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Its almost two years to the day that China Wonder, with much fanfare, became the first Chinese company to float on London's AIM market. But the company's latest financial results give investors little reason to celebrate.

Sales at the half-way mark are down a third to just over £0.5m while pre-tax profits have halved to just £65,000. The company blamed the results on the "cyclical nature of our business" and said things would get better in the second half.

This is the company, you will remember, whose share price soared 370% in the first two weeks of trading on AIM, London's junior market, prompting comparisons with the dotcom boom of a few years before. The Financial Times commented at the time:

It [China Wonder] has helped to highlight the pent-up demand among investors for a piece of the action in the country's rapidly expanding economy."

But since hitting a peak of 112.5p China Wonder's share price has moved mostly down over the past two years. Today it is just 4.5p above its 24p placing price. Those institutions who paid the placing price can still make a profit.

But private investors who joined the feeding frenzy in the days after China Wonder's flotation have had less luck.

No doubt, they are wondering why they got so excited about a small Chinese company that makes packaging equipment. Clearly the name helped. China Wonder is just the holding company but its sounds a lot more exciting than Jinzhou Wonder Packing Machine Company, the operating subsidary.

To be fair, China Wonder doesn't make just any packaging machines. It specialises in "bubble cap packagers" and other hi-tech machinery used to package pharmaceuticals. That sounds like a good niche to be in. Indeed, in the three years up to its flotation, sales and profits had risen each year, and the company had great hopes for the future because of its focus on China's "fast-growing pharmaceutical market."

I don't doubt that China Wonder operates in a promising market. But its also a highly competitive one -- just Google "pharmaceutical packaging machines" to see how many Asian manufacturers are competing for your order.

The moral of the tale, for those who haven't guessed already, is that just because a business has China as its principal market -- or "China" in its name -- doesn't mean it will be hugely successful. And it definitely doesn't mean that the its share price can defy the laws of gravity.

Technorati : china, competition, manufacturing, packaging

Clean drinking water is something westerners take for granted. But not so in China where Californian company Pionetics hopes to tap growing concerns about the quality of China's drinking water. It has just made its novel water treatment system commercially available through a Chinese JV partner.

Now, products to filter drinking water are pretty run-of-the-mill. What is different about Pionetics' system is that it doesn't use a filter or harmful chemicals. Instead, it employs a patented ion exchange process similar to the reverse osmosis system used in industrial desalination plants.

Pionetics claims its product is more efficient than traditional RO systems, so it takes up only half the space and wastes one tenth of the water.

This announcement would normally have gone unnoticed by us if it wasn't for the impressive list of venture capital firms backing Pionetics and the fact that its founder and CEO, Gordon Mitchard, was marketing director at JDS Uniphase, the US optical networking company and fallen dotcom star.

Now, I don't know too many water-filter companies that can raise $11m in three rounds of venture funding. I know even less whose CEO has a working knowledge of dense wavelength multiplexing. So ,one has to assume that the Pionetics is pitching in a different league to the competition -- but how well will its pitch work in China?

Pionetics argues its system is ideal for the Chinese market because clean water is a "rare and expensive commodity". More to the point, Pionetics claims its technology is cheaper than RO systems and can better handle low water pressure -- a problem in China, apparently.

China recently introduced tougher regulations for drinking water, but its expanding urban population puts huge strains on water supplies. A surprisingly frank Xinhua report last year revealed that a sample of tap water from a residential area of Chongqing contained 80 of the 101 pollutants that are now forbidden in drinking water.

Chongqing plans to spend 4.45bn yuan before 2010 to clean up its water, while nationwide it is estimated a phenomenal 50bn yuan will need to be spent. Clearly, Pionetics is hoping that many of China's consumers will prefer not to wait for local governments to get their act together and will buy its system instead.

Pionetics' local partner, Beijing-based Elantec, claims to be the leading manufacturer and distributor of residential water treatment systems in China, with over 8,000 dealers throughout the country. It hopes to sell 140,000 devices in the first two years.

China's rural population also suffer from bad water and their problems are, if anything, worse. According to the excellent China Watch, 300m rural residents, nearly a quarter of China's total population, lack access to clean drinking water. And unlike China's city dwellers, few can afford to splash out on a Pionetics system.

