Private Equity Partners China Newsletter Issue: Dec. 2013

PE&VC

IPO

INDUSTRY

PE&VC 

GLP Launches US$3 Billion China Logistics Fund



IDG-Accel Funds invest in Phoenix FM App Business



Haitong capital, orient international launch rmb buyout fund



Standard Chartered PE, Boyu invest in China dessert chain



Sailing Capital launches cross-border RMB buyout fund

GLP Launches US$3 Billion China Logistics Fund 2013-11-14 Global Logistic Properties Limited (“GLP”), the leading provider of modern logistics facilities in China, Japan and Brazil, has launched the world’s largest China-focused logistics infrastructure fund. CLF Fund I (“the Fund”) will invest over US$3 billion to develop modern logistics facilities, capturing the significant opportunities arising from growing domestic consumption and the shortage of modern logistics facilities in China. Six leading global institutions are investing alongside GLP. GLP is the asset manager and will retain a 56% stake in the Fund, ensuring alignment of interests with its partners. The Fund will be GLP’s exclusive vehicle for new, wholly-owned logistics development projects in China1[1] during the three year investment period and provides additional capital to support sustainable long-term growth while enhancing returns on GLP’s invested capital. This transaction establishes a strong platform for future growth and is consistent with GLP’s strategy to focus on the world’s best markets and grow its fund management business. US$1.5 billion of equity has been committed to the Fund, with leverage allowing for an investment capacity of over US$3 billion2[2] over three years. Jeffrey H. Schwartz, Co-Founder and Chairman of the Executive Committee of GLP said, "We are very excited to partner with these six leading institutional investors to launch the world’s largest China-focused

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logistics infrastructure fund. Investor interest was very strong, with the offering significantly oversubscribed. This is a testament to the strength of our team on the ground and the organization we have built. As demand for modern logistics facilities in China continues to grow, CLF Fund I ensures we will have increased funding in place to capture a significant share in a US$2 trillion market opportunity.” Focused on China; Attractive Market Dynamics China is GLP’s key growth market, where there is high domestic consumption growth, as reflected by the 18% annual growth of the country’s retail sales over the past six years. The Chinese government has identified logistics as one of the pillar industries to support economic growth. 80% of GLP’s China portfolio is geared towards domestic consumption, making it well-positioned to benefit from the country’s ongoing transition to a consumption-led economy. E-commerce is also a key driver of demand, with its share of GLP’s total leased area in China increasing from 4% in FY2010 to 22% today. Ming Z. Mei, Co-Founder and Chief Executive Officer of GLP said, “We continue to see robust demand for quality logistics facilities from our customers, driven by sustained domestic consumption and a shortage of supply. GLP will focus on maintaining our leadership position in China, while leveraging our deep industry experience and strong customer relationships to generate attractive returns for our shareholders.” Strong Development Pipeline for Further Growth GLP has a strong track record of developing in China. Its portfolio has grown at a 68% compound annual growth rate over the past nine years, and today encompasses 8.2 million square meters (“sqm”) (88 million square feet (“sq ft”)) of completed facilities. This transaction will build upon the company’s market-leading position, with on-the-ground execution by one of the best teams in the industry. GLP will seed the Fund with land to support 1.8 million sqm (19 million sq ft) of leasable area. Future developments will benefit from GLP’s strong land reserve. GLP has secured, on behalf of the Fund, a US$1 billion credit facility with China Merchants Bank to fund development activity in China. Expanding GLP’s Fund Management Platform with Leading Global Investors Interest from institutional investors was strong, with the offering significantly oversubscribed. The Fund comprises six leading institutions from Asia, Europe and North America, including sovereign wealth funds, pension plans and a global multi-manager. Four of these investors are new to GLP’s fund management platform, of which three are national pension and sovereign wealth funds. With the addition of CLF Fund I, GLP’s fund management platform increases to US$11.4 billion of assets under management.

M3 Capital Partners (HK) Limited served as exclusive financial advisor to GLP in connection with the formation of the Fund.

