By Simon Rabinovitch in Beijing

Chinas rapidly expanding satellite

programme could alter power dynam-
icsinAsiaandreducetheUSmilitarys
scope for operations in the region, ac-
cordingtonewresearch.
Chinese reconnaissance satellites
can now monitor targets for up to six
hours a day, the World Security Insti-
tute, aWashingtonthink-tank, hascon-
cludedinanewreport.
The Peoples Liberation Army,
which could only manage three hours
of dailycoveragejust 18months ago, is
now nearly on a par with the US mili-
tary in its ability to monitor fixed tar-
gets, accordingtothefindings.
Starting from almost no live sur-
veillancecapability10years ago, today
the PLA has likely equalled the USs
abilitytoobservetargetsfromspacefor
some real-time operations, two of the
institutes China researchers - Eric
HagtandMatthewDurnin- writeinthe
Journal of StrategicStudies.
Chinas rapidly growing military
might has unnerved its neighbours,
manyof whomare USallies, while dis-
putes this year with Vietnam and the
Philippineshaveaddedtotheconcerns.
Chinas militarybuild-uphas accel-
erated in recent years, as it has devel-
opedananti-shipballisticmissile, test-
ed a stealth fighter and is poised to
launch its first aircraft carrier. The
fast-growing network of reconnais-
sance satellites provides China with
thevisiontoharnessthishardware.
Admiral Mike Mullen, the top US
militaryofficial, saidat theweekendin
Beijing that it was clear that the PLA
was focusedonaccess denial- aterm
thatdescribesastrategyof pushingthe
USout of thewesternPacific.
TheUSis not goingaway,saidAd-
miral Mullen, chairman of the joint
chiefsof staff. Ourenduringpresence
in this region has been important to
ouralliesfordecadesandwillcontinue
tobeso.
ChinawarnedtheUSlast monthnot
to become involved in its dispute with
Vietnam over the South China Sea.
[Chinas] strategic priority is to keep
theUSout of itsbackyard,MrDurnin
told the Financial Times, adding that
the satellite technology needed for
achievingthat goal isnowinplace.
WhenChinatestedmissilesnearTai-
wanin1996,theUSdeployedtwoaircraft
carrierstonearbywaters. ThePLAsin-
abilitytolocatetheshipswasasourceof
great embarrassment that helped spur
Chinassatelliteprogramme.
The United States has always felt
that if there was acrisis inTaiwan, we
could get our naval forces there before
China could act and before they would
know we were there. This basically
takesthatoff thetable,saidJoanJohn-
son-Freese, aprofessor at the USNaval
WarCollegeinRhodeIsland.
The Financial Times Limited 2011
By Dan McCrumin NewYork
Large parts of the global asset manage-
ment industry are inthe early stages of
a decline that could last decades, ac-
cording to the ninth annual report on
the sector produced by the BostonCon-
sultingGroup.
Recentgrowthasassetpriceshavere-
bounded since the crisis masks under-
lying challenges from increasingly
demanding investors, regulation
and competition from cheap alterna-
tivestoestablishedproducts, according
tothestudy.
If youreinyearthreeorfiveof a20-
year decline, thenthings dont look too
badrightnow, butthentheyneverreally
get better, said Monish Kumar, global
head of asset and wealth management
at BCG.
Total assets under management
worldwideroseby8percentto$56,400bn
in2010, accordingtothestudy, returning
to the previous peak hit at the end of
2007. However, while profits grew at a
fasterpacethanassets, overall industry
profits are still 23 per cent below those
madein2007.
Part of that shift reflects temporary
factorsrelatedtotheeconomiccycle, ar-
gues Mr Kumar. Investors have shifted
outof moneymarketfundsthatarebare-
ly profitable for asset managers into
stocksandbonds, raisingrevenues.
But they have still tended to prefer
fixedincome funds, where fees are typi-
callylowerthantheequityproductsthat
werepopularbeforethecrisis.
Yet at thesametimeinvestorscontin-
ue to adopt a barbell strategy - com-
biningcheap, passive exposure toanas-
set class through instruments such as
exchange traded funds, with more ex-
pensive investments provided by alter-
native asset managers such as hedge
fundsandprivateequity.
Theretail investormarket ismorere-
silient, saidMr Kumar, but it probably
comesmorefrominertiathantakingin-
formedconsciousdecisions.
A few large asset managers are also
picking up the great majority of indus-
try asset flows, the report shows. Inthe
USmutual fundmarket, fivecompanies
led by index fund provider Vanguard
were responsible for $238bn of the
$244bnof net inflows.
Europeanasset managersinparticu-
lar face greater competition from US
peersseekinggrowthoutsideadomestic
market under pressure. Franklin Tem-
pleton and Pimco took a third of the
$198bn of European net asset inflows,
withUSmanagerstakinghalf of thetop
10spotsonBCGsinflowleaguetable.
The report also warned that regula-
tion aimed at asset managers clients
continues to raise costs for the man-
agers, astheytoohavetoraisestandards
andlevelsof service.
The report was based on a survey of
assetmanagersin35countrieswithato-
tal of $28,000bnundermanagement.
