5 ‘China internet’ trends to watch out for in rest of 2015: Barclays

The list in brief: 

1 – Industry consolidation / privatisation

2 – O2O (online to offline) market continues to grow

3 – E-commerce extends to cross border

4 – Mobile gaming growth moderates

5 – Increasing collaboration between internet and offline industries

More Chinese internet companies that have listed in the United States will seek to go private in the second half of 2015, although the trend is "unlikely" to extend to most big-cap players, according to an industry report by Barclays.

Renren, once hailed as “China’s Facebook”, 21 Vianet, Home Inns and iDreamSky have all received such proposals this month. Renren's top executives offered to buy the company out at a huge discount after years of declining performance and a series of bad investments. 

But none of the offers were as large as the US$9.6 billion carrot wielded in front of internet security company Qihoo 360 Technology on Wednesday. This would mark the largest privatisation deal for a US-listed Chinese company to date, if it comes to fruition.

The pattern will continue in the coming months due to the likelihood of higher valuation premiums, as well as favourable government policies that encourage overseas-listed companies to join the Chinese bourse, the report said.

It also highlighted a consolidation trend among Chinese companies, citing the recent merger of taxi-hailing companies Didi and Kuaidi in February.

Meanwhile, Chinese classifieds site 58.com acquired online real estate listings company Anjuke in March this year. It also purchased a 43 per cent stake in rival company Ganji. 

The online-to-offline (O2O) market, which integrates online services with offline business opportunities, is forecast to grow 32 per cent this year to 309 billion yuan (US$49.8 billion), the report added, citing internet consultancy iResearch. 

However, Chinese internet companies are likely to see their margins squeezed by rising investment in O2O and mobile marketing, as they bid to increase market share, the London-based bank said.

China’s e-commerce boom will continue this year in step with rising numbers of domestic smartphone users, it added, with major players projected to ramp up their overseas expansion. 

Last year, online retailer Tmall, operated by Jack Ma’s e-commerce giant Alibaba, launched a global website allowing merchants outside China to sell products such as baby formula and cosmetics to Chinese customers, the report said.

Last month, Beijing announced that it would slash import duties from June 1 on certain consumer goods, thus allowing overseas retailers to offer more competitively-priced products. 

The tariffs on skincare products and baby nappies will drop from 5 per cent and 7.5 per cent, respectively, to 2 per cent, the government said. 

An earlier-than-expected slowdown in smartphone gaming is also likely to occur before the end of the year, although industry growth will remain “healthy”, the report said. 

It also pointed to increased collaboration between Chinese internet companies and the government to enhance public services and infrastructure. 

Over 20,000 Chinese provincial government entities have opened official accounts on WeChat, the mobile messaging platform run by Chinese technology giant Tencent.

This has benefited the public by making it easier for people to pay their utility bills and check tax information, among other practicalities.