THECHINATECHLETTER

Q1-Q3 bad for China’s No. 2 gadget retailer, but Q4 to look better

Michael Clendenin — Wed, 18 Nov 2009 14:55:00 GMT

Chinese shoppers are still going strong – retail sales up 16% YoY – but for awhile they weren’t stuffing their carts with as much electronics as they used to. So it’s no surprise that Gome Electrical Appliances Holdings Ltd. said net income fell to Rmb964.6 million in the first nine months ended Sept. 30, from Rmb1.59 billion a year earlier. It expects a boost in Q4 as government rebates for electronics spur sales in big cities.

Bloomberg was a little off in its reporting of this story, saying a 13% rebate for electronics sold in the countryside would help Gome. In fact, this isn’t the case. Gome’s presence is weak in rural areas and Tier 3-6 cities – the strongest places for China’s “Home Electronics To the Countryside” program (家电下乡). Moreover, sales for the program were pretty strong in Q2 and most of Q3 (lots of air conditioners sold; plus some holidays) and have been trending down since.

Gome is more likely to gain benefit from the government’s “Cash for Trash” program (以旧换新), in which consumers can turn in old appliances and get up to a Rmb400 credit toward a new TV, PC, washer, refrigerator or air conditioner. This program is only in the cities and has been very popular since trials started in September. It will likely go nationwide in May 2010, adding tailwinds to what I believe will be a strong comeback year for consumer electronics in China.

SHAMELESS PLUG/HONESTDISCLOSURE: I work for RedTech Advisors (China) Ltd., which offersresearch, investment and strategy services related to China'sConsumerTech, CleanTech and MedTech markets. For more info, please see www.redtechadvisors.com.

MIIT nervous about rush to build LCD panel factories

Michael Clendenin — Wed, 18 Nov 2009 14:20:00 GMT

Looks like China is in the process of drafting some rules/guidelines to prevent redundant investment in LCD panel factories after a rush of announcements in the past few months, according to Xiao Hua, director of the Information Division at China’s Ministry of Industry and Information Technology (MIIT). Problem is, it may be a little late for that, given that at least $10 billion in projects have already been announced.

There are already five 8G panel lines and one 7.5G panel line on the drawing board in China. Insiders believe all six lines can meet domestic demand by 2013, which will be about 45 million LCD TVs, according to DisplaySearch.

Xiao said the new policy will focus on avoiding duplication and low-level construction (good luck with both of these); enhancing innovation and owning core technologies (a noble but challenging cause); promoting resource integration to form economies of scale (isn't this called M&A?); and strengthening cooperation with Taiwan and foreign countries (more JVs).

In TCL ignores LCD panel glut, vows to waste $3.6bn to make it worse, I wrote about the Shenzhen government subsidizing a 8.5G plant for Rmb24.5 billion ($3.6 billion) that will be built with TCL. Other governments are also getting in on the action, including Suzhou, Kunshan and Beijing.

This is what probably makes MIIT nervous, since this is the same thing that happened during the chip fab building craze five years ago. Lots of local governments competed with generous incentives to get a fab in their backyard, but they haven’t seen any payback. In fact, even senior officials in the Beijing Semiconductor Industry Association tell local mayors it’s not worth it (because for some foolish reason a few still want to build more fabs).

I’m curious to see what MIIT comes up with. Whatever it is, they better move fast, because the next fool's gold rush is on – and the local Chinese taxpayer is footing the bill.

SHAMELESS PLUG/HONESTDISCLOSURE: I work for RedTech Advisors (China) Ltd., which offersresearch, investment and strategy services related to China'sConsumerTech, CleanTech and MedTech markets. For more info, please see www.redtechadvisors.com.

TCL ignores LCD panel glut, vows to waste $3.6bn to make it worse

Michael Clendenin — Tue, 17 Nov 2009 13:51:00 GMT

So it looks like TCL is going into the LCD panel business, confirming earlier reports about a partnership with the Shenzhen government to build a 8.5G plant for Rmb24.5 billion ($3.6 billion). The offspring will be christened Shenzhen Huaxing Optoelectronics Technology Co., Ltd. Yes, I know what you’re thinking: Just what the world needs – another LCD panel plant. … Didn’t anybody tell these folks the industry is dealing with some serious overcapacity?

