Introducing Xinyang Industrial City

Includes: AIVI, SKYC
by: Greg Edmunds

Google's translation service is an effective tool for uncovering opportunities and tracking local media, so long as you don't mind the occasional incoherent sentence and incorrect translation. For instance, I use it to follow what is happening with the industrial revolution taking place at Xinyang Industrial City in Xinyang, China. In particular, I am keenly following the developments of one of the key projects in the city, reportedly the building of the world's first MOTFT-OLED mass production facility using Chinese Intellectual Property. The aim of this article is not to provide any sort of detailed analysis or company specific recommendation, but rather to serve as an introduction to what I believe to be a very interesting, relatively unknown scenario.

The electronic manufacturing and information industry has been recognized as a pillar industry for continued economic growth and prosperity in China. With this in mind the government of Xinyang set out to design and build a modern high-tech industrial park to attract both foreign and local investment, and to diversify the area's economy. Xinyang Industrial City was formalized in 2004, and comprises an area of 73.23 square kilometers located to the east of downtown Xinyang. In 2010, Xinyang was recognized as one of the ten fastest growing industrial agglomeration areas. In 2011, Xinyang was assessed as "a national model for labor relations", and on December 14, 2012, it was reported that the Xinyang High-Tech Industrial Development Zone had been formally approved and recognized. Over the past few years the city has undergone multi-billion dollar construction initiatives developing the required infrastructure to attract domestic and foreign investment. To date over 200 enterprises have been lured to Xinyang resulting in completed proprietary projects totaling 21 billion RMB of direct investment, with a further 20 billion RMB in future contracts. The concept for the park is "clustering" upstream and downstream high-tech companies together to facilitate strategic alliances, and to exploit economies of scale for production and research. The management committee of Xinyang Industrial City maintains a website that is updated daily with relevant articles about events directly related to the park and companies within. These articles are produced by park management, or sourced through provincial media outlets. In addition, a weekly 2-3 minute news broadcast is posted every Tuesday highlighting the week's key events with video footage of factories, production lines, townhall meetings, tours, etc. There are also less frequent, but more in-depth videos posted after airing on provincial television stations as part of the areas promotional efforts.

There are a couple of public companies playing a central role in the building of Xinyang Industrial Park; Aivtech International Group Co., (OTCPK:AIVI) and Sky Digital Stores Corp. (OTCPK:SKYC) One of the key projects, and subject of many of the articles and videos, relates to an OLED manufacturing facility being built in Xinyang Industrial City. The OLED project is a joint venture of sorts, between the government and Aivtech International Group (the OLED project belongs to Stimulated Blue Technology Co. Ltd., a subsidiary of Aivtech, and Aivtech is often translated as Pan-blue Science and Technology Co. Ltd). The Henan Provincial Governor, Vice Governor, Party Secretary, and municipal and provincial leaders at all levels have attached great importance to Aivtech's projects; to which there are several phases. The project phases can be divided by subsidiary, being Henan Pan-blue Science and Technology, which is building multiple factories and facilities, the first of which began producing LED/LCD televisions January 15, 2012. This is an expansion of Aivtech's historical OEM/ODM operations in Donguang; while Stimulated Blue is focused on developing the OLED project in phases 1 and 2. Funding for the projects appears to be coming mostly from ICBC and BOC through cooperation with the local government.

Aivtech was formed in 2004, and produces their own domestic brand of electronic devices (speakers, televisions) under the AIV logo, as well as manufactures and designs for companies like Akai, HP (NYSE:HPQ), and Aigo. Furthermore, they effectively invented gaming furniture, available for sale at Walmart (NYSE:WMT), Target (NYSE:TGT), (as X-rocker by Ace Bayou) etc., which was named best gaming peripheral in 2008 by CNN. The company published press releases and filed with the SEC up until the 3rd quarter of 2011, but has since ceased due to the current investment environment. Management chose to focus on their expansion efforts rather than their listing for the time being. However, they have also indicated that they do intend to resume at some future date; when the projects are running, and some degree of rationality has returned to the market. This stance appears to be supported by current job postings for the company and it's subsidiaries. Perhaps one of the most qualitatively interesting aspects of the Aivtech expansion is the number of regulatory, governmental, and financial entities overseeing the projects in some respect. Here is a short list: Several Provincial Government agencies, several Municipal Government agencies, the IRS Revenue Authority, The China Electronic Information Development Institute, The CPPCC, Bank of China, scientific expert panels from Chinese universities, the Economic Development Council, the All-China Federation of Trade Unions, ICBC (2), some Environmental Protection Agency, The Provincial Intellectual Property Office, even the CDPF.

Sky Digital, in a similar circumstance as Aivtech, has just recently filed an 8-K disclosing their decision to de-register their shares and cease reporting. The reason given is that the costs of compliance are simply not justifiable given the market's current attitude. Sky Digital is another company who is aggressively expanding. The company has multi-year targets which ultimately lead to their 5 year plan of having a few thousand retail locations across China. Sky Digital manufactures and sells their own proprietary electronic devices under the Donxon brand (aka EMI), along with other brands such as Apple. I am less familiar with Sky Digital's operations, but they are in the Chinese press regularly and are playing a key role in Xinyang's high-tech development.

In the end, both companies are actively expanding in an area that seems keen on improving transparency and creating a welcoming investment environment. The irony of these particular non-reporting, non-press-releasing companies, who are utterly unknown to North American investors, is that they are making the Chinese news on almost a weekly basis and are pushing full steam ahead with large scale expansions. Furthermore, the news that is being generated is predominantly geared towards informing the general local public about the progress within the development and the overall economic impact for Xinyang, rather than being market based PR type disclosures favoring investors. Have a look at video 1 (5 minute interview with the CEO), 2 (about 1 minute in) and 3 (MOTFT-OLED site visit) to get an idea of the coverage being produced (mostly for visuals unless fluent in Mandarin), and follow the park's events and company related news at, or, the news tab (translated) and There is plenty of reading material in the hyperlinks provided in this article, but they only represent a portion of the information available for those interested enough to find it.

Disclosure: I am long OTCPK:AIVI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.