Supplement Firms Hope for China Boom
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1 Talking Point 6 Week in 60 Seconds 7 M&A Week in China 8 Telecoms 9 China and the World 11 Rail and Infrastructure 12 Banking and Finance 13 Shipping 14 China Consumer 19 September 2014 15 Society and Culture Issue 253 18 And Finally www.weekinchina.com 19 The Back Page Ma takes Manhattan m o c . n i e t s p e a t i n e b . w w w Jack Ma’s Alibaba makes its debut – at last – in a gigantic New York IPO Brought to you by Week in China Talking Point 19 September 2014 Going gaga over Alibaba Alibaba IPO excites investors, but just how big it can grow? “It’s going well”: Alibaba will be as valuable as Samsung when Jack Ma rings the opening bell in New York hat do Midland Railway and light how fleeting global hegemony How gigantic is the deal? WIBM have in common? The can be. Should the greenshoe be exercised, answer is they were the largest com - Few now remember the railway Alibaba’s flotation will raise $25 bil - panies by market capitalisation in firm, which lost its independence lion and rank as the world’s largest, the UK and the US when each coun - after the First World War thanks to beating Agricultural Bank of China’s try reached the apex of its eco - the Railways Act. IBM may still be a $22.1 billion debut in 2010. When nomic dominance in 1914 and 1967 colossus, but it no longer ranks in founder Jack Ma rings the opening respectively. the top 20 global companies in mar - bell, Alibaba’s market cap will be Both firms were emblematic of ket cap terms. $177.5 billion, similar in size to Sam - their era. Midland Railway was the In fact, when the New York Stock sung Electronics. However, the stock biggest coal hauler in the country Exchange opens later today, IBM is price is expected to be much higher that had ushered in the industrial also likely to be eclipsed by Alibaba, by closing on its first day, fuelled by revolution. IBM was the leading the company now best symbolising newspaper hype and insistent de - hardware manufacturer at the China’s ascendance on the world mand from investors. Enthusiasm P h o t o dawn of the computer age when stage. The e-commerce giant priced for the deal has been overwhelm - S o u r American consumers were the envy its IPO in New York last night at $68 ing, notwithstanding the fact that c e : R e of the world. per share to the thunderous ap - many investors have placed inflated u t e r s But the two examples also high - plause of global investors. orders to try to get some kind of al - 1 In the future, finance will help new growth flourish. There are grounds for cautious optimism in the real economy — but creating sustainable growth always needs careful encouragement. New income streams should be built on opportunities that have longevity and new solutions prepared for technology that will continue to evolve. In this era of transparency, HSBC is working with clients to help create conditions in which businesses can flourish. By connecting the developed and the developing world, we can help you protect and cultivate real growth — and so create that success that lasts. There’s more on the future of finance at www.hsbcnet.com/growth HSBC operates in various jurisdictions through its affiliates, including, but not limited to, HSBC Bank plc who is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, The Hongkong and Shanghai Banking Corporation Limited, HSBC Securities (USA) Inc., member of NYSE, FINRA and SIPC, and HSBC Bank USA, NA. Issued by HSBC Holdings plc. AC22067 Week in China Talking Point 19 September 2014 location. The frustrated purchasing power of unallocated institutions, combined with the mass of retail in - vestors who were unable to get into the IPO at all, could easily push the stock up into the stratosphere over the coming few days. Should Alibaba trade up 10%, it will overtake IBM (market capitali - sation of $191 billion) and Facebook ($193 billion) to become the world’s fourth largest tech stock behind Apple ($601 billion), Google ($396 billion) and Microsoft ($385 billion). Should it trade up 20%, it will pass HSBC ($206 billion) and China’s largest bank, ICBC, on $209 billion. What’s in there? Alibaba has a trove of consumer spending data At this point, it would also rank as China’s third largest company be - Within a year, it was one of the three for virtual storefronts). hind PetroChina and China Mobile. largest companies in the world, Alibaba had 279 million active with a market capitalisation