Another play on a China probe?

Let’s face it. Qualcomm (QCOM.NASDAQ) was an easy target for the National Development and Reform Commission. Both Korea and Japan have already chased after the US company with antimonopoly complaints, setting it up for similar problems in China. Now is a perfect time for regulators to hit the chip maker with a pricing probe: As China prepares to launch commercial 4G services, Qualcomm is getting ready to reap many of the royalties on the chip technology that will be used in those phones. Taking a look at the other NDRC investigations into foreign brands that have gone down this year, a possible scenario could be a pledge by the California-based firm to lower some royalties in order to secure continued access to the China market. If it happened to Danone (BN.EPA) and Nestle (NESN.VTX) with their baby formula businesses earlier this year, could it happen to Qualcomm? Investors will be watching the company’s share price, which took a sharp dip early on Wednesday after the revelation of the investigation but had largely recovered by the end of the day. The question is: How to play the probe? In the last fiscal, Qualcomm took in US$12.3 billion in revenues from China, about half of its total revenue. Hurting the company’s China’s business could be devastating. As far as beneficiaries go, right now that’s unclear. ZTE (000063.HKG) uses Qualcomm chips in its handsets but the company’s general outlook has been poor this year. Lenovo (0992.HKG), a computer mobile device company set to be a major player in China’s 4G market, sources most of its chips from Mediatek (2454.TPE), an analyst told China Economic Review. The probe probably won’t make either of them look much better. 

Property still feeling the plenary session

For once, China Central Television stuck it to some local companies. Last weekend, the state-owned broadcaster reported that China Vanke (000002.SHE) and Agile Property Holdings (3383.HKG) hadn’t paid land appreciation taxes between 2005 and 2012. That was quite a departure from CCTV’s favorite targets: Foreign brands such as Starbucks (SBUX.NASDAQ) and Apple (AAPL.NASDAQ). More worrying than these accusations for property developers, however, could be the recent increase in housing control measures in cities across China – measures that can hurt sales. As average year-on-year prices continued to climb in October, Beijing’s municipal government rolled out a few new policies to cool the market late last month. This week, the cities of Nanjing, Xiamen and Nanchang followed suit. The simple interpretation is that local governments will try to rein in runaway housing prices. But, reading a bit deeper, investors might find heavier political undertones in these measures in the weeks following a top-level political meeting that convened earlier this month in Beijing. “In the short run, there will be some noises and symbolism here and there,” Frank Miao, a senior analyst at China Galaxy International, said on the phone. This means that during this all important meet, local governments might want to show that they intend to comply with central government policies. For the long term, though, the meeting, known as the Third Plenum, pledged more market rule in the economy. That would likely translate into less central control in real estate, Miao pointed out, a potentially positive step. His picks included Shimao Property Holdings (0813.HKG) and Longfor Properties (0960.HKG).

Nokia’s “phab” China plan

Before Apple’s (AAPL.NASDAQ) iPhone and Samsung’s (005935.KRX, 005930.KRX) Galaxy series dominated the mobile phone market, there was one brand that trumped them all – Nokia (NOK.NYSE). Last Friday saw the launch in Beijing of the company’s Lumia 1520 “phablet” – a mesh between a phone and a tablet PC – as the Finland-based company looks to reclaim some of its share of the world’s biggest mobile handset market. It was the seventh-biggest mobile phone vendor in China during the second quarter but didn’t make the list of top 10 makers of smartphones, which offer better margins. A more realistic shot at the top looks on the cards, however, after its tie-up with Microsoft (MSFT.NASDAQ). Per Lindberg, Stockholm-based equities analyst for ABG Sundal, told China Economic Review over the phone that Microsoft’s backing in marketing Nokia phones in China would give the brand a boost. Lindberg was positive about the move, stating that he has a “buy” rating for Nokia. There’s an outside chance the handset could connect Nokia to Chinese consumers in a way its more recent products have failed to do in the past few years.

IPO Watch

A busy week in Hong Kong with four listings of mainland based or focused firms. First up was milk producer Yuan Sheng Tai Dairy Farm (1431.HKG), which listed on Wednesday and counts leading Chinese diary firm Mengniu (2319.HKG) as a cornerstone investor. It was trading a touch lower at the close on Thursday. Hebei-based Hengshi Mining (1370.HKG) went public on Thursday. The company owns and operates four iron ore mines. Yongsheng Advanced Materials (3608.HKG), a trader of textile-related products, listed on Thursday while Phoenix Healthcare (1515.HKG), a large private hospital group, is due to hit the bourse on Friday.