Insight Magazine May 2012 by The American Chamber of Commerce in Shanghai

w w w. a m c h a m - s h a n g h a i . o r g

The Journal of the American Chamber of Commerce in Shanghai May 2012

Drama In the Hall The economy, housing and healthcare were key government priorities at this year’s National People’s Congress meeting but the controversial sacking of Bo Xilai has captured the public’s attention

• The China/European Relationship • Domestic Economy in Review • Shanghai 2020

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INSIGHT May 2012

The Journal of the American Chamber of Commerce in Shanghai

amcham shanghai President

Brenda Foster Directors Business Development & Marketing

Karen Yuen Committees

Stefanie Myers

F eat u res

14 The Panda City Roars

BUSINESS DELEGATION

By Esther Young

AmCham Shanghai members learn about investment opportunities over two days in Chengdu.

insight editor-in-chief/ Communications & Publications Events

Jessica Wu Finance & Administration

Helen Ren

Membership & CVP

Linda X. Wang

20 Keeping the Lights On

REGIONAL FOCUS

By Jonathan Shyu

How will American factory owners in Suzhou and other Yangtze River Delta cities deal with planned power cuts this summer?

INSIGHT

managing editor

Bryan Virasami Senior Associate Editor

Esther Young

Associate Editor

Ryan Balis Design

Alicia Beebe

26 Drama In the Hall COVER STORY

By Kenneth Jarrett and Peter Martin

The controversial sacking of Bo Xilai provided the drama at this year’s National People’s Congress meeting in Beijing. 38

Mickey Zhou Snap Printing, Inc.

sponsorship manager

Sophia Chen

(86-21) 6279-7119 ext. 5667 Story ideas, questions or comments on Insight: Please contact David Basmajian (86-21) 6279-7119 ext. 8066 david.basmajian@amcham-shanghai.org Insight is a free monthly publication for the members of The American Chamber of Commerce in Shanghai. Editorial content and sponsors' announcements are independent and do not necessarily reflect the views of the governors, officers, members or staff of the Chamber. No part of this publication may be reproduced without written consent of the copyright holder.

38 Why NYU Is Coming to Shanghai EDUCATION

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Layout & Printing

INSIGHT Sponsorship

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David Basmajian

By John Sexton

The president of NYU talks about his plans for the school expected to open in a few years.

I nsight standards

5 News Briefs 12 Manager’s Notebook

11 Movers & Shakers 50 Executive Getaway

I N S I D E A m C ham Shanghai Centre, Suite 568 1376 Nanjing West Road Shanghai, 200040 China tel: (86-21) 6279-7119 fax: (86-21) 6279-7643 www.amcham-shanghai.org

40 Chair’s Letter 41 Board of Governors 42 Charity Gala Photos 45 Government Relations

Cover photos from imaginechina and xinhua

Editor's note

David Basmajian editor-in-chief/ Director Communications & Publications

n April 17, China’s Ministry of Commerce released first quarter foreign direct investment numbers and reported a drop, year on year, from first quarter 2011. In fact, March was the fifth straight month of decline. Are foreign companies losing interest in China? If you look closer at the numbers, U.S. FDI actually increased in the first three months of this year. But that figure may miss a larger point. Foreign investment, even from the U.S., may very well be trending downwards but as Bob Theleen, AmCham Shanghai’s vice chair put it, “its quality vs. quantity.” In countless surveys, we see that AmCham Shanghai member companies are committed to the China market but what we are investing in may be changing. How? Think “In China for China” (a focus on tapping the China domestic market) vs. industrial investment focused on low cost OEM manufacturing. Think less hot money and more investment in the burgeoning services sector. More and more it seems, U.S. companies are contributing to China’s objectives of transitioning to a consumer economy and bringing great products, services, technology, branding and management. In this month’s special cover story package, we hear from Ken Jarrett and

Andy Rothman about some of the factors that are impacting U.S. investment decisions – China’s political landscape and the direction of China’s economy. Another source of increasing investment in China is American higher education. This month NYU President John Sexton writes about why they’re opening a new campus in Shanghai and tells us about opportunities this will offer for elite students from all over the world. Shanghai 2020 is short for China’s goal to turn Shanghai into an “international financial center” that rivals Hong Kong and Singapore, and someday, maybe even London and New York. We offer highlights from an upcoming report prepared by AmCham Shanghai’s Financial Services Committee and partner Brookings Institution in which they document the issues and challenges facing Shanghai in its quest to becoming an IFC. And speaking of challenges, anyone running a business in China knows HR is near the top. In the May Managers Notebook column, General Manager of Naked Stables Private Reserve talks about keeping staff morale up at his beautiful, but isolated, resort in Moganshan.

