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China Watch: China May Lift Ban on Gaming Consoles, but Hold the Celebrations for Sony and Nintendo


Lenovo and Louis Vuitton also make the news.

Manufacturing data from China this week confirmed that the worst of the mainland's slowdown was over. The official purchasing managers' index, or PMI, for January came in under expectations, dropping to 50.4 from 50.6 in December.

However, a second factory PMI from HSBC, which focuses more on small private companies, jumped to a two-year high of 52.3 from last month's 51.5.

"I'm pretty confident that the worst [of Asia's slowdown] is behind us," said Tim Condon, ING's head of research for Asia, according to the Wall Street Journal. "The disconcerting thing about the official PMI from China is that it suggested we were sort of plateauing at what would be an anemic level of industrial production for China, but the HSBC number dispelled those fears."

Here is the week's business news:

Gaming Console Companies: China's ministry of culture is considering lifting a 13-year ban on gaming consoles, reported the state-run China Daily this week. If that happens, millions of Chinese gamers will be able to legally purchase their Xboxes, Wiis and PlayStations, which will be a boon to companies like Microsoft (NASDAQ:MSFT), Sony (NYSE:SNE), and Nintendo (PINK:NTDOY)... or will it?

As The Economist highlights, the Chinese already developed an appetite for gaming long ago, but they play games like World of Warcraft on their computers and smartphones, not so much on consoles.

Additionally, illegal or pirated consoles and games are already easily available to gaming enthusiasts in China, so the lifting of the ban will not move the sales needle much.

"You still can't make money with the current business model… because of piracy," Wedbush Securities analyst Michael Pachter told Businessweek. "I don't know that Sony or Nintendo are ever going to make a large profit on games in China."

Louis Vuitton (PINK:LVMUY): Much has been written about China's growing appetite for luxury goods, and fashion houses like Louis Vuitton and PPR's (PINK:PPRUF) Gucci have been among the biggest beneficiaries of the rise of the Chinese luxury consumer.

After a slowdown in the China market in the second half of 2012, Louis Vuitton, which has aggressively expanded its presence in the mainland over the past decade, has decided to decelerate its pace of growth. The reason? Bernard Arnault, chief executive of parent company, LVMH, said he wanted to ensure the brand's exclusivity remained intact.

"The group's strategy now is to limit store openings," said Arnault during a discussion of LVMH's annual results, reported the South China Morning Post. Specifically, he added that Louis Vuitton would not open stores in second- or third-tier Chinese cities to "avoid becoming too commonplace."

"We want to focus on leather products with high value added."

Dunkin Brands (NASDAQ:DNKN): The LeBron James endorsement must be working. Dunkin Brands, which hired the Miami Heat superstar to be the brand ambassador for Dunkin' Donuts and Baskin Robbins in Asia, is planning to expand its presence in China.

The ice cream chain said on Wednesday that it plans to open 249 stores in China over the next 10 years. There are more than 90 Baskin Robbins stores on the mainland currently, spread across cities such as Beijing, Shanghai, Xi'an, Hangzhou, and Zhengzhou.

In an interview with Jim Cramer on CNBC, Dunkin Brands CEO Nigel Travis expressed confidence in the brand, saying that Baskin Robbins International is the "jewel of the crown," and "if anyone can take China by storm, it will be Baskin Robbins."

Lenovo (PINK:LNVGY): The world's biggest PC maker is gearing up for a battle against Apple (NASDAQ:AAPL) and Samsung (PINK:SSNLF) in the mobile sector. The Beijing-based company, which sold 9 million smartphones in China in the three-month period ended December 31, is planning to enter the high-end smartphone market, where the iPhone and Samsung Galaxy dominate, said Lenovo chairman and CEO Yang Yuanqing, according to Xinhua

"Since Lenovo's smartphone business is starting to become profitable, it is allowing the company to invest more in product development, marketing, and building distribution channels, which are key for it to build a sustainable business in the global smartphone industry," noted Wang Jingwen, analyst at Canalys.

For now, however, Yang said that his company will continue to concentrate on the China market, adding that it will require more time for Lenovo to become profitable in overseas smartphone markets.

Qihoo 360 (NYSE:QIHU): It hasn't been the best of weeks for Chinese search upstart Qihoo 360, which holds 9.6% of the search market share in China, second only to leader Baidu (NASDAQ:BIDU) (73%). Shares of the company slipped on Monday after it reported that its iOS apps were removed from Apple's iTunes store.

The company's CFO Alex Xu told Bloomberg that Qihoo's apps were "abruptly removed" last week without any explanation. Last year, Qihoo's apps were also taken down by Apple for a few days because of "unusually high numbers of positive/negative feedback by unknown sources," TechCrunch reported.

To make matters worse, the Beijing Industrial and Commercial Administration Bureau, an industry regulator, issued a warning to Qihoo for unfair competition because the firm's free security software, 360, was difficult to uninstall and also created pop up windows that warned users that non-Qihoo browsers were incompatible with their operating systems.

In response, Xu said in an email that the warning was "very vague" and that such cautions were not out of in the ordinary in the tech industry in China.

Twitter: @sterlingwong
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