April 2, 2014
Industry Updates  
FMCG - Fast Moving Consumer Goods
Alibaba Shuns HK for USD15bn U.S. IPO
Chinese e-commerce giant Alibaba Group announced that it will go public on a U.S. stock exchange to raise up to USD15bn in the largest initial public offering thus far in 2014. Analysts have estimated that the amount would yield a valuation for Alibaba in excess of USD100bn.
 
The announcement ended months of speculation over where Alibaba would list its shares after negotiations on a Hong Kong listing were derailed last year. Alibaba’s decision to shun Hong Kong was primarily due to the city’s refusal to amend its listing regulations to accommodate the company’s unusual ‘partnership’ management structure. Should the Hong Kong Stock Exchange grant Alibaba’s request, the company’s top executives who collectively own 10% of the company will be permitted to retain control of the board.
 
 
Alibaba Purchases Controlling Stake in TV & Movie Content Provider for USD804mm
China's largest e-commerce company Alibaba has agreed to purchase a controlling stake in ChinaVision Media Group for USD804mm. The acquisition provides Alibaba with access to TV and movie content as the world's largest internet market becomes increasingly competitive. The transaction exemplifies the latest trend of internet companies such as Alibaba, Tencent and Baidu seeking to attain market share from each other.
 
Via this acquisition, Alibaba will gain access to a host of TV and movie content geared towards retaining existing subscribers while attracting new subscribers as well. Furthermore, the transaction coincides with the company’s launch of its Ali TV operating system last July along with the prospective launch of its mobile gaming platform later this year.
 
 
China's Online Home Appliance Sales Exceed USD21bn in 2013
According to the China Securities Journal, China's B2C home appliance retail sales totaled RMB133bn (USD21bn) in 2013. More specifically, online sales of flat televisions, refrigerators, washing machines and air conditioners totaled RMB35bn (USD5.6bn), comprising 26% of total sales, while sales of air purifiers totaled RMB2.8bn (USD451mm). In addition, 53 million mobile phones were sold online, comprising 13% of the over 400 million units sold in China in 2013, whereas online sales of tablet computers totaled 5.6 million units, comprising 28% of total sales.
 
As China’s e-commerce continues its rapid development, an increasing amount of orders for medium and high-end home appliances and IT products are being sold online. As consumers shop for an expanding array of products online, greater emphasis is placed on product delivery times and the overall online shopping experience in addition to searching for the most attractive product prices.
 
 
Domestic Air Purifier Sales Total 2.4 Million Units in 2013, Up 90.5% Y-o-Y
As China’s continues to face smog issues, consumers have nearly doubled their purchases of basic protection equipment such as masks and air purifiers. According to state-owned consulting firm CCID, 2.4 million air purifiers were sold domestically in 2013, a whopping increase of 90.5% from 2012. This sales volume translated into monetary sales of RMB5.6bn (USD933mm), an even larger increase of 105.9% y-o-y.
 
CCID reports that the majority of air purifiers were purchased by consumers aged between 20 and 30. Among all air purifiers sold, low-end models priced below RMB1,000 (USD 167) per unit were the most popular, comprising over 50% of the entire market. Apart from low-end models, high-end models priced at RMB3,000 (USD 500) or more per unit have also sold well, with the segment comprising a respectable 23% of the overall market.
Food & Beverage
Nestle Establishes Food Safety Research Center in China
On March 25, Nestle S.A. announced the opening of a food safety research center in Beijing, thus adding to its global network of 34 R&D and product technology centers. The research center will cooperate with authorities in China to provide a solid foundation for food safety policies and standards. The cooperative effort will consist of collaboration with local universities, research institutes and government agencies on food safety issues. In addition, Nestle’s research center will oversee the implementation of food safety training programs.
 
