Not so long ago, listing their shares on Nasdaq was a no-brainer for Chinese tech companies looking to tap overseas money. The 52 mainland companies currently trading on Nasdaq include Internet portals such as Sohu, Netease, and Sina, which listed their shares in 2000. More recently, Chinese highfliers, including search engine Baidu and Focus Media, both of which had Nasdaq initial public offerings in 2005, have made spectacular gains.

But in 2007, Nasdaq has faced greater competition in China from exchanges in Hong Kong, Shanghai, New York, and elsewhere. Although it has attracted nine new IPOs raising $1.7 billion this year, according to Dealogic (compared with five listings raising $534 million last year), only one Nasdaq listing—a $300 million deal by financial-services company Xinhua Finance Media— managed to rank in the top 20 on the basis of overall funds raised. So far this year, the Hong Kong exchange has raised $28.6 billion with 49 listings of Chinese companies and the New York Stock Exchange has raised $4.19 billion with 14 listings.

Now the competition between Nasdaq and the New York Stock Exchange has moved to Chinese soil. On Dec. 3, Nasdaq opened a Beijing office. The NYSE is hot on its heels with plans to open an office of its own on Dec. 11. They both want to attract more Chinese companies' initial offerings. China is now the single largest source of offshore IPOs and secondary listings, generating 232 deals worth $59.4 billion worldwide.

Alibaba's Rebuff to Nasdaq
The attempts by both exchanges to woo more Chinese companies come at a time when other rival exchanges are aggressively courting them, too. While the NYSE and Nasdaq raised $5.7 billion for Chinese companies through IPOs this year, Shanghai was not far behind, with $4.2 billion. Shanghai has also raised tens of billions more in secondary listings of companies already traded in Hong Kong. Singapore raised $1.54 billion and the London AIM market $1.53 billion.

The biggest blow to Nasdaq, observers say, was business-to-business portal Alibaba.com's decision to eschew the American exchange in favor of Hong Kong, where it raised $1.7 billion and began trading on Nov. 6. The company figured it could get a higher price for its stock because Hong Kong was closer to home, and investors understand Alibaba's business model better than overseas investors do. That assumption proved correct: The retail portion of the IPO was 251 times oversubscribed, and the stock soared 192% on first trading day. Despite a major correction in the Hong Kong market recently, Alibaba's stock is still up 186%.

"Over the past six or seven years, Chinese companies followed conventional wisdom that you had to list on Nasdaq," says Porter Erisman, vice-president of corporate affairs at Alibaba. "In Hong Kong we decided to make the market [and attract institutional investors] rather than follow conventional wisdom."

Chinese Frustrated by Cost of U.S. Investor Relations
Erisman said that one drawback to Nasdaq was the tendency of investors and analysts to apply a cookie-cutter approach to company analysis, which doesn't necessarily fit mainland companies. "In China leading portals are frustrated with dealing with [the] investment community in the U.S., where you have to spend a lot of money and time educating investors about local conditions."

Of course, companies will list in markets wherever they can get the highest valuations. Valuations, in turn, reflect both current market conditions, which have given Hong Kong a decided edge over New York for much of this year, as well as investors' familiarity with stocks. For example, Chinese solar panel makers Trina Solar, China Sunergy, LDK Solar, Yingli Green Energy Holding, and JA Solar have all listed in the U.S., where alternative energy stocks are well understood. By contrast, garment maker China Dongxiang listed in Hong Kong, raising $880 million because its Kappa brand is well-known by retail investors there.

Although Erisman says that the onerous compliance conditions required under Sarbanes-Oxley were not an issue because Alibaba's parent company is 39% owned by Yahoo!, market participants say for many companies the cost of complying with SarbOx can be a major deterrent to listing in the U.S.

Class Actions a Headache for U.S. Listings
Another factor giving Chinese companies pause is a recent spate of class actions brought against U.S.-listed companies by shareholders. On Nov. 27, Shanghai game company Giant Interactive was sued for alleged IPO fraud, while Focus Media was slapped by a suit over nondisclosures in its prospectus for a secondary offering made in early November on Nasdaq. Neither company has responded to e-mail queries. A class action against solar panel maker Sunergy was filed in October.

"It's a litigious environment and definitely that has an impact. That will be one of the biggest obstacles in terms of convincing Chinese issuers of the benefits of an offshore listing," says Jason Cox, co-head of equity capital markets at Merrill Lynch in Hong Kong. There has never been a class action filed in Hong Kong because there is no legislation enabling it. However, Hong Kong has more rigorous profitability requirements than Nasdaq. Prior to listing in Hong Kong, a company must have shown profits of at least $3.9 million for each of three consecutive years.

Of course, despite the cost and effort of obtaining and maintaining a U.S. listing, some Chinese companies prefer the prestige and good housekeeping seal of approval that a U.S. listing implies. However, more large American institutional investors are opening offices in Hong Kong precisely because so much Chinese IPO money is ending up there.

Sources: BusinessWeek

If U.S. Internet companies are maturing, China's are still reveling in the kind of party atmosphere their U.S. rivals enjoyed during the late 1990s, with copious capital and enough engineering talent to keep growing for a while.

Executives including Kai-Fu Lee, president of Google Greater China, warned participants in an industry conference in Beijing this week against a get-rich-quick mentality.

But the executives said that between strong investor interest and an education system churning out information technology graduates by the thousand, the groundwork is solid for years of continued steady growth in China.

