BEIJING, June 19 -- Leading Chinese television maker Sichuan Changhong Electric Co on Monday said Microsoft will buy 94 million yuan worth of its new shares to tap China's emerging digital electronic market.

    Changhong Electric said in a statement to the Shanghai Stock Exchange that the company had signed a letter of intent with the U.S. software giant to sell 15 million newly issued shares at 6.27 yuan each.

    The shares will be equivalent to less than 1 percent of Changhong Electric's enlarged share capital and will not be tradable for 36 months from the day they are issued, according to the statement.

    The two companies also signed a memorandum of understanding on a project called "Media Galaxy", in which Changhong Electric and Microsoft will cooperate on research and development, and production and sales of digital entertainment products that link television and computers to Internet.

    "Cooperating with Microsoft will benefit Changhong by strengthening our competitiveness in the area of digital home electronics," the company said in the statement.

    Spurred by the news, Changhong Electric's shares on the Shanghai Stock Exchange rose by the 10 percent daily limit to 10.92 yuan after trading was suspended last Friday.

    Although it still requires approval from Changhong Electric's board, the share sale to Microsoft is part of Changhong Electric's plan to raise 2.5 billion yuan to buy 75 percent of Dutch company Sterope Investments BV, owner of South Korean plasma panel maker Orion PDP Co.

    The company said in a statement last April that it would raise the money by issuing 400 million new shares to no more than 10 institutional investors.

    "Through the cooperation, Microsoft is able to have a chance to turn its technology advantage into real products while Changhong Electric reduces its reliance on traditional home electronic products," said Zhu Lijun, an analyst with Galaxy Securities.

    In recent years, the profit margin of traditional home electronics companies has been falling as they face fierce competition from personal computers and other digital devices that combine more interactive features.

    Zhu said local manufacturers like Changhong Electric are especially willing to change as they are often sandwiched between foreign consumer electronics giants and dominant retail distributors.

    In June 2004, Changhong Electric signed an agreement with Microsoft to jointly develop digital multimedia products. The company also signed a strategic partnership with China Telecom in 2005 to promote Internet-accessible televisions in China.

    Changhong's first-quarter net income rose 2.4 percent from a year earlier to 72.5 million yuan and sales increased 28 percent to 4.97 billion yuan, according to the company report released in April.

    (Source: China Daily)