Nestle’s latest food safety endeavor in China is testament to the company’s commitment to the world’s most populous nation, where the company has had continued success over the years. Economists believe that Nestle’s food safety research center will be held in high regard by the Chinese consumers amid the numerous food safety scandals that have plagued the nation over the past few years.
 
 
UK Food & Beverage Imports Soar in China
According to the UK’s Food and Drink Federation (FDF), imports of British food and soft beverages into China has increased a whopping 118% y-o-y from GBP92mm (USD152mm) in 2012 to GBP201mm (USD334mm) in 2013. The significant increase was primarily driven by stellar pork and salmon sales amid China’s burgeoning middle-class household demand. As Chinese consumers experience a gradual rise in their disposable incomes, purchases of higher quality consumer products such as imported food are expected to increase as well.
 
Furthermore, China’s Food Safety Bureau has become more lenient regarding imports of fresh produce as it seeks to ensure a safe and reliable food supply for Chinese consumers. As a result, the world’s second largest economy is poised to become a prominent destination for foreign food imports looking forward.
 
 
Chinese Dairy Company Yili Group Establishes R&D Center in Holland
Chinese dairy company Yili Group has announced in March that it has co-established an R&D center located in the Netherlands together with the nation’s Wageningen University. The R&D center will focus on developing Yili’s milk-cow cultivation, product research and food safety standards, thus becoming the most important entity within the company’s global R&D operations.
 
Apart from this endeavor, Yili has also established partnerships with various international companies such as the United States’ Dairy Farmers of America and Italy's Sterilgarda. These partnerships will enable all parties to share ideas and milk production concepts to improve overall product quality while streamlining production costs to the further extent possible.
 
 
China’s Infant Formula Market to Exceed RMB100bn by 2016
According to market research firm AC Nielsen, China's infant formula sales is projected to grow at a CAGR of roughly 14% over the next two years and exceed RMB100bn (USD16bn) by 2016. In 2013, AC Nielsen reported that China’s milk powder sales has reached RMB60bn (USD9.7bn). During the year, foreign brands have retained their competitive edge over their domestic counterparts with a market share of 54% and 46% respectively. Among all distribution channels, Mom & Baby stores comprised the largest distribution channel with 42% of total sales, whereas supermarkets & hypermarkets comprised 36%, while e-commerce comprised the remaining 22%.
 
Despite narrowing the gap with its foreign counterparts in production technology and quality control of ingredients, domestic milk powder producers have yet to fully regain consumer confidence following numerous food safety scandals that have plagued China’s dairy industry over the past few years.
Industrials
Construction of Beijing's New Airport to Begin before July
Local government authorities in Beijing have announced that the construction of a new airport located in the city’s southern region is likely to begin before July this year. The airport is expected to commence operations by 2018 and will help ease the immense traffic handled by Beijing’s Capital International Airport. The Capital International Airport remained as the world's second-busiest airport in 2013 with a passenger throughput of 83.65 million during the year.
 
After officially opening in 2018, the new airport is expected to handle an annual passenger throughput of 130 million, surpassing that of Atlanta International Airport, which is currently the world's busiest airport.
 
 
Tibet Begins Construction of Expo Park
Southwestern China’s Tibet Autonomous Region has just begun constructing an arts and cultural expo park to promote Tibetan culture. The entire construction timeline will consist of three phases, with the first phase scheduled for completion by mid-2017. The first phase will involve a capital injection of RMB1.2bn (USD192mm) and is expected to provide over 1,000 jobs in the region.
 
The park is located roughly 20 km from Lhasa in Dagze County and will cover an area spanning 133 hectares. The park will house a museum and a trade & research center for Tibetan art and sculpture. In addition, the park will also construct a stage for organizing cultural shows. The Tibetan government has projected that the park will attract roughly two million visitors per year.
 
 
Hyundai Motor to Construct Fourth Factory in China
Hyundai Motor Group will construct a new plant in Western China’s Chongqing municipality, making it the company’s fourth plant across the nation and the first plant outside Beijing. The factory will be located in the Yufu Industrial Park situated in Chongqing’s Liangjiang New Area, and will boast an annual production capacity of 300,000 vehicles.
 
