Monthly Archives: June 2010

Owngoal?

A new regulation placing restrictions on online payment providers with foreign investors is causing a headache to some of the leading Chinese Internet players.

Under the new regulation firms like Alibaba - which operates the world’s largest online marketplace for trade between businesses and China’s largest retail e-commerce platform – would finally be allowed to provide third-party online payment services.

The problem? Companies with foreign capital are excluded from the new regulatory framework. Alibaba’s AliPay (70% of the marketshare) counts Yahoo and Softbank among its shareholders. Many other Chinese Internet players who created offshore investment shells have similar foreign investor arrangements. In other words, the regulation which would have strengthened the local player ChinaPay and pre-empted Paypal has far broader implications: many Chinese Internet players will have to restructure their shareholding.

Wait a second…. Didn’t China Mobile, eager to get a pie of the online payment business, just recently take a minority in a domestic bank?

The "Shanzhai" business model

Remember Shanzhai? What used to be the celebration of imitation bordering on a cultural movement is now becoming a business model.

Tianyu, a contract-manufacturer-turned-handset-maker, is slowly but surely grabbing market shares from more established companies like Nokia or Samsung. In a few years, it has become the biggest local handset maker in China, shipping 55 millions units in the first quarter of 2010.

Its secret? First, a good knowledge of Chinese users’ needs. Their phones have small function-oriented designs and features, including ultraviolet light for counterfeit bills, dual SIM cards to take advantage of the best pricing schemes or loudspeaker for farmers. Second, the capacity to turn around quickly. Thanks to modular production, manufacturers like Tianyu are able to produce small batches (1000 handsets) and send them to the market. Within a fortnight production can be adjusted, keeping the full product life cycle below 6 months.

As usual, the question is whether such firms can survive in the long run. Previoulsy leading Chinese handset manufacturers (like Bird or TCL) were not really able to hold on to their competitive advantage as their established foreign rivals …imitated them.

Plus ça change…

What do ethnic groups, Xinjiang, Tibet, disaster prevention and Internet have in common? They were the themes of the Chinese government’s last white papers.

The most recent one – on the Internet in China – outlines in under 8000 words the current thinking of Beijing on what it calls a “significant technological invention of the 20th century and a major symbol of contemporary advanced productive force”. We are also reminded that the government “energetically advocates and actively supports the development and application of the Internet across the country” through 4 policies: active use, scientific development, law-based administration and ensured security.

It may come as a surprise that the third section (out of six) is entitled “Guaranteeing Citizens’ Freedom of Speech on the Internet”. Don’t get your hopes too high up since it is followed by “Principles and Practices of Internet Administration” and “Protecting Internet Security”.

It’s anyone’s guess what the next white paper will be about.

Of religion and rail

It was a done deal: China Railway Construction (CRC) had been awarded the construction of the metro rail project to transport pilgrims between Mecca and Mina.

As with any major infrastructure projects there tend to be surprises. For instance the monorail project has been transformed into a conventional steel-wheel, steel-rail design. More importantly though, CRC will have to deal with a peculiar challenge: Mecca is off-limits to non-Muslims.

The traditional business model for the Chinese overseas infrastructure projects rests on importing [cheap] Chinese labor. While hiring non-qualified labor shouldn’t pose too much of a problem, the trick will be, according to one of the contractors “to find qualified Muslim railway engineers to supervise the work – at least for the restricted area”.

Since there is no exception to the rule, this maybe the time to set up an engineering school in Xinjiang!