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IDG-Accel Funds invest in Phoenix FM App Business 2013-11-12 Phoenix New Media Limited ("Phoenix New Media", "ifeng" or the "Company") (NYSE: FENG), a leading new media company in China, today announced that it has entered into definitive agreements with IDG-Accel China Growth Fund III L.P. and IDG-Accel China III Investors L.P. ("IDG-Accel Funds") for an investment of millions of US dollars to accelerate development of the Phoenix FM App business. This strategic investment in the Phoenix FM App business will focus on developing audio apps for smartphones which offer listeners audio content such as news, radio programs, audiobooks and educational courses. The Phoenix FM App remains one of the most popular non-music audio apps available for both iOS and android devices to date in China. The transaction has been approved by Phoenix New Media's boards of directors and is not subject to shareholder approval. Pursuant to the agreements, Phoenix New Media will inject its Phoenix FM App business into a newly established entity, Phoenix FM Limited ("PFM"), into which IDG-Accel Funds will make the investment. The Company will not consolidate PFM in its financial statement after the closing of the transaction. Mr. Shuang Liu, Chief Executive Officer of ifeng stated, "As a leading new media company in China, we aim to further enrich our content offerings and broaden our user-reach through the expansion of our platform into new information mediums. Through partnering with one of China's premier internet and media investors, we are able to more aggressively develop the Phoenix FM App by leveraging IDG-Accel Funds' unparalleled media experience and resources. As our users continue to demand access to our premium and differentiated content anytime and anywhere, we are confident we will further expand our user-reach to include the growing number of radio listeners, commuters, and auto-owners in China." About Phoenix New Media Limited Phoenix New Media Limited (NYSE: FENG) is the leading new media company providing premium content on an integrated platform across Internet, mobile and TV channels in China. Having originated from a leading global Chinese language TV network based in Hong Kong, Phoenix TV, the Company enables consumers to access professional news and other quality information and share user-generated content on the Internet and through their mobile devices. Phoenix New Media's platform includes its ifeng.com channel, consisting of its ifeng.com website and web-based game platform, its video channel, comprised of its dedicated video vertical and mobile video services, and its mobile channel, including its mobile Internet website, mobile applications and mobile value-added services. About IDG-Accel Funds

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IDG-Accel Funds are members of the IDG investment fund group and managed by IDG Capital Partners team, which is a premier VC & PE investor in China. IDG Capital Partners is primarily focusing on investing related projects in consumer products, franchise services, internet and wireless application, new media, education, healthcare, new energy, and advanced manufacturing sectors. As one of the pioneers of foreign investors to enter the Chinese market, IDG Capital Partners has invested in 200 diverse outstanding companies and has successfully exited from over 60 investments through M&A or IPO in US, Hong Kong and A-share market in China. Haitong capital, orient international launch rmb buyout fund 2013-11-18 Haitong Capital, a PE arm of Haitong Securities, and Shanghai-based logistics company Orient International Enterprise have launched a renminbi-denominated buyout fund with a target of RMB3 billion ($493 million). According toa regulatory filing, the joint venture GP - Haitong Buyout Fund Management Company - will have RMB100 million in initial registered capital. Haitong Capital, the controlling shareholder, will contribute RMB51 million to the new company, while Orient International will take a 5% interest for RMB5 million. The joint venture will operate the new fund, which has received RMB1 billion from Haitong Capital and RMB145 million from Orient International. The remaining capital was contributed by undisclosed investors. The fund has a five-year investment horizon and is expected to deliver an IRR of 18%. It was reported in June that Haitong Capital was launching its first renminbi- and US dollar- denominated buyout funds, targeting at least $526 million. The renminbi fund will focus on domestic companies while its US dollar counterpart will invest in foreign firms with the potential to expand in China. Both will primarily operate in the consumer goods and services sector. By the end of last year Haitong Capital had over RMB6 billion in assets under management.