Clean Diesel Technologies, a small US company, has signed a distribution agreement that could see its novel diesel filters reduce air pollution in Chinese cities.

CDT, which is listed in London, has licenced the technology, manufacturing and distribution rights for its patented filter to Extengine Transport Systems, a US firm that specialises in the same field and is already established in China.

CDT says its filter, which uses a catalyst-covered wire mesh, has been successfully demonstrated to meet the proposed emissions requirements of China's State Environment Protection Administration.

Official tests were conducted by retrofitting the devices to some heavy-duty construction equipment in Beijing and, according to a Chinese official quoted by CDT, the "results were impressive."

The results showed the devices reduced the black smoke between 40% and 50%, even on diesel fuels with a high sulphur content. The device can work with high- or low-sulphur fuels and even biodiesel.

Like a lot of small western companies trying to engage with China for the first time, CDT faces the big problem of simply getting its technology known. To date is has concentrated on expanding its customer and distributor base in the UK and Europe, but the deal with Extengine opens up a potentially huge market and means in doesn't have build its own distribution network in China.

The filter is designed to be retrofitted to existing engines and according to CDT, China has over 3m diesel-engine vehicles, construction equipment and generators that could benefit from the technology.

The deal also covers North America where Extengine says there is much interest in retrofitting diesel vehicles in California and New York City. But what strikes me about this agreement is that China is put on a par with these western markets rather than, as is so often the case, mentioned as a market with "longer term"potential.

The air above Beijing is the most polluted in the world and in the past five years the number of vehicles clogging the capital's streets has more than doubled to 2.5m, according to the Guardian newspaper. Air pollution has become so bad in Beijing that city officials fear it is discouraging foreign investors from locating to the capital.

The US Environmental Protection Agency is working with SEPA and local agencies on a range of clean fuels and vehicles initiatives in China. For example, 20 Beijing buses have been retrofitted with clean diesel technology in a demonstration project. That's a drop in the ocean, however, as Beijing has about 19,000 buses of which 5,000 have diesel engines.

Retrofitting existing vehicles with clean diesel technologies, while hardly a complete solution to China's worsening air pollution problem, is nevertheless a much-needed move in the right direction.

Technorati : china, diesel, environment, pollution

Intel has made its largest and most significant Chinese investment date, plumping down $40m for a stake in Neusoft, China's biggest software outsourcing firm.

Intel Capital, the chip giant's corporate venturing arm, has been cautious about investing in China to date. Last year, it announced with much fanfare the creation of a China-focussed fund -- its first such regional fund -- but it only earmarked a relatively modest $200m to spend on Chinese start-ups.

The initial focus was cellular communications, broadband applications for consumers and semiconductor design, and the fund's first few investments hardly sparkled with originality -- a HK-based fabless chip designer, an ASIC design foundry and so on. Granted, Intel knows the semiconductor industry better than anyone and so I suppose makes sense to start on familiar ground.

But unless the companies in Intel's China portfolio are hiding some novel technology or process that we haven't been told about, I cant really see them doing much to further Intel's ambitions in China or elsewhere.

The investment in Neusoft takes Intel out of its comfort zone and represents more of a leap of faith of the US chip giant. That's because Neusoft makes software not chips. Intel justifies the purchase saying that boosting China's software industry will increase demand for Intel chips.

Nevertheless, to me a much more obvious partner for Neusoft would be a big software house. Indeed, it already has one -- Germany's SAP.

In May, the two companies extended an existing relationship by announcing a "broadened, enhanced strategic partnership" under which the Chinese company will more than triple its staff trained on SAP's software. Neusoft also expanded its reseller agreement with SAP, in a move designed to get the German company better know with China's smaller businesses.

SAP has long sought to extend its leadership of the enterprise software market in the west down to smaller businesses, but the moves have had only modest success. Clearly it is hoping that things will be different in China, where the enterprise software market is virtually untapped.

Quite what Intel hopes to get from investing in Neusoft is unclear. True, the software that Neusoft develops probably runs on Intel-based computers but Intel could use the same reasoning to justify investing in almost any software house or PC company on the planet.

Nor is Intel the first multinational to invest in Neusoft as Philips Electronics and Toshiba already own stakes.