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News

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CHINA BUSINESS

CCB to build 2,000 new branches China Construction Bank Corp. (CCB) plans to open about 2,000 new branches within the next five years, according to Zhu Xiaohuang, CCB’s executive vice president in charge of retail banking. Zhu says the major driver of the bank’s overall operations will be the development of its retail business, with the branch network as its basis. CCB’s expansion plan is unique among China’s major banks, which have been reducing the size of their branch networks in order to cut costs. CCB itself closed more than 2,000 branches in 2004 before the bank’s initial public offerings (IPO) the following year. After adding 166 branches by the end of last year, the bank currently has about 13,600 branches.

New Siemens factory in Chengdu German electronics and electrical engineering company Siemens AG started work in Chengdu on its benchmark digital factory, Siemens Electronic Works Chengdu (SEWC). The factory has a floor space of 40,000 square meters in the Chengdu High-tech Industrial Development Zone, and is expected to create 1,000 jobs for local residents. The completion of the first phase of construction and start of operations is projected to be in early 2013. The factory will produce PLC-model (Programmable Logic Controller) products for markets both in China and abroad. As a digital factory, the entire value chain will be controlled by the integration of IT systems. According to Siemens, the facility will be highly automatic and environmentally friendly, using advanced equipment with green credentials.

Chinese GDP growth lowest in 11 quarters Chinese GDP growth this quarter slowed to its lowest point in 11 quarters, according to the National Bureau of Statistics, at 8.1% year-on-year following last quarter’s growth of 8.9%.The statistic marks the fifth quarter of decreasing growth.The statistics are worrying to investors, but NBS spokesman Sheng Laiyun stated that positive month-on-month growth indicated stabilization in the lingering global downturn.The country’s economy, according to Sheng, will “maintain moderately steady growth in the future.” The GDP for the quarter was comprised of a surprisingly high percentage of consumption, which made up 76% of the US$1.72 trillion GDP, much higher than the decade average of 41.6%. Export growth, on the other hand, decreased to 9% of the total GDP in March, compared to 20.3% last year, mostly because of slowed economic conditions in Europe.While many believe that the decreasing growth will persist, some analysts are still hopeful for a rebound in the next quarter.They cite indicators such as the increased number of new loans in March, 25% above expectations, which came to about US$158.55 billion.

Charity donations fall Individuals in China cut back on charitable donations substantially last year, donating approximately 63% less than in 2010. According to Forbes, the top 100 most generous individuals in China gave US$759 million, down 41%. The diminishing numbers are likely related to issues of

transparency in charitable organizations, as last year there were multiple accusations of corruption and fraud in such charities as the Red Cross Society of China. However, the Ministry of Civil Affairs reported an increase in the transparency by 4.1% from 2010 to 2011, and new guidelines are expected by the end of 2012 mandating the disclosure of information on donations to charities.

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Keppel T&T in JV deal with Jilin City Keppel Telecommunications & Transportation Ltd. (Keppel T&T) signed a joint venture (JV) with the Jilin City government to develop and operate a logistics park in the Sino-Singapore Jilin Food Zone. The Sino-Singapore Jilin Food Zone International Logistics Park will be 70% held by Keppel T&T subsidiary Keppel Jilin Food Logistics Park and 30% held by Jilin Sino-Singapore Food Zone Development Co., Ltd. The JV has a registered capital of RMB200 million (US$40 million). The park will occupy 114 hectares when completed, and will include facilities for a wholesale food marketplace, temperature-controlled warehouses, offices and a transportation hub to support the trading and logistical needs of those in the Food Zone. Operations are expected to commence in 2014. CORPORATE NEWS

Apple CEO in China Apple CEO Tim Cook traveled to China this March in his first official visit as CEO of the company. During his visit Cook met with government officials including Vice Premier Li Keqiang; he also visited the iPhone production line in Zhengzhou and was seen at a Beijing Apple store. The surprise trip comes amidst conflicting prospects for Apple in China, while still in a legal battle over the rights to the iPad name Apple reported last year that China had become the largest market for Apple products outside of the United States. In his visit, Cook is also reported to have visited the offices of China Mobile and may be looking for a deal with the top Chinese phone services provider.