The Financial Times Limited 2011
By Matt Steinglass
Spil Games, the Dutch company that is
theworldssecond-largestonlinegames
platform after Facebook by monthly
users, has announced a deal to host
games fromthe Germandeveloper Big-
point onitswebsites.
The privatelyheldcompanies didnot
discloseterms, butSpil Games previous
tie-ups have typically involved splitting
revenues from advertising and micro-
payments within games, taking 30 per
cent, withtherestgoingtothedeveloper.
The deal comes as independent on-
line gaming websites struggle to com-
pete with Facebook, which became
number one inonline gaming by domi-
natingthesocial networkingspace.
Zynga, the social gaming company
whose recently announced initial pub-
lic offering is expected to raise up to
$2bn, is almost entirely dependent on
Facebooktodrawinplayers.
HeikoHubertz, Bigpointschief exec-
utive, saidthedecisiontotieupwithSpil
Gamesreflectedthatcompanysgreater
interest in promoting game play. On
Facebook, developersmust paythehost
topromotegamestousers, whereaspart
of Spil Games missionas host is tolink
users of its websites to games they
might like, such as the car chase game
LosetheHeat.
Facebookis not a gaming website,
saidMrHubertz. Theirfirst interest is
not that the user find our games. . . but
that userscancommunicate.
Spil Gamesisoneof thefewindepen-
dent gaming platforms to prosper dur-
ing the Facebook era. Its monthly
uniqueusers- thenumberof individual
people who visit its websites each
month- grewto130minMay, from99mat
the endof 2009. The companycompetes
withFacebookbyintegratingsocialnet-
working into the games it hosts, allow-
ing users to set up profiles and create
theirowncontent.
Peter Driessen, chief executive, be-
lieves Spil Games canbuilda dedicated
social networkingplatformforgaming,
in the same way that LinkedIn did for
business. Of course, we were a little
afraid at first, [asking] canwe compete
withFacebook? But nowwe see our au-
diencegrowingeveryday,hesaid.
The online and mobile gaming mar-
ket is expected to grow to half of the
overallvideogamesmarket, or$44bn, by
2014, according to the investment bank
Digi-Capital. But with Facebook gob-
bling up a huge share of total internet
use, independentgamingplatformsface
a battle to retainusers. Facebookis 25
percentof thetimespentontheinternet
now, said Lou Kerner of Wedbush Se-
curities, a social media analyst. So its
astruggleforeverystandalone.
Spil Games websites target girls,
teenagers generally and families. The
company owns dozens of games and
girls games domain names, such as
games.co.ukinBritain, jeu.frinFrance,
girlsgogames.comintheUSandjuegos-
dechicas.cominMexico. It does not dis-
close financials, but outside estimates
put 2010 revenues at 30meuros, mainly
from advertising.It expects rapid rev-
enue growthfromvirtual goods such
asgardeningtoolsinfarminggames.
Spil Games has converted its sites to
theHTML5standard,allowingthemtobe
played easily on mobile devices. Mr
Driessen said this gave them an advan-
tage over games inside Facebook or
iPhoneapps,whichrequiredownloading.
TimMerel of Digi-Capital said: Spil
Games is one of the great successes,
from a distribution platform point of
view, outside of Facebook, in western
markets. Holding that positionis going
totakealot of work.
The Financial Times Limited 2011
By Henny Sender in Hong Kong
Shan Weijian, one of private equitys
most successful dealmakers in Asia,
has raised more than $1.7bn for a new
fund focused on China at a time of in-
creased scepticism about such invest-
mentsinthecountry.
Theannouncement of thefirst close
of PAGAsiaI, expectedonTuesday, isa
huge personal endorsement for Mr
Shan, formerly of TPGand associated
with some of the most lucrative deals
completedinAsiabytheUSprivateeq-
uitygroup.
PAG Asia I, raised for Pacific Al-
liance, the Hong Kong-based invest-
ment firm of which Mr Shan is chair-
manandchief executive, mayalsohave
benefitedfromtighteningcredit condi-
tions andaloss of investor appetite for
newChina-relatedlistings.
Every week, people pitch pre-IPO
[initial public offering] deals to us,
says Mr Shan. But those are more in-
teresting for the local renminbi funds
that cant invest for the long termlike
we can. To do restructuring or buy-
outs, youneedtohaveatrackrecord.
Many of Mr Shans signature deals
follow the template of his mentor,
TPG co-founder David Bonderman,
who bought into distressed US finan-
cialinstitutionsandcompaniesduring
the credit crisis in 1990 and made
hugeprofits.
Many of Mr Shans current in-
vestorsaresomeof TPGslargeinstitu-
tional investors, thoughsome are usu-
ally barred by their charters from
investinginfirst-timefunds.
MrShanhasastrongrecordondeals
inChina, structured to give Pacific Al-
liancecontrol inmanycases, oneof his
trademarksat TPG.
Hehasalreadysignedagreementsto
buystakesinaretailerinBeijing, anin-
surer - alsointhe capital - andinenter-
tainment andhotel groups.
The environment inChina for deals
hasrecentlybecomemorecomplicated,
duetothepresenceof hundredsof ren-
minbi funds raised bothby local firms
andthebiginternational groups.