Standard Chartered PE, Boyu invest in China dessert chain 2013-11-12 Standard Chartered Private Equity (SCPE) and Boyu Capital have made a joint investment in China’s Multi Concepts Link Restaurant Management (MCL), which operates Chinese-style dessert cafés under the Honeymoon Dessert brand. Financial terms were not disclosed. Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

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Since opening its first café in Hong Kong in 1995, the company has grown to more than 210 directly-operated Honeymoon Dessert-branded stores across China, Singapore and Indonesia. The new capital will support MCL's expansion plans in China's quick service restaurant (QSR) sector. IDG Capital Partners also invested in the sector earlier this year with a RMB250 million ($40 million) commitment to Chinese catering chain Quanjude- best known for its Peking Duck dishes - for a 5.78% stake. CVC Capital Partners is reported to be near an agreement to buy a majority stake in restaurant chain South Beauty Group, for around $300 million. South Beauty operates almost 70 restaurants across China serving spicy Sichuan-style food. CDH investments bought an undisclosed stake in the company in 2008 for $29.3 million.

Sailing Capital launches cross-border RMB buyout fund 2013-12-03 China’s Sailing Capital and its subsidiary Shanghai Sailing Industrial Capital have launched a RMB5 billion ($821 million) buyout fund, in a bid to facilitate cross-border transactions. The fund will eventually leverage its size to over RMB20 billion through bond issuance, loans and equity investments, according to China Securities Times. Xiaodong Liu, Sailing Capital's CEO, said an agreement had been signed with the Shanghai Stock Exchange to support listed companies to acquire overseas targets and incorporate these businesses into the domestic listed entity. Last year, Sailing Capital launched a RMB50 billon investment vehicle, known as Sailing Capital International, to aid overseas acquisitions by Chinese companies. The fund has already raised RMB12 billion from both state and non-state owned enterprises, listed companies and financial institutions.

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……………………………………………………………………………………………………………………………… IPO 

Orchid Asia-backed Autohome sets terms for $126m US IPO



PE-backed Jintian Pharmaceutical eyes $273m HK IPO



PE-backed China Cinda to raise $2.5b in Hong Kong IPO



China Mainland IPO freeze to end early 2014



China IPO reform plan unveiled

Orchid Asia-backed Autohome sets terms for $126m US IPO 2013-11-29 Autohome, a Chinese online automobile marketplace in which Orchid Asia is an investor, plans to raise up to $125.9 million through an IPO on the New York Stock Exchange. The private equity firm will not be exiting any shares through the offering. According to a regulatory filing, Autohome will sell as many as 8.99 million American Depository Shares (ADS) at $12-14 apiece. The proceeds will be used for product development, expanding sales and marketing channels and repurchasing shares from a former director, as well as for general corporate purposes. Australia's Telstra is the largest shareholder in Autohome, with a 71.5% interest. Researchs show that Telstra bought 55% of the company in 2008. It increased its holding to 66% in 2012 and has agreed to pay $55 million for 2.8 million shares as part of the share buyback, taking it up to 71.5%. Telstra's stake will fall to 66.2% post-IPO. Orchid also invested in Autohome in 2008 via Orchid Asia III, a 2005 vintage vehicle with a corpus of $181 million that is now fully invested. The PE firm holds a 12.5% stake in the company, which will fall to 11.7% post-IPO. Autohome operates two websites - autohome.com.cn and che168.com - and claims to be the leading online destination for car buyers in China. According to iResearch, autohome.com.cn was the country's top-ranked automotive internet portal by average daily unique visitors for the nine months to September 2013. During this period it accounted for approximately 46% of the total time spent by Chinese internet users viewing online automotive information, more than four times that of its closest competitor.

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The company generates the bulk of its revenues from online advertising and dealer subscription services. Autohome reported a net income of RMB333.5 million ($54.5 million) for the nine months ended September 2013, up 96.7% year-on-year, while revenues jumped 62.6% to RMB830.6 million. China is the world's largest passenger car market by sales volume, according to LMC Automotive. A total of 14.2 million units were sold in 2012 and the figure is expected to reach 20.7 million by 2015. The country also has the world's largest internet population, with 590.6 million users as of June 2013.

