Food and beverages worth just shy of EUR2 billion were exported to China in the first half of 2012, making up less than 3% of the total value of all products exported to China according to Eurostat.

Some European countries are doing better than others when it comes to capturing the growth of China’s demand for foreign food and beverages.  For example, breaking down China’s wine import figures for the first half of 2012 reveals some interesting findings. French wine makes up 77% of all wine imported to China from the EU in terms of value, and its share is increasing.

In the above chart we have mapped the average import value per bottle, the number of bottles imported, and the total value of wine imported to China from the main European wine-exporting countries. In addition to being the most important exporter in terms of sheer volume, it is interesting to note that the average value of French wine is more than four times higher than that of Spanish wine and more than twice that of Italian wine.

Contact the writer of this article for more information: Carl-Johan Skoeld telephone: +86 182 2122 5546 or cjskoeld@stenvall-skoeld.com.

Stenvall Skoeld works with food producers looking to profit from the rapid growth of the Chinese market. Our support includes comprehensive market entry strategy and execution services, customer and competitor analysis, China importer and distributor search and screening, and M&A advisory services to acquirers of Chinese food and beverage companies.

Chinese competitors are now emerging in more sectors, and their global growth strategies have a lot in common with those of Huawei and ZTE. How will western and Japanese incumbents respond to the new threat. A quick look at the share price development of telecom equipment manufacturers shows that the price

Read the full article at Seeking Alpha: As Chinese Companies Conquer Global Telecom Equipment, Other Industries Are Bound To Follow

Read more about how we support companies understand and respond to emerging Chinese competitors.

Perhaps even more impressive, iOS device penetration rates approaching 10% in provinces such as Jiangsu and Zhejiang – provinces bordering Shanghai with populations of 78.7 million and 54.4 million respectively – is a clear indication that sales of Apple’s iOS devices are spreading beyond China’s largest cities. This is way beyond most people’s expectations.²

As a consequence of Apple’s hardware success, China has become the second largest App Store market in terms of number of downloads with around 18% percent of global App Store downloads.³

The next challenge for Apple is to get its Chinese users to pay for apps. This is also a key issue for developers of iOS apps targeting Chinese consumers who capture 70% of all revenues on the App Store, with Apple getting the remaining 30%.

So far iOS app developers are struggling to make money in China. One reason is that a large amount of iOS devices in China are ‘jailbroken’, allowing users to download apps for free from alternative ‘app stores’.⁴ Another challenge is the fact that Chinese users tend to be reluctant to pay for apps, resulting in low revenue per user.

But exactly how big is the Chinese iOS app market? Since Apple does not release App Store revenue data, we used data from various app analytics firms, in addition to data released by Apple, to estimate the total revenue of Apple’s App Store in China (see Chart 1).

Based on newly released data from Apple’s Q3 earnings report, we estimate global App Store gross revenues at 1.2 billion for Q2 2012. Despite representing 18% of all downloads, Chinese users just contributed to 3.1% of global App Store revenue. Resulting in total iOS App Store revenue of 37 million USD in China for the quarter.

The low contribution is a result of a revenue per download  just over USD 3 cents in China, compared with revenues per download of USD 28 cents in the US and USD 19 cents globally.

This does not mean that App developers should give up on China. The Chinese iOS app market looks set for strong growth in the next couple of year. Using a back-of-the-envelope calculation we arrived at a scenario that sees the China App Store market growing by 98% in 2012 and 88% in 2013, with 2013 sales reaching 321m USD (See Chart 2).

Other interesting observations include:

• Average revenue per download in China down from 4 cents at the end of 2011 to 3 cents in June 2012. This is an indication that the many new iPhone owners are not yet willing to spend money on apps. Our discussion with consumers indicate that paying for digital products such as apps or e-books is a threshold  that takes some time to overcome.
• Global average revenue per download down from 24 cents at the end of 2011 to 19 cents in Q2 2012 according to our internal estimation.  Asymco found similar results in their analysis. This is a natural consequence of countries with lower average revenue per download making up a larger percentage of total downloads.
• For the Top 10 Worldwide publishers in China, 90% of their revenue still comes from outside of China.