Starbucks expands in China Starbucks Corp. announced plans to triple its workforce and number of stores in China at the Boao Forum for Asia, an international meeting of business and political leaders in the southern island province of Hainan. The Seattle-based coffee chain currently

operates around 500 outlets in 48 Chinese cities and employs over 10,000 people. By 2014, it expects China to become its largest retail market outside of the U.S. The company plans to expand to 1,500 stores in over 70 cities by 2015, says John Culver, head of China and Asia Pacific business at Starbucks. Although Starbucks raised its prices by RMB3 in February due to increased operations costs and Culver says it has not slowed sales.

Coke opens plant in Liaoning Coca-Cola Company opened its 42nd bottling plant in Yinkou, Liaoning province. The 170,000-square-meter plant will be Coca-Cola’s largest production facility in China and its third in Liaoning, representing a US$160 million (RMB1 billion) investment as part of a larger US$4 billion investment plan to be implemented over the next three years. Upon completion, the plant is expected to reach an annual production capacity of over five billion servings of sparkling and still beverages and directly create 500 jobs, as well as 5,000 more job opportunities in supporting industries. China is one of the company’s fastest-growing markets, with the company maintaining double-digit growth in nine of the last 10 years.

Carrefour told to close branch French-based retail chain Carrefour was ordered to temporarily close its store in Zhengzhou, capital of Henan province after state media reported that the store was labeling regular chicken as freerange chicken and had been selling meat with expired freshness dates. The local industry and commerce department found the company in violation of the law on protection of consumer rights and interests, and the store is being forced to reorganize operations. Carrefour China apologized on its website, carrefour.com.cn, for its food safety lapse. MACROECONOMICS

China reestablishes surplus China’s government has posted a surplus

of US$5.35 billion in March, a quick return from the massive February deficit that came in at US$31.48 billion. The number exceeded expectations but may be due to low import growth, at 5.3% instead of the 9.0% expected by analysts. Export growth also has slowed and rose only 8.9% in March, down from an 18.4% rise in February. Many believe the slower growth rates are part of a general downward trend in the Chinese economy; the director of statistics at the General Administration of Customs Zheng Yuesheng said “the current global economic situation is severe,” and believes that there is risk of a decline in export and import growth.

Inflation up in March The Consumer Price Index (CPI) was up 3.6% from last year in March, increasing from February’s 3.2% CPI but well within the government’s 2012 target of 4%. The statistic exceeded the median forecast of 3.3%. It is likely that the higher CPI was due to food shortages because of bad weather in March, which caused food prices to increase by 7.5% since last year. There was, however, also a decrease in the Producer Price Index (PPI), which went down 0.3% from last year, the lowest in over two years and the first negative yearly growth since December 2009. The decreasing PPI may be a sign that CPI will continue the downward trend it has seen since rises in inflation hit a peak last summer.

Manufacturing decreases for fifth month A preliminary reading of HSBC’s Purchasing Managers Index (PMI) shows a decrease in March, down from February’s 49.6 to 48.1. The PMI, which indicates a contraction of manufacturing activity when under 50, has shown decreases in manufacturing for the fifth month in a row. This, according to HSBC, has led to cuts and the lowest employment level in three years. Low domestic demand may be a factor in the decrease, another sign of sluggish growth in the Chinese economy.

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In response to the slowing growth, Beijing has encouraged lending by cutting reserve requirements in banks for the second time in the past three months. GOVERNMENT & POLICY

China raises quota for foreign banks The National Development and Reform Commission (NDRC) announced a raise in the long-term foreign debt quota to US$24 billion. The move follows the fourth consecutive monthly decline in inbound foreign direct investment (FDI), indicating slower capital flows into the country. In February, FDI stood at US$7.73 billion, down 0.9% from the same period last year and a decrease from US$10 billion in January, according to the Ministry of Commerce. Participants in the pilot project for the quota increase include: HSBC Holdings Plc, Deutsche Bank AG, JPMorgan, Citigroup, Sumitomo Mitsui Banking Corp and Bank of East Asia. According to the NDRC, the policy’s goal is promoting the opening-up of the financial sector as well as “pushing forward national economic development.”