I wrote about this nonsensical idea earlier this month in Shenzhen to subsidize 8.5G LCD panel plant. TCL said today that it will team up with Shenchao Technology Investment, a company run by the Shenzhen government, to develop the project in a 50-50 split. In retrospect, this makes perfect sense, because only through wasting Chinese taxpayer money does it seem viable to build another LCD plant. Seems they are the new (money-losing) capex fad in China, now that SMIC has rationalized the fab craze.

Construction will start in January and the first panels will roll of the line in Q3 2011. Capacity will be 100,000 panels a month, and 14 million LCD TV module assemblies annually, including arrays, color film, cells, and module production, focusing mainly on the manufacture of 26", 32", 46", and 55" LCD displays.

Originally, I’d heard this plant was a Rmb10 billion project, but turns out that’s just the ante. The two companies will each invest Rmb5 billion in the joint venture as registered capital, TCL said (it will finance its investment by selling 1.5 billion new shares in a private placement.) Later on, the remaining Rmb14.5 billion will be raised via bank loans and other methods, TCL said, but didn't elaborate. (We will, though -- they will beg the Shenzhen government for more money).

This isn’t the first leading-edge panel plant being proposed in China. There are at least six other 8G projects on the drawing board, including a LG project in Guangzhou, a Sharp project in Nanjing, and a Rmb22 billion Samsung-Suzhou government-backed project. Perennially profitless Beijing Orient is also in the 8G game, saying it (and the Beijing government) will spend Rmb28 billion (Orient, Rmb16bn; Beijing gov. Rmb12bn) to build a plant ready for production by 2011.

The goal? To be the world’s second largest base (after Korea) for advanced LCD fabs by 2012. The Chinese figure it makes sense, since they will be the largest market for LCD TVs by late next year or early 2011.

SHAMELESS PLUG/HONESTDISCLOSURE: I work for RedTech Advisors (China) Ltd., which offersresearch, investment and strategy services related to China'sConsumerTech, CleanTech and MedTech markets. For more info, please seewww.redtechadvisors.com.

Solar flares as US pols visit China, Copenhagen looms

Michael Clendenin — Tue, 17 Nov 2009 13:04:00 GMT

There’s so much (rehashed) news about solar in China this week that I’m reaching for the sunscreen. First Solar’s prez is here, signing important-looking documents with commemorative pens that confirm something we already knew months ago – that it’s building the world's largest solar farm, roughly the size of Manhattan, in the northern autonomous region of Inner Mongolia. The Ministry of Finance also re-announced (with a bit more detail) that it is spending Rmb20 billion ($2.93 billion) on 294 solar power projects with total generating capacity of 642 megawatts over the next 2-3 years. And did you hear about those clever guys at Suntech, opening a manufacturing plant in the US? Great PR.

First Solar’s Inner Mongolia plant will be 2 gigawatts and once completed by 2019, it'll produce enough electricity to power 3 million homes. It’s part of China’s “Golden Sun” project, which the MoF “re-announced” on Sunday but with a little bonus: China is increasing the capacity by nearly 30 percent more than the minimum target Beijing set in July.

By our tally, Operation Golden Sun looks like this:

232 projects: a lot of small installations with total generating capacity of 290 MW. Most will be built by major industrial and commercial firms, which will use all the power in-house.

27 independent PV plants: Total capacity of 46 MW. These will be built in China’s remote regions that have no power supply and should meet the needs of more than 300,000 residents.

35 projects: Total capacity of 306 MW. These will be utility-sized plants, whose power output would be fed into grid networks.

The MoF is going to subsidize 50 percent of the solar power projects and also kick in for related power transmission and distribution systems that connect to grid networks. That increases to 70 percent of cost for independent solar projects in powerless regions.