According to Chongqing Mayor Huang Qifan, Hyundai's new plant will further strengthen the city’s status as a national auto industry base that is currently home to over 1,000 automotive-related companies. To date, Chongqing’s vehicle production has exceeded RMB300bn (USD49bn) in value, and the city currently manufactures two million vehicles annually. By 2017, vehicle production is expected to reach four million units per year.
 
 
Caterpillar Excavates New Development Opportunities
According to Caterpillar CEO Doug Oberhelman, China's stricter environmental protection regulations coupled with the nation’s booming natural gas industry will create unprecedented opportunities for the company’s natural gas engine unit. As Caterpillar already manufactures such engines, the company is able to save on domestic R&D expenditure and simply import related technology from its home market in the U.S.
 
Despite seeking to rapidly expand its domestic presence in natural gas engines, Caterpillar intends to continue growing its traditional construction and underground mining equipment segments in China. However, having a presence in the world's largest construction equipment market would inevitably translate into a fiercely competitive landscape for Caterpillar that is unmatched by anywhere else globally. Furthermore, Oberhelman even made a bold statement saying that a leading Chinese construction equipment manufacturer to eventually challenge Caterpillar on the global stage.
Logistics
China’s Logistics Sector Experiences Slowdown in Jan-Feb
According to the China Federation of Logistics and Purchasing (CFLP), the total value of goods transported by the nation’s logistics sector increased 8.7% y-o-y to reach RMB29tr (USD4.8tr) during the first two months of 2014. The growth was down from a figure of 9.7% during the same period last year and 9.5% for the entire year in 2013. In addition, logistics expenditure increased 8.7% y-o-y to reach RMB1.6tr (USD258bn) during the first two months of 2014. This represented a slowdown of 1.6 percentage points compared with the same period last year.
 
Although the slackened growth indicates a possible slowdown across the Chinese economy, economists have warned against using this as a reliable indicator. This is largely due to a possible distortion caused by the Chinese New Year Spring Holiday, when a large part of China’s labor force returns home to visit relatives.
 
 
China’s Xinjiang Province Completes Construction of 45-Kilometer Tunnel
According to the Urumqi Railway Bureau (URB) in China’s Xinjiang province, the region has completed construction of its longest railway tunnel. Spanning 45 km, the tunnel is the longest of its kind within Xinjiang province and the third-longest in China.
 
The tunnel took roughly seven years to construct and will serve as an integral part of Nanjiang Railway’s cargo route that links Turpan and Korla in Xinjiang province. According to state-run Xinhua News Agency, the 334 km route that truncates train journeys by 122 km is expected to begin operating at the end of the year.
 
 
Shanghai Pudong Airport to Expand Cold Storage Operations
Amid China's growing appetite for fresh food and pharmaceutical products, the Shanghai Pudong International Airport Cargo Terminal (PACTL) has planned to expand its presence within the perishable goods logistics sector. Although existing cold storage facilities at PACTL are able to handle present storage volumes, promising growth prospects within the segment have prompted airport management to expand existing capacity. As a result, PACTL has decided to construct a perishable goods center equipped with advanced climate control functions to serve prospective clients.
 
In light of this endeavor, airlines such as Lufthansa Cargo, Cathay Pacific, Emirates and Air France-KLM have expressed a keen desire in signing a full-time service contract with PACTL. Last summer, PACTL introduced a premium service that features faster handling times, along with the provision of a dedicated team and equipment. Therefore, the new facility will compliment PACTL’s strive to become a premium logistics service provider looking forward.
 
