Chinese Tech Stock Weekly Summary

The following is excerpted from IRG's weekly stock report:

Internet

• Eleven music companies including EMI (EMIPY.PK), Sony BMG, Warner and Universal said they have filed a case against Alibaba, the operator of Yahoo (YHOO) China, accusing the web portal of violating their music copyrights by providing music downloading services. The group asked that Alibaba stop the infringement, issue a public apology and pay 5.5 million yuan (US$712,000) in compensation. Industry sources said Alibaba has refused to pay the compensation, stating that as a search engine, its subsidiary Yahoo China only provides links, but not the downloading service for this music. Alibaba said it couldn’t be responsible for the content published by a third party. The Beijing Second Intermediate Court has not yet decided on the case. The same music companies have a lodged a similar lawsuit against Baidu.

• MSN (MSFT) China announced plans to add four more new partners – Hexun.com, Yesky.com, Ctrip.com and Eastday.com – as web content suppliers. The new partners will boost the company's total content partners to 22. They will help MSN to create four channels of stock, digital and IT, travel and graphics areas, respectively. With the addition of these four channels, MSN Chinese website will have 25 channels covering information, entertainment, finance, real estate, cars, community and film. The publisher and chief editor of MSN Chinese web site says that China has become one of the four most important markets for Microsoft.

• The U.S. Securities and Exchange Commission reported that, Zhen Ronghui, CEO of 51job.com (JOBS), is expected to sell 1 million shares of 51job.com to Japanese human resource service company Recruit in a deal valued at US$13 million. Following the sale, Zhen will still hold 16.2 million shares of 51job.com, which would represent about 28.8 percent of the company's total shares. 51job.com says that the sale of Zhen's shares to Recruit is part of the company's plans to set up a strategic alliance with Recruit. According to 51job.com, its shareholders have agreed to sell 15 percent of the company's stake to Recruit, which also plans to buy 8.5 million shares of 51job.com at US$13 for each share. The agreement also states that Recruit will acquire another 25 percent of 51job.com stock in the coming three years.

• Online payment provider SmartPay said it has signed a deal with Net263 to jointly promote diversified payment solutions in the telecommunications field. According to its CEO, SmartPay will be “continuously committed to the innovations on payment solutions in more extensive fields, and promote the realization of payment convenience to create an easy and vogue life for people."

• Ninetowns (NINE) announced entering into a definitive agreement to acquire a related party of Beijing Baichuan Tongda Science and Technology Development Co., Ltd., a Chinese vertical search engine. Baichuan started as a software developer of supply chain, e-commerce and trade solutions and evolved to become a B2B vertical search engine. Baichuan has entered into alliances with more than 30 Chinese B2B portals for information on some 1.5 million products available from over 400,000 Chinese suppliers. Baichuan is believed to be the first B2B vertical search engine developed in China, providing it with first-mover advantage and brand name recognition. Ninetowns said it looks to the technology of Baichuan in strengthening its business model and help it form its own B2B business

Media, Entertainment and Gaming

• China Film Group and Hollywood-based Crest Digital announced forming a joint venture aimed at delivering a full range of home entertainment and technology software content via multiple digital platforms to mainland China consumers. Industry observers see the joint venture as a combination of the capabilities of the country’s most influential entertainment and media conglomerates with one of Hollywood's premier media services and optical technology companies. The two companies said they will use the alliance to focus on developing emerging digital content delivery technologies for its clients, including VOD, IPTV, Internet and mobile. The two companies will collaborate on a broad spectrum of digital media ventures in China including the creation of a new state-of-the-art DVD and CD manufacturing facility. Outside of this project, the two companies said they would be announcing other ventures.

• According to an official of the country’s General Administration of Press and Publication, revenue from China's online gaming industry hit 8 billion yuan (US$1 billion) in 2006 and is expected to grow four times by 2010. The body attributed the figures to the widespread accessibility of the Internet. The report said online gaming revenue in China will grow 30 percent annually to reach 30 billion yuan (US$3.9 billion) by 2010. The official noted that the rapid growth in online gaming has created opportunities for telecom, Internet, computer, software and consumer electronics firms, which earned 33 billion yuan (US$4.3 billion) from online gaming in 2006. American and Japanese games used to dominate the market, but China-made online games had about 65 percent of the domestic market in 2006 and registered export revenues of US$20 million last year.

• Industry sources said the Chinese government has ordered NetEase.com Inc. (NTES), Shanda Interactive Entertainment Ltd. (SNDA) and other online game operators to stop users younger than 18 years old from spending more than three consecutive hours a day playing. According to NetEase, the order was accompanied by the instruction requiring companies to install a system by July 15 that cancels half the points or credits earned by younger users after playing more than three straight hours. Games such as NetEase's role-playing title Fantasy Westward Journey award users points that make their game-characters better fighters. China was home to 137 million web users at the end of last year, second only to the U.S., according to the China Internet Network Information Center, a government-backed agency that licenses online domain names. More than 17 percent of Chinese web users were under 18 years old, with over 50 percent younger than 24. NetEase, Shanda and other online game operators began trials of the time limits with some of their titles in 2005. The companies said they will begin testing the time limits for all their games by April 15 and must enforce the restrictions by July 15.

