Recruiting in China

Investors will be more cautious in putting money into "content producers" as the industry faces more risks after China's online regulator recently shut dozens of entertainment social media accounts, industry experts told the Global Times on Monday.

About 30 WeChat accounts mainly covering celebrity scandals have been closed, the Guangdong Province office of the Cyberspace Administration of China (CAC), the Internet and mobile app regulator, said in a notice on Saturday.

Some of the accounts won investors' attention because of their popularity, but the closure will definitely hurt their investors, Xiong Gang, chairman and founding partner of China ASB Ventures, an investment management company, told the Global Times on Monday.

The Beijing office of the CAC said in a notice on Wednesday that 60 popular celebrity gossip social media accounts were closed in line with the country's new cybersecurity law, which was effective on June 1.

The closed WeChat accounts include Dushe Movie, a movie criticism app that had more than 2 million followers.

Germany-based Bertelsmann Asia Investments led a series A funding round in Dushe, valuing it at 300 million yuan ($44.13 million), according to a report by financial news portal China Money Network in August 2016.

Xiong warned that investors need to weigh risks before choosing these projects, adding that it's very important for "content producers" to comply with the law in China.

Xiong said that his company will instead invest in sectors based on technology innovation, which offer relative stability.

There is still potential in the media industry, however.

In 2017, the independent media in China will be more regulated and sites producing high-quality content will more easily get investors' attention, said a white paper released in February by Beijing-based topklout.com, a research company focusing on independent media.

"We have invested in some projects in the entertainment industry such as video platforms," Yu Wenhui, founder of the Guangzhou-based investment company Thunderstorm VC, told the Global Times on Monday.

The projects his company invested in are mostly operated on several platforms, not like some accounts that are limited to WeChat, because having only one platform is risky, according to Yu.

Of the accounts that were closed on WeChat, some may seek new channels and opportunities.

"But it costs a lot to regain public attention and attract investors," Yu noted.

Some experts said that the closures' impact will be limited.

"Although some of the social media accounts are quite popular, it's still hard to monetize their estimated value" anyway, said Chang Zongfeng, co-founder of Shanghai-based crowdfunding company baichouhui.com.

Investors will be more cautious as they will need to know whether a site's content is in line with the country's cybersecurity law, Chang told the Global Times on Monday.

The Beijing office of China's banking regulator on Tuesday approved the opening of Zhongguancun Bank, the capital's first private financial institution. It will be the 13th such bank granted permission to operate in the country.

The registered capital of the bank is four billion yuan (590,000 U.S. dollars). The bank has 11 stakeholders, the majority of them being innovative tech enterprises located in the Zhonguancun area of Haidian district, a hub known for tech start-ups.

Private stakeholders

The biggest stakeholder is Yonyou Network Co., Ltd., an enterprise management software and cloud service provider with 100 offices around the world. Yonyou has been listed on the Shanghai Stock Exchange since 2001. The company holds a 29.8% stake in the bank.

According to the Beijing office of the China Banking Regulatory Commission, the bank will serve the needs of SMEs in the technology sector, providing them with support in funding and other financial services, boosting the innovative development of companies in the Zhongguancun area and other Chinese SMEs using technologies such as Big Data and cloud computing.

China promotes private banks

In 2014, China approved a pilot scheme which set up five private banks to give private capital a bigger role in the country's financial system.

In June last year, the State Council released guidelines aimed at promoting the development of private banks by encouraging and guiding private capital to the banking sector.

The government aims to provide more individualized and convenient financial services to medium-and-small sized companies, rural areas, agriculture and farmers and mass entrepreneurship and innovation.

A worker at Naiman Banner Huaxin Silicate Products carries bricks inside the company's factory.

Sand from Naiman Banner has turned the desert region into an exporting hub with high-tech industrial products

You might have just walked on "magic bricks".

If you stroll outside Beijing's National Aquatics Center, also known as the Water Cube, on a rainy day, you will notice something very different.

The water instantly drains through the paving stones, or bricks, before traveling through the drainage system below.

"Our bricks have been used in more than 500 projects in 13 municipalities and provinces," said Ye Haoqian, general manager of the Inner Mongolia Renchuang Ecology Environmental Protection Industry Co Ltd, which makes the paving stones. "They effectively solve the problems of urban flooding and disperse rainwater."

Inner Mongolia Renchuang Sand is based in Naiman Banner of Tongliao city in the Inner Mongolia autonomous region.

The high-tech enterprise turns silica sand into a coated substance, widely used in sectors such as oil exploration, construction and casting as well as paving stones.

Naturally, the price increases from about 300 yuan ($44.1) per metric ton for untreated sand to up to 6,000 yuan per ton for the coated product that has liquid-permeability properties.

This allows water to pass through without destroying the bricks or turning them into mush.