I suspect Intel sees Neusoft as a financial rather than strategic investment. Once China's fledgling software industry matures, western software houses will be queueing up to make Intel an offer it cannot refuse for its stake in Neusoft. Or perhaps Intel sees the exit in a future IPO of Neusoft.

Intel made its first China investment in 1998, and has invested in roughly 50 businesses in the country. However, the competition for Chinese start-ups from western VC firms is increasing -- see this BusinessWeek article -- which could explain why Intel has decided to spend more on a large and well-established business like Neusoft.

Technorati : Intel, Neusoft, SAP, china, semiconductors, software

China has emerged as the new battleground for social networking sites. First it was Rupert Murdoch who said last week that his Chinese-born wife, Wendi Deng, has been sounding out Chinese officials about launching a Chinese version of MySpace, the astonishingly popular site owned by Murdoch's News Corp.

Now Facebook, which catering mainly for US college students, has also discovered China.

Or rather, it has discovered that there is a similar-sounding Chinese-language site called Faceben.com and it has told it to find a less problematic name, according to an unconfirmed report picked up by Pacific Epoch.

The Chinese site duly complied and visitors to Faceben.com are now redirected to Faceren.com -- not be confused with Chinaren.com, a site for Chinese alumni owned by China's Sohu.com, or with Renren.com, a similar site.

Now these two stories have uncanny parallels with the tales of rampant ambition and bandwagon jumping that characterised the first internet boom.

For those who missed the story, News Corp paid an astonishing $580m for MySpace last year. With hindsight, analysts say Murdoch may have got a bargain given the phenomenal growth of MySpace -- it currently has over 100m users worldwide and is adding around 1.5m new ones each week.

Facebook started later and is more select: it has over 9m users. Chinaren claims to be the largest online alumni club in China with over 60m registered users as of June 2005.

Earlier this year, France's online dating firm Meetic paid almost €17m for eFriendsNet, a Chinese dating site.

Despite the huge buzz surrounding this whole area of social networking, I think western firms operating in this space will have enormous difficulties trying to "monetise" China.

Neither MySpace or Facebook currently operates in the PRC and they face a host of hurdles should they try to do so. For example, there are the cultural differences. In other Asian countries, consumers have shown themselves to prefer home-grown social networking sites to these western imports.

Murdoch's proposed solution is to recruit local partners, who would own around 50% of MySpace's Chinese operation. That would ensure the content is more suitable for a Chinese audience, and the local partners could also deal with complaints.

In the US, MySpace is frequently acused by parents, teachers and religious leaders as being a potentially dangerous place for teens to hang out. Wired has a good story on the moral backlash against MySpace.

Presumably, Ms Deng was in China to try to present the acceptable face of MySpace while avoiding the dreaded "C" word -- censorship.

Another problem is that China's internet advertising market is immature. According to BusinessWeek, online ad rates are 90% lower than their equivalent in the west.

So, while they attract growing numbers of users in the west, the jury is out on whether MySpace and Facebook can also build sustainable business models. In China, that discussion has not even started.

Technorati : Facebook, MySpace, china, competition, internet

The fallout from the Chinese clampdown on miss-selling of wireless services continues to drift westward. London-listed IGM, which provides wireless value-added services in Asia, today reported a year-on-year decline in interim revenues of 5% to $2.7m.   more  »

Why are so many Chinese companies choosing to raise money in the west? While there are a handful of big well-established China plays like China Mobile listed in the west, most are small companies focussed on emerging sectors like biofuels, renewable energy and software. Many of these minnows have limited trading history. Some have little more than a name and a business plan.    more Â»

Still think China's mobile telecoms market offers boundless opportunities? Fitch Ratings brings investors down to earth in a report that warns of growing risk in the Asian telecoms industry.   more Â»

SAIC's plans to establish itself as a global rather than Chinese carmaker have hit a setback, once again showing how the Achilles Heel of Chinese multinationals is often their branding strategies.   more Â»

Seek, Australia's leading online recruitment firm, has paid $25m for a stake in Zhaopin, one of China's largest online classified ad firms. Telstra, Australia's dominant telco, made an even bolder move into China last month, buying a majority stake in SouFun Holdings, which runs the leading property website in China, for $254m.    more Â»