In the news: IBM workers strike, the SPC affirms Tencent v Qihoo ruling and China launches five private banks

IBM labour strikes amidst Lenovo transfer

Lenovo's deal to purchase IBM's x86 computer server business for US$2.3 billion has yet to be finalised as it awaits regulatory approval. More than 1,000 workers went on strike in front of an IBM building in Shenzhen last week to protest over the terms of their transfer to Lenovo, which said it was up to IBM to resolve internally. The workers on strike were also concerned about their severance package if they decided to leave after the deal. Lenovo stated it will maintain the salaries and benefits of all workers that choose to stay with the company once the deal is completed, and only then will any integration take place. It expects the transfer of 7,500 IBM employees in more than 60 countries.

Sources:
Reuters
The New York Times

This is reminiscent of the November strike where thousands of Nokia workers protested against the sale of its handset division to Microsoft. This Chinese New Year had a negative impact on manufacturers as many workers who went home did not return to the factories, as their low wages did not compensate for the subpar working conditions. There are also frequent reports of workers being cheated out of payments, benefits and legally-mandated insurance premiums. Such sentiments erupted with the Foxconn factory scandals where the world's largest contract electronics maker dealt with a series of riots and suicides (the anti-jump nets are real). The PRC Work Safety Law was recently amended to increase penalties for hazardous conditions, but industrial activism is growing, with social media helping workers to organise and be aware of the changing environment. It is no longer only foreign companies' labour matters that are being exposed.

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Tencent QQ v Qihoo 360 outcome

The Supreme People's Court has decided to affirm the initial judgment made by the Guangdong Higher People's Court that software maker Qihoo 360's QQ Guard engaged in unfair competition against Tencent. QQ Guard is a software available for download on 360's website aimed at removing QQ's ads and additional functions found within Tencent's QQ software and preventing viruses from stealing account information. Qihoo encouraged users to delete value-added plug-ins made for QQ and embedded codes for self promotion. It argued that the Guard had not damaged QQ's integrity but instead adhered to general commercial ethics without negatively reflecting Tencent, which furiously objected and even released an update that blocks itself from running on devices with Qihoo's Guard installed. The SPC ruled against Qihoo 360 and ordered it to pay damages exceeding the maximum legal compensation.

Source:
China IP Lawyer

After four years, the so-called 3Q war has come to a close. It had an enormous impact on the hundreds of millions of Chinese users as they were forced to choose sides, to uninstall either Tencent's QQ or Qihoo's QQ Guard. The SPC ruled that Qihoo intended to develop and operate the Guard so as to destroy the security and integrity of QQ, and that the conduct of removing Tencent's ads would result in Tencent's transaction and ad income losses – constituting unfair competition and a breach of good faith. It also stated that Qihoo 360 discredited Tencent and, given that the losses were greater than the maximum legal compensation, Qihoo should make a reasonable payment beyond this amount based on the specific conditions. The judge provided no specific standards for dealing with ads and free software. How will the courts set unfair competition guidelines and define market scope for such an evolving and interactive industry?

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China launches private bank pilot programme

The CBRC will launch programmes testing the development of five privately-owned banks in Tianjin, Shanghai, Zhejiang and Guangdong as the first step to open the closely-guarded banking sector to private investors. Ten companies have been approved to participate in the project, including the two e-commerce leaders Alibaba and Tencent, both of which have been competing to market high-yielding WMPs online, as well as auto parts maker Wanxiang Group, aviation services and travel company JuneYao Group and conglomerate Fosun Group.

Sources:
Reuters
Market Watch (The Wall Street Journal)

This is an effort to bring private capital into the state-dominated banking sector to spur competition and economic growth. The tendency of China's banking system to grant loans primarily to large state-owned enterprises has long been criticised. Despite accounting for 60% of GDP and around 75% of new jobs, SMEs have relatively limited access to financing opportunities, forcing them to scramble for funds. The programme will open up a channel for such activities eventually, but banks and officials warned that an immediate solution is unlikely even if regulators move aggressively to permit new privately-owned banks.

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China's reforms: promising or just promises?

The Premier's economic reform objectives presented to the NPC last Wednesday were criticised by the WSJ as “still long on promise and short on details”. The objectives include pushing forward with interest-rate liberalisation and establishing a deposit insurance system, moving toward Renminbi convertibility under the capital account and expanding the 1% daily trading band of the currency against the US dollar, as well as boosting private capital by welcoming SME investment in market sectors that are no longer state reserved. Since the 60-point reform plan produced at the Third Plenum, anticipation has been mounting for elaboration on the timing and sequence of these ambitious changes. But unlike the public rule-making processes of the US, China's regulatory changes are usually gradual and shrouded in secrecy, providing little notice prior to enactment.

Source:
The Wall Street Journal

The WSJ's opinion may have overlooked some of the most far-reaching changes since the days of Deng Xiaoping. The economic reforms aim to make the domestic financial system more efficient, turn the Renminbi into a truly international currency and propel Chinese companies into the global market. Substantial changes have, in fact, been implemented – the central bank has forced more volatility into the Renminbi's exchange rate to discourage excessive capital inflows (the trading band has been doubled to 2%). But most reforms will be arduous such as the overhaul of the state-dominated financial sector. With the boost in private capital, SOEs may face more competition. Also, Premier Li has retained last year's 7.5% economic growth target, leaving him little room to clamp down on smokestack sectors such as steel and coal to implement what the government says is a war on pollution. But the reforms overall entail immense changes. Despite one-sided complaints over empty promises and lack of public notice, China's policy makers have more to address than perhaps those of any other nation. And, fortunately, they appear to be heading in the right direction.

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