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Round-up Report
ARCHIVES OF CHINA MARKET FLASH
NOVEMBER 2003
China’s Mobile phone users surpass fixed line numbers(Nov 24, 2003)
Based on data from the MII, at the end of October, China had 257 million mobile phone users surpassing the number of fixed line users by 2 million. This marks the first time in China’s telecom history that Mobile phone users outnumbered fixed line users. The faster growth of mobile phone users punctuates the surge in China’s handset market which has been driven by ongoing technology improvements and new models. Handset manufacturers are expecting a 70 million unit domestic handset market in 2004.
China’s EVD player to enter domestic market(Nov 24, 2003)
China’s nine leading electronics makers announced 11 types of EVD (Enhanced Versatile Disc) players’ entering the market recently. The nine makers include: SVA, Jiangsu Sinco electronics, Xiamen Amoi electronics, Dongguan Jingzheng Digital technology, Guangdong Bu-Bu-gao electronics, Wanlida group, Beijing Jingyuxing electronics, Chuangwei group and Sichuan Changhong.
Using China’s homegrown technology which was developed by Beijing E-world Technology Co., a government backed developer of China’s self-patented digital laser video system, these EVD products underline China’s efforts in formulating technology standards and a move to develop IP.
From the perspective of high-definition images, text colors and voice, EVD technology is regarded as a great improvement over DVD. It will also relieve China’s DVD manufacturers from paying licensing fees to foreign DVD patent holders.
China’s digital camera sales rise 111.5% in the 3rd quarter(Nov 24, 2003)
China’s digital camera sales reached 3.2 million units in the third quarter, up 111.5% year-on-year, based on a CCID report. Compared with the second quarter, the sales rose 94.5%.
This growth was largely driven by the promotions of digital camera makers on price, branding and advertisements. Overall, China’s self-made digital cameras are focusing on low-end customers while international brands occupy the middle and high-end markets.
Due to China’s continuous economic growth and consumers’ growing preference for digital products, the total domestic sales of digital cameras in 2003 are expected to grow 94.6% year-on-year to 11.1 million units.
China makes its first 3G handset (Nov 17, 2003)
Chongqing Institute of Posts and Telecommunications recently announced its first China-made 3G handset, which is also the first TD-SCDMA handset in the world. TD-SCDMA, a China-formulated 3G technology standard, has been approved by the International Telecommunications Union of the United States as one of the three standards for 3G mobile communications. The other two 3G technology standards are WCDMA (Europe) and CDMA 2000 (US and Japan).
The 3G mobile phone is seen as a highly-intelligent device as its functions include high-speed Internet connection, teleconferencing, electronic commerce, TV and digital camera use.
China is aiming at developing its IPs through development of 3G. This newly-born handset is seen as a milestone in China’s telecommunication industry and may also push the Chinese government to hasten the issuance of 3G licenses. Datang Telecom, an initiator of China 3G, is managing the test of 3G handsets in the 3G trial-run network. The mass production of the 3G handset is expected in 2005.
Nokia3108 handset moves SMS to business users (Nov 17, 2003)
Nokia3108 aims to bring SMS (Short Messaging Service) service to high-end business users by combining intuitive pen input and handwriting recognition capability in its handset. The Chinese-motivated design inspired by the futuristic warrior theme will enable users to enjoy self-expression, share experiences and conduct business communications in a fun and exciting way.
Given the fact that SMS is a huge success in the low and middle end of the market and has brought billions of dollars in revenues to ISP companies like Sina and Netease, the Nokia3108 aims to aggressively target business people.
Designed by Nokia’s product creation centre in Beijing, the Nokia3108 supports tri-band (GSM900/1800/1900) functionality, a high resolution color display,stylish built-in touch pad, Lunar Calendar, an enhanced phonebook, themed wallpapers, animated screensavers, games, SMS, Java and an XHTML browser. This product is expected to enter the market during the fourth quarter of 2003.
