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China: Apple Talks Up All Things China at WWDC


Yum Brands, Wal-Mart, and Zynga also make the news.

MINYANVILLE ORIGINAL For the first time ever, more people in the world think it's China, not America, that is the world's premier economic power, says a 21-country survey by the Pew Research Center.

Little wonder then that Apple (AAPL) executives at the closely-watched Worldwide Developers Conference talked up all things China. Here's this week's China business news, headed by, of course, Apple.
Apple: While fan boys stateside are getting excited about the new MacBook Pro with retina display, the focus of this year's Apple Worldwide Developers Conference turned out to be China, with Tim Cook and other Apple executives highlighting a slew of China-related product upgrades.

A major change is the Apple tie-up with Chinese search engine Baidu (BIDU). Safari will now offer built-in support for Baidu; on the iPhone and the iPad, Baidu will also be available as an option for customers. In return for the phone, Apple is entitled to a share of the Chinese firm's advertising revenue. The deal is similar to the one Baidu has with Android (GOOG) handset manufacturers.

Additionally, Apple also noted that Siri will now support many new languages, including Mandarin, Taiwanese Mandarin, and Cantonese. The new iOS 6 will also offer increased access to Sina's (SINA) Weibo microblog and videos from Chinese video hosting site Youku (YOKU).

In other Apple-related news, there's been another suicide tied to Apple assembler Foxconn; a 23 year-old worker jumped from his apartment near the Foxconn plant in Chengdu. The worker had only been with Foxconn for a month, and police are still investigating the case.

Yum Brands (YUM): Though the Chinese economy is slumping, Yum Brands, thanks to its popular fast food chain KFC, is still thriving in China. The Wall Street Journal reports that in 2011, 50% of Yum's operating profit came from China, compared to the US's 32% contribution. In the first quarter of this year, same-store sales growth in China came in at a robust 14%, though the sales momentum might slow during the rest of the year. Competitor McDonald's (MCD), for example, reported negative growth in the same period.

Nonetheless, Yum can always grow by expanding store count. In 2011, there was one Yum restaurant for every $1.6 billion of Chinese GDP, compared to the one for every $836 million of GDP in the US, so clearly, there is room for growth.

One worry for Yum is falling profit margins, thanks to wage inflation (up 17% in the first quarter) and rising chicken prices (up 7% in the same time period). Still, the prospects for Yum in China remain healthy for the foreseeable future.

Wal-Mart (WMT): Last fall, Wal-Mart was embroiled in a pork-labeling scandal in China, which saw several top executives getting the chop. This week, the company faces fresh accusations from Chinese regulators. Beijing's Food Safety Administration said Thursday that Wal-Mart had violated food-safety standards in March because it sold sesame oil that had too much benzopyrene and squid with too much cadmium. Both benzopyrene and cadmium are cancer-causing agents, according to the US Centers for Disease Control. Wal-Mart has removed both products from its shelves, local state media reported.

This latest snafu could be a setback in the Bentonville, Arkansas, retailer's efforts to regain its footing in China, where comparable store sales grew by a mere 1.2% from one year ago. China was also the sole country where Wal-Mart sales trailed the overall market.

To be fair to Wal-Mart, retail analysts noted to the Wall Street Journal and the Financial Times that Chinese food safety officials are tougher on foreign companies than they are on domestic ones, especially during annual campaigns like food safety week and consumer rights day.

Zynga (ZNGA): As it attempts to distance itself from Facebook (FB), Zynga is looking to China instead. The company announced that it is partnering with Sina to release a Chinese language version of Draw Something. This will be the first game that Zynga is launching in the Middle Kingdom. In addition, there will also be versions of the game in French, Italian, German, Spanish, Brazilian Portuguese, Norwegian, Swedish, Dutch, Danish, Korean, and Japanese.

Zynga saw its stock fall below $5 for the first time this week. Undoubtedly, the lukewarm reception of Facebook's stock offering has played a huge role in Zynga's dip. Hence, Zynga is hoping that its international expansion plans, particular the march into China, will prove to investors that there is still plenty of room for growth in the tech firm, with or without Facebook.

China Telecom (CHA): The country's largest fixed-line operator by sales, China Telecom is looking to expand into the Latin America market. Specifically, the company is targeting Brazil, which will soon be the focus of the world's attention as it hosts the 2014 soccer World Cup and the summer Olympics two years after that.

Together with an affiliate, China Comservice, China Telecom is establishing offices in São Paulo to provide Internet, data, and outsourcing services to Chinese businesses who are setting up shop in Brazil.

Other Chinese companies that are also expanding into Brazil include electricity group State Grid and Bank of China. For now though, the largest area of investments for Chinese firms remains the resources sector. In November, Sinopec (SNP) acquired a 30% stake in the Brazilian assets of Portuguese energy company, Galp Energia, for $5.2 billion.

Twitter: @sterlingwong
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