First Solar’s 2GW project will be built in multiple phases, beginning with the 30MW Phase 1. Phases 2, 3 and 4 are to be 100MW, 870MW, and 1,000MW, respectively. Phases 2 and 3 are to be completed by 2014 and Phase 4 is to be completed by 2019. The project is part of a planned 11.95GW New Energy Industry Demonstration Zone in Ordos City, Inner Mongolia. The New Energy Industry Demonstration Zone is expected to combine solar, wind, hydroelectric and biomass power sources to provide a steady supply of renewable energy to the region that includes Beijing.

China is expected to raise its 2020 solar power generation target more than fivefold to at least 10 gigawatts (Some say/hope 20GW). With incentives, it’s expected that over 2GW in new solar capacity will be installed as early as 2011, up from just over 100MW in 2008. That would help mop up some of the overcapacity in the supply chain that I wrote about in Sex, Lies and China Solar Capacity.

China has more than 800GW of power generating capacity, with about three quarters of that coming from coal-fired plants.

SHAMELESS PLUG/HONESTDISCLOSURE: I work for RedTech Advisors (China) Ltd., which offersresearch, investment and strategy services related to China'sConsumerTech, CleanTech and MedTech markets. For more info, please seewww.redtechadvisors.com.

Sex, lies and China solar capacity

Michael Clendenin — Mon, 16 Nov 2009 13:20:00 GMT

After nearly a month of investigation, the solar lovers at China's Ministry of Science and Technology now believe all this worry about overcapacity in the China PV poly market is a bunch of hooey probably made up by solar incumbents who have a vested interest in spreading rumors and misinformation to undercut solar carpetbaggers looking to raise money for factories and get their slice of sunshine. Confused? So were we.

Let me help you read the technocratic tea leaves. Previous reports said there are more than 50 factory projects in the pipeline for polycrystalline silicon, which would total 230,000 tons. Laughable, you say? Of course it is. And now we are happy that the good technocrats at MoST have “confirmed” that only 10 among those 50 projects will probably ever see the light of day. They reckon new, actual capacity will only be 15,000 tons – which is still too much considering estimates put China's poly production capacity at 20,000 tons a year, with an output of about 4,500 tons in 2008 and 10,000 tons in 2009.

Here’s the gossipy part: MoST says the previous, exaggerated reports are based on scheduled capacity provided by local governments and enterprise owners who offered best-case scenarios to attract investment or to look good for the overlords in Beijing. In short, they lied.

But they weren’t the only ones. MoST also believes that the folks spreading rumors (i.e. white lies) of doomsday overcapacity scenarios for poly are mainly big companies who entered this field earlier and are worried about a slew of new-comers funded by cheap loans and generous breaks from local governments – ironically, exactly the way they got into the business.

Not to be sticklers, or to stoke any bureaucratic rivalries, but we’d also like to point out that Zhu Hongren, chief engineer at the Ministry of Industry and Information Technology (MIIT) warned on August 26 that repetitive construction and overcapacity in solar, wind and other emerging clean energy industries in China had become increasingly serious.

MoST did ~~grudgingly~~ admit there is some overcapacity, but they think it’s probably nothing the industry can’t handle. I doubt, however, this is going to change the government’s decision last month to curb investment in the sector by ordering commercial banks not to finance projects. So, in the end, it looks like the big players in China are set to get bigger and the carpetbaggers will turn to something else – for a while, at least.

SHAMELESS PLUG/HONESTDISCLOSURE: I work for RedTech Advisors (China) Ltd., which offersresearch, investment and strategy services related to China'sConsumerTech, CleanTech and MedTech markets. For more info, please seewww.redtechadvisors.com.

Chinese citties to carry out clinical trials of GE’s high-end CT

Michael Clendenin — Mon, 16 Nov 2009 13:15:00 GMT

All the rage is of medical reform in China, but you won’t see any barefoot doctors getting their hands on this piece of kit. As noted in the headline, GE has won SFDA approval for a high-end CT scanner (featuring its Gemstone Spectral Imaging feature) and will roll it out in trials in Beijing, Shanghai, Guangzhou and a few other cities.

