China news/analysis in brief

• Sohu changing strategy. Sohu (Nasdaq: SOHU) CEO Charles Zhang announced that his company will begin following a strategy similar to that of Netease
  (ticker: NTES), and focus on content development. It had previously followed Sina's business plan which depends largely on advertising and wireless value added services (WVAS). Netease focuses on entertainment, especially online gaming.

• TechFaith Wireless IPO. TechFaith Wireless, a Beijing based mobile handset designer, filed for a US IPO to
  raise up to $150 million.
  The company had
  revenues of $46.6 million and income of $18.2 million in 2004. In
  2003 the company had revenues of $9.7 million and income of $5
  million. Customers include Lenovo (LNVGY.PK), Alcatel (ticker: ALA), NEC (ticker: NIPNY) and UTStarcom (ticker: UTSIE). See the company's F-1 filing here. An analysis of the F-1 is upcoming.

• Latest telecom restructuring speculation. China Unicom (ticker: CHU) will merge its GSM cellular network with fixed-line carrier China Netcom (ticker: CN) under a new plan being considered by Chinese regulators. Fixed-line carrier China Telecom (ticker: CHA) will buy Unicom's CDMA network. Under the new plan, China Unicom's fixed-line networks will be split geographically to complement China Telecom and China Netcom's fixed-line networks. China Telecom will take over Unicom's fixed-line networks in northern China.

• Internet advertising growth. Internet advertising revenue increased 75.9% in 2004, reaching $230 million. Revenues are projected to continue rising through 2005 and 2006. Advertising has become the main source of revenue for Internet media, such as Sina.com (ticker: SINA). Sina reports that automobiles and real estate are two rapidly growing advertising sectors.

• The NBA and China Mobile (ticker: CHL). The National Basketball Association (NBA) and mobile operator China Mobile announced a new multi-year marketing partnership agreement that designates China Mobile as the NBA's official telecommunications service provider in China. With China's Yao Ming playing in the US basketball league, the NBA has become immensely popular throughout China.

• Shanghai's upcoming aging population explosion. Shanghai's population over 60 years old will explode beginning in 2010. While the population grew 60,000 in 2004, it will grow 130,000 in 2010, and 170,000 a year beginning in 2011. A similar explosion will follow elsewhere in China. Growth in Shanghai's 60+ group will begin slowing in 2020.

• Avon (ticker: AVP) gains approval for direct sales testing. The Chinese government has officially
  approved Avon Products China subsidiary, to be the first company to test
  direct selling in Beijing, Tianjin, and Guangdong Province beginning in April. Rising incomes and changing lifestyles have
  fueled sales of hygiene, beauty and health products in China's rich
  coastal cities. At the same time, spreading inland wealth has created
  new consumers and an increasing number of sales executives.

  This sales testing is preparation for the return of direct selling in China. China banned direct sales in 1998, saying it was hard for consumers to distinguish direct sales from pyramid schemes. Avon's sales in China amounted to about $225 million in 2004. The company projects a 33% increase to more than $300 million in revenue in 2005, and $600 million in China sales for 2007. Other publicly traded US direct sellers in China include Nu Skin Enterprises (ticker: NUS), which said Q1 sales in China rose 15%, outpacing overall revenue growth.