PE-backed Jintian Pharmaceutical eyes $273m HK IPO 2013-11-28 Jintian Pharmaceutical Group, a Chinese pharmaceutical retailer and distributor backed by CVC Capital Partners and SEAVI Advent Private Equity, is seeking to raise as much as $273 million through an IPO in Hong Kong. Jintian Pharmaceutical, previously known as Asia Health Century International (AHCI), plans to sell 500 million shares at HK$2.91-4.23 a piece, according to a term sheet cited by IFR Asia. Founded in 1998, the company initially focused on drug retailing business in Heilongjiang province. The drug retailer has grown rapidly in second- and third-tier cities, entering neighbouring Jilin and Liaoning provinces. In 2011,CVCbought a 24.24% stake in AHCI for $84.1 million. SEAVI Advent invested $15 million the same year. SEAVI Advent is an Asian affiliate of Boston-based private equity firm Advent International. According to a prelisting document, CVC holds 16.1% of Jintian following a restructuring earlier this year, while SEAVI Advent owns 5.74%. Morgan Stanley is the sole IPO sponsor.

PE-backed China Cinda to raise $2.5b in Hong Kong IPO 2013-11-22 PE-backed China Cinda Asset Management Corp, one of four groups set up to absorb non-performing loans (NPLs) from the country’s Big Four state-owned banks, is expected to raise up to $2.5 billion in its Hong Kong IPO. According to IFR, Cinda will sell 5.3 billion shares at HK$3.00-3.58 apiece, although the size of the offering is still under discussion.

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CITIC Capital, UBS and Standard Chartered invested in the company last year alongside the National Council for Social Security Fund (NSSF), paying $1.7 billion for a 16.5% stake. Boyu Capital is also understood to be an investor. Of the four asset management companies (AMCs) established in 1999 to absorb the banks' bad debts, Cinda is the most profitable. Its asset management business recorded a net profit of RMB7.2 billion ($1.2 billion) in 2012, up 6% year-on-year. While NPLs in China are expected to increase, potentially offering more business to Cinda, concerns have been expressed over the firm's lack of clarity on its pricing policies, recovery rates and plans to diversify into other areas of financial services. Cinda was originally tasked with managing the NPLs at China Construction Bank, which needed to be restructured and recapitalized ahead of its IPO. Cinda has accumulated a sizeable real estate portfolio by foreclosing on bad debts, as well as taking stakes in a wide range of companies through debt-for-equity swaps.

China Mainland IPO freeze to end early 2014 2012-12-01 China's top securities market regulator said it will lift its freeze on initial public offerings (IPOs) early next year, signaling that a comprehensive reform of the financial market is underway, analysts said Sunday. China Securities Regulatory Commission (CSRC) said Saturday that about 50 companies, which have received IPO clearance from the regulator, will be able to go public by next January. China's top leaders vowed in the decisions on comprehensive reform released after the conclusion of the Third Plenum of the 18th Communist Party of China Central Committee that it will carry out significant reform in the financial sector, and push for a market-oriented, registration-based stock issuance system. Zhao Xijun, deputy director of the Finance and Securities Institute at Renmin University of China, told the Global Times Sunday that ending the moratorium on IPOs is an important step for the CSRC to nurture a fairer securities market without the government's unnecessary intervention. China shut down its IPO window 13 months ago in order to investigate into fraudulent information disclosures of companies and intermediaries, and also boost share prices in the stock market. The CSRC said in the guideline that it will put proper information disclosure as a priority of its regulatory Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