Though medical reform is being touted as a boon for revamping rural healthcare delivery systems, there will still be plenty of opportunity for sales of high-end systems, such as CT scanners. China has 12,000 general hospitals, and the government will also support the construction of 2,000 more county hospitals as part of the three-year medical reform plan (2009-2011).

County-level hospitals are usually the best equipped hospitals in the country and must have at least 250 beds. CT scanners (though probably not as high-end as GE’s Gem) are on the government’s basic equipment procurement list.

SHAMELESS PLUG/HONEST DISCLOSURE: I work for RedTech Advisors (China) Ltd., which offers research, investment and strategy services related to China's ConsumerTech, CleanTech and MedTech markets. For more info, please see www.redtechadvisors.com.

SMIC's Mora "resigns" -- house cleaning begins

Michael Clendenin — Fri, 13 Nov 2009 22:39:00 GMT

No surprise there, really. Word from the inside is that the Italian chief operating officer "resigned" the day after former CEO Richard Chang also "resigned" -- for personal reasons, of course. Unless you have been on Mars, you know that Marco Mora has long been at the center of SMIC's troubles with TSMC because of his blatant attempts (and apparent success) in getting former TSMCers to bring over a few trivial trade secrets, whose worth appears to have been a not so trivial $375 million (and a few heads.)

I won't rehash all the details of this lurid affair. You can read the prequels: SMIC Needs to Change Its Ways, SMIC Hires A New CEO/Fixer -- And Boy Is There Alot to Fix, and SMIC: Sad End For A Good Man; Just Not A Manager.

Mora has been a dead man walking for a long time at SMIC. It's arguable as to whether Chang knew about Mora's nefarious activity early in the game, or was simply forced to support him after he found out. Either way, bad judgement on Chang's part. Mora should have found his own "personal reasons" for leaving the company long ago. Since many of SMIC's inner circle were hand-picked by Chang, it's safe to assume that a few others will also be shown the door -- certainly a change for the better at the ailing foundry.

SHAMELESS PLUG/HONEST DISCLOSURE: I work for RedTech Advisors (China) Ltd., which offers research, investment and strategy services related to China's ConsumerTech, CleanTech and MedTech markets. For more info, please see www.redtechadvisors.com.

Huawei targets TD phones in Q4, OPhone in Q1 2010. CM says Hallelujah!

Michael Clendenin — Wed, 11 Nov 2009 02:06:00 GMT

China's largest telco equipment maker is promising four or five TD-SCDMA handsets this quarter, among which the low-priced (cheap) T2211 will be Rmb1000. Huawei, as well as cross-town rival ZTE, have started cranking out some pretty decent mid-range smartphones recently (think T-Mobile's Pulse), but when they go cheap, it, well, looks cheap. So while we are optimisitc about the TD-based Ophone, we don't think sub-Rmb1000 TD phones will do much for China Mobile.

If you have any doubts about how these guys do cheap phones, take a look at the sub-Rmb1000 TD phones from China Mobile: ZTE's U210 or U85; or Huawei's S660. The only decent one out there is Tianyu's K-Touch E500. Even's Moto's L800T design is lacking. Maybe Huawei will surprise us, but we remain skeptical for the time being.

For the OPhone, however, that's a differnt story. The look of Huawei's Pulse (US$292 on T-Mobile) is cool, and we hope they can replicate it for China's TD standard. Huawei said its first OPhone will be finished by Q1 of 2010 and released in April, 2010. ZTE is also working on Android and Windows-based phones for the TD standard. It looks like China Mobile is finally seeing some results from its decision to subsidize handset R&D for telco equipment providers.

China Mobile's OPhone runs Open Mobile System (OMS), the proprietary operating system of China Mobile, which is based on the source code of Google's Android. It comes with a handful of China Mobile applications, including multimedia short messaging, an online application store, email, music, and GPS. It's basically an iPhone clone, with a big touchscreen and without a QWERTY keyboard.