People’s Daily Online launches IPO The online news portal of state-owned news agency (People’s Daily, People. cn Co Ltd,) launched its initial public offering (IPO) with expectations to raise RMB527 million (US$83.53 million). The company will offer 69.1 million shares on the Shanghai Stock Exchange and intends to use its IPO proceeds on a three-year spending program to upgrade its technology, improve wireless services, deliver news on mobile platforms and strengthen its editorial team. If more money is raised than needed for the spending program, the surplus will be used for working capital. People.cn says it is upgrading its services to make it more competitive against commercial news portals such as Sina. com and Sohu.com.

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SOE overseas investment restricted The Assets Supervision and Administration Commission of China has recently ordered state-owned enterprises to suspend foreign financial investment and investment unrelated to SOE core businesses, effective May 1. The regulation, according to Deputy Chief of the Commission Shao Ning, will help “strengthen oversight of SOE’s investment”. SOEs have been part of the increasing presence of Chinese investment in foreign markets, but a shift from investment in resources and manufacturing to investment in services and finance has the potential for exorbitant risk in an unstable global economy. The Commission has pointed out that SOEs are supposed to engage in risk-prevention and remarked that SOEs overseas investment dealings are still in their infancy.

China reforms meat industry As part of its 12th Five-Year Plan, the Chinese government aims to increase meat production to 85 million tons, a 7% increase from 2010. It also plans to restructure the industry and invest more in food safety, quality management and meat processing plants. The plan aims to reduce the number of slaughterhouses from 21,000 to 3,500 in order to increase efficiency and consolidate the industry. Plants with a capacity of less than 150 pigs will be shut down. Other key goals include ending illegal food processing practices, such an excessive water injection into meat, as well as reducing barriers to trade to allow the Chinese meat industry to become part of the global market. U.S.-CHINA

Record sales for GM General Motors Co. (GM) sold a record 257,944 vehicles in March, marking a 10% increase from the same month last year. “GM has maintained our growth in our largest market in 2012, despite an overall industry slowdown,” says Kevin Wale,

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president of GM China Group. High sales in March contributed to total sales of 745,152 vehicles for GM’s first quarter, setting a quarterly record. Overall auto sales in China have slowed after the government retracted sales incentives and some cities implemented strict restrictions on car registration in order to deal with traffic congestion and pollution. Car sales increased by only 2.5% in 2011 nationwide, compared to an annual increase of over 32% in 2010 and 46% in 2009.

Intel Chip launches smartphone with Lenovo Lenovo Group Ltd will debut the K800 mobile phone in May, the first smartphone with an Intel chip. The phone, which was released in January, is the first of a series of devices Intel is planning to release. An Android tablet, the IdeaTab K210, is also in development. Intel previously has had a limited presence in the smartphone market, but the company has also announced a research cooperation with Lenovo, now one of the top three smartphone providers in China, that “will center on mobile Internet research, such as X86-based smartphones and conversion from PCs to tablet PCs,” according to vice-president of Intel Corp., Jesse Fang.

Disney,Tencent in animation deal Disney has signed an agreement with Chinese Internet giant Tencent and the Ministry of Culture’s China Animation Group to expand the animation industry in China. According to Andy Bird, chairman of Walt Disney International, “the initiative is focused on nurturing local talent and recognizes the importance of developing original local animation content.” Disney will train local talent in aspects of the industry such as concept creation and story development. Tencent, the largest Internet portal in China also known for its game development, will provide online support. The agreement is one of many forays into the Chinese market by Disney, who will open a US$3.7 billion theme park in Shanghai in 2015.

GWU heads to SIP George Washington University (GW) established an official partnership with the Suzhou Industrial Park government this March, an important step in expanding the business school it established last fall in a partnership with Renmin University. The agreement will allow GW to set up teaching and office spaces in a new complex in the Suzhou Dushu Lake and Science Education Innovation District, where this June it will join four other universities, including the National University of Singapore. GW would ultimately like to establish degreegranting programs and hopes to be able to offer undergraduate business degrees and non-degree executive level programs to Chinese students as soon as the fall of 2013. SHANGHAI BUSINESS

Shanghai airports to expand The Shanghai city government signed an agreement this April with the Civil Aviation Administration of China (CAAC)

that will support plans to build Pudong International Airport into a leading global aviation and cargo center by 2015. The agreement will provide funding for better passenger service and research, as well as improve air traffic safety. Hongqiao airport will also be improved and is intended to become a passenger-oriented leader in domestic flights. The city will build two more runways at Pudong airport, and by 2015 the two airports are expecting to handle up to 100 million passengers and 5.5 million tons of cargo.

