Meituan chief adopts Xi’s wealth redistribution rhetoric
Founder of Chinese tech company emphasises ‘common prosperity’ as regulatory crackdown gathers pace
The head of Meituan has become the latest Chinese tech tycoon to mirror President Xi Jinping’s recent rhetoric on wealth redistribution, while vowing to overhaul his company’s practices amid an increasing regulatory crackdown.
Wang Xing, the founder and chief executive of the Beijing-based food delivery service, told investors on Monday that “common prosperity” was “built into the genes” of his company. Xi used the same phrase in an influential speech earlier this month, in which China’s president warned about excessively high incomes in the world’s second-largest economy.
“We will continue to actively implement compliance requirements, improve internal control mechanisms across all our businesses, conduct in-depth self reviews and actively rectify any issues to ensure full business compliance and to avoid risk,” Wang said.
With an expansive crackdown across the Chinese tech sector gathering pace, Wang added that Beijing’s actions were both a “warning and motivating”.
“We believe that these regulatory changes are good for the sustainable development and orderly growth of the internet platform economy,” he said, while conceding that there would be short-term effects from “fine tuning” the company’s practices.
The vow to overhaul compliance comes after a tumultuous period for Meituan and its founder, who sparked a sharp drop in his company’s share price in May with a social media post that was widely interpreted as a veiled attack on Xi.
In April, the company became the focus of China’s second-ever antitrust investigation, just weeks after Alibaba was handed a record $2.8bn fine for abusing its market dominance. In its results filing on Monday, Meituan said the investigation was ongoing, while warning that it “could be required to make changes to its business practices” and potentially faced “significant” fines.
Also on Monday, Beijing’s State Administration for Market Regulation said it was investigating Meituan’s 2018 acquisition of Mobike, one of China’s top bicycle-sharing companies.
Despite the regulatory ructions, Meituan reported robust second-quarter revenues of Rmb43.8bn ($6.8bn), a 77 per cent gain on Rmb24.7bn in the same period a year earlier, beating analysts’ expectations.
Meituan, which is backed by Chinese technology heavyweight Tencent, reported a net loss of Rmb3.4bn, its third consecutive quarterly loss, compared with a profit of Rmb2.2bn for the second quarter in 2020. It attributed the loss to its rapid expansion into new businesses.
The company’s shares have lost almost half their value since hitting a peak in February but they remain twice as high as at the start of 2020, following a blockbuster rally last year.
Wang has also joined a clique of Chinese billionaires in ramping up philanthropic efforts, donating millions of dollars to his former school and university over recent weeks, building on donations of more than $2bn to his personal charity in June.
Adding further pressure on China’s tech sector, Beijing’s top court said on Friday a “996” overtime policy, under which employees work 9am to 9pm, six days a week, was illegal, while the country’s top internet regulatory body released draft proposals outlining stricter oversight on tech companies’ algorithms.
Porsche to open first factory outside Europe next year
German carmaker targets Asian market with site in Malaysia but rules out China location
Germany’s Porsche will open its first factory outside of Europe next year, in a marked departure from the 90-year-old luxury brand’s insistence on building its cars close to its storied Stuttgart home.
A small assembly line in Malaysia will be set up to serve the Asian country’s growing number of Porsche enthusiasts, who are currently forced to pay almost double for imported sports vehicles, due to high tariffs and taxes.
The move by the VW-owned marque comes five years after the brand started to produce its first non-German car, the Cayenne SUV, in Slovakia, weakening its “Made in Germany” marketing slogan.
Since then, Porsche has continued to manufacture the vast majority of its cars in its home country, and proudly boasts that its new electric Taycan, for example, is “engineered and made in Germany”.
This year, boss Oliver Blume told the Financial Times that the brand would not build a factory in China, its largest and most profitable market.
“It is a quality and a premium argument still to produce from Europe for China,” he argued in February, adding that it was worth absorbing higher production costs to maintain Porsche’s cachet.