Next year, there will be alot more Rmb800-Rmb1000 smartphones coming out as Taiwan's Mediatek begins shipping its new smartphone platform. It offers a low-cost, turnkey solution for smartphones using Microsoft's Windows Mobile 6.5. So far, Mediatek hasn't released any concrete plans for a TD-based solution. If Mediatek moves in this direction, it woud be a big boost for China Mobile, which needs as much help as it can get, given the inauspicious start to its TD-SCDMA rollout. We estimate it will bring in less than 2.5 million 3G subs this year, far from the early estimates of 10 million or more.

SHAMELESS PLUG: RedTech Advisors offers research, investment and strategy services in China. For more info, please see www.redtechadvisors.com.

Suntech-Huadian deal signal of more largesse to come?

Michael Clendenin — Tue, 10 Nov 2009 04:22:00 GMT

In case you missed it, Suntech Power Holdings Co. and state-owned Huadian New Energy Development Co., Ltd. (HNE) are partnering up for a large-scale solar plant in Jiangsu Province. They’re in a rush to get the 10MW plant up and running so they can take advantage of Jiangsu’s feed-in-tariff policy that provides Rmb2.15/kWh for ground-mount solar projects completed in 2009.

Wuxi, Jiangsu-based Suntech is taking a small equity stake in the project. Look for more of this in the future as Chinese policymakers try to find ways to increase incentives for demand-side projects in China. Although the country is a huge exporter of PV technology, it is hardly a big consumer -- and it so wants to be an upstanding world citizen with a teeny weeny carbon footprint, rather than the US-style belcher it is today.

Chinese policymakers think they can balance out the supply-demand equation by pinching off cheap loans to poly-crystalline makers while at the same time encouraging power companies like HNE to develop renewable energy projects in partnerships with PV suppliers. Jiangsu Province has been one of the few to pony up incentives for soloar projects with a cap of 240MW. Some believe it will take awhile for more of this largesse to come – possibly years – and that this will hinder development of the domestic solar market. This will depend on the extent to which the Chinese government can prime the pump, a trend we’ll be watching at RedTech. So far, there's been a lot of talk and less action.

SMIC: Sad end for a good man; just not a manager

Michael Clendenin — Tue, 10 Nov 2009 03:12:00 GMT

I've always enjoyed my interviews and occasional run-ins with SMIC’s Richard Chang. He’s a good man, and a good salesman for selling the Chinese on the dream of a having their own foundry powerhouse. In the end, however, it was only a dream. So far, the only thing about SMIC that’s been profitable and positive is its associated international school. Perhaps that a hint at what sort of future Richard should pursue.

If you know Richard, you know he is a deeply religious man. He’s donated money and time to help the poor in rural China, and has been instrumental in building at least one school. He went out of his way to hire fab techs from remote provinces, and not just for low wages but because he wanted to give them a chance to get a leg up in a bleak world.

For sure, Richard wasn’t the best manager. His reputation is for building fabs, not running them. This is the second time he’s been unceremoniously removed from the top spot – do a Google on WSMC, Chang and Taiwan. But I hope Richard now has the time to make a difference in other, more fundamental ways, such as he has done in the past. He still has a lot to contribute to China, and I’m sure the country will be grateful to have him stick around.

SMIC hires a new CEO/fixer – and boy is there a lot to fix

Michael Clendenin — Tue, 10 Nov 2009 02:38:00 GMT

It’s about time. We had a feeling that the job of the SMIC chairman appointed in June was to put CEO Richard Chang’s feet to the fire – in short, step up or step out. This morning Chang resigned. Former Applied Materials exec David N.K. Wang is the new president and CEO. You might remember Wang from his short stint at Huahong NEC – another broken fab. He couldn’t fix that one, so we’ll see if second time’s a charm.

Just a few days ago, in SMIC Needs To Change Its Ways, I said SMIC needed a leadership change so it could start to craft a new strategy. We’re not talking small adjustments, but something radical that will either enable SMIC to slim down and specialize, or really leverage its size and connections in China to compete with Global Foundries/Chartered or UMC. I’m inclined to think the former strategy is better. But rarely has a Chinese technocrat (and they more or less control SMIC) thought smaller is better, so I suspect they will go with the latter strategy by trying to absorb a few other ailing foundries (Huahong and Grace Semiconductor) so they can make one big ailing foundry.