Shanghai and Chicago promote tourism Shanghai and Chicago officials signed a memorandum to mutually promote tourism in the sister cities. Among other activities, both agreed to air each other’s promotional videos in Chicago’s O’Hare International Airport and in Xintiandi, Lujiazui and the Bund in Shanghai. Shanghai and Chicago have been sister cities since 1985, celebrating their 25th anniversary in the fall of 2010. Chairman

of the Shanghai Committee of the CPPCC Feng Guoqing said that the cross promotion will “benefit our two peoples” and Chicago Deputy Mayor Mark Angelson has also said that he looks forward to the possibility of expanding student exchange programs and business ventures between the two cities.

Land sales decline in Shanghai First quarter land sales in Shanghai have declined by 80% from last year, decreasing 79% from the last quarter, according to data from China’s largest real estate website, Soufon.com. Total sales from January to March reached US$1.1 billion and 956,000 square meters of land. One cause of the decrease may be that less land was offered, as only 18 land parcels instead of the 73 a year before were put up for sale. Of those, only 3 plots were sold in March. Slumps in Shanghai real-estate reflect a growing country-wide downturn trend, however the market so far has responded well to 2010 property restrictions aimed at avoiding a market crash by gradually slowing the market.

CHINA & THE WORLD

ASIA-PACIFIC SIA PACIFIC SOUTH AMERICA

MALAYSIA: China and Malaysia launch first joint industrial park The China-Malaysia Qinzhou Industrial Park, located in Guangxi Zhuang autonomous region, resulted from an agreement between the two nations to improve the development of manufacturing, IT and service industries. The facility is projected to cover 55 square kilometers in Jingujiang of Qinzhou City, and is the third industrial park developed jointly between China and another country. Two other industrial parks exist already in the Chinese cities of Suzhou and Tianjin. The move reinforces economic cooperation between China and Malaysia, as bilateral trade between the two countries reached US$90 billion in 2011. China has been Malaysia’s largest trading partner for three consecutive years, and Malaysia is China’s largest trading partner among members of the Association of Southeast Asian Nations (ASEAN).

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SOUTH AFRICA: Beijing Review establishes print media company Beijing Review, a subsidiary of the China International Publishing Group (CIPG), unveiled ChinAfrica Media and Publishing Ltd, its new publishing base, at a ceremony in Pretoria, the administrative capital city of South Africa. Based in Johannesburg, ChinAfrica Media and Publishing Ltd. is China’s first Africa-oriented print media company and publishes a monthly current events magazine, ChinAfrica, in both English and French. President Zhou Mingwei of CIPG hopes the new company will introduce African readers to Chinese culture, society, and economic development while “At the same time, we could listen directly to the African people about their feelings on the development of relationships between China, South Africa and the rest of the African continent,” he says.

AFRICA

GERMANY: Bosch announces second plant in Qingdao Bosch Automotive Diesel Systems Co., Ltd. signed a Memorandum of Understanding (MOU) with Qingdao National High-Tech Industrial Development Zone, authorizing the building of a RMB1.6 billion plant, Bosch’s second in China. Bosch Automotive Diesel Systems Co., Ltd. is a joint-venture between the German engineering and electrical company and Wuxi Weifu High-Technology Group Co., Ltd. with Bosch holding 67% of shares. The plant will cover an area of 110,000 square meters and produce diesel fuel injectors designed to save energy and reduce vehicle emissions. As the leading global supplier of technology and services in the areas of automotive and industrial technology, consumer goods, and building technology, Bosch hopes to expand its production capacity for diesel technology in China.

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ISRAEL: Israel enters joint R&D ventures with China The Israeli government approved an agreement for joint industrial research and development (R&D) projects with China. “The agreement is one of the most important tools we have to promote trade ties with China, as well as the establishment of a special fund to support companies operating in China and India,” says Shalom Simhon, the Industry, Trade and Labor Minister. Prime Minister Benjamin Netanyahu also voiced his approval, stating that Israel and China “together are a winning combination because we are two nations with magnificent traditions who also adopt modernism.” According to Netanyahu, Israel plans to reach US$10 billion in exports to China over the next three years. The agreement will be overseen by the Chief Scientist’s Office at the Industry, Trade and Labor Ministry.