"With patented technologies, we are now planning to export our products to the United States, with annual productivity of 600,000 tons of specially-treated industrial sands," Ren said.

Still, the company is just one of 38 businesses involved in the industry in Naiman Banner.

Around one million tons of sand a year come from the region.

But then, the area is famous for it with the industry employing 2,000 workers, while annually revenue tops 2 billion yuan, according to local government data.

There are numerous grades of products, including building material sand, mechanical precision casting sand and glass making sand.

Since Naiman Banner is located at the heart of the Kolqin "Sand Land" that is hardly surprising. Up to 62 percent of the region is desert and it used to be one of the poorest areas in China.

Every year, villages used to be buried in sand, whipped up by the constant wind forcing residents to move out.

But in the 1980s scientists made an exciting discovery?Naiman Banner was rich in the finest silica sands with reserves of 50 billion tons.

With the building blocks of an industrial-scale production line, the government decided to develop the sector by rolling out the Angnai Sand Mine in 1984.

"Relying on the large reserves of silica sand, local government has developed the industry and turned what many saw as waste into wealth," said Zhu Zhenmin, deputy director of forestry bureau in Naiman Banner.

So far, there are six industrial parks and three of them are built on sand.

"We do not take over arable land when it comes to industrial development," Zhu said. "Sand has become a specific character in attracting investment."

Major Chinese companies, including Renchuang Sand, the largest in the sector, moved there from Beijing.

"By attracting well-known enterprises, we have introduced technologies and solved the problem of financing," Zhu said.

The central government has also helped to cultivate high-tech businesses by setting up research and development organizations.

Naiman Banner Huaxin Silicate Products Co Ltd has developed 21 new products and obtained 12 patents. It manufactures lime-sand bricks.

"Our annual sales revenue hit 30 million yuan last year with total asset exceeding 60 million yuan," said Pan Taiyan, general manager of the company.

A Lotte Mart in Beijing, Feb 28, 2017.

Lotte Mart, the retail arm of South Korea's Lotte Group, is expected to sell some of its loss-making stores in China, a South Korean newspaper reported.

But it is finding it hard to sell the stores at a decent price or even find a proper buyer at a time when the hypermarket format is no longer attractive to local consumers.

The South Korean retailer is in negotiations with potential Chinese buyers to sell 20-30 of its loss-making stores. At present, 90 percent of its 74 hypermarkets are no longer in operation, according to Aju Business Daily.

Jason Yu, general manager of Kantar Worldpanel China, said Lotte is seeking buyers for its struggling stores but will keep its profit-making outlets.

"Lotte doesn't have many advantages. Its best option is to sell its business to local retailers in China, which are likely to be interested in Lotte's regional presence if they want to boost their dominance in specific regions."

"It is hard for Lotte to sell at a good price given that the hypermarket business model is struggling for survival and consumers favor smaller formats such as convenience stores and online shopping," said Yu.

"Lotte's main problem is it failed to keep pace with the profound changes in China's retail environment," said Yu.

According to the Korea Herald, South Korean retail group Shinsegae Group has decided to close its chain of discount supermarkets in China. Shinsegae Vice-Chairman Chung Yong-jin told reporters that the company's E-mart chain will be leaving the Chinese market after 20 years.

According to a Shinsegae spokesman, the E-mart stores will be closed at the earliest possible date, depending on local contract conditions for each store.

Despite aggressive investment, the chain failed to gain traction and underwent massive restructuring. At the end of 2010, the chain had 26 stores, but it now operates just six.

"Failure to adapt to the changing demands of Chinese consumers and retaining the same business model for years were held as the major reasons for the exit of E-mart in China," said Yu.

In the first quarter of this year, hypermarkets, supermarkets and convenience stores grew only 0.3 percent, according to Kantar's report.

Some traditional retailers have met the challenge of change in the nation's consumer market by improving their offerings in fields such as fresh and imported food, and tie-ups with e-commerce.

For example, Wal-mart Stores Inc moved onto the platform of JD.com Inc on May 25, to make the best use of JD's massive logistics system and Wal-mart's global merchandise supply.

China will focus on smart manufacturing by integrating the strategy of "Made in China 2025" with the Internet Plus Initiative as well as entrepreneurship and innovation to upgrade the country's traditional industries and help advance economic restructuring.

The decision was made at a State Council executive meeting presided over by Premier Li Keqiang on Wednesday when a report on the strategy's implementation was delivered to participants.

Since implementing the strategy in 2015, the country has seen a steady progress in industrial capabilities, smart manufacturing, innovation, and product quality and branding. A recent case in point was the passenger jet C919 that took its first test flight earlier this month.

The meeting decided to focus on smart manufacturing and further deploy new technologies such as the industrial internet to make manufacturing a smarter and greener sector that offers better services and products.