As for Chang, he was living on borrowed time. Last year’s economic crisis gave him a reprieve, but SMIC’s mediocre performance this year, little hint of any upcoming, innovative changes, and especially, the lawsuit with TSMC are probably the straws that broke the camel’s back. TSMC and SMIC recently reached another out-of-court settlement over allegations of patent infringement. A court found SMIC guilty of this on Nov. 3 and the spectre of major punitive damages loomed, in part because the theft was pretty blatant and extensive.

Under the terms of the settlement, SMIC will pay TSMC $200 million plus an undisclosed amount of SMIC stock and warrants, according to various sources. The court will maintain jurisdiction to enforce the verdict. All other terms of the settlement are confidential, but many suspect one of the requirements was Richard's ouster, and maybe some others -- like Marco Mora, the COO who allegedly orchestrated the theft of the trade secrets from TSMC.

I suspect the timing also has something to do with finding a credible replacement like Wang – rather than a has-been semi exec with a gaggle of hangers-on (think GSMC). Wang is a smart, savvy guy who seems to have a low tolerance for BS – which is probably why he ended up leaving Huahong. His willingness to go to SMIC is sentiment positive in that he would have laid down some basic ground rules for what he wants to accomplish. And I hope he soon makes this clear.

I suspect a few heads should role at the top (at least Mora), and the compensation structure should change to try to lure in (and retain) more top talent who will have access to the resources they need to lure in more business. (No more jokes about how you have to stay at a Motel 6 when traveling on business for SMIC, or entertain clients at Denny’s.)

But there are bigger problems for Wang. SMIC’s fabs are scattered across China; equipment sets don’t match, hurting operational efficiency; it’s viewed as a second- or third-source fab with sometimes unreliable delivery; and there are too many crossed-purposes at work, politically speaking. This is all fine if SMIC is more of a “policy fab,” i.e., its intention is to train a new generation of engineers and give the local fabless community a manufacturing source (though its arguable whether this is needed).

To make money, SMIC will need to be a “practical fab.” That is going to take steady political support, proven technical talent, a smart (and new) business plan and a long time. It will be interesting to see what role, if any, TSMC may play as a minority shareholder. In any event, Wang had better read up on his Sun Tzu, because the battle is just beginning.

SHAMELESS PLUG: RedTech Advisors offers research, investment and strategy services in China. For more info, please see www.redtechadvisors.com.

In medical devices, the 'shanzhai' can kill you. Be scared.

Michael Clendenin — Fri, 06 Nov 2009 07:53:00 GMT

It's inevitable that China's infamous knock-off makers (called shanzhai 山寨) would increase their presence in the medical devices sector, attracted by a growing market for medical gadgets (thanks to an aging population) and a lot of attention and cash from the government for health-care reform.

For the most part these guys are sticking to the low-end, low-hassle products, much as they have done with cell phones, MP3 players, and netbooks. Some of the more popular devices you can find in Shenzhen are blood pressure monitors, pulse oximeters and glucometers (for checking blood sugar levels).

But watch out, says Xu Jin, chief marketing engineer of Microchip. He argues that while the existence of some “shanzhai” devices can help meet increasing demand, some could be life-threatening, particularly some disposal ones that must be sterilized before use. Several chip makers, such as Atmel, Lattice, ADI and Microchip, say they have implemented safeguards into their designs that make them unusable in “shanzhai” products. These guys are clever, though, and work-arounds are inevitable.

We're not sure of the scale of this market, and will be looking into it in the near future. If you have any feedback, please feel free to contact us. inquiry@redtechadvisors.com

SMIC needs to change its ways

Michael Clendenin — Fri, 06 Nov 2009 07:15:00 GMT

China foundry SMIC is in deep doo-doo. We all know that. But it's not just because of the 'whisper number' of $1 billion in damages it might have to pay TSMC for shamelessly and openly pilfering its trade secrets -- that number will come way down after negotiation. No, the company is in increasingly dire straits because its leadership, especially CEO and founder Richard Chang, hasn't realized they have lost their bid to be a top-tier foundry and must craft a strategy to survive as a niche player.