• NewMarket China, Inc., the China regional subsidiary of NewMarket Technology, Inc. (NMKT.OB) announced that it has secured a contract with Daysview Digital Image Studio Ltd. of Beijing, China. Daysview is a leader in movie and television show post-production, media packaging and game and movie prologues. NewMarket China and Daysview have entered into a two-year contract to provide multimedia-outsourcing services to customers in North America and other regions. Last year, NewMarket Technology completed the independent public listing of its Chinese operations. The Shanghai Multimedia Industry Association [SMIA] is one of 12 associations established in Shanghai after China joined the WTO. It is a non-profit organization made up of corporations and individuals engaged in production, manufacture, research and other activities in the multimedia industry. NewMarket provides certified integration and maintenance services to support the prevailing industry standard solutions to include Microsoft (MSFT), Cisco Systems (CSCO), SAP (SAP), Siebel, Oracle (ORCL) and Sun Microsystems (SUNW). NewMarket China, Inc. is a leader in the rapidly developing Chinese software engineering market providing high quality outsourcing services to global customers.

Mobile/Wireless

• Datang Mobile and Alcatel Shanghai Bell, Alcatel-Lucent's (ALU) flagship company in China, announced that they have won the bidding that will allow them to provide TD-SCDMA network solutions as part of China Mobile's (CHL) TD-SCDMA trial network expansion program. Under the deal, Datang and Alcatel Shanghai Bell plan to deploy TD-SCDMA network solutions for China Mobile in Shanghai and in the southern city of Guangzhou. Alcatel Shanghai Bell will provide the Node B equipment to be used in the network.

• China Radio International [CTRI] announced that it has obtained a mobile phone TV license, making it the third media agent in China that has secured the said license. The company joins Shanghai Media Group and CCTV, which also received the license. CRI has begun to provide mobile phone radio and television service to China Unicom's (CHU) CDMA1X users and the service will also be available to China Mobile's users in the near future.

Hardware

• The China Electronics Standardization Association reported the creation of a highperformance computer standard work commission with the aim of making a standard for high- performance computers. The new commission consists of more than 20 members including Dawning, Langchao and the Computer Institute of China Academy of Sciences. According to a member of a commission, China's high-performance computers require a standard in order to protect the nation's safety and interests.

• Ten color TV manufacturers from China announced setting up of a joint venture company in Shenzhen with the aim of using the group to respond to the American ATSC standard. The new company is called Zhong Cai Lian Science and Technology Co., Ltd, has received an investment of 1 million yuan (US$129,000) from each of the ten Chinese TV manufacturers. The group is responding to the U.S. Federal Communications Commission’s ruling that said from March 1, 2007, all digital TV sets which are bigger than 13-inches and exported to the U.S. must conform with the ATSC standard, with Chinese color TV manufacturers required to pay a US$23 patent fee for each of their TV sets exported to the U.S market.

Telecommunications

• According to the country’s Ministry of Information Industry, it has given an International Communications Facilities Service License to China Tietong, enabling one of the smaller communications service providers in the country to run international communications services. With the license, China Tietong joins other four licensed operators, China Telecom (CHA), China Mobile, China Unicom and China Netcom (CN). China Tietong said it has opened more than 10G bandwidth to be used for trans-border communications. The company is a major state-owned basic telecommunications operator, with total assets valued at some 42.4 billion yuan (US$5.4 billion) and maintains 31 provincial branches.

Information Technology

• China Foreign Exchange Trade System [CFETS] and Reuters (RTRSY) announced the launching of a new foreign exchange trading system. Under the new system, CFETS member banks will now be able to access and trade in real-time, the yuan and five global currency pair prices – Japanese yen, Hong Kong dollar, Euro, and Sterling, and U.S. dollar – and allow them to have a choice of mechanisms to bid or access prices, one click trading, request for quote or limit orders. Initially there are five currency pairs being offered, the Chinese Yuan against the US Dollar, Japanese Yen, Hong Kong Dollar, Euro, and Sterling. Founded in 1994 as an intermediary in the inter-bank foreign exchange market in China, CFETS has built infrastructure for China’s inter-bank market.

• YeePay, an online payment provider, reported that it has secured the National Information Security Certification from China Information Technology Security Certification Center [CNITSEC]. This makes the company the first independent third-party payment provider to be given such certification. CNITSEC is the government authority responsible for IT security evaluation and certification in China. It is mandated for IT security products, information systems and service providers to ensure product and service quality and security management. The certification and evaluation processes includes assessment of the system design, analysis of security procedures, tests of critical product or service elements, and onsite inspection of system operations. YeePay received the certification after going through a rigorous set of systematic evaluations conducted by CNITSEC.

Disclaimer: IRG is not responsible for the accuracy of the news compiled within this article, which is based on publicly available information.