"For many Chinese young people and young students, they have a very strong desire for innovation, for being successful, for starting their own businesses," said Lee.

About 300,000 students receive high-tech degrees in China annually, said Zhang Ya-Qin, chief executive of Microsoft in China and its research development group. But he said Chinese graduates need more curiosity and more ideas.

Pony Ma, whose QQ system dominates the Chinese market for instant messaging, said China's Internet and mobile information industries are just getting off the ground, leaving plenty of room for growth in the more traditional Web fields.

"Generally speaking, it has been developing in a very healthy way. In the past one or two years, it was sort of crazy ... but now it has become much better," Ma said.

Most of the Internet businesses developing in China are likely to cater to local interests and local online needs, which remain largely unmet, the executives said.

Sources: Associated Press

Most European businesses are doing well in China despite increasing competition, says the latest survey of the European Union Chamber of Commerce in China.

The annual European Chamber business confidence survey, released yesterday, also found that China's biggest attraction is its domestic market rather than its relatively low labor and sourcing costs.

In fact, over 80 percent of the respondents to the survey said they were in China primarily to access or serve the Chinese market.

"EU companies are doing well in an increasingly competitive business environment. In comparison to last year's survey, there is a stronger focus both on establishing R&D facilities and also on expanding investment," European Chamber President Joerg Wuttke said.

Conducted jointly with international consulting firm Roland Berger Strategy Consultants, the survey is based on interviews with about 200 European companies.

The respondents were willing to invest in China's research and development (R&D) centers, too. Thirty-one percent of the surveyed companies with more than 100 employees have already set up R&D centers in China, and 32 percent want to open or enlarge their R&D facilities in the next two years.

Apart from reducing R&D costs by employing local skills, another primary motive for their investment in R&D is to make their products suitable for Chinese customers. European businesses are generally optimistic about their business performance in China, according to the survey. Their optimism is based mostly on the continuing strength of the country's economic development and the resultant growth in domestic consumption.

But many of them are worried about issues such as shortage of qualified staff, environmental problems and insufficient protection of intellectual property rights.
 
Sources: China Daily

Home Depot's international division is providing the company some cheer in an otherwise gloomy holiday season.

Nine percent of the Atlanta-based company's revenues and 11 percent of its operating profits last quarter came from foreign stores in Canada, Mexico and China, Annette Verschuren, Home Depot's president for Asia and Canada, said in an interview Monday.

Verschuren said the figures "tell us that our international organization is critical to growth."

It was the first time the company has provided figures for international sales. Executives would not comment on whether profits earned by Home Depot outside of the United States had increased.

The release of the data comes as Home Depot is suffering from fallout in the slumping U.S. housing market. On Nov. 13, the company reported a 27 percent drop in third-quarter earnings and lowered its financial forecast for the year.

"There's no question that the housing market is giving our U.S. stores some challenging times and it's great to see that Canada and Mexico and China are contributing," Verschuren said at ceremony to celebrate the first Christmas season for 12 newly opened stores in China.

Home Depot bought the stores last year from Chinese chain Home Way. Since a formal opening last August, sales at the Chinese locations have "exceeded our expectations," Verschuren said. She declined to say whether the stores had been profitable but said that Home Depot is "investing a lot" in China.

Analysts expect that in the short term, Home Depot's business in China will be hampered by intense competition, low family incomes and high distribution costs.

"With the number of people moving into apartments in China over the past few years, (home improvement stores) should have made fortunes, but nobody has because of the low, low prices and the lack of profit margins," said Paul French, a Shanghai-based economist with Access Asia, a consulting firm.

B&Q, a home improvement chain that is a subsidiary of the Britain-based Kingfisher Group, entered China in 1999, but "have only begun to see a dribble of profits," he said.

Verschuren acknowledged that price competition in China is fierce but said that sales have grown steadily since August and the company plans to expand its business over time.

"This is the beginning of an economy that's going to become strong," she said in August. "It's going to be slow ... but we see big opportunity here."

The company has also had to adjust to the Chinese business practice of suppliers demanding to sell directly to customers. Many of Home Depot's Chinese vendors require the company to allow sales staff hired by the suppliers themselves to work in the stores, compromising customer service.

To deal with the problem, Home Depot plans to increase sales of its own product lines - including Hampton Bay lamps and Pegasus bathroom fixtures - and to pressure suppliers to reduce their number of salespeople in stores.

Home Depot takes a long-term view to building profitability in China.

"Chinese are relatively new to home ownership and are learning how important this investment is to their lives," Verschuren said. "We're seeing the beginnings of a do-it-yourself culture."

Sources: Cox News Service

Starbucks Corp. has begun selling its bottled Frappuccino ready-to-drink coffee drinks in China.

The distribution deal was announced in September and is a joint venture between the Seattle coffee giant and PepsiCo Inc., called the International Coffee Partnership.

The two companies currently partner on Starbucks' ready-to-drink beverages in the U.S. and Canada, with Starbucks products being delivered to grocery and convenience stores using Purchase, N.Y.-based PepsiCo's (NYSE: PEP) beverage distribution channels.

The bottled coffee drinks will be sold at convenience and grocery stores and other retail outlets in Shanghai, Beijing and Hong Kong.

The Chinese market is the largest beverage market for PepsiCo, officials said.
  
Sources: People's Daily