Albrecht Reimold, Porsche’s board member in charge of production, said on Monday the company was “fortunate that, due to careful planning, our existing factories are more than up to the task of meeting current and future global demand for our cars”.
But he added that the new assembly site in Malaysia “meets specific market needs and, although a standalone project and modest in size and capacity, it signals our willingness to learn and adapt to specific local market conditions”.
Several other carmakers, including Germany’s Mercedes, have long operated Malaysian plants, to make inroads into a rapidly growing market.
The World Bank has predicted that Malaysia would likely transition to a high-income economy sometime between 2024 and 2028.
Porsche, which has been selling cars in Malaysia via distributor Sime Darby Berhad for the past 10 years, delivered just over 400 vehicles in the country in 2020. That figure represented a nine per cent increase on 2019.
The company also announced on Monday that it would build a research and development site in Shanghai, to understand and meet Chinese customers’ “highly specific” demands.
China’s Electric-Vehicle Ambitions Are No Pipe Dream
Chinese EV makers are starting to compete on technology and product design. Foreign competitors need to watch their backs.
Chinese electric-vehicle sales are shifting back into high gear after a period of stagnant growth. Its homegrown EV makers are also turning into more formidable competitors: After struggling for decades to match foreign expertise in the internal combustion engine, China has a real chance to put foreign brands on the back foot in the electric era.
Warren Buffett-backed EV maker BYD on Friday reported a 54% increase in revenue for the first six months of this year, but its net profit recorded a 29% decline. Rising raw material prices and a chip shortage raised costs, but it probably also booked less profits from selling medical masks, compared with the same period last year. BYD built mask production lines in February 2020 and made millions of masks daily at one stage.
This year, the company’s focus is firmly back on more familiar turf. BYD sold around 200,000 new energy passenger cars—including plug-in hybrids—in the first seven months of this year, 28% higher than the same period in 2019. And it launched three new hybrids using its own technology called DM-i. Those have been selling well: plug-in hybrid sales year-to-date through July were 58% higher than the same period in 2019.
Chinese rivals Li Auto and Xpeng—focusing more on higher end segments—both reported record deliveries in July. New energy passenger vehicle sales in the first seven months of 2021 have more than doubled from two years earlier.
Penetration of new energy cars was 14.8% in July, compared with 5.8% in 2020, according to the China Passenger Car Association. Adoption of EVs is likely even higher in big cities as EVs benefit from looser license plate restrictions. China’s biggest cities limit the number of car plates to tackle congestion and pollution.
Favorable policies from some local governments after Covid-19 probably gave EV sales a lift, but that isn’t the whole story: Domestic car makers are making more appealing cars. One surprise winner is a $4,400 hatchback called Hongguang Mini EV, made by a joint venture of General Motors, Liuzhou Wuling Motors and state-owned SAIC Motor. The car is small, but packs decent performance at an affordable price. Tesla’s success aside, many top-selling EVs in China are made by domestic brands.
After a head start aided by generous subsidies, Chinese EV makers are now competing on quality and offering more differentiated products as government handouts ebb. The country also has a cluster of EV component suppliers, which helps to lower costs and spur the introduction of new designs. BYD, for example, said its new hybrids are available at a similar price to fuel-powered equivalents. The company’s own blade battery has helped lower costs.
The chip shortage could add some friction to China’s EV growth in the short run. The market is also getting crowded: Many aspirants won’t survive. But unlike in the internal combustion engine era, China stands a real chance of lapping the foreign competition.
China Limits Video Games to Three Hours a Week for Young People
New regulation will ban minors from playing videogames entirely between Monday and Thursday
SINGAPORE—China has a new rule for the country’s hundreds of millions of young gamers: No videogames during the school week, and one hour a day on Fridays, weekends and public holidays.
China on Monday issued strict new measures aimed at curbing what authorities describe as youth videogame addiction, which they blame for a host of societal ills, including distracting young people from school and family responsibilities.
The new regulation, announced by the National Press and Publication Administration, will ban minors from playing videogames entirely between Monday and Thursday. On the other three days of the week, and on public holidays, they will be only permitted to play between 8 p.m. and 9 p.m.