of $366 buyers at the end of June. However, How is it likely to perform? billion. Today the Japanese firm’s during roadshow presentations, its What happens to Alibaba after the shares trade at a fraction of their management pointed out that on - initial fanfare dies down depends IPO price. line shopping still accounts for just on what investors believe about its 8% of Chinese consumption (and prospects for growth. Shareholders A century of upside? that consumption, in turn, is only are unlikely to reap the same upside Jack Ma has no such qualms about 36% of GDP compared to 70% in as investors in rivals Tencent and Alibaba’s future. In the company’s the US, suggesting a lot of room for Baidu, which both listed a decade pre-roadshow filing, he wrote a let - growth). American research firm ago when they were less than five ter to prospective investors ex - IHS even predicts this month that years old. Tencent has risen 150-fold plaining how the company is only at consumer spending will lift the since its June 2004 IPO, for example. the beginning of a 102-year journey, Chinese economy above the US by Alibaba is now 15 years old, so can that will span three separate cen - 2024. we expect similar growth? There are turies from its inception in 1999. The second pillar of Alibaba’s numerous jumbo IPOs of compa - Alibaba is not a mature business, business strategy, finance, feeds nies with relatively mature business its management says. Rather, its dig - from the first, but is at a much ear - models which have still done well ital ecosystem will disrupt and lier stage of development. Alibaba’s for investors. The most famous is transform all that it touches to the payment system Alipay is not di - Visa, which listed in March 2008 benefit of its Chinese customers rectly included in the IPO vehicle. and still ranks as the largest IPO on and, increasingly, its global ones too. But investors will be entitled to record by a US firm. It rose 28% on A few years ago, Alibaba identi - 37.5% of the profits of the group’s fi - its first day of trading and has quin - fied three pillar industries. In many nancial services holding company, tupled since then. respects it has only made inroads SMFSC (Small and Micro Financial Yet for every Visa there is an NTT into the first one – e-commerce. Services Company), which contains DoCoMo. When it listed in 1998, the Alibaba has an 80% share of the Alipay, alongside other financial as - Japanese mobile operator was also domestic e-commerce market sets such as Alibaba’s pioneering the world’s largest IPO, with in - through its two main websites money market fund, Yu’E Bao (see vestors riding a wave of enthusiasm Taobao (where consumers can buy WiC225). P h o t o for telecom and tech firms. NTT Do - from a host of online sellers, and As WiC has written extensively S o u r CoMo seemed to symbolise the be - where Alibaba generates revenues in the past, Alibaba is battling Ten - c e : R e ginning of the digital era and the from ads) and Tmall (more of a plat - cent and latterly Baidu for control u t e r s stock made a promising start. form for merchants, who pay fees of Chinese consumers’ mobile wal - 3 Week in China Talking Point 19 September 2014 let. Jack Ma and Tencent founder Ma Huateng are now arch enemies, Planet China although the Tencent boss must be Strange but true stories from the new China regretting the day he turned down Ma’s invitation to invest in Taobao FIELD SONGS. when it first launched in 2003. Ac - Advocates of Buddhism have always promoted the cording to NetEase Finance, he was benefits it can bring to an individual through the sense of harmony it offered 15%, but held out, hoping bestows. However, according to the China Fuzhou News Network, it could for 50%. also radically improve agricultural yields. It cites the example of an Tencent has since become a for - experiment that has been underway for the last three seasons in Liangshan midable competitor to Alibaba village in Fujian. The local farmers have been playing the Buddhist using the phenomenal success of its Thanksgiving Song and other of the religion’s zen-like hymns to their rice WeChat messaging infrastructure to crops (via speakers that look like lotus leafs, no less). The music players build up a user base of 438 million are all solar-powered and automatically loop 30 Buddhists songs 24 hours a day. To test its impact a quarter of Liangshan’s 27 hectares of paddy people. It hopes they will start to have used the music, while the others have not.