China’s telephone users over 500 million(Nov 17,2003)
China’s telephone users reached 500.441 million at the end of September. Based on report of the Ministry of Information Industry (MII), in the first nine months of this year, China’s overall telecommunication revenue grew 14% year-to-year to US$45.99 billion. The MII also announced that, at the end of the 3rd quarter, the total fixed line users reached 250.468 million with 36.245 million new subscribers while mobile phone subscribers hit 249.974 million with 43.969 million new subscribers. As a result, China’s fixed line telephone penetration rate is 20.3% and mobile penetration rate is 20.26%.
China to offer three 3G platforms (Nov 10, 2003)
(Jonathan Bigelow, Bankok Thailand) In a roundtable discussion at the 3G World Congress, MII Vice Chairman of China’s 3G Evaluation Group, Professor Ruming Chen and other China telecom executives confirmed that China will offer CDMA2000, WCDMA and TD-SCDMA services in the coming years. Professor Chen stressed that there were user benefits to all three standards and that the size of the Chinese market and the huge opportunity presented by the 2008 Beijing Olympics would make the success of 3G all but inevitable.
Industry executives from Ericsson, Huawei, Nortel, Qualcomm, Vodafone and ZTE debated whether the launch of 3G in China was actually premature. Seeing this as unlikely, Jan Malm, President of Ericsson China, warned that any delays in the launch of 3G networks in China could seriously hurt China’s position as the center of global telecom equipment production as companies might shift production to areas with more 3G expertise. Responding to China’s readiness for 3G, James Jiang, General Manager of ZTE, stressed that the 70% mobile penetration rates in Shanghai and Shenzhen were as high as most Western European cities and that these consumers were ready for the enhanced services of 3G. He also pointed out that most networks in China already were at the 2.5G level (GPRS) so that Chinese mobile users already use voice and data with their handsets. Dr. Howard Xia, Sr. Director of Vodafone China, backed Jiang’s views when he stated that without 3G, capacity could soon become an issue in China’s coastal cities. He stressed that London and parts of Japan already had capacity issues with their 2G networks as they can’t handle both voice and data with current levels of demand.
While all participants agreed that China will indeed be expanding its 3G network utilizing CDMA2000, WCDMA and TD-SCDMA, George Huang of Nortel Networks warned that handset costs must come down to the US$200-$250 level in order to gain wide acceptance. Dr. Xia of Vodafone would not confirm whether mobile operators would subsidize 3G handsets to boost demand.
TCL and Thomson form the largest TV maker (Nov 10, 2003)
TCL International Holdings, China’s second largest TV maker and Thomson, a leading French video technology company, have formed a joint venture, TCL-Thomson Electronics, to develop, manufacture and distribute TV sets and related products in the global market. The new company will combine both parties’ strengths in assets, IP and market access to position itself as a leader in the global TV industry.
This win-win agreement gives Thomson access to China’s huge market and cheap manufacturing base while it also enables TCL to gain quick entry to Europe and the U.S Market circumventing anti-dumping rules. The new company will use TCL as the brand name in Asia and other emerging markets, and use Thomas in Europe and RCA in North America.
The new company’s combined assets will exceed Euro 450 million, including TV and DVD manufacturing plants, R&D centers and sales networks. TCL International will hold 67% of the company shares while Thomson will own 33%. The new company is expected to be established in the first half of 2004 and will target sales of 18 million TVs annually.
China’s VAT revenue rises but VAT rebates cut (Nov 10, 2003)
According to figures released by the State Administration of Taxation, China’s VAT (value-added tax) revenue hit US$65.4 billion in the first nine month of this year, a 16.9% year-on-year increase, constituting 36% of China’s national tax revenues during the Jan-Sept period. Based on China’s tax law, all goods sold in China have to pay 17% VAT.
To encourage exports, China has a VAT rebate policy on exports of China-made products. Manufacturers who pay VAT when importing parts or purchasing parts locally can claim a VAT rebate with a VAT invoice for products that are exported.
In fact, a large portion of VAT rebates have not been cashed due to a shortage of government funds. And, the international community criticized the VAT rebate for China’s exports as “unfair” and “likely to result in anti-dumping concerns.” Under this backdrop, the Chinese government has issued new VAT rebate rules. By Jan 2004, the average VAT rebate on exported goods will fall by 3%. However, the VAT export rebate for high-tech products will remain unchanged. The unchanged product categories include aircraft, ships, automobile and related components, railway & train, telecom and medical equipment.
