Wednesday Tech Briefing: Trade War, Baidu, Wanda
1. Trump Says Investment Restrictions Would Target All Countries, Not Just China
What: U.S. President Donald Trump said reported Treasury plans to restrict Chinese investments in U.S. technology companies would target all countries, not just China. Stronger reviews of acquisitions could protect sensitive American technologies, Trump told reporters on Tuesday.
Why it's important: The Treasury plans to propose banning acquisitions of U.S. firms with “industrially significant technology” by companies with at least 25 percent Chinese ownership, Reuters previously reported. The U.S. House of Representatives passed legislation to increase the powers of the Committee on Foreign Investments in the United States (CFIUS) on Tuesday. Trump said the restrictions can be “done through CFIUS.”
Big picture: Restrictions on Chinese investments would further escalate the trade conflict between the U.S. and China, which has already roiled financial markets and cause heightened tensions between the two countries. (Source: Reuters)
2. U.S.-China Trade Tension Worries Startup Investors
What: Tech investors worry that the trade conflict between China and the U.S., which has so far had little visible effect on investment flows, could derail Chinese companies’ initial public offering plans and hit industries like autonomous driving, which relies heavily on U.S.-educated Chinese coders.
Why it's important: If the situation worsens, Chinese investors and entrepreneurs, who are increasingly involved in both countries, could turn away from the U.S. to focus on business within China.
Big picture: Trade conflict has already pushed Chinese stocks into bear territory, with Shanghai’s benchmark stock index falling 20 percent in just five months. (Source: Bloomberg)
BIG TECH COMPANIES
3. Baidu Shows Interest in Chinese Depositary Receipts
What: Baidu Inc. is considering a mainland listing through the Chinese depositary receipt (CDR) pilot program, the Chinese internet search engine said in a filing to the U.S. Securities and Exchange Commission on Monday, paving the way for China’s first such listing.
Why it's important: Caixin has reported that Baidu could become the first New York-listed company to return home by issuing CDRs. A source told Caixin that Baidu started its CDR listing preparations later than Alibaba Group Holding Ltd. and JD.com, but is executing it faster.
Big picture: The CDR pilot program will enable tech companies to bypass legal and technical barriers to launch initial public offerings on the A-share market. But the program was dealt a setback when Xiaomi decided last week to postpone issuing CDRs “indefinitely,” reportedly due to a fallout with the regulator over valuation. (Source: Caixin)
4. Wanda Film to Buy Wanda Media for $1.78 Billion
What: Wanda Film Holding Co. Ltd., Dalian Wanda Group’s cinema chain, said on Monday it will buy a 96.8% stake in the film studio Wanda Media for 11.6 billion yuan ($1.78 billion). Upon completion, Wanda Film’s main businesses will be expanded to production, distribution and operation of film, television and online games, the company said.
Why it's important: California-based Legendary Entertainment — which Wanda Group acquired in early 2016 — was not included in the deal. Legendary was expected to be incorporated into Wanda Film, but the move was put on hold due to what Wanda said was regulators’ concern over Legendary’s profitability.
Big picture: Founded in 2009, Wanda Film is China’s largest cinema chain operator. It controlled 14% of the country’s box office market at the end of 2017. In February, Wanda Group said it would introduce two investors into Wanda Film: e-commerce giant Alibaba Group Holding Ltd. and state-backed Cultural Investment Holdings Co. Ltd. (Source: Caixin)
5. Chinese Anime Rising as Country’s Tech Giants Engage in Cartoon Arms Race
What: Tencent, Baidu and NetEase are racing to develop or buy Chinese animated characters. Though spending by the big tech firms is not yet at the level of Disney, the Chinese animation market is expected to hit 216 billion yuan ($33 billion) by 2020, according to estimates by consultancy EntGroup.
Why it's important: These firms are looking to tap into surging demand from younger Chinese for more local-style protagonists. Traditional Chinese themes and characters helped the country’s comic and animation market reach 150 billion yuan last year.
Big picture: China is catching up with Japan and the U.S., although China accounted for only around 8 percent of the global animation industry in 2016, compared to the U.S.’s 40 percent. (Source: South China Morning Post)
6. One-Third of Chinese Don't Own Smartphones: Survey
What: Despite surpassing the U.S. to become the world’s largest smartphone market five years ago, China remains one of the less-penetrated countries in terms of smartphone ownership as a percentage of the overall population, according to a survey by the U.S.-based Pew Research Center. Some 68% of Chinese reported owning smartphones, ranking the nation as the world’s 15th most penetrated market for such ownership.
Why it's important: China is the world’s largest smartphone market by unit sales, posting about 100 million shipments each quarter, or nearly a third of the world’s total. The country has risen to prominence so rapidly in part due to an explosion of local manufacturers led by Huawei, Oppo and Xiaomi. But the local explosion has also led to relative saturation in China, prompting smartphone sales to fall 5% last year and 16% in the first quarter of 2018.
Big picture: Among developing markets, China has the fifth-highest penetration rate, behind Lebanon, Jordan, Chile and Turkey. China’s local manufacturers have become aggressive exporters in the last five years, helping to ramp up smartphone ownership in other price-sensitive developing markets like India. (Source: Caixin)
DEALS AND FUNDRAISING
7. Livestreamer Inke Passes Listing Hearing
What: Livestreaming platform Inke Ltd., which filed for a Hong Kong initial public offering in March, has passed its listing hearing and will start selling shares to international investors on Wednesday, Caixin has learned.
Why it's important: The company, valued at around 10 billion yuan ($1.5 billion), will begin pitching to Hong Kong investors on Thursday and debut on the bourse in mid-July. The three-year-old firm lost 239 million yuan in 2017, down from a loss of 1.47 billion yuan a year before. Its revenue declined 9% to 3.9 billion yuan last year.
Big picture: Several of China’s larger video sites — most of which have rolled out livestreaming functions — have recently gone public, including Bilibili Inc. and iQiyi Inc. Nasdaq-listed Chinese livestreaming platform operator YY Inc. spun off its Huya Inc. gaming video unit for a separate New York listing in May. Huya’s major rival, Douyu, reportedly plans to list in Hong Kong. (Source: Caixin)
Compiled by Qian Tong and Hou Qijiang.
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