IRG China Weekly Review: Feb 18-25 (CHL, CHU, CHA, CN, CHID, LNVGY)

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Includes: CHA, CHID, CHL, CHU, CN-OLD, LNVGY
by: IRG Ltd

Mobile/Wireless

• According to the country’s Ministry of Information Industry, there are over 400 million mobile phone users in China now. The number of subscribers in China went up by 5.4 million in January to 398 million. The Ministry said that with further growth this month, the total number has hit 400 million. It should be noted that the country set up its first mobile phone network in 1987 and took a decade to reach 10 million customers. In 2003, the number of mobile phones in China surpassed that of fixed-line phones. The report also said that nearly 34 billion text messages were sent by mobile phone users in January, representing a 66 percent year-on-year increase.

• China Telecom (ticker: CHA), China Mobile (ticker: CHL) and China Netcom (ticker: CN) said they will work jointly with equipment sellers and handset makers to expand trial networks to cities in Hebei, Fujian and Shandong provinces. This is aimed at promoting the commercial readiness of TD-SCDMA, which is a homegrown TD-SCDMA standard. The latest trials will be on the performance of 3G new handsets.

Internet

• According to a study done by the China Internet Development Research (CIDRC), the consumer-to-consumer (C2C) market has become the new growth area of the e-commerce industry in China. The study said the market registered a turnover of RMB 13.5 billion yuan (US$1.6 billion), which is three times higher than the 2004 volume. The report noted that e-commerce sales last year hit a record 553.1 billion yuan (US$68.7 billion), which represents an increase of 58 percent over 2004. The figures are expected to continue growing this year. Cited in the study as the top domestic online auction site is Taobao.com, which beat its U.S. counterpart eBay (ticker: EBAY), with a market share of 70 percent of China’s C2C market users and registering transactions valued around 9.7 billion yuan (US$1.2 billion) in 2005.

Software

• Shanghai’s software industry generated 45.5 billion yuan (US$5.6 billion) in sales revenue in 2005, according to the Shanghai Municipal Government. The number accounts for 15.2 percent of the overall sales revenue in the country’s software industry this year. There are now seven software companies in Shanghai that are recognized for having acquired top international certifications for software companies, representing about 5 percent of such companies around the world. The sales revenue of software products with their own intellectual property rights made up 40 percent of the industry’s total sales revenue. R& D funds increased to account for 20 percent of the sales revenue.

Hardware

• Lenovo Group (ticker: LNVGY) announced its new offering in the form of its first Lenovo-branded computers that are going to be marketed outside China. The move is Lenovo's first attempt to introduce its product brand in the U.S. and other countries since the completion of its acquisition of IBM's PC business. With its new 3000 series of computers, Observers are saying that Lenovo is using its 3000 series of computers to go into the same target markets vacated by IBM. Lenovo announced two lines of desktop computers, starting at US$349 along with a laptop line that starts at US$599. The products are available immediately from Lenovo's web site and through its business partners. In the fourth quarter of 2005, Lenovo had a 7.2 percent market share, compared with Dell's 17.2 percent and HP's 15.7 percent, according to IDC.

Information Technology

• According to the China Center of Information Industry Development (CCID), China's market for IT services is seen as achieving a 20.6 percent growth annually for the next five years. The CCID forecast was based on the rapid rate of growth in the past year. In 2005, the country’s IT service market volume generated some 82.2 billion yuan (US$10.2 billion), a figure representing a 20.1 percent year-on-year rise. Two factors explaining the growth are the growing computer sales and the increase in Internet usage. Last year about 19.9 million personal computers were sold in the Chinese market, with sales volume totaling 121 billion yuan (US$15 billion), an 18.8 percent and 8.7 percent year-on-year growth.

Ventures/Investments

• China Digital Communication Group (ticker: CHID), a battery component manufacturer in China, announced today the signing of agreement for the acquisition of UPE (Far East) Ltd., which operates through its wholly owned subsidiary company, Shenzhen Zhuo Tong Power Supply Industry Co. Ltd. (Zhuo Tong). Under the deal, China Digital will acquire 100 percent of UPE in an all stock transaction valued at approximately US$11.1 million. The arrangement will have China Digital issuing 18.5 million shares to the shareholders of UPE in exchange for all of the shares UPE. Upon completion of the acquisition, the shareholders of UPE will own approximately 25 percent of China Digital. Zhuo Tong provides power supply technology and equipment to the so-called China's "Big Four" - China Mobile, China Unicom, China Telecom, and China Netcom. Zhuo Tong is a pioneer of 3G power supply technologies and equipment.

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