Anybody who has spent any significant time in a public Chinese hospital knows that there are few greater unmet needs in China than those existing in the healthcare services sector.  China’s public hospitals are overcrowded and there are few alternatives, even for those willing to pay a premium for higher-quality care, shorter waiting times, and more personalized service.

The emergency room at Shanghai’s highest ranking public hospital

Private investors – foreign and Chinese—have been eyeing China’s private healthcare services industry since the Chinese government began experimenting with limited private participation in 1989.

Progress since then has been slow. As of 2012, a dozen years after the start of the healthcare reforms, around 95% of all hospital beds in China are still in public hospitals, and there are only a dozen or so Sino-Foreign hospital joint ventures (mainly providing outpatient services to holders of private insurances and a very small segment of affluent Chinese nationals in first-tier cities like Shanghai, Beijing and Guangzhou).

Will the next ten years see more significant developments? This depends to a large extent on the Chinese government’s willingness to allow foreign participation in the sector.

According to China’s latest Catalogue of Industries for Guiding Foreign Investments (effective as of 30 January 2012) medical institutions – including hospitals, clinics, sanatoriums, recovery centers and first aid stations – can now be set up as wholly foreign owned enterprise (WFOE), i.e. without a Chinese partners.

But, at least for now, it seems the Chinese government has only approved WFOE hospitals made possible by special cooperation agreements that allow investors from Taiwan, Hong Kong and Macao to set up wholly owned hospitals in a limited number of municipalities and provinces. The hospital that just opened in Shanghai, Shanghai Landseed International Hospital, was wholly funded by a Taiwanese investor under this agreement.

It remains to be seen to what extent foreign investors from countries other than Taiwan, Hong Kong and Macao are able to gain approvals.

We are optimistic. The government has announced a goal to have 20 percent of hospital beds privately owned by 2015.

And private participation, including foreign investment, is growing fast in other areas of China’s healthcare services industry, especially in niche areas like medical clinics.

Read more about how we support companies and investors in China’s healthcare services industry or contact Per Stenvall (email) for more information.

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This is the fifth and final article in our series on how the most effective private equity firms approach due diligence in China.

1. Independent due diligence

Hire due diligence providers who give you a truly independent opinion of the Target, providers who deploy due diligence professionals who can stand up to and resist attempts to limit/influence the scope or findings of the due diligence.

2. Avoid Groupthink / Encourage independent thinking

Encourage intellectual honesty within your investment team. Reward independent thinking and constructive questioning of deal logic. Assign investment team members who are not working on the deal in question the role of Devil’s advocate.

3. Minimize due diligence failures in the data room / on-site

Due diligence often fails due to poor execution in the data room / on-site. Make sure that your investment professionals know that they should never let anyone push them around or obstruct them from doing their job during the due diligence, including what to do when this happens.

Read the other posts in our series how the most effective private equity firms approach due diligence in China:

• China PE Due Diligence ‘Best Practice’: Due Diligence The Big Picture
• China PE Due Diligence Best Practice: Strategy
• China PE Due Diligence ‘Best Practice’: Strategic Due Diligence
• China PE Due Diligence ‘Best Practice’: Strategic Due Diligence Execution

Learn more about our methodology and approach to Private Equity Due Diligence and China Acquisition Due Diligence, to discuss how we can help you organization please contact us.

  Download the full report (all five articles)
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This is the fourth article in a series of five were we present our take on how the most effective PE firms approach due diligence in China.

1. Secure and stress-test management’s goals and assumptions about the future

Require the Target to produce a financial forecast based on detailed assumptions ahead of the due diligence. Stress test the forecast, assumption by assumption, during the due diligence. Targets are rarely prepared for such a detailed review. This will result in a revised forecast based on realistic assumptions, insight into management’s industry knowledge, and an understanding of their integrity and intellectual honesty.

2. Determine if the Target has what it takes to execute its strategy

The best way to determine if a Target is able to meet aggressive strategic and financial goals is to determine if they have 1) the operational plans in place to meet key deadlines, and 2) the resources and capabilities needed to achieve them. Companies whose roll-out plans do not match claims made in financial forecasts are either presenting goals they do not expect to reach, or goals they are simply not capable of reaching.