In many cases, these funds have re-
ceived backing from the Chinese Na-
tional Social SecurityFund, aswell asa
network of wealthy individuals who
have beenput off keeping their money
inthebankwhentherateof interest on
depositsremainsinnegativeterritory.
MrShanarrivedinHongKonginthe
mid-1990s, initiallyasaneconomist for
JPMorganandthenas abanker, before
joiningTPG.
He has at times spoken out against
both Chinese policy and the profitless
growthof manyChinesecompanies.
PacificAlliancehopestoraiseatotal
of $2.5bnincomingmonthsforthefund.
The Financial Times Limited 2011
Asset
managers
facing
decline,
warns BCG
Dealmaker in
$1.7bnraising for
China fund
Dutchonline games host seeks to challenge dominance of Facebook
By Leslie Hook in Beijing
Nestl, theSwissfoodgroup, issettoac-
quire Hsu Fu Chi, the Chinese sweets
company, for S$2.1bn (US$1.7bn) in a
deal that marks one of the largest for-
eignacquisitions inChina and under-
scores the race for the countrys food
sector.
The Swiss group plans to purchase
60 per cent of Singapore-listedHsuFu
Chi, withthe remaining 40 per cent to
be owned by four Taiwanese brothers
whofoundedthecompany. If thedealis
approvedbyregulatorsandsharehold-
ers, the stock will be delisted, with
Nestl andthe Hsubrothers operating
thecompanyasajoint venture.
Chinas food market is becoming a
hot target for foreign investment,
as rising incomes feed a growing ap-
petite for packaged foods. Chinas
confectionery market alone is worth
more than $9bn a year, according to
Euromonitor.
Hsu Fu Chi, which had sales of
$798m last year, makes sweets, cakes
and a popular cereal bar called
Sachima. All the companys sales are
inChina.
Thereismoredisposableincometo
go around in China today and people
have less free time ... thats leading
to growing demand for packaged
foodslikecakesandcookiesandcrack-
ers, said Ben Cavender, analyst at
China Market Research, a Shanghai-
basedconsultancy.
Hesaidanti-monopolyhurdleswere
unlikely to pose a major challenge to
the deal, as HsuFuChi holds just a 6-7
per cent market share in Chinas con-
fectionerymarket.
NestlesannouncementfollowsDia-
geos acquisitionof astake inChinese
liquor brand Shui Jing Fang, which
was approvedbyChinas regulators in
June, an encouraging sign for foreign
investment in the food sector. [This
proposed partnership] combines
Hsu Fu Chis strong brands, its large
portfolio of products at affordable
price points, its efficient operations
and entrepreneurship with our
proved innovation and renovation ca-
pabilities, supported by our R&DCen-
tresinChina,saidPaulBulcke, Nestl
chief executive.
Nestls milksales soaredfollowing
the melamine milk powder scare that
turnedconsumers awayfromChinese
milkbrands.
Nestlsellsarangeof foodsinChina
andreportedsalesof SFr2.8bn($3.3bn)
for the China region last year. Under
the proposed deal, Nestl will buy 43.5
per cent of the company from share-
holders and then buy a 16.5 per cent
stakeinthecompanyfromthebrothers
whocurrentlycontrolamajoritystake.
Nestl is offeringS$4.35 per share, and
HsuFuChistockrosetothatlevelwhen
tradingresumedonMonday. Theprice
is a 9 per cent premium to the closing
priceonJuly1, whenHsuFuChi stock
was suspended, and a 25 per cent
premiumtothe180-dayweightedaver-
agestockprice.
Nestl struck a similar deal with
Yinlu, a family-run food company in
whichit bought a60 per cent stake, un-
derliningtheSwissgroupsdetermina-
tion to expand into fast-growing
emergingmarkets.
The discussions with Hsu Fu Chi
lasted for about a year and the family
will continuetorunthecompanyafter
the transaction is completed, said a
personclosetothedeal.
Bothcompaniesdeclinedtoprovide
atimeframeforwhenthedealmightre-
ceive regulatory approval. Nestl was
advisedbyCredit Suisseonthedeal.
Additional reportingbyAnoushaSak-
oui inLondon
The Financial Times Limited 2011
Nestl tobuy HsuFuChi
for S$2.1 billion
The Nestle SA headquarters in Vevey, Switzerland
Heiko Hubertz, Bigpoint CEO
Shan Weijian
WEDNESDAY, JULY 13, 2011
IN
THEFINANCIAL
EXPRESS
BY SPECI AL ARRANGEMENT WI TH FT
11
Chinas satellites cast shadow
over USPacific operations
The Financial Times Limited 2011. All Rights Reserved. Financial Times and FT are registered trade marks of The Financial Times Limited. Visit FT.comto acquire an FT.comsubscription and gain unlimited access to more Financial Times content on FT.com
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The PLA, which could
only manage three
hours of daily coverage
just 18 months ago, is
nownearly on a par
with the US military in
its ability to monitor
fixed targets
MEDIA - NEWS ANALYSIS
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A rocket being readied for launch at
Chinas Xichang Satellite Center