Average productivity was up by 38 percent for China's first 109 pilot projects of smart manufacturing, while operating costs dropped by 21 percent, according to the Ministry of Industry and Information Technology.

The premier said "Made in China 2025", as a crucial part of the supply-side structural reform, is vital to moving the country's economy up the value chain. The key is to exploiting advantages of China's domestic market and human resources, as well as further promotion of basic research and innovations, he said.

"Implementation of the strategy has introduced strength to the real economy, especially the equipment manufacturing. However, we should also keep aware of our weak links as much of the industry is at the medium and lower end of global supply," Li said.

"Made in China 2025" was first unveiled in the Government Work Report in March 2015. Two months later, the State Council released a guideline, which focused on five key projects, including smart manufacturing, and 10 key fields such as new materials.

Key technologies will be on top of agenda, including independent research and development. Innovative development in fields such as new materials and robots will be accelerated.

As of Wednesday, the Ministry of Industry and Information Technology has approved pilot regions for the strategy, namely 12 cities such as Ningbo in Zhejiang province and three city clusters in provinces such as Jiangsu. Some of them will be designated as the country's demonstration areas, which will get favorable policies in investment, financing and other fields.

The premier urged to establish demonstration areas, where small and medium-sized enterprises can develop with large companies for collaborated growth and greater global competitiveness.

The meeting also decided to cultivate a new model of incorporating the manufacturing sector with the Internet Plus Initiative. The country will strengthen cooperation with other countries to achieve mutually beneficial outcomes.

The country will introduce advanced management, raise quality standards and guide companies to put quality as their top priorities. More efforts will be made to attract and recruit talents from home and abroad. More items for governmental approvals will be streamlined with lower threshold for market access and improved oversights to nurture an excellent business environment. Greater financing supports will be given to the real economy to increase resources for industrial upgrading. Intellectual property rights will also be given greater emphasis to safeguard legitimate rights of market entities.

Chinese authorities will introduce an improved, rigorous system of auditing overseas investment by state-owned companies as the pressure of cross-border capital flow remains.

The auditing system focuses on decision-making by state-owned companies on overseas investment and joint ventures, and their financial management and internal control, in addition to capital security, operating benefits and risk control of overseas state-owned assets.

Major methods of auditing include domestic inspection, auditing and analysis of documents and inquiries into relevant parties.

If necessary, regulators will go overseas for on-site verification and evidence collection in accordance with international practices and laws of the countries in which state-owned companies invest.

Outbound investment has grown rapidly in recent years and played an important role in deepening mutually beneficial cooperation between China and other countries as well as promoting domestic economic restructuring.

However, irrational speculation, illegal transfer of assets, and fake transactions all disrupt China's foreign exchange and financial markets, causing state-owned asset losses and hurting national interests.

A recent report released by China's foreign exchange regulator unveiled some cases in which companies had illegally transferred assets overseas under the guise of outbound investment.

Some newly established firms, which had produced nothing, were providing large sums of outbound investment. Some heavily indebted companies borrowed more to acquire companies overseas. These are just a few of the examples listed by the State Administration of Foreign Exchange.

Risks are inherent in any investment and cannot be avoided. Given growth in overseas state-owned assets, regulation of those assets has been a new challenge facing Chinese authorities.

In support of the country's "going out" strategy for investment, businesses of state-owned companies, especially centrally administered ones, have expanded to more than 150 countries and regions with over five trillion yuan (about 725 billion U.S. dollars) in overseas assets, earning global fame for high-speed train, nuclear power and ultra high voltage projects.

Compared to foreign multinational giants, Chinese state-owned companies lack experience in overseas operations and risk control.

With more companies "going out," China's overseas investment has been exposed to complicated problems in culture, human resources and corporate management. Some enterprises have paid high prices for those problems.

"The first step is to roll out measures to regulate overseas investment, the second is to stipulate company operations strictly, and the third is to develop a system of accountability," said Xiao Yaqing, head of the State-owned Assets Supervision and Administration Commission (SASAC).

Noting an irrational tendency in outbound investment, Chinese authorities have set stricter rules and advised companies to make their investment decisions more carefully.

Since the beginning of 2017, SASAC has introduced negative lists and designated investment redlines for both domestic and overseas investment by state-owned companies.

"There is no doubt that a more comprehensive and stringent auditing system will help standardize China's overseas investment and contribute to maintaining and increasing the value of state-owned assets," said Li Jin, chief researcher with the China Enterprise Research Institute.

China's outbound direct investment fell by 64 percent year on year to reach 20.9 billion U.S. dollars in the first quarter, thanks to increasingly rational market players and guidance by relevant government departments.

Last year, the country's outbound direct investment surged over 40 percent from a year earlier, the result of an increasingly globalized Chinese economy and also stemming from some irrational or illegal acts.