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UNITED STATES: Disney to produce Iron Man 3 in China Walt Disney Co. will produce Iron Man 3 in China, in a co-production deal with China’s DMG Entertainment. The first two Iron Man movies made a combined RMB271 million at the Chinese box office, according to film research company EntGroup. The stars from the first two films, Robert Downey Jr. and Gwyneth Paltrow will return for the sequel. Disney has already announced several China-related projects earlier this year, including a partnership with Tencent and the Ministry of Culture’s China Animation Group to develop an animation incubator to help develop China’s animation industry. The deal is indicative of the larger interest Hollywood has in China; China is set to surpass Japan as the second-largest movie market in the world in 2012.

AFRICA NORTH AMERICA ASIA-PACIFIC SIA PACIFIC

COLOMBIA: Colombian courts approve China trade agreement Colombia’s Constitutional Court approved an investment accord with China to protect bilateral investments. “This agreement seeks to stimulate and protect not just foreign direct investment from China to Colombia but also from Colombia to China, through the establishment of a fair and transparent framework,” says Trade Minister Sergio Diaz-Granados. Under the agreement, the two countries will give each other’s investors the same protection granted to their domestic ones, as well as guarantee the free transfer of funds. Diaz-Granados also emphasized that Asia is becoming central to the global economy and development, and that Colombia cannot be distant from this process. Currently, China is Colombia’s 38th largest foreign investor, with investment reaching a total of US$15.6 million in 2011.

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SOUTHAMERICA AMERICA NORTH EUROPE

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M ov e r s a n d S h a k e r s c o m p i l e d b y j oy c e b i a n

Movers and Shakers highlights major personnel changes within the Chinese government at various levels and senior management-level movements within multinational companies in China.

BANK OF AMERICA Bank of America appointed Matthew Koder president of the Asia-Pacific region and promoted former president Brian Brille to chairman of Asia-Pacific region in March. Koder has been with Bank of America since June 2011, when he left UBS to become the head of global corporate investment banking for Asia-Pacific. Brille has worked for the company for 13 years. In his new position he will focus on relations with senior local and multinational clients.

Matthew Koder

PRIVATE SECTOR

Fang Zhixi

Ralph Haupter INTEL Intel promoted two Intel China executives to the post of vice president in April. Fang Zhixi was promoted to vice president of Intel China Research Institute and Bian Chenggang was promoted to vice president of the Intel Technology and Manufacturing Group and general manager of Intel Products (Chengdu) Ltd. Fang has been with Intel since 1995 and was previously a part of the Intel China Research Institute. Bian has worked for Intel since 1998.

Photo courtesy of Microsoft

MICROSOFT Microsoft Corporation appointed Ralph Haupter CEO of Microsoft Greater China, replacing Simon Leung, in April. Haupter, who joined Microsoft seven years ago, was area vice president for Microsoft Germany. At the same time, Gordon Frazer, former managing director for Microsoft U.K., was named COO of Microsoft Greater China. The company said the appointments signal Microsoft’s deep commitment to investing in the region.

SONY Sony appointed Timothy Xu CEO of Sony Music Entertainment Greater China in April. Xu has previously worked in music, publishing, artist management and touring in the greater China area with companies such as British EMI Music. In his new position Xu will manage Sony interests in China, Hong Kong, and Taiwan. MENGNIU DAIRY Mengniu Dairy Co. appointed Sun Yiping CEO and executive director this April, replacing Yang Wenjun, who resigned. Sun was appointed from her previous position as deputy general manager of COFCO Property, part of COFCO Corp. that is currently the largest holder of Mengniu shares. Sun has also worked as general manager of Hainan Coca-Cola Co., and at COFCO Coca-Cola Beverages Co.

