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China: Lenovo and Hewlett-Packard Tussle Over Title of No. 1 PC Seller

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Baidu and Huawei also make the news.

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MINYANVILLE ORIGINAL This week, the International Monetary Fund cut its 2012 growth forecast for China, citing worries from Europe and the US, the two largest Chinese export markets

The IMF said that China would have a "soft landing," with economic growth this year and 2013 coming in at 7.8% and 8.2%, respectively. These figures are a downward revision since in July, it had said China would grow 8% in 2012 and 8.5% in 2013.

"In the short term, a further escalation of the euro area crisis and failure to address the US fiscal cliff are the main external risks," said the IMF, according to Reuters.

Here's the rest of this week's business news:
Huawei (SHE:002502): Chinese company Huawei found itself in the national spotlight after a US congressional committee released a report this week that said that the world's second-largest telecommunications equipment maker, along with ZTE (SHE:000063), were threats to national security. The House Intelligence Committee said that the two companies had close links to the Communist Party, and could possibly help the Party spy on the US.

The Chinese, unsurprisingly, fumed at the report. "This report, which spurns the facts and is suffused with prejudice, is a vicious expansion of trade protectionism," said the state-owned People's Daily in an editorial, quoted by the Christian Science Monitor.

According to the Washington Post, US companies such as Cisco (NASDAQ:CSCO) have been lobbying hard for Congress to increase scrutiny of Chinese competitors like Huawei. In a document sent to telecommunications companies, Cisco wrote: "Fear of Huawei spreads globally. Despite denials, Huawei has struggled to de-link itself from China's People's Liberation Army and the Chinese government."

Lenovo (PINK:LNVGY): The battle between Lenovo and Hewlett-Packard (NYSE:HPQ) for the title of the world's No. 1 PC maker heated up this week after research firm Gartner said that Lenovo has overtaken HP by shipping more PCs in the third quarter this year.

Lenovo shipped 13.7 million PCs during the quarter (nearly a10% increase from a year ago) to nab a 15.7% market share, while HP shipped 13.6 million for a 15.5% market share, Gartner noted in a report.

Troubled HP, which had held the pole position for six years running, swiftly put out a statement citing another study from IDC Worldwide that put itself on top. "While there are a variety of PC share reports in the market, some don't measure the market in its entirety. The IDC analysis includes the very important workstation segment and therefore is more comprehensive. In that IDC report, HP occupies the No. 1 position in PCs."

In the IDC report, HP held a 15.9% share of the PC market in the third quarter, which represented a 16.4% drop from a year ago. Lenovo, meanwhile, improved 10.2% from last year to 15.7%. Clearly, the gap between the two has all but vanished.

Of course, with PC sales shrinking by the minute, the next battle arena is in the tablet market, where Apple (NASDAQ:AAPL) leads the market. As the top local brand in China, Lenovo is certainly well-positioned to compete with Apple, especially at the lower end of the market.

Auto companies: It turns out that Chinese consumers aren't just boycotting Japanese brands -- they are buying fewer cars, period. While sales for Toyota (NYSE:TM), Honda (NYSE:HMC), and Nissan (PINK:NSANY) plunged in the wake of anti-Japan sentiments, overall car sales for July slid 12.6% from June.

The Wall Street Journal points out that China has an oversupply of auto brands – 95 in all, including 48 domestic ones. In a free market, most of the domestic brands would have shut down already, but the Chinese government has been subsidizing local companies.

In the long run, foreign companies like Volkswagen (PINK:VLKAY) and General Motors (NYSE:GM) might thrive, the Journal notes, because Chinese buyers prefer foreign brands in general, but their margins might take a hit because local car makers can set prices low.

Baidu (NASDAQ:BIDU): It's been a tough October for Baidu, whose shares were downgraded by Deutsche Bank, Raymond James, Jefferies, and Credit Suisse. The analysts cited worries about monetization of mobile search. Additionally, analysts point out that Qihoo 360's (NYSE:QIHU) newly launched search engine could steal traffic away from Baidu. Interestingly, when Qihoo introduced its search platform in the summer, it actually usurped Google's (NASDAQ:GOOG) search share in China, not Baidu's.

Not everyone is pessimistic about Baidu, however. Seeking Alpha points out that Baidu has already broadened its business beyond search, with products like the Baidu Yi mobile operating system and Baidu Cloud. Furthermore, with a P/E ratio of 27.7, the stock is relatively inexpensive.

Things could be turning around. Today Macquarie rated Baidu with an Outperform, saying that search share loss was marginal, and set a target price of $160.

Twitter: @sterlingwong
No positions in stocks mentioned.
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