Read the other posts in our series on how the most effective private equity firms approach due diligence in China:

• China PE Due Diligence ‘Best Practice’: Due Diligence The Big Picture
• China PE Due Diligence ‘Best Practice’: Due Diligence Strategy
• China PE Due Diligence ‘Best Practice’: Strategic Due Diligence
• China PE Due Diligence ‘Best Practice’: The Human Factor

Learn more about our methodology and approach to Private Equity Due Diligence and China Acquisition Due Diligence, to discuss how we can help you organization please contact us.

In recent research we interviewed Chinese consumers to understand their preferences and how they spend their income. Looking at a 31-year old Shanghai office worker with a masters degree and a monthly income of 10,000 RMB – which  puts him in the top 20% of urban Chinese income earners – we can see that the discretionary spending is still lower than many would have expected.

This example is from one of the respondents and not an average of all respondents.

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This is the third article in a series of five were we present our take on how the most effective PE firms approach due diligence in China.

1. Understand the industry… including how companies “game” the system

Make sure your investment professionals spend enough time in the field to gain a deep understanding of the competitive dynamics of the Target’s industry. All market segments are “gamed” to some extent; make sure you understand how and to what extent this happens in the Target’s industry.

2. Confirm competitive advantage

Make investigating the Target’s competitive advantages and the future sustainability of these advantages a key part of the due diligence. Don’t mistake “strengths” for competitive advantage. All companies have strengths, but only few have competitive advantages that can be relied upon to beat the competition when times get tough.

Read the other posts in our series on how the most effective private equity firms approach due diligence in China:

• China PE Due Diligence ‘Best Practice’: Due Diligence The Big Picture
• China PE Due Diligence ‘Best Practice’: Due Diligence Strategy
• China PE Due Diligence ‘Best Practice’: Strategic Due Diligence Execution
• China PE Due Diligence ‘Best Practice’: The Human Factor

Learn more about our methodology and approach to Private Equity Due Diligence and China Acquisition Due Diligence, to discuss how we can help you organization please contact us.

One area were personal consumption has grown particularly fast is within smartphones. A recent study by mobile research firm Flurry Analytics showed that China has overtaken the United States as the country where most Android and iOS (the two main smartphone platforms) devices were activated.

To take the pulse on Chinese consumption we decided to calculate the iOS penetration (Apple’s iPhone and iPad, not including iPod touch) rate in all Chinese provinces and municipalities, using data from Chinese mobile research firm Umeng and our own analysis of the number of iOS devices in China. Our estimate puts the total number of iPhones and iPads in China at end of 2011 at 21 million active devices, distributed as follows:

Apple’s success is China has been hard to miss (sales in Q4 2011 reached 4.5bn USD), but the high penetration rates in Beijing and Shanghai still surprised us.

How long will it take before your average Chinese Zhou can expect to own a villa in the suburbs and two cars? A long time no doubt. But it seems the Chinese dream already includes things like iPhones and iPads.

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This is the second article in a series of five were we present our take on how the most effective private equity firms approach due diligence in China.

1. Spend more time with the Targets

Funds that spend more time with potential targets prior to considering an investment, developing a relationship over time, tend to make better investment decisions. In this area, local firms typically outperform their foreign peers.

2. Seek out a wide range of unbiased opinions during the due diligence

Funds that limit the commercial due diligence to interviews with a few industry experts and customer contacts provided by the Target do not get a true picture of the company they invest in. Experienced investors will seek out a range of opinions, including from industry participants who can provide an unbiased view of the Target.

3. Ensure that your due diligence providers communicate

Require due diligence providers (commercial, legal, financial, etc.) to share findings and observations throughout the due diligence. Encourage daily briefings attended by DD teams to share findings and ask open questions.

Read the other posts in our series how the most effective private equity firms approach due diligence in China:

• China PE Due Diligence ‘Best Practice’: Due Diligence The Big Picture
• China PE Due Diligence ‘Best Practice’: Strategic Due Diligence
• China PE Due Diligence ‘Best Practice’: Strategic Due Diligence Execution
• China PE Due Diligence ‘Best Practice’: The Human Factor

Learn more about our methodology and approach to Private Equity Due Diligence and China Acquisition Due Diligence, to discuss how we can help you organization please contact us.