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efforts, and it will increase the transparency of its review process for companies seeking IPOs. Zhu Lixu, a Shanghai-based analyst with Xiangcai Securities, told on Sunday that the CSRC plans to resume IPO clearance in an effort to increase investors' confidence and enable companies to seek funding. "Since next year, companies will be able to obtain financing in the primary market, and investors will have more diversified investment options and will no longer to be stuck in the secondary market," Zhu said. "China's current securities market will become more transparent and healthier." The commission will likely finish reviewing documents of 760 companies that are queuing to get listed in China by the end of next year, it said Saturday in a press meeting. It will make a decision on whether to approve a company to go public within three months of receiving the application, the guideline said, instead of years under the current system. Chen Yaoxiang, chairman of Gansu Zhongtian Group, told the Global Times Sunday that he submitted an application for listing last June, but finally gave up on the plan this year and is preparing to get listed on an over-the-counter market next February. "My company and my stakeholders cannot wait that long to get financing. That would be detrimental to our business," Chen said. The CSRC said that it will put protecting small and medium investors' rights at the top of the agenda. Issuers, underwriters and other intermediaries will be responsible for compensating investors who make losses due to fraudulent statements or major omissions stated in IPO application documents, the commission said.

China IPO reform plan unveiled 2013-11-30 China’s Securities Regulatory Commission has unveiled far reaching reforms of the country’s IPO system. The reforms, unveiled at a press conference on Saturday, are seen as critical to turn China’s IPO issuance mechanism from an approval-based to a registration- based system. Investors believe the market will play bigger role in judging the risk and value of listed companies in the future. And that will greatly inject more momentum into the stock market.

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New plans to reform China’s IPO issuance mechanism, plans that include pushing forward the gradual replacement of the current system to issue new shares. New listing firms currently experience delays and have to navigate a complicated application process. The approval-based system can take multiple rounds of reviews and several years before investors receive approval from the securities regulator. "We will expand the scale of information disclosure and make our review standard and process more transparent. We will open the IPO process to the public so that they can have a closer supervision to the issuance process." said Deng Ge, Spokesman, China Securities Regulatory Commission. Mr. Deng predicts that around 50 companies would be able to complete their registration procedures for IPOs by the end of January. And under the new registration-based IPO system, China’s securities regulator would only be responsible to decide whether companies fulfill the rules. The values and risks would be for investors and the market to judge. The registration-based IPO system was actually released in the communique after the conclusion of the third plenum of the 18th Central Committee of the Communist Party of China. And under the new system, China’s securities watchdog is to boost its supervision over listed companies while loosening the approval process before IPOs. Zhao Xuejun is the CEO of Harvest Fund. He says he is impressed by the scale of the reform unveiled this time. "I believe the reform plan unveiled today highlights three aspects. Firstly, it strengthens the information disclosure responsibility of all players in the market. It ALSO tightens the punishment methods for those who break the rules. And most importantly, it will rationalize China’s IPO pricing mechanism by expanding current pricing scales." said Zhao Xuejun, CEO, Harvest Fund Management. Investors also believe the market will play a bigger role in China’s IPO process in the future. "China’s regulators will only check the legality of IPO candidates in the future, while the market will decide their profitability, pricing and other matters. Meanwhile, their financing channels will be expanded to meet the needs of the market. And the pricing and IPO issuance methods will be decided by issuers themselves. The IPO issuance process will speed up massively." said Luke Wang, Vice President, China Galaxy Securities. In the meantime, China’s securities watchdog is also tightening up its supervision of the stock market. It says it will further boost its means of supervision in the future. Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

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The CSRC has dealt with 46 cases concerning incomplete or deceitful information disclosed from January to October this year. ……………………………………………………………………………………………………………………………… INDUSTRY 

