China's nascent e-reader market is quickly gaining momentum. According to IT research firm, DisplaySearch, sales of e-readers are expected to reach 3 million units this year, up from about 800,000 in 2009. 12 million devices are expected to be sold worldwide in 2010, increasing to 18 million by 2012. By 2015, China is predicted to surpass the US to be the world's largest market for e-readers.

Most e-readers in China are manufactured by local players. Bare-bones models can be found for as little as RMB1,000 (about US$150), while those offering niftier features, such as handwriting recognition, card readers, wifi connectivity, or access to online libraries can fetch as much as RMB3,000 (US$440). For comparison, Amazon's Kindle and Barnes & Noble Inc.'s Nook are priced at US$260, but the firms have yet to offer these products on the mainland. A lack of content, perplexing licensing regulations and a lack of online payment awareness have made it difficult for foreign players to enter the space. Furthermore, due to piracy concerns, publishers are reluctant to partner with e-reader manufacturers as is common in developed markets. An estimated 95% of e-reader content obtained via unauthorized distribution.

Beijing-based Hanwang Technology is China's uncontested leader in the e-reader market. The company claims a market share of 95%, and hopes to increase its shipments of e-readers by 400% this year. Later this month the firm will attempt to raise RMB249 million (US$36.5 million) through an initial public offering on the Shenzhen Stock Exchange small- and medium-sized enterprise board. The proceeds will be partially allocated toward improvements in the firm's handwriting-recognition technology and e-reader manufacturing.

China's airlines carried 20% more domestic passengers last year than in 2008, and her airports served somewhere between 450 and 500 million passengers, second only to the US. During Q4 2009, domestic passenger growth continued to grow at a monthly rate of nearly 20%. Furthermore, average load factors not only exceeded those achieved in 2008, but also above the levels reached in 2007, a time when air travel in China experienced unprecedented growth. 

To meet this growing demand, carriers in mainland China are expected to order upwards of 2,800 planes that carry 100 or more passengers over the next two decades, Airbus China President Laurence Barron reports. He predicts airline traffic to see expansion in the range of 10 percent annually in China, the world's most populous country and now already the world's second-biggest airplane market.

Airbus SAS, the world's largest maker of commercial jets, plans to make China the center of is growth ambitions as demand continues to outpace other markets. They predict Chinese airlines will account for 20 percent of all airbus planes delivered in 2010, compared to just 3.5 percent a decade ago. China is also preparing to unveil plans for a domestically designed 168-seater that uses less fuel and is cheaper to operate than comparable Airbus and Boeing models. This airliner will carry the Commercial Aircraft Corp. of China (Comac) seal and will be known as the C919. Comac will initially target Chinese customers for the single-aisle C919 before seeking to challenge other manufacturers for customers overseas.

Lenovo Group Ltd.,China's largest manufacturer of personal computers, reported fiscal third-quarter profit that squashed analysts' estimates. The announcement marked the best result posted in six quarters for the world's 4th largest PC brand and finally put the firm back in the black. Lenovo reported a net profit of $79.52 million for the last three months of 2009, in a filing made to the Hong Kong stock exchange last Thursday. This number compared very favorably to the net loss of $96.7 million recorded in Q4 2008.

Lenovo posted the fastest increase in shipments among the world's four biggest PC makers after setting up additional stores in rural China where residents receive government subsidies for buying computers and other electronic devices. In addition, the manufacturing giant and maker of Thinkpad laptops has more than tripled in Hong Kong trading in the past year as it strategically avoided market slow-downs/disasters in the U.S. and Europe by focusing on emerging markets. A noteworthy market analyst commented, "The Company managed to grow its market share in China while at the same time improved its own profit margins. This is a sign the company gets pricing power from the scale of its business. The results were very strong."

Lenovo's earnings follow a string of better-than-expected results from technology peers, such as Microsoft, Apple and Asustek, reaffirming a return in both consumer and corporate demand. These results marked a turnaround and a sense of optimism coming off a tough 2008 that saw their first loss in profit in three years and the resignation of CEO, Yan Yuanqing. The company has since returned to its roots as an emerging markets specialist after it struggled to integrate western-based assets acquired with its purchase of IBM's PC business in 2005. Lenovo is currently trading on the Honk Kong stock exchange (HK:0992) and the American depository receipt (PINK:LNVGY), with prices up about 200 percent from a year earlier.

Recent rumors regarding the world's largest mobile carrier's intentions to purchase Tencent Holdings Ltd., a publicly-owned Chinese holding company whose subsidiaries provide internet and mobile phone value-added services and operate online advertising services in China, were denied by China Mobile's Chairman Wang Jianzhou. These rumors stemmed from a press report that cited the carrier's chairman as saying he hadn't ruled out an investment in the future.

Statements made by China Mobile spokeswoman Rainie Lei said these media mumblings are 'groundless', and added that, 'the company has no intention to buy Tencent, either in whole, or in part'. Other reports made by various internet portals had China Mobile's team, led by its president, making a visit to the Tencent headquarters last weekend, where the two sides were said to have had these alleged discussions. These meetings, however, were said to have not contained dialogue about a possible acquisition, but were merely part of regularly scheduled meetings that both sides consider a 'normal exchange visit'. Catherine Chan, spokeswoman for Tencent, suggested that Hong Kong's Ming Pao newspaper, and other networks, may have 'misquoted' the executive regarding the possibility of an equity partnership. She did not comment on what in fact was discussed at this mysterious rendezvous.