STATE COUNCIL Gui Minjie was appointed party secretary of the Shanghai Stock Exchange and nominated chairman for SSE in April. Gui was formerly vice chairman of the China Securities Regulatory Commission, where he held many other positions since first joining in 1994 and rejoining in 2001. Gui Minjie Lin Zuoming was promoted chairman of Aviation Industry Corporation of China in April. Lin has 40 years experience in China’s aviation industry. Tan Ruisong was promoted general manager of AVIC, the position previously held by Lin. The Organization Department of CPC Central Committee announced new appointments for China’s two state-owned insurance groups in April. Yang Mingsheng, former vice chairman of China Insurance Regulatory Commission, was appointed chairman of China Life Insurance (Group) Company. Lin Fan, former president of China Taiping Insurance Co., Ltd., was appointed chief supervisor of the People’s Insurance Company (Group) of China Limited (PICC). If your company has executive personnel changes, please contact Joyce Bian at joyce.bian@amcham-shanghai.org.

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GOVERNMENT

M a n a g e r ’ s N ot e b o o k

It’s About the Workers B y K u rt B e r m a n Kurt Berman

have worked in hotel properties all over the world from The Dorchester in the UK to Fregate Island Private in Seychelles, from Antigua to the Maldives and my home country of South Africa. Having spent the last few years in exclusive and somewhat secluded private resorts hidden away in remote locations I’ve become used to a life in a hotel resort. But it is a life that for some takes time to adjust to, and is not for everyone – and that’s the biggest challenge when running a resort – both recruiting and keeping staff. People come away for a holiday for a few days to our spectacular resort and have a great time, but they then return back to their city lives, their jobs, their accessibility to everyday things. So for a member of your team who remains on the resort the whole time you have to keep them entertained and make sure that their morale is kept as high as possible. When your staff are away from their families, you have to become their new family. South Africa n Kurt Berman has m anaged resort hotels all over the world and is now Ge ne ral Ma na ger of na ke d St ab les Pr iva te Re se rve , a su st ain ab le lu xu ry ho te l resort in Mog anshan. www.nakedretreats.c n

One way to make sure that all the staff are happy is by making sure you try and connect with and gain trust from the general staff from every department. It’s always going to be a big challenge, especially when there are 245 staff right now in our 110-room resort in Moganshan, which is about 2.5 hours from Shanghai. One tactic we use, and can be used across any business, is once a month I host a Tea with the GM. I invite any of the regular staff from any department, not the managers, to meet up for a drink in the restaurant and they have an hour and a half to talk about anything they want with me – frustrations, questions, ideas, football, the weather, anything. A session like this is an invaluable opportunity for a manager to have a direct connection with his staff. It’s about trying to connect at a human level, and you’d be surprised at just how productive it is. Always the best way to follow up after such a meeting is to act on any issue immediately as I find nothing is more powerful than action. You could listen and talk the talk, tell them what they want to hear, but don’t play the politician, act. Small things like putting a heater in the security hut for the security guard at night is a minor thing for a resort, but huge for that individual. Retaining staff

is all about the individuals and if you get it right at that level then you will be amazed at how the rest falls into place. Secondly, praising your fellow staff is key also for retaining them, such as an employee of the month award. Mix it up, have nominations for people front of house and back of house staff. I find that getting the head of each department to nominate the staff is the best way – and to do it verbally rather than on a form as you should hear what they really think, you’ll get so much more out of it than words on paper. Thirdly, empower others, but don’t get too detached, otherwise you distance yourself from staff. I see my role not as the person who makes sure your wine is chilled or your bed is made. My job is to empower the experts, and to make sure they have everything they need to achieve their potential. My style is to define guidelines for each manager and then work with them to support them along the way, but make sure they are doing what is needed. One of my mentors is James McBride, now the President of YTL Hotels. He told me to ‘Inspect what you expect.’ If you give an order or a challenge then always follow up to see if it’s going in the right direction. It’s the most important thing a manager can do.

Got an article idea for “Manager’s Notebook”? Contact Insight Editor-in-Chief David Basmajian at david.basmajian@amcham-shanghai.org.

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deal of the month B y E s t h e r Yo u n g

Ford Expands Chongqing Plant imaginechina

Ford cars at a Chongqing auto show last year

ord Motor Company announced its agreement to invest US$600 million into expanding its Chongqing assembly plant, firmly placing the western Chinese city as a major manufacturing center for Ford’s passenger cars. The expansion is expected to raise annual capacity by 350,000 vehicles, raising total capacity in China to 950,000 vehicles annually. The new influx of investment will increase the total investment in China to US$4.1 billion. The Dearborn, Michigan-based company’s two assembly plants, engine plant and engine and transmission factory in the city have already made its facilities in Chongqing the company’s second largest outside its facilities in Michigan. The investment is set to help Ford boost its sales to Chinese consumers. Ford has historically been behind its rivals in China sales, trailing the likes of Volkswagen, GM and Toyota with a 2.6 percent market share, but Dave Schoch, chairman and CEO, Ford China expressed optimism of the company’s growth. “Expanding our production capacity in Chongqing is a key part of our aggressive growth plans in China and Asia, and will allow us to bring more high quality, safe, fuel efficient, fun-to-drive vehicles from our global portfolio to Chinese customers,” he said in a statement. Ford’s sales in

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Ford also plans to introduce 15 new vehicles and 20 new engines and transmissions in China by 2015.”