Singles’ Day sales hit 35 bln



Comparing E-commerce Giants: Alibaba and Amazon



Step-up predicted in China's SOE reforms

Singles’ Day sales hit 35 bln 2013-11-12 The Alibaba Group, which owns China's largest online shopping platforms tmall.com and taobao.com, announced on Tuesday that it had achieved record sales of 35 billion yuan ($5.75 billion) on Monday's Singles' Day, initially created by young people to celebrate their loneliness. Fireworks were lit at the e-commerce giant's headquarters in Hangzhou, Zhejiang Province after online transactions reached 30 billion yuan at about 9:20 pm. Tens of millions of shoppers stayed up on Sunday night, poised to pounce on their favorite items, as the day's sales officially started just after midnight. In just one hour, Alibaba's online transactions reached 1 billion yuan. In less than nine hours, revenue amounted to 12.1 billion yuan ($1.98 billion). This figure was similar to one cited by the Adobe Digital Index, which used the figure in a report of total online sales in the US on Cyber Monday, the first Monday following Thanksgiving. Some 13 hours into the day, sales figures had already reached 19.1 billion, the same amount as the 24-hour total of last year's Singles' Day. Many items claimed to be 50 percent off, some even 90 percent off. The most popular items sold on Singles' Day included underwear, diapers, baby milk formula, mobile phones and home appliances. One of the largest single deals was made by a female consumer in East China's Zhejiang Province, who paid 5 million yuan as a deposit for a 13.3-carat diamond worth 20.50 million yuan on tmall.com. Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

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Smartphone producer Xiaomi was the first to achieve 100 million yuan of sales revenue among all retailers on tmall.com, followed by insurance firms Guohua Life and Sino Life, as well as home appliance maker Haier and menswear chain Jack & Jones, according to data provided by Tmall. Another e-commerce giant, jd.com, is expected to surpass 5 million orders on this year's Singles' Day, the company said in a statement on Monday, without disclosing specific sales revenue. Suning.com has also launched an online shopping promotion campaign since Friday, but had not released any sales data by press time. Not everyone has had a happy experience in the shopping rush, though. Some complained that the huge discounts were based on marked-up prices. Others grumbled that slowed-down Internet speeds made it difficult to place orders and confirm bill payments - Tmall reported up to 17 million consumers online at peak time on Monday. "A lot of items in my online shopping cart were sold out within a few seconds after Midnight," Xi Yang, a 26-year-old consumer in Nanjing, the capital of Jiangsu Province, told the Global Times on Tuesday. "For those items that are still available for purchase, the discounts are not as much as I expected, so I felt a little disappointed," she said. The final sales figure was beyond Alibaba Chairman Jack Ma Yun's estimation, who earlier predicted the sales revenue for the whole day would stay at around 30 billion yuan. "What I am most concerned about now is not how to boost consumer demand, but how to match up purchasing power with logistics and financial systems as well as after-sales services," Ma said in an interview with China Central Television broadcast on Sunday. The large number of orders has put pressure on the domestic express delivery industry. The China Express Association estimated that about 323 million packages generated on Singles' Day would be delivered by Saturday. "It means up to 70 million packages need to be handled every day during the period, but normally the domestic express delivery industry can handle just half of that volume," Xu Yong, chief consultant with China Express and Logistics Consulting, told the Global Times on Monday. There are also concerns that consumer spending is amplified on Singles' Day but that customers will tighten Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

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their belts in the following months. "The online sales revenue on Singles' Day, although impressive, still accounts for a small proportion of China's total retail sales, which stayed at 2.15 trillion yuan in October," said Song Yang, a senior analyst at IT consultancy Analysys International. "Traditional retailers should not just see Singles' Day as a threat, instead, they should look for ways to improve consumers' offline shopping experiences," Song said, noting the trend of the retail industry is an online-to-offline business model, in which the Internet is the first stop for customers to get promotions that then lead them to physical stores.

