China research: Business news in China September 2012

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Will China apply economic sanctions to Japan?

The Japanese government recently purchased Diaoyu Island from its private owner. This ownership of this island has long been a territorial dispute between China and Japan and this purchase agitated the Chinese people and worsened Sino-Japan relations. Now it seems that the Chinese government may take some measures to warn Japan. China has the ability to pay lower prices for Japanese goods, because in Sino-Japan bilateral trade, Japan’s dependence on China is stronger than China’s dependence on Japan. In 2011, China’s total imports from Japan amounted to 194.6 billion dollars and export amounted to 148.3 billion dollars. In comparison, China’s import from Japan made up 23.7% of Japan’s total export, and export to Japan made up 17.4% of Japan’s total imports according to statistics from Chinese customs. This gives China leverage when trying to renegotiate ownership of these disputed islands. China can choose to cut import from Japan, or cut investment in Japan. If this is manipulated well, China will effectively protect its sovereignty.

Alibaba finished a big share buyback

Alibaba announced in the evening of September 18 that its plan to repurchase 7.6 billion dollars of shares from Yahoo was finished. Alibaba used US$6.3 billion in cash and preferred stocks of Alibaba Group worth of 800 million dollars in exchange of 50% of its stocks from Yahoo. Also, Alibaba Group plans to pay Yahoo US$550 million in cash for technology and intelligence rights. In the future when the company is listed, Alibaba Group has the preferred right to buy the remaining 50% of shares held by Yahoo. According to Alibaba Group, after this repurchase is finished, the Group will have cash reserve of 3 billion dollars. Based on the clear business mode and the cash flow brought by Alibaba’s daily operations, the Group will still have abundant capital to support the company’s long term development.

China B2C going overseas: too much competition inland

Recently, Vancl formally announced that it set up an independent site in Vietnam with warehouses and call centers. B2C platforms like Vancl and Dream Basha have already opened their shops on ebay, and established their own English websites. 360buy had found cooperation partners at the end of last year in Russia and sold 3C products to Russia.

The seemingly prosperous market in China is already becoming saturated. In the first half of 2012, profit growth rates among most participants of electronic commerce have slowed. Some were even making negative profits. Going overseas, these B2C platforms will face risks because of the fluctuating exchange rates. The key to success is whether they can quickly gain popularity in these localities.

RMB appreciation

Compared with the yuan-to-dollar exchange rate of 6.346 on September 5, the exchange rate of 6.3295 on September 17th has appreciated by 0.26%. Since the dollar is diluted by the US Federal Reserve, there will be pressure to appreciate the RMB for a relatively long period. In the short run, it seems that people will have more money, and trips abroad, buying imported goods and luxuries will be easier. But from a macroeconomic perspective, the cost to invest in China will grow for foreign investors and fewer foreign tourists will come to China. Imports will increase, and many domestic industries will face fiercer competition.

Daxue Consulting China Research

Sources:

 

Picture Source: Yahoo Alibaba

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