Tencent, established over a decade ago, is now China's biggest internet company. The firm offers diverse services that include: social networks, portal websites, e-commerce, games, and its well-known instant messaging service, QQ. In 2006, China Mobile launched its own instant messaging service, Fetion, in an attempt to compete with QQ and attract some of its 300 million subscribers. However, Fetion has done little to dilute Tencent's popularity, leaving the mobile giant without a solution.

Bank of China Ltd. (BOC) and its subsidiary, BOC Hong Kong Holdings Ltd. (BOCHK), both announced that they will pursue major capital raises in the coming months. BOC will begin its fundraising with an RMB40 billion (US$5.9 billion) convertible bond issue on the mainland market. It will then seek shareholder approval to issue new shares, equivalent to 20% of its existing Hong Kong- and Shanghai-listed shares, potentially netting another US$30 billion based on its recent stock price.

BOC was China's largest loan issuer last year and hopes to maintain a safe capital adequacy ratio in the event that loans sour as the year progresses. The bank expanded its loan book by 38% in 2009 and credit officers were recently ordered to halt all new loans due to exceptionally fast lending in early January. BOC had a capital adequacy ratio of 11.67% as of September, but China's banking regulator is rumored to be considering increasing the minimum from 10% to 12% by the end of the year.

BOCHK, 66% owned by Bank of China Ltd., separately announced that it will issue 10-year US dollar-denominated bonds to repay a loan extended by its parent. BOCHK secured the US$2.5 billion loan in December 2008 after it took an RMB8.7 billion write-down related to its holdings of US mortgage-backed securities and senior unsecured debt of Lehman Brothers Holdings, Inc. The loan raised BOCHK's capital adequacy ratio from 13.08% to 16.17%, slightly below the bank's current position.

XD Electric, China's largest producer of power transmission and distribution equipment, slid below its IPO price on its first day of trading in Shanghai, becoming the first offering to do so since 2006. Shares opened the morning of Thursday, January 28th at RMB7.90 and fell 1.4% to RMB7.79 by the end of the trading day. Many analysts had expected XD's shares to rise 10%, as is common for many Shanghai IPOs.

XD Electric's IPO price valued the company at 30 times its estimated 2009 earnings, lower than the firm's listed peers, but a significant premium above the average 20 times earnings multiple of the Shanghai Composite Index. Other recent IPOs, such as China National Chemical Engineering Co. and China CNR Corporation, have also signaled the cooling of China's IPO market. While both firms posted modest increases on their first days of trading, they fell short of the typical boost most IPOs see before they reach the 10% daily increase limit.

A spokesman from China Securities Regulatory Commission (CRSC) attributed the lofty IPO prices to institutional investors offering unreasonable prices during the inquiry process when prices are determined. In developed markets, institutional investors typically subscribe for about 90% of a new issue. In China, however, smaller investors willing to pay higher prices play a larger role, causing underwriters to recommend a relatively high IPO price but at the risk of seeing the issue fizzle shortly after its debut. The China Daily and other newspapers reported that the CRSC may delay or suspend approval for IPOs as it works on new measures to improve the pricing mechanism.

Xi'an-based XD Electric raised RMB10.3 billion (US$1.5 billion) in the IPO, in exchange for 30% of its enlarged share capital. Most of the new funds will be spent to increase XD's production capacity and upgrade technology.

Proponents of intellectual property rights were handed a victory last week when the Beijing Intermediate People's Court ruled in favor of UK thermostatic controls company, Strix, against two Chinese firms accused of copying its patented technology. Strix produces a unique device that automatically switches off electric kettles once the water has reached a boiling point. Zhejiang Jiatai Electrical Appliance Manufacturing and Leqing Fada Electrical Appliance were found guilty of intellectual property infringement and have been ordered by the court to pay damages of RMB7.1 million and RMB2 million, respectively. Strix first brought its case in late 2008 after years of investigation. Immediately after the case was filed, the court froze the defendants' bank accounts and issued a cease-and-desist order for the duration of the trial.

Just a week prior to the Strix decision, the Beijing Intermediate People's Court sided with Chinese internet heavyweights Baidu and Sohu in a case against foreign entertainment companies Universal Music, Sony BMG Entertainment Hong Kong, and Warner Music Hong Kong. The plaintiffs argued that Baidu and Sohu's search services were built to facilitate access to pirated music and movies, but the Beijing court declared that the internet firms had done no wrong in linking to websites hosting the pirated content. The entertainment firms were seeking US$9 million in damages, and the IFPI, a music industry group, estimates that 99 percent of music in China is downloaded in violation of international copyright law. While Beijing appears intent on enforcing intellectual property in low profile, black-or-white cases, it may be loath to punish national champions for any perceived IPR violations.

In the latest push to consolidate China's fragmented industries, the Ministry of Industry and Information Technology (MIIT) is formulating a set of policies designed to encourage mergers and acquisitions among China's carmakers while barring organic growth. Under the new rules set to be announced by the end of March, automobile manufacturers will not be granted approval for the construction of new car-making projects, but will enjoy favorable terms of tax and credit should they acquire a competitor. Chinese auto firms have thus begun to speed up their restructuring to enable the purchase of factories and production licenses.

Presently, China has over 130 complete automobile manufacturers, although only five of them achieved sales of over 1 million vehicles in 2009. The top ten firms account for 87% of China's 11.9 million vehicle sales, while the remaining automakers sell less than 10,000 cars each. Furthermore, SAIC Motor Group, China's single largest carmaker, only has production capacity of 2.7 million vehicles per year, far less than the 9 million capacity of Toyota Motor Corporation. The proposed plan will create two or three national champions that will produce over 2 million vehicles a year and four or five others with capacity over 1 million. By 2011, Beijing hopes to consolidate the automobile industry into 10 or fewer major players who will control 90% of the domestic market and be able to compete with the global auto giants.