Comparing E-commerce Giants: Alibaba and Amazon 2013-11-27 hina’s e-commerce leader Alibaba Group plans to go public next year, likely on a U.S. stock exchange, and analysts estimate the company may be valued at around $100 billion, close to the market valuation of Facebook. And while this valuation is a little more than half that of U.S. e-commerce leader Amazon.com, which has a market cap of $170 billion as of today, the Chinese online retail giant booked nearly double Amazon’s sales in 2012, according to Internet Retailer estimates. Further evidence of Alibaba’s dominance in China came on Nov. 11 when the company brought in $5.75 billion in sales in a 24-hour period during its annual “Singles Day” sales event, which is the Chinese version of Cyber Monday in the U.S. This is more than three times the $1.46 billion all U.S. consumers spent online on Cyber Monday 2012, according to comScore Inc. The leaders of the two largest e-commerce markets in the world—China and the U.S.—already compete directly with each other in China, with Alibaba’s Taobao and Tmall marketplaces going head to head with Amazon.cn. As Alibaba expands, aided by the billions it is likely to raise in its upcoming IPO, the two e-commerce giants no doubt will also compete in other markets, including the U.S. With this in mind, Internet Retailer draws on company reports and its Top500Guide.com data to break down the similarities and differences between the two online retail giants. One basic difference between the two is that Alibaba only provides an online shopping marketplace where other retailers sell, and does not sell directly to customers. In contrast, Amazon both sells merchandise that it owns to customers and also operates a marketplace. The key metric to look at here to compare the

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marketplaces is gross merchandise value, or the dollar value of all items sold on each platform. Alibaba reported that the volume of transactions on its two marketplaces, Taobao and Tmall, was around $170 billion in 2012. Determining Amazon’s GMV, however, requires some guesswork, because Amazon does not report it publicly. Instead, it reports total revenue, which was $61.09 billion in 2012. Some of that came from services unrelated to consumer purchases, mainly Amazon Web Services, a business unit that rents data storage capacity and computing power to other companies. Amazon doesn’t disclose AWS revenue, but analysts estimate this at about $2 billion for 2012. That would leave about $59 billion in revenue from sales of Amazon-owned merchandise, and the cut it takes from third-party sellers on its marketplace. Amazon has disclosed publicly that other retailers selling on its marketplace account for about 40% of the units sold on Amazon sites. And Scot Wingo, CEO of ChannelAdvisor Corp., a marketing company that helps retailers sell on Amazon and other web marketplaces, estimates Amazon takes an average commission of 10% on sales by third-party sellers. Doing the math, that suggests Amazon’s own sales totaled just over $55 billion and sales by marketplace sellers $37 billion (with Amazon taking a 10% cut and booking some $3.7 billion in revenue). That would put Amazon’s 2012 GMV in the range of $92 billion, or just over half of all sales on Alibaba. Part of the reason that Alibaba is transacting nearly double the amount online than Amazon is that the Chinese company is serving a much larger pool of online shoppers. As of the end of 2012, the U.S. had 254.3 million Internet users, and China more than double that at 571.1 million, according to the World Bank. And China has more room to increase its base of web shoppers, as only 42.3% of its population uses the Internet, compared with 81% of U.S. consumers. In addition, Chinese people use the web differently than U.S. consumers do. “Compared with U.S. people, Chinese people prefer engaging with others through social media and mobile,” says Sun Baohong, a professor at the New York City campus of Beijing-based Cheung Kong Graduate School of Business. The numbers bear out that assessment. As of the end of June of 2013, there were 464 million mobile Internet users in China, according to the China Internet Network Information Center, three times the number in the U.S. In addition, the most popular Chinese social platform, Qzone, owned by Chinese internet giant Tencent Holdings Limited, had more than 600 million subscribers in the middle of 2013, Tencent says. In contrast, Facebook reported around 200 million U.S. subscribers at same time. In addition to total sales volume, Amazon and Alibaba tend to diverge on such key operating metrics as average order value. The average ticket is $178 on Alibaba, while Amazon’s is a little higher at $220, according to data available on Top500Guide.com. In the past year, Alibaba has expanded into many new Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