For this to happen, we suspect there needs to be a leadership change. Richard has brought the foundry a long way, and China and its IC community should be grateful for that, but if the company is to survive it needs someone who will push it to streamline and focus. Its present course of far-flung expansion in multiple cities (at the whim of local pols) is simply the continuation of a bankrupt strategy. SMIC cannot trade blows with TSMC, UMC or even Global Foundries/Chartered and expect to live. It is already punch drunk, and has been for years.

Richard has been under tremendous pressure from the board to make SMIC profitable. Last year's global financial crisis gave him a welcome reprieve -- an excuse to say why the company couldn't possibly turn its fortune. This year is a recovery for everyone, so he still has some breathing space. Next year, no excuses.

But even if SMIC turns profitable in 2010, the nature of its profitability should be what matters. Is it because better times are floating all boats in the industry, or because SMIC has taken serious steps to change its strategy beyond bigger is better? It needs to become more of a first-source supplier for large and medium size firms, not a second- or third-tier supplier surviving off scraps. To make this change, it must move toward pursuing niche opportunities, where smaller and more nimble is usually an advantage.

The Chinese medicine effect on solar

Michael Clendenin — Thu, 05 Nov 2009 11:23:00 GMT

I had lunch today with a friend in the solar industry, who noted that the Chinese government is in the final stage of writing its policy to spur demand-side projects. Unfortunately, the Beijing technocrats aren't moving as fast as the market would like (they rarely do) and the mix of subsidies and tax breaks will take awhile to kick in. "Just like Chinese medicine," my friend said. It takes longer, but it will make you healthier.

Of course, the industry probably wants a whiff of cocaine -- and the accompanying short, satisfying jolt of energy to get things moving. But that ain't gonna happen. Beijing envisions groups of solar companies coming together to form JVs with power companies that would then invest in demand-side projects, which would be eligible for direct subsidies and tax breaks.

A few annoucements will be made this year, but don't let the head fakes fool you. The real results won't be seen till next year or the year after. Just like as with Chinese medicine.

Chinese will struggle to capture expanding market for X-ray

Michael Clendenin — Thu, 05 Nov 2009 11:05:00 GMT

China’s push for health-care reform is expected to widen the available market for X-ray machines in the near future, especially in mid-tier cities and rural areas. But many Chinese companies will be left behind due to a lack of R&D.

There are about 16,000 county-level hospitals in China. It’s expected that the push to improve health care will create huge demand for low-and mid-end medical devices, such as X-ray machines, in these facilities. The estimated market scale in 2012 is $900 million.

However, many local companies still lag in core technology compared with overseas companies. For instance, they usually have a low level of automation and are weak in software development. Unless this changes (and we don't see it happening soon), Chinese firms will miss out on their own government's largesse.

i-Phone an i-Dud: Unicom sells only 5,000 units in 4 days

Michael Clendenin — Thu, 05 Nov 2009 10:40:00 GMT

As we suspected, the early optimism of Unicom’s iPhone debut in China is being trampled by reality. Lu Yimin, president of China Unicom, said only 5,000 units of the iPhone 3GS were sold during Oct 30-Nov 3. Unimpressive, to say the least.

When the iPhone first launched in the US it sold 270,000 units in two days. When the 3GS came out, it sold 1 million units globally in just three days. Of course, the iPhone is nothing new in China. It’s been available on the gray market since 2007, or via a quick trip to Hong Kong – something that the Chinese who can afford an iPhone often do.

It doesn’t help that Unicom priced its iPhones as much as 26 percent higher than similar models in Hong Kong, prompting concern the strategy will hamper sales in China, according to a report from Bloomberg. The phone costs as much as Rmb6,999 ($1,025), compared with $299 in the U.S. Unicom’s version of the iPhone also lacks the Wi-Fi networking features available in other countries. If Unicom is able to move 500k units a year, Apple should consider it a win. After all, as a friend of mine says, ‘Unicom never misses an opportunity to miss an opportunity.’

