INTERNET等

INTERNET

A storm of Chinese Internet companies including Renren.com (人人網)， NetQin， Phoenix New Media (鳳凰新媒體) and Jiayuan.com (世紀佳緣) listed on the US stock markets this May， the highest volume of such cross-border listings.

It has been comparatively easy to sell American investors on the Chinese Internet story. According to figures from the China Internet Network Information Center (CINIC)， the number of Internet users in China reached 456 million by the end of last year， a year-on-year increase of 73.3 million from 2009. The same year saw the number of mobile Internet users hit 303 million， a year-on-year increase of 69.3 million.

Figures from the NASDAQ show that shares of Chinese Internet companies turned in a strong debut performance on the exchange， with three of them among the top five IPOs of the past 12 months. Companies in the sector that are already listed on US exchanges also performed well at the beginning of this year. Baidu (百度)， which runs the largest search engine in China， performed especially well， its share price rose nine times over the past two years.

However the financial irregularities reported by some Chinese firms have impacted the share price of many companies in the sector， even those with healthy balance sheets. This spring the Chinese Internet bubble seems to have burst (see Stockpicks in this month’s issue).

“Judging from the sector as a whole， there is indeed a bubble in some areas such as e-commerce. Take the group purchasing website as an example. Thousands of companies are doing the same business now and at least 20% of them are losing money. They are competing only on price， which creates an unhealthy market. In addition， some venture capital firms are making the situation worse by investing unwisely，” says Chen Yizhou， Chairman and CEO of Renren.com.

Lee Kaifu， Chairman and CEO of Innovation Works (創新工廠)， believes the soaring prices of Internet stocks are due to foreign policies. “It’s also due to the financial policies of the global governments， which leads to a lot of liquidity， but at the same time there are few investment options，” says Li. “Meanwhile China’s Internet market is growing fast and the wireless market is also growing quickly. In addition， spending will also grow because income is increasing. Prices of some good Chinese Internet companies are by no means high， but some of them have seen their share prices rise to bubble-like levels because of speculation.”

Li Guoqing， the co-founder of Dangdang.com， China’s biggest online book seller， points out in his micro blog that the price declines of Chinese Internet companies were mainly driven by overall market conditions. “I believe that performance is still the most vital factor that affects share prices， but it may take more time to recognize this，” he said.

ALTERNATIVE ENERGY

Share prices of Chinese photovoltaic (PV) companies have dropped significantly in recent months. Take China Sunenergy (中電光伏) as an example， its price per share was around USD 4 in April， but dropped to a low of USD 1.81 recently. Currently there are over ten Chinese PV companies that are listed in the US stock market including China Sunenergy， Trina Solar (天合光能)， Yingli Green Energy (英利綠色能源) and Suntech Power (尚德電力). Most of their shares showed downward trends in March.

One of the reason for this is market conditions in the sector， with a drop in prices of PV modules a significant factor. Since the beginning of this year， the price of PV modules has dropped 30%， but the price decline of polysilicon， used in their manufacture， has only fallen by around 20%.

Analysts don’t expect share prices in the sector to rise in the short term. “In the second half of the year， the policies of Italian and German governments will generate negative influences towards the output of PV modules. In the next two years， the demand in Japan， the Middle East and China won’t increase greatly， which will impact the whole sector’s development，” says the senior executive of one PV module company.

Li Zongwei， CFO of Yingli Green Energy， believes that all companies in the sector will experience difficulties for about eighteen months， but he thinks that the output and gross profit rate would be stable after that.

To deal with the challenging market conditions many Chinese companies are considering setting up factories in the US to better compete in that market. Yingli is planning its first overseas factory in the US. Suntech is also making a new strategy “to keep the European market and grab the American market”. Zhang Jianmin， PR manager for Suntech， says that the company has set up a factory in the US， which is expected to have production capability of 50 megawatts by the end of this year.

EDUCATION

The education industry in China has always been considered one of the most profitable sectors in the country. The total market value is projected to reach RMB 500 billion in the next five to ten years. The Chinese are traditionally more willing to spend on education as their incomes grow.

Market leader New Oriental Technology Group (新東方) has developed into the most well-known Chinese education company with the largest market value among all the education companies that are listed in the US. It went public in September 2006 and since then its revenue increased from USD 94.52 to USD 286 million at the end of the 2010 fiscal year. This is an average annual compound growth rate of more than 40%， with net profit rising from USD 4.885 million to USD 77.562 million. Its share price has also risen steadily， from an opening per-share price of USD 22 in September 2006 to USD 120 on May 20th， 2011.

Following on the heels of New Oriental’s success， many Chinese education companies have chosen to list in the US， including four in 2010: Xueda Education Group (學大教育)， TAL Education Group (學而思)， Ambow Education Holding (安博教育) and Global Education and Technology Group (環球天下).

Analysts point out that there are different sectors within the education industry， including job training， language instruction， management training， after-school tutoring for elementary， middle and high school students， and early childhood education. Although New Oriental has expanded into other sectors， its core competitive strength is still its language training and test preparation courses. When it shifted its focus away from after-school tutoring for elementary， middle and high school students， its competitor TAL Education developed extremely quickly in the area.