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categories, such as automobile and financial products, so its ticket price may increase in the future. Amazon has also been moving into more luxury categories, and its average ticket may increase as well. Amazon’s top category is books and other media, such as music and videos. In the third quarter of 2013, media represented 30% of sales on Amazon’s sites, Amazon reported. By contrast, the dominant category on Alibaba marketplaces is apparel and electronics. In the recent Nov. 11 sales event in China, four of the top 10 sellers on Alibaba were apparel brands, and three others sold electronics. In one area, however, these two giant e-commerce companies are moving on parallel tracks, and that is in mobile commerce. Both recorded a similar percentage of sales from mobile devices in 2012—6.5% for Amazon (or $4 billion out of its $61 billion total, according to Top500Guide.com) and 7% (or $12 billion out of $170 billion) for Alibaba—and the percentages are moving up for both. In the recent Single day sales event, 15% of Alibaba’s sales came from mobile devices. Amazon’s mobile sales will increase 100% to $8 billion in 2013, Internet Retailer estimates.

Step-up predicted in China's SOE reforms 2013-11-19 The China Securities Journal on Tuesday gave a glowing review to China's newly announced state-owned enterprise (SOE) reforms, with experts reinforcing how the measures eye reorganization and the involvement of more private capital. The decision published on Friday by the Central Committee of the Communist Party of China (CPC) urged improved management of state-owned assets, and said that qualified SOEs will be reorganized to establish state-owned assets investment companies. The China Securities Journal enthused particularly about the latter work, which is currently under research by the State-owned Assets Supervision and Administration Commission (SASAC). Li Jin, chief researcher with the China Enterprise Research Institute, told the journal that this is a great step to shift the emphasis of management from enterprises to capital. According to the report, Chinese SOEs among the Fortune Global 500 are likely to be the first to be reorganized as state-owned assets investment companies. The list includes oil giants Sinopec, CNPC and CNOOC, telecom operators China Telecom and China Unicom, and the State Grid.

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It also said that the SASAC will promote incentive mechanisms in SOEs with mixed equity structures and high degrees of marketization. A 2008 SASAC regulation capped incentives at 40 percent of remuneration for SOEs listed in Shanghai, Shenzhen and Hong Kong, and 50 percent for so-called red-chips which are overseas incorporated. Analysts forecasted the caps will be lifted significantly. The CPC Central Committee also decided to support the development of the private economy. Its decision also mentioned cross shareholding of state capital, collectively owned capital and non-public capital, and that employees of multi-ownership enterprises will be able to hold shares in their companies. Li Jin said the new round of SOE reform will generate more opportunities in the next "gold decade" for private capital.P The journal's report said that deepening reforms will have to grapple with monopoly issues, which would leave new investment and development chances for private capital. The SASAC is now considering attracting the private sector into the construction of certain infrastructure projects. Li predicted that future reforms will trigger different classifications of SOEs, in order to realize more rational resource allocation. Hong Yinxing, a Nanjing University professor, told Xinhua that SOEs' monopoly impaired the vitality of the private economy as well as market impetus. China's non-public sector has struggled in an unfair business environment with barriers for access and financing, which has weakened the overall efficiency of the world's second-largest economy, Hong said. He called for SOE reforms to give full play to the effect of fair competition and guarantee equal treatment for public and non-public sectors when acquiring resources and accessing the market. Meanwhile, the CPC Central Committee's decision ruled that some state-owned capital will be transferred to social security funds. Thirty percent of the gains of the country's state-owned capital will have to be handed back to the government by 2020.

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At present, the proportion ranges from zero to 15 percent. The money will be used to improve people's livelihood, said the committee. Jiang Yong, an expert on economic security, said the measure should be promoted since more returned SOE gains will benefit the country's people, better suiting the enterprises' state-owned role. "This announcement paves the way for further separating ownership and operation of SOEs," Li forecasted. "Next year will witness stronger and faster SOE reform."

…………………………………. This newsletter is prepared by Bonnie Su [email protected] …………………………………..

Private Equity Partners Via degli Omenoni, 2 - 20121 Milan, Italy

Private Equity Partners China Unit 2809, 166 East Lu Jia Zui Road, 200120 Shanghai, China