Highlights from the last week of China business news.

What does BOCOG pay its PR guys?
Call the spin doctors. It’s been a rough week for BOCOG, starting with Steven Spielberg’s decision to quit his job as an unpaid artistic consultant for the Olympics. “My conscience will not allow me to continue with business as usual,” he said, damningly, to the Wall Street Journal. The Chinese foreign ministry and BOCOG predictably countered with a statement saying that his move was against the “Olympic spirit.” The ministry then announced that a special envoy would be sent to Darfur - good timing to quell the bad PR. Yesterday the SCMP (subscription required) reported that 15,000 Beijingers have been moved to make way for Olympics venues - that’s the official figure, anyway. Last year, an NGO in Geneva estimated that 1.5 million Beijing residents would be evicted to make way for the games.

Dicey dealings
All kinds of M&A activity this week. Singapore Airlines confirmed it wouldn’t bid again for a stake in China Eastern, following a foiled attempt in January. CITIC and Bear Stearns are renegotiating their share-swap deal, with both sides deciding to increase their stakes in one another. Under the new terms, CITIC would become Bear’s largest single shareholder, with 9.9% of the US investment bank, while Bear would hold 7.5% in CITIC. The increased stakes were needed because both banks’ stock prices had fallen since the original deal was struck. The share-swap is pending regulatory approval. They will hope that this doesn’t end up like another high-profile deal, in which Huawei and Bain have abandoned their attempt to buy 3Com for US$2.2 billion after failing to overcome opposition from a US government vetting body. The body, the Committee on Foreign Investment in the US, had national security concerns about the acquisition.

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Highlights from the last week of China business news.

Democracy, but only within the party
While we wait breathlessly for the new leadership lineup next Monday, at the close of the twice-a-decade Party Congress, we’ll just have to content ourselves with these morsels about the CPC’s burgeoning “intraparty democracy.” Say what? President (and party boss) Hu Jintao said in his key speech to the Congress that the party is working to “expand intraparty democracy to develop the people’s democracy.” Xinhua noted that Hu uttered “democracy” more than 60 times during that speech (which, by some accounts, was a 2.5-hour test of attendees’ stamina). Then, the party’s HR chief, who vets promotions and appointments, said “Democracy within the party is the lifeline of the party,” but also added, “Likewise, unity is also the lifeline of the party.” Huh? The markets, meanwhile, paid no attention to this game of ideological tongue-twisters. The Shanghai Composite broke through the 6,000-point ceiling on October 16, setting a new record. Making money trumps politics, for now, it seems.

High-tech picks up speed
Just as talk of a second internet bubble in the US starts to gain traction (don’t believe it? This great New York Times article will convince you), Alibaba, right on cue, pops up with its IPO. Jack Ma, Alibaba’s pugnacious boss, has made plans to raise US$1.33 billion on the Hong Kong Stock Exchange, which would make it China’s biggest tech IPO to date. If all goes to plan, Alibaba will receive a net profit of more than US$80 million. Ma has already bested foreign pretenders like eBay, who dared encroach on his turf (Alibaba’s auction site Taobao dominated eBay in the local e-auction market). Now, pockets lined with cash, it looks like he’s ready to start the next phase of Alibaba’s rise and rise. Another smart Chinese player, telecom firm Huawei, is also making its mark felt abroad. Last week it announced a plan to buy 21.5% of 3Com, the US network equipment manufacturer. The folks at the Shenzhen Stock Exchange must have been paying attention - Huawei, after all, is still a privately held company, although it’s already a global telecoms equipment player. The exchange will launch a new growth enterprise board targeting high-tech companies, part of a national plan to accelerate the country’s tech sector, which also includes a US$10.7 billion investment from China Development Bank.

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Bill Gates may be the world’s most generous philanthropist, but that tag is usually overshadowed by the brickbats hurled his way for dominating our computing life with Microsoft Windows.

Now he’s combining his do-gooding with business with the $3 Microsoft Windows package for developing countries (terms and conditions apply).

At the heart of this is his stated desire to bridge the technology and innovation gap between rich and poor nations.

But, as PC World’s Harry McCracken pointed out, it’s also a delayed reaction to the Linux-ification of the developing world.

China, for example, favors the open-source Linux operating system. Projects like the $100 laptop, aimed at developing countries, run on Linux too.

Microsoft’s ultra-cheap Windows bundle will get students in poor countries hooked on Windows while they’re young and encourage them to continue their habits into adulthood, hopefully before they discover a better operating system.

It will also boost their piracy drive. Microsoft’s popularity in the developing world is aided in large part by enterprising software bootleggers who have made the operating system available to developing countries’ citizens for much less than $3 over the years. Now, Microsoft will at least be able to make some money from markets where they previously earned nothing.