The announcement didn’t offer a specific age for minors, but previous regulations targeting younger videogamers have drawn the line at 18 years old.
Enforcement measures weren’t detailed, but in response to previous moves by the government to limit videogame playing by young people, Tencent Holdings Ltd. , the world’s largest videogame company by revenue, has used a combination of technologies automatically booting off players after a certain period of time and using real-name registration and facial-recognition technology to limit game play for minors.
Phone calls made to the National Press and Publication Administration went unanswered on Monday after business hours.
In restricting videogame play for younger people, the government is seeking to “effectively protect the physical and mental health of minors,” China’s state-run Xinhua News Agency said Monday.
Monday’s new rules are likely to be felt through China’s online gaming industry, one of the world’s largest. The new curbs come as the Chinese government seeks to rein in China’s technology industry, a campaign that has ignited a trillion-dollar selloff in Chinese equities and hit a range of businesses, including for-profit education providers, ride-hailing services and e-commerce platforms.
Videogames have become a particular object of ire as Beijing seeks to reshape an industry it has described as motivated by profit at the expense of public morals. A state-media outlet this month triggered a selloff in shares of Tencent, China’s largest tech company by market capitalization, after it published an article that described online games as “opium for the mind.”
Chinese leader Xi Jinping, too, has warned publicly in recent months about the perils of youth gaming addiction, remarks that have put more pressure on officials to act.
After the regulations were published on Monday, following the close of stock-market trading, Tencent said it had introduced a variety of new functions to better protect minors. It vowed to continue to do so as it “strictly abides by and actively implements the latest requirements from Chinese authorities.”
Tencent backs some of the biggest videogames in the industry and has invested in “Fortnite” maker Epic Games Inc. and “World of Warcraft” creator Activision Blizzard Inc.
In 2018, China stopped issuing videogame licenses for almost nine months amid similar concerns, costing Tencent more than $1 billion in lost sales, according to analyst estimates, and leading to a prolonged slump in its share price.
In 2019, the government banned users younger than 18 from playing videogames between 10 p.m. and 8 a.m., and restricted them from playing more than 90 minutes of videogames on weekdays. Users between 16 and 18 years old aren’t permitted to spend more than 400 yuan, the equivalent of about $60, each month on videogames.
Tencent President Martin Lau warned during an earnings call this month that regulators are focused on limiting the amount of time and money that minors devote to online games across all platforms.
The company also said minors accounted for only a small percentage of its online game revenue. Players under the age of 16 accounted for just 2.6% of its gross game receipts in China during the April-to-June quarter, it said, a quarter in which the company’s electronic-game revenue rose at its slowest pace since 2019.
Gapping down
News:
- ASTR -24.3% (experiences engine failure on test launch)
- DLPN -1.9% (files for $100 mln common stock offering)
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- VXX -0.5% (volatility continuing to wane)
Analyst comments:
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- COF -1.5% (downgraded to Underperform from Neutral at Robert W. Baird)
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Gapping up
In reaction to earnings/guidance:
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Other news:
- SPRT +51.2% (Continues recent momentum from last week)
- AFRM +39.8% (Affirm and Amazon (AMZN) partner to bring AFRM's flexible payment solution to AMZN customers at checkout)
- VBLT +12.4% (resumes U.S. enrollment in OVAL Phase 3 trial as FDA authorizes clinical use of VB-111 batches produced in Modiin facility)
- IDEX +9.6% (acquires VIA Motors in all-stock transaction)
- NCTY +8.7% (launches NFT Platform NFTSTAR)
- TUYA +2.2% (announces $200 mln share repurchase program)
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- ERF +1% (announces sale of non-strategic interests in the Williston Basin)
- BIP +0.9% (acquires approx. 18.4 mln additional Inter Pipeline common shares)
- NGMS +0.9% (Caesars Entertainment discloses 24.5% stake in NGMS via its recent William Hill acquisition)
Analyst comments:
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