Jul 09, 2018 10:42 AM

Monday Tech Briefing: Xiaomi, Tencent Music, Unicorn Funds


1. Xiaomi Shares Fall in Hong Kong Debut

What: Tech giant Xiaomi Corp.’s shares opened at HK$16.60 ($2.12) on their first day of trading in Hong Kong on Monday, down 2.3% from their initial public offering (IPO) price of HK$17. As of 9:47 Friday morning, the company’s shares had fallen to HK$16.40, placing Xiaomi’s market capitalization at HK$366.96 billion.

Why it’s important: Xiaomi’s IPO was among China’s most-watched tech IPOs since Alibaba Group’s listing in 2014, and is among the first of a tech listing wave that includes online on-demand service provider Meituan-Dianping, and online travel agency Tongcheng-Elong. Xiaomi has recently faced investor uncertainty over its valuation, with its plan to sell Chinese depositary receipts postponed due to similar regulatory concerns.

Big picture: The wave of listings reflects how China’s tech startups have reached a level of maturity where early investors feel ready to cash in on their stakes. At the same time, companies must now raise funds in order to expand further. (Source: Caixin)

2. Tencent Music Seeks IPO in U.S.

What: Tencent Holdings Ltd. plans to spin off its online music business for listing in the U.S., Tencent said in a Hong Kong stock exchange filing on Sunday. Tencent Music’s platforms include QQ Music, KuGou and Kuwo.

Why it’s Important: Tencent is continuing to build its content empire. Its online reading business China Literature Ltd, which listed in Hong Kong last November, has seen its market value decrease 25% to HK$67.57 billion ($8.61 billion). Tencent Music provides an important path for western pop stars to reach Chinese audiences, especially since QQ Music is China’s most-used digital platform, with a penetration rate among online music users of 69.9%. (Source: HKEX)

3. BYD Teams Up With Chongqing Changan to Expand Battery Business

What: BYD Co. Ltd. has teamed up with large state-owned automaker Chongqing Changan Automobile Co. Ltd., to produce electric-car batteries.

Why it’s Important: Last month, BYD said it would invest up to 25 billion yuan ($3.8 billion) to quadruple its car battery output from 16 GWh this year to 60 GWh by 2020. However, the company faces tough competition from other battery manufacturers both at home and abroad.

Big Picture: Globally, BYD is competing with U.S.-based Tesla Inc. as well as peers from Japan and South Korea that want to cash in on rising global electric car demand. (Source: Caixin)


4. Chinese “Unicorn” Equity Funds Have no Stocks to Buy

What: Six equity funds designated by the government for investment in a new type of Chinese “unicorn” stock have all competed the regulatory clearance process, but there is no stock to buy. Reasons include Xiaomi postponing its Chinese depositary receipt (CDR) issuance, and Alibaba Group Hold-ing Ltd. and Inc. also pushing back their issuance timelines.

Why it’s Important: Now, with the uncertain timelines for CDR issuance, the funds have no choice but to keep their billions of dollars in bank escrow accounts because market participants see very few targets for the funds to in-vest in.

Big Picture: The funds were established to invest in Chinese depositary receipts, a new type of security that allows overseas-listed Chinese companies to list on the mainland markets, as well as the initial public offerings of new tech companies. (Source: Caixin)


5. Drug-Smuggling Film’s Box Office Earnings Exceed 623 Million Yuan Over Weekend

What: Chinese film “Dying to Survive” earned 623.55 million yuan ($93.9 million) over the weekend, bringing its total box office earnings so far to over 1.34 billion yuan. The film was released five days ago and now ranks number 9 in China, one position ahead of Hollywood action film “Rampage.”

Why it’s important: The film’s dark themes and social critique make it an unusual box office hit for China. “Dying to Survive” is based on the story of real-life Chinese leukemia patient Lu Yong, who was arrested for smuggling cheap, life-saving generic medicines to China for himself and other patients struggling to afford the expensive brand-name versions approved for sale in the country. Film regulators usually demand that movies depict a harmonious China marked by “positive energy”, and the producers had difficulty getting the green light to release the movie. (Source: ENT Group)


6. China Increases Tariffs on U.S. Cars to 40%

What: China increased tariffs on U.S. cars from 15% to 40% on Friday, following the U.S.’s move to raise tariffs on $34 billion worth of Chinese imports. This marks an about-face for the Chinese government, which actually reduced duties on 135 types of imported autos to 15% from previous rates of as much as 25% just five days ago.

Why it’s Important: This policy comes amid an escalating trade war be-tween China and the U.S., and will affect car-makers like BMW, Daimler, Ford and Tesla, which are among the top U.S. exporters of cars to China. At the same time, European car-makers with factories outside the U.S. could see their exports to China grow, according to ratings agency Fitch.

Big Picture: China’s car imports rose 15.8% in 2017 to 1.25 million units worth a total of $51 billion, accounting for about 5% of China’s total passenger car market based on volume but 10% based on sales value. (Source: Caixin, link in Chinese)

7. China to Ease Rules on Foreign Workers Investing in A-Shares

What: China plans to ease restrictions on foreign employees of Chinese companies investing in mainland-listed shares, the China Securities Regulatory Commission (CSRC) announced Sunday. Foreign individuals who work for Chinese listed companies will be allowed to open A-shares securities ac-counts to enjoy company stock incentives, under the planned rule change.

Why it’s Important: The move is expected to “expand the financing channels of the stock market” and increase the openness of China’s stock market, the CSRC said.

Big Picture: Previously, A-share securities accounts were previously open only to foreigners who had either obtained permanent residency in China, set up domestically-listed companies, or worked for companies listed on the mainland. The new rules will extend access to foreigners working for other listed Chinese listed companies. (Source: CSRC)

Compiled by Bonnie Wang

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