue Pharma already owns a subsidiary that produces a variety of traditional Chinese medicine- based oral supplements that claim cosmetic benefits. According to the company’s own data, such products achieved sales of 193 million yuan by mid-2012, a figure that may be impressive given
the size of the company, but meager compared to direct sales market leaders. Amway, for example, has annual sales of 27.1 billion yuan, and Perfect and Infinitus both have 12 billion each. The other company Kangmei Pharma is also reported to have launched a joint venture company last year with insurance giant PICC in the business of “health management”.

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Chinese pharma companies rush to invest in hospitals

Following Guangzhou Bayunshan Pharma’s announcement that it plans to invest five billion yuan in high-end hospitals and a strong rally in the health care sector in China’s A-share market last week, several newspaper articles have appeared beating the drum for investing in so-called “private hospital concept stocks”.

One such article appeared on China Business Times 中华工商时报, a national business newspaper. The article attributes the strong stock market performance of several A-share listed pharma companies that have holdings of hospital-related assets to the government’s favorable policies and apparent hostility to foreign pharma companies. The author quotes a source estimating that a turning point has been reached for the private hospital industry. The source also listed a number of listed companies that he believed are poised to gain from the forthcoming private hospital boom – companies that are either already active in the private hospital industry or who plan to do so.

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Mobile banking: Minsheng bank punches above its weight

EnfoDesk, a Chinese market research company, published a report on China’s mobile phone banking sector. According to the report, bank transactions conducted via mobile phones in Q4 of 2013 reached just over 370 billion yuan, 35.90% higher than the previous quarter.

Worth noting is that the study puts China Minsheng Bank in third position in the market share ranking of mobile banking: Minsheng, with 10.68 % market share of mobile banking, is only beaten by China Construction Bank (28.19%) and ICBC (24.38%), both of which are members of China’s “Big Four” mammoth banks while Minsheng remains a much smaller upstart. The article attributes Minsheng’s fast progress in the sector to technological innovation and social media marketing.

Companies and brands affected
China Minsheng Bank (HKG:01988 SH:600016)
Links and sources
New Express: 行业数据:2013年第3季度手机银行市场份额变动明显 民生银行跻身前三甲

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Will a tax rebate rejuvenate China’s restaurant industry?

According to a Southern Daily 南方日报 report, Wang Huiying (王惠英), vice inspector of the “Trade in Services and Commercial Services Department” of Ministry of Commerce, revealed that the Ministry is seeking to lower the business tax rate for restaurants from the current level of 5% to 3%. Speaking at a recent restaurant industry conference, Wang also said that the ministry also seeks to lower the fees that banks charge for credit card transactions.

The restaurant industry has been struggling because of rising wages and rents as well as government’s austerity policies. Worth noting is that Wang said the tax reduction will likely to only apply to low-and middle-end restaurants, so at least for the more expensive ones, now is still not the time to celebrate the end of austerity.

Links and sources
New Express: 商务部:拟下调餐饮业营业税银行刷卡费率

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Big three Chinese telecom operators criticized for profiting from spam

Beijing Times 京华时报 yesterday published an article (based on a report in the CCTV 1 program Focus Interview 焦点访谈) analyzing the profit chain of spam texts sent by China’s three leading telecommunication operators. According to the report, many spam texts are sent from numbers starting with 106, and such numbers can only be used by China Mobile, China Unicom and China Telecom. Such numbers were originally for internal and work units’ use only, but in recent years the big three telecom operators have provided bulk spam sms services to all-comers and profiting accordingly.

According to the report, a small bulk SMS advertising company who sends out ten million texts monthly can make a profit of about 200 thousand yuan, but the big three telecom operators can make about 300 thousand yuan and provide bulk sms advertising services at cheaper rates.

Companies and brands affected
China Mobile (HKG:0941)
China Unicom (HKG:0762)
China Telecom (HKG:0728)

Links and sources
Beijing Times: 三大运营商被指发垃圾短信获利

Starbucks price comparison after the CCTV attack

On October 8, China Business News, a publication owned by SMG, a media congomerate controlled by the Shanghai city government, published a report attacking Starbucks’ high prices in China. On October 20, China Central Television (CCTV) broadcast a story targeting the high prices of Starbucks coffee and mugs. The stories have been repeated in different versions in various media outlets.

The CCTV story uses man on the street interviews in Beijing, Chicago and Mumbai to emphasize the high prices of Starbucks China compared to other countries. The CCTV report says a cup of 354 milliliters of latte coffee costs 27 yuan (USD4.4) in China as compared to only 19.98 yuan in Chicago, 14.6 yuan in Mumbai and 24.25 yuan in London. Starbucks stainless steel cups, which are made in China, are sold at about 97 yuan to 122 yuan (USD 16-20) in the US, while in China they cost between 220 to 350 yuan (USD 36 to 58). Netizens, however, are laughing at CCTV’s report for its injustice and suggested CCTV to go after the de facto monopolies, as reported by other media outlets such as Tea Leaf Nation and South China Morning Post.

Danwei contacted branches in Chaoyang District, Chaoyang Park/Sanlitun area, one of the most popular destinations for shopping and relaxation in Beijing, of the chains Starbucks, Costa Coffee, Up Bridge Coffee (上岛咖啡) and Pacific Coffee Company to compare coffee prices. Starbucks prices actually compare favorably with other similar chain stores.

