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Should Best Buy Exit China?

By

Disney and Sina also make the news.

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China Watch: Top Business News From the World's Second Largest Economy
Struggling electronics retailer Best Buy (NYSE:BBY) officially pulled out of Europe this week after selling its holdings in a European joint venture at a loss. Now analysts want the company to do the same in China, where it has been bleeding market share to Chinese firms Suning (SHE:002024) and Gome (HKG:0493).

Best Buy's China operation has also been without a leader since Nicholas Wang, the former CEO of Best Buy's Five Star unit, departed in March.

Many Wall Street analysts Reuters spoke to agreed that it would be a wise move for Best Buy to get out of the mainland.
A Best Buy-owned Five Star Appliance outlet in China. Source: China Daily

"There are no strategic benefits to them being in China," said BB&T Capital Markets analyst Anthony Chukumba.

"China has never been particularly profitable for them, and if they feel they can't make that happen, then of course it would be better to try to monetize that holding rather than for them to continue to lose money," added Jerry Bruni, portfolio manager of JV Bruni & Co.

Foreign retailers have found the going tough in China. European firm Media Markt and US giant Home Depot (NYSE:HD) both pulled out from the mainland in the past year due to tough competition.

Iron Man 3 Breaks China Box Office Record

Disney's (NYSE:DIS) Iron Man 3 set a new opening day box office record of 130 million yuan ($21 million) in China this week, surpassing the previous opening day record of 110 million yuan ($17 million), set by Paramount Pictures' (NASDAQ:VIAB) Transformers: Dark of the Moon in 2011.

China surpassed Japan to become the world's second largest movie market last year, so Disney spared no efforts to sell its comic book movie to the local audience. Besides the usual promotional efforts, the company edited a special version of the movie for China that includes four extra minutes of footage featuring high-profile Chinese actors Wang Xueqi and Fan Bingbing.

Iron Man 3 is the latest in a series of Hollywood movies that studios have customized for China. Last year's action film Red Dawn had its central antagonist altered from the Chinese military to the North Korean army to appease Chinese censors.

"The American studios are desperate to get into China," Gitesh Pandya, editor of BoxOfficeGuru.com, told CNN. "And they're looking for new ways to profit from this growing market. The population of just the middle class alone is much bigger than the entire United States population, so there's tremendous potential there."

Alibaba Acquires Stake in Sina's Weibo

China e-commerce giant Alibaba (HKG:1688) announced on Monday that it would buy an 18% stake in Sina's (NASDAQ:SINA) popular microblogging service, Weibo, for $586 million. It also reserved the right to up its stake to 30% in the future.

There has been heavy speculation in the past year that Alibaba would make such a move. The company's chief weakness is in social, which explains its investment in Weibo.

"While [its e-commerce platforms] Taobao and Tmall are already firmly established in the nation, when it comes to bridging the gap between a tweet and a purchase, Alibaba and its subsidiaries have room to catch up," explains Josh Horwitz at The Next Web. "At the moment, there aren't many ways for buyers to interact with others, except for, well, buying stuff. Enhancing the 'social glue' is one way to increase the likelihood of a purchase and spark greater levels of engagement."

Sina and Alibaba say that they expect their partnership to yield some $380 million in advertising revenue for Weibo over the next three years.

"We believe that the cooperation of our two robust platforms will bring unique and valuable services to Weibo users, as well as making the mobile Internet a core part of Alibaba's strategy," said Jack Ma, founder and chairman of Alibaba.

Stephen Schwarzman Launches Rhodes-of-the-East Scholarship

Blackstone Group (NYSE:BX) CEO Stephen Schwarzman is launching a new scholarship for students around the world to study at Beijing's Tsinghua University for a year to improve understanding between the US and China.

The Schwarzman Scholars program will be modeled after the Rhodes Scholarship at the University of Oxford, which was established to create a deeper mutual understanding between the US and Europe.

"[China] is a completely different system than the one we have in the West. Each one of those two systems has some benefits and has some [shortfalls]. And it's important to understand how something else works rather than just assume it works a certain way," said Schwarzman, according to NPR.

Schwarzman is raising $300 million for the Schwarzman Scholars program. He is contributing $100 million of his personal wealth to the scholarship, and he has also received sponsorship commitments totaling $100 million thus far from the likes of Bank of America (NYSE:BAC), Boeing (NYSE:BA), Caterpillar (NYSE:CAT), and General Electric (NYSE:GE).

Twitter: @sterlingwong
No positions in stocks mentioned.
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