 
Chengdu Seeking to Establish Western China's First Free-Trade Zone
The Sichuan provincial government has announced China’s intention to establish a free-trade zone (FTZ) located in Chengdu. The city has already submitted an application following the approval of the Shanghai FTZ, and is in the process of completing a more detailed application. This includes exploring a negative list that will govern the activities of foreign companies that will potentially locate themselves within the Chengdu FTZ in future.
 
The city’s strategic location has led to the rapid development of its economy over the past decade. In 2012, Chengdu’s GDP totaled USD125bn, ranking it the eighth-largest contributor to China’s economy among the nation’s cities. During the year, Sichuan province’s overall contribution to China's GDP totaled USD368bn, which is roughly the GDP of Thailand as a whole.
 
Deals in China  
Inbound M&A
Date
Target Company
Deal Type
Buyer
Country of Buyer
Seller/JV Partner
Deal Industry
Deal Value
(USD mm)
Stake
Deal Status
3/25
Yitai Guanglian Coal Chemical Co Ltd
Minority stake purchase
Inner Mongolia Yitai Coal Co Ltd
Hong Kong
Inner Mongolia Yitai Group Co Ltd
Energy
310
5%
Announced
3/21
Leju Holdings Ltd
Minority stake purchase
Tencent Holdings Ltd
Hong Kong
E-House (China) Holdings Limited
Services
180
15%
Announced
3/18
mmb.cn
Minority stake purchase
Tencent Holdings Ltd; MediaTek Inc; Sequoia Capital
Hong Kong; Taiwan; United States
mmb.cn
Consumer
200
n/a
Announced
3/17
Beijing New Building Materials PLC
Minority stake purchase
China National Building Material Co Ltd; Institutional Investors; Private Investors
Hong Kong
Existing shareholders
Industrials
345
21%
Announced
3/12
PICC Health Insurance Co Ltd
Minority stake purchase
The People's Insurance Co (Group) of China Ltd
Hong Kong
PICC Health Insurance Co Ltd
Healthcare
260
2.2%
Completed
3/10
Nanjing Gangning Real Estate Co Ltd
Acquisition
South East Asia Sum Fu Co Ltd
Hong Kong
Metallurgical Corporation of China Ltd
Real Estate
191
60%
Announced
3/10
JD.com Inc
Minority stake purchase
Tencent Holdings Ltd
Hong Kong
JD.com Inc
Consumer
215
15%
Announced
 
Outbound M&A
Date
Country of Target
Target Company
Deal Type
Buyer
Seller
Deal Industry
Deal Value (USD mm)
Stake
Deal Status
3/31
Hong Kong
Intime Retail (Group) Co Ltd
Minority stake purchase
Alibaba Group Holding Ltd
Intime Retail (Group) Co Ltd
Consumer
214
9.9%
Announced
3/27
Italy
Enel S.p.A
Minority stake purchase
The People's Bank of China
Enel S.p.A
Energy
1,089
2.1%
Announced
3/27
Italy
Eni S.p.A
Minority stake purchase
The People's Bank of China
Eni S.p.A
Energy
1,892
2.1%
Completed
3/25
Singapore
Addvalue Communications Pte Ltd
Acquisition
SECBASE (Beijing) Technology Co
Addvalue Technologies Ltd
TMT
259
100%
Announced
3/19
United States
TangoME Inc
Minority stake purchase
Alibaba Group Holding Ltd; Undisclosed investors; Access Industries; Draper Fisher Jurvetson; Jerry Yang - private investor
TangoME Inc
TMT
280
28%
Completed
3/11
Hong Kong
ChinaVision Media Group Ltd
Acquisition
Alibaba Group Holding Ltd
ChinaVision Media Group Ltd
TMT
805
60%
Announced
3/11
Malta
Enemalta Corporation
Minority stake purchase
China Power Investment Corp
Government of Malta
Industrials
444
33%
Announced
3/3
New Zealand
Transpacific New Zealand
Acquisition
Beijing Capital Group Co Ltd
Transpacific Industries Group
Industrials
797
100%
Announced