Brand Latte Americano Cheapest
Prices in yuan.
Starbucks 27/30/33 22/25/28 17
Costa Coffee 28/31/34 22/25/28 15
Up Bridge Coffee 36 32 32
Pacific Coffee Company 27/30/33 22/25/28 22


  • In each cell, the listed prices are in the order from the smallest size to the largest size offered.
  • While the sizes offered in Starbucks and Pacific Coffee Company are 12oz, 16oz and 20oz, Costa Coffee offers 12oz, 14oz and 16oz; the only size offered at the Up Bridge Coffee is about 12oz.
  • The cheapest coffee at Starbucks is the weekly special filter coffee; at Costa is an espresso. At Up Bridge and Pacific Coffee, the cheapest offering is an Americano.
  • Up Bridge Coffee offers various flavored latte coffees, and the one listed above is their cheapest one.


Companies and brands affected
Starbucks Corporation (NASDAQ:SBUX)

Links and sources

China Business News: 星巴克中国“暴利”:亚太区利润率为欧洲16倍
CCTV: 星巴克咖啡中国市场高价 CCTV: Chinese pay higher price for Starbucks coffee
Tea Leaf Nation: China’s Silly War on Starbucks Lattes
South China Morning Post: CCTV’s criticism of Starbucks ‘pricey coffee’ prompts online backlash



Paper fights back against journalist arrest, Zoomlion alleged fraud back in spotlight

Guangzhou-based New Express ran a front page story today with a massive headline reading RELEASE HIM (请放人). The article requests the Changsha police authorities to release Chen Yongzhou (陈永洲), a journalist working for the newspaper who was arrested on October 19 at work. Changsha police officers had crossed provincial borders from Hunan to nab Chen in Guangzhou, an alarming development for the city’s feisty journalists.

Chen’s arrest is believed to be linked to a series of articles published in New Express he wrote in which he says that Zoomlion Heavy Industry, a heavy machinery maker based in Changsha, engages in fraudulent practices including faking sales and exaggerating profits.

In July, Gao Hui (高辉), secretary to Chairman of the Board of Zoomlion, stated via his Sina Weibo account that the negative reports had depressed the company stock prices. He accused the writer and the newspaper of being paid off by interest groups who had benefited from the drops in the company’s stock price.


The BBC reports: China reporter Chen Yongzhou ‘confesses’ on TV

An imprisoned Chinese journalist whose newspaper has made front-page appeals for his release has confessed to wrongdoing on state TV.

“I’m willing to admit my guilt and to show repentance,” said reporter Chen Yongzhou. He was arrested over claims he defamed a partly state-owned firm in articles exposing alleged corruption.

State media said he had admitted writing false stories for money.

Several high-profile suspects have made televised confessions recently.

In the footage, detained journalist Chen Yongzhou is paraded for the camera. Handcuffed and flanked by police officers he is marched along a corridor. Then he sits, a lone figure in a green police-issued top, in an interrogation room, making his purported confession. He’s clearly susceptible to pressure.

In many countries Chen Yongzhou’s detention, and the broadcast of the footage of it, would provoke a legal outcry. Corruption is known in Chinese journalism, stories planted to blacken rival firms. But the facts of this case are murky and this “confession” does little to clear them up.

All China’s major construction equipment firms have been under severe financial pressure recently as the economy, so reliant on construction, has slowed. And after Mr Chen’s newspaper printed a brave and highly-unusual front-page call for his release, the police have been under pressure too.

The release of the “confession” may be their attempt to regain the initiative. But it’s likely to fuel the row, with questions about the role of the police and of state television, and the way they have obtained and aired Mr Chen’s admission.

Xinhua News Agency is more convinced of the truth of Chen’s confession: Detained reporter apologizes for releasing untrue stories. However, judging by the chart below, the markets might take more convincing than CCTV and Xinhua News Agency that Zoomlion remains a reputable company.

Zoomlion (HKG: 1157) stock price Monday October 21 to Friday October 25, 2013

zoomlion stock

— October 28 12pm The market appears to like CCTV confessions.

Zoomlion 2

Companies and brands affected
Zoomlion Heavy Industry (HKG: 1157, SZ:000157)

Links and sources
New Express: 请放人
China Media Project: Paper goes public over reporter’s detention

China Media Project: The New Express story in today’s papers, Guilt and shame in China’s media
New York Times: Chinese Newspaper Asks Police to Free Detained Reporter

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Does Vancl face a cash crunch?

Upstart Chinese clothing brand Vancl, a rising Internet star that aims to be Zara and Amazon rolled into one, has been the subject of a series of negative news reports. Of late, according to New Financial Observer (新金融观察报 ), a financial newspaper published in Tianjin, not only does the company owe suppliers great amounts of money, it has been delaying paying photographers and models. Some of the company’s creditors took to Weibo to voice their discontent, including one who threatened to commit suicide at the company’s office building.

Rumors that Vancl has cash flow problems started in August this year, when founding CEO Chen Nian announced that the company would move its office location from close to Beijing’s CBD area to Yizhuang, a satellite district off the fifth ring road. The company has also cut the number of its staff from 11,000 at its peak time to the current 3,000. Read more