China grew seven percent last year. The investment is one in a series of major moves for Ford in China in recent years. In 2010, Ford sold its Volvo unit to China’s Geely for US$1.8 billion. Ford’s CEO had previously announced an aggressive expansion of Ford dealerships in China, planning to double the number from 340 by 2015. It also issued its first renminbi-denominated bond in Hong Kong’s so-called “dim sum” bond market to support its growth. Ford also plans to introduce 15 new vehicles and 20 new engines and transmissions in China by 2015. The company – which operates in China in its joint venture Changan Ford Mazda Automobile (CFMA) was set to unveil four new vehicles at the end of April. Though growth has slowed in the last year, China is still the world’s largest auto market. Chinese bought 16.5 million vehicles in 2011, up from 7.56 million in 2009. European and American brands have done especially well, with GM China selling a record 257,944 cars in March. It sold 2.5 million cars in China last year. However, car manufacturers may work harder next year, as vehicles sales growth slowed to 2.5 percent in 2011, down from 35 percent growth in 2010. The slowed growth coincided with the withdrawal of tax incentives from a 2008 economic stimulus package, as well as tightening credit.

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B USIN E SS D E L E G ATION B y E s t h e r yo u n g

The Panda City Roars

Chen Lienjing and other AmCham Shanghai Chengdu delegates meet with Chengdu official Huang Jianfa

A delegation of AmCham Shanghai members learns about investment opportunities during a twoday visit to Chengdu

mong the tree-lined riverbank and traditional teahouses, there’s a hint of construction dust in the air emanating from the cranes and diggers strewn across the landscape. They are indicative of the incredible change that Chengdu has undergone over the last 10 years. The capital of Sichuan Province is a leading investment destination driving China’s “Go West” strategy, which in Chengdu’s case, has resulted in a transformation of the city and the surrounding area. The government has said that it has already i nv e s t e d s o m e U S $ 3 2 5 b i l l i o n i n m aj o r infrastructure projects around the region since the policy’s implementation in 2000, in addition to adopting favorable tax policies for companies seeking to open their offices in Chengdu. Companies are lining up to learn more about the opportunities here. To respond to this need,

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AmCham Shanghai led a member delegation to Chengdu from March 22-23. I joined the group as they met with city and provincial leaders, including senior Chengdu government official Huang Jianfa, dined with Sichuan provincial government officials and heard remarks from Yi Yang, vice chairman of Sichuan China Council for the Promotion of International Trade and Li Gang, the organization’s chairman, “Good opportunities must not be missed,” Li said, after listing Sichuan’s rich natural resources, such as iron, a large labor pool and the low cost. “We’re encouraging high-technology and finance industries to come because there are many opportunities here.” He also discussed Chengdu’s plans in the next year. “We’re also developing environmental protection, advance technologies, and human resources,” he said. The delegation members had different reasons for coming but all were interested in new

investment opportunities. “I had dual purposes joining this delegation,” said Rebecca Branham, co-founder and managing director of B&L Group, Inc., a construction management firm. “I wanted to find out what industries Chengdu wanted to develop, but also meet the companies doing business here. Those two days were a good opportunity to find out about them – but also for them to find out about us.” Delegates also heard from those with on-theground experience. At one session, William Marshak, the principal commercial officer of the U.S. Consulate in Chengdu, moderated a panel discussion on new opportunities in Chengdu with three panelists: Joseph Ma, general manager of southwest region, GE China, Ryan Zhang, vice chairman of AmCham Southwest China and general manager of West China, Oracle (China) Software, and Eddie Ng, managing director of Jones Lang LaSalle, Chengdu office. They shared their experience of expanding in the Sichuan capital. “I’m a promoter of Chengdu,” said