Online Ad Frenzy

With foreign investors providing financial support, Chinese video websites are gearing up to jump out of the red.

Online video viewing is experiencing a rise in popularity as young Chinese look for a wider variety of programs than are offered on television. As of the end of June 2009, China had 338 million Internet users, two thirds of whom watched videos online, according to a survey by the China Internet Network Information Center. The success of video websites attracted advertisers willing to dole out large sums of cash to have their products posted on websites frequented by a high volume of netizens. International venture investors have since started pouring money into the Internet sector of China in search of the next Youtube.

The most-visited Chinese video-streaming website, Youku.com, for instance, raised $40 million from investors Brookside Capital Partners, Sutter Hill Ventures, and Maverick Capital in December 2009, bringing its total amount of private equity funding to $110 million. Meanwhile, the video-sharing website Tudou.com reportedly completed its fifth round of venture financing, raising $400 million.

However, the seemingly buoyant sector continues to spill red ink largely due to heavy broadband access costs, according to a report by the Shanghai-based consulting firm iResearch. The video websites have also started paying higher prices for professional content as they try to dismiss criticisms about hosting pirated videos uploaded by users.

In an attempt to diversify its revenue sources, Youku.com launched a beta mobile portal to tap the 3G mobile market in 2009 while Tudou.com focused its investment in creating original programs.

Gary Wang, CEO of Tudou.com said the sector will maintain torrid growth in the next three to four years, adding his firm will break even in 2010.

Telecom Giant's Success

While global telecom equipment vendors continue to suffer as carriers cut back on costs, Huawei Technologies Co. Ltd. is staging a swift, defiant surge.

The privately owned, Shenzhen-based company was selected by Norway's largest telecom operator, Telenor, to supply its new Norwegian wireless network. The contracts exemplify how Huawei is moving beyond China and other emerging markets to tap into Europe and the United States.

According to data from the U.S. market research company Dell'Oro, Huawei's global market share had almost doubled to 20 percent by the end of September 2009 from one year earlier, making the company the second largest supplier after Ericsson.

While standing out thanks to low-cost supplies in its early days, Huawei now relies more on its technological edge to compete with foreign rivals, said Zhang Yu, a senior analyst with the Beijing-based consulting firm BDA China Ltd.

Clear evidence of its innovative competence is the SingleRAN (single radio access network), a wireless network that allows mobile operators to save costs by operating separate networks.

Despite a significant leap in sales revenues, Huawei's profit margin was 6.28 percent in 2008, a sharp decline from 19 percent in 2003. The drop was due in part to a rise of the renminbi against the U.S. dollar and other currencies that led to a $776 million foreign-exchange loss for the company.

Meanwhile, rapid increases in accounts receivable are mounting pressures on Huawei's balance sheet, forcing the company to take on short-term debts to support business expansions.

Industrial Prospects

As the Chinese economy gains momentum, the industrial sector, which fell into a downward spiral in 2009, is regaining its lost strength.

According to the National Bureau of Statistics, profits of major industrial enterprises in the first 11 months of 2009 rose 7.8 percent year on year, 2.9 percentage points higher than one year earlier. During the same period, industrial output increased by 10.3 percent, maintaining the steady expansion momentum.

The profit advance was led by private manufacturers, whose earnings jumped 17.4 percent year on year to 684.9 billion yuan ($100.3 billion) in the first 11 months of 2009. Profits of foreign-invested companies (including companies set up by Hong Kong, Macao and Taiwan on the mainland) gained 16.9 percent to reach 751.1 billion yuan ($110 billion), while profits of state-owned firms declined 4.5 percent to 751.4 billion yuan ($110 billion) due to losses incurred by steel makers and oil explorers.

The industrial recovery comes sooner and stronger than expected, said Xu Jian, an analyst with the China International Capital Corp. Ltd.

The growth outlook for manufacturers will intensify in 2010 since a time lag can be expected before the economic recovery filters through the enterprise sector, he added.