As you may have heard, Google came out with a new Chinese language input method editor, or IME - a device for typing Chinese characters using pinyin romanization. We discovered it here in the office about a week ago and all started trying it out. Personally, I found it annoying, as I only rarely type in Chinese, though Google’s IME assumes that I want to type in Chinese all the time. Even though I set my default language to English (I think), it would automatically switch me back to Chinese every time I toggled between programs (which for me is something like 2-3 times a minute, on average).

Well, I’m not the only one who is annoyed. Chinese search engine Sohu checked out the software and found it oddly familiar to their own IME - they promptly accused Google of stealing their material. Google then came out and apologized for doing just that, basically admitting that they had ripped off Sohu’s technology. “We are willing to face up to our mistake,” Google said.

It now appears that Sohu is going to put them to the test on that. They are preparing a lawsuit to be brought unless Google retracts its software, something Google has said it will not do. Let’s get it on!

One major feature of the ‘China’ blogosphere is the divide between the Chinese and English-language parts of it. Readers who only read English risk having a blinkered view of what’s going on in China if they rely only on English-language blogs, and vice versa. That’s where bridge blogs come in. The bridge blog (as opposed to the ladder blog) connects the two sides of the language chasm, allowing information to flow. The problem is, translating posts accurately is a time-consuming and not particularly lucrative affair.

Enter Yeeyan. It’s a group blog that’s been translating posts from the English-language blogosphere to Chinese since December. Now the inevitable has happened: It’s started translating Chinese-language posts into English. This is a real boon for readers stuck in the English-language ghetto of the China blogosphere. Technology news is of particular interest to Yeeyaners(?), so I read with interest a translated post on US internet companies’ top 10 mistakes in China. According to China Web 2.0 Review, Yeeyan has done a good job in the English-Chinese translations, so we can only hope they do similarly well the other way round.

That’s not to say Yeeyan is the first attempt at bridge blogging. Plenty of other China bloggers have expended considerable effort in trying to close the language gap. Roland Soong’s ESWN is probably the best example of this. What Yeeyan has done is cast a wide net into the pool of bilingual bloggers, harnessing the collective abilities of this rare group instead of relying on bloggers’ individual efforts (another group translation effort by China bloggers like Soong is here). A translation on Yeeyan, for example, isn’t set in stone once it’s published. Readers can leave comments pointing out mistakes and the translator often makes changes based on those comments, improving the overall translation as more eyeballs ‘proofread’ it. The distributed nature of the translating and proofreading means accuracy and readability improves as more people participate, triggering a virtuous cycle — which is great for us Hanzi illiterates.

So it is back to - what we hope will be - normal service, following the cyber-isolation of the past week. Services are still patchy, and, according to the China Telecom official cited in this report, will continue to be until mid-January.

For those without access to a satellite link - and it has been claimed that the mass market service providers in Hong Kong were unwilling to make this expensive switch - it has been a frustrating period.

Special mention should perhaps go to Google and its Gmail service for being one of the few sites that remained open for business. A combination of Gmail, SCMP.com, BBC Online and Cricinfo (to keep tabs on England’s cricketing humiliation) were sufficient to keep this writer ticking over in Hong Kong during a week when, thankfully, most people were out of the office anyway.

It is interesting to point out that the earthquake which hit Taiwan on December 26 was stronger than the one that triggered the Southeast Asia tsunami exactly two years earlier. While the tsunami took around 230,000 lives, the death toll in Taiwan last week was just two.

As for the economic cost of damaging the undersea cables that connect much of the region with America and beyond, no one has named a price.

The flow of financial data to some countries was halted, which affected trading, but obviously the impact stretches much further. Anyone financially dependent on the passage of information - be it pizza delivery or freight delivery - along those cables has, in theory, lost out.

Those wanting to make contact with friends or family (some IDD services were also down) were left without the prop on which they have become so socially reliant that they take it for granted.

Questions will continue to be asked about our ever-growing dependency on the internet and why suitable back-up systems were not in place. Ultimately, the need for a reliable telecommunications infrastructure goes way beyond the service providers’ profit margins.

Looks like there has been another defection to Lenovo from Dell’s Asia operations, making it the fifth such high profile defection in eight months. Coming on top of Dell’s exploding batteries fiasco and an embarrassing lawsuit over false advertising, things are clearly not going right for Dell.

As “Adam” points out in his response to the false advertising post, it possibly is ”mucha do about nothing” [sic]. “Roger” then carries the pro-Dell argument forward, claiming subsequent high-level defections are also no big deal, even going so far as to say that it points to Lenovo being the company in trouble in China: “how do u spin this my friend.. if dell so ^**(&( up in china why is lenovo taking it’s top china man???,” Roger wrote.

Roger and Adam may be right, but we here at CER are beginning to wonder just how many “mucha do about nothings” it takes to make a “much ado about something”.

Norson Telecom Consulting is now plugging China Mobile to receive the first 3G license in mid-2007. However, in a departure from typical analyst thinking, Norson is picking the company to receive a license to deploy the unproven homegrown TD-SCDMA.

Most pundits, including Norson in earlier reports, have speculated the dominant fixed-line provider, China Telecom, would receive the license to deploy the homegrown standard, with China Mobile picking up a license for the proven international standard WCDMA.

Perhaps Norson analysts have been reading China Economic Review’s April cover story on 3G, which predicted such a scenario. The article argued that China Mobile was in a better position to ensure a smooth transition to TD-SCDMA than China Telecom.

China Mobile has an existing 2 to 2.5G GSM network and the world’s largest subscriber base. It would be a simple matter of maintaining and growing users on the existing network, and switching them at such time as its TD-SCDMA network was ready. Given that most existing 3G services can be run on 2G and 2.5 networks, it is unlikely to see a mass exodus of subscribers in the meantime.

If China Telecom received the homegrown license, it would be forced to build a network from scratch, and would be unlikely to ever close on China Mobile’s dominant mobile market share, effectively derailing the homegrown standard before it was launched:

“If China Telecom fails to establish a market for TD-SCDMA, as expected, the government’s 3G aspirations would take a major hit,” the cover story said.

“But even then, there is still a possibility that the homegrown standard will emerge with its reputation intact - China Telecom could get the WCDMA license and leave China Mobile stuck with TD-SCDMA. . . . . . For Beijing, handicapping its strongest mobile operator could be the only way to ensure the success of TD-SCDMA.”

But given that the government has set out its stall on having 3G available by the 2008 Beijing Olympics, a mid-2007 release is cutting things mighty fine. As the April cover story concluded:

“Reading newspaper and analyst reports from 2002 and 2004 gives an uncanny feeling of deja-vu. Analysts seem to make a living out of proclamations that 3G licenses are on the verge of being issued while the government is not slow to proclaim the commercial viability of TD-SCDMA. But as the rest of the world slowly turns its attention from 3G to fourth-generation mobile networks, China is in danger of getting left well and truly behind.

If the government is to honor its promise of 3G in time for the Olympics, it is time it stopped hedging its bets and announced some concrete plans. Failure to do so will be the surest sign yet that all is not well with Beijing’s 3G ambitions.”

Keep an eye on the analysts’ predictions or, better yet, watch this space.

Looks like Dell is not quite putting its money where its mouth is as it embraces its price war with main competitors HP and Lenovo.

To its credit, it is taking its effort to cut costs seriously. Problem is, it seems it forgot to tell its Chinese customers. . . . . and also forgot to pass on the savings.

Whoops, what price in bad PR a US$32 saving on a cheap as chips processor.

Doubts still remain as to whether Chinese computer giant Lenovo will be able to cut it in the real world, but its competitors seem to think so.

The company bought its way into third place in the global PC stakes in May last year when it bought the ailing PC unit of IBM for US$1.25 billion, in a move widely dismissed as an attempt to buy a brand rather than develop its own.

Now Dell, which is the world’s largest PC maker - ahead of Hewlett-Packard - is planning to mount an aggressive price war to pull its rival’s feet from under it even as Lenovo struggles to restructure its way out of the mess left behind by the woefully wasteful IBM.

Lenovo estimates it can save US$250 million a year by cutting around 1,000 employees and shifting offices. However, the restructuring will cost it around US$100 million, which it must pay for now.

But it seems to be doing the job better than analysts expected, booking a US$5 million profit in the second quarter, including US$19 million of its planned restructuring costs, after posting a loss in the first. Sales were up, as were gross profit margins, while revenues in the Americas topped US$1 billion for the first time, up 6% and accounting for 30% of total sales.

The immediate future will be interesting for the company. Nobody does price wars better than the Chinese, so Dell’s plans to take it on in this space are like a red rag to a bull. But price cuts do not a good brand strategy make, so watch for Lenovo to hold firm.

This is the new China, and Lenovo in many ways carries the flag for China’s strategy to develop truly global brands (cheap Haier beer fridges do not apply). It’s already dropped the IBM brand, silencing those critics who thought it would hide its Chinese-ness behind a global name, and it is now ready for the big time.

Who knows, maybe next year I will be posting this from a brand new Lenovo PC.