For MRI, lots of room to grow in China – if price is right

Michael Clendenin — Wed, 04 Nov 2009 08:24:00 GMT

There’s no doubt that MRI systems provide accurate clinical diagnostics, but the system’s high price tag and expensive patient fees still make it more of a rarity in China. Currently, MRI’s are mostly restricted to top-tier hospitals, translating into something like one MRI system per 1.5 million people in China.

Under China’s ongoing $123 billion medical reform, a greater emphasis is being put on medical devices – science and tech are key buzzwords for the Beijing technocrats. This will afford a greater opportunity for MRI companies (think Mindray) to widen their market, but only of they can offer more compelling pricing and credit terms as well as after-sales service packages.

Renewable energy to account for 10% of primary energy in 2010

Michael Clendenin — Wed, 04 Nov 2009 07:49:00 GMT

Li Junfeng, deputy director of the NDRC’s Energy Research Institute said at the The China Energy and Environment Summit that renewable energy would account for 10% of primary energy in 2010. Don’t be too impressed -- that’s up just a tick from 9% now.

Hydropower will account for 8% and wind power for 1%, with other sources (such as biomass) accounting for the rest. (Solar isn’t considered primary since it requires processing into PV cells.)

Li noted that the future concern is an output surplus of renewable energies, resulting from the rapid build-up of capacity in nuclear, wind and solar power. This may be an indicator that China agrees it needs to spin up reams of demand side projects to absorb all the capacity, something both domestic and foreign companies are eagerly hoping for.

He also indicated that reforms are being carried out to transition natural gas pricing to a market-based mechanism, but gave little detail on a firm timeline.

Yahoo! 3G to spur rmb1 trillion in demand over three years. ... maybe

Michael Clendenin — Wed, 04 Nov 2009 07:48:00 GMT

Xu Qian, deputy director of MIIT’s marketing division, made this claim at the 2009 China Internet Conference. But, well, he is in marketing. Add to that being a Chinese official, and you might have to take that prediction with a grain or two of salt.

But for argument's sake, here's the breakdown, according to Xu: Rmb400 billion from network construction, Rmb400 billion from handsets; and another Rmb200 billion from data services, such as mobile video. Sounds dreamy.

In reality, the Rmb400 billion for networks is attainable, since China nearly spent Rmb300 billion in 2008 on total telecom capex.

On handsets, it's a stretch. In 2007, handsets sales generated Rmb166 billion in China, so he's not totally off base. But since 3G will slowly gain traction over the next three years, even if you generously assume that China Mobile could attain 30 million new 3G subs next year, each with a new phone at an ASP of Rmb1000, then that's still only Rmb30 billion. If you want to go crazy and triple that figure (making the completely unrealistic assumption that China Unicom and China Telecom could also pick up an equal number of subs) then you would still fall short.

And as for data services? As of September, the number of Chinese mobile internet subscribers reached 192 million, up 62.7% YoY. In 2008, revenue topped Rmb11.7 billion, up 54.4% YoY. That's a long way from Rmb200 billion, but the growth rate is high. So we consider that a maybe.

Like we said, Xu is in marketing. He's supposed to exaggerate.

Handset exports from Shenzhen hit record high; ASP slides

Michael Clendenin — Wed, 04 Nov 2009 07:48:00 GMT

Export volume reached 21.87 million units, up 21.7% YoY and a 7.1% MoM. However, the ASP dropped to the lowest point in 2009, at only $63.8 – down 25% YoY and 4.7% MoM.

The volume of handsets shipping out of Shenzhen has steadily increased through the year, with Q1-Q3 units totaling 144.56 million units and revenue totaling $9.85 billion.

The export shares of Hong Kong, South Korea and the U.S. increased while that of emerging markets dropped. The export share of India dropped by 20% in the first nine months in 2009. Insiders say this is because India now forbids importing handsets without IMEI numbers, which negatively affects many of the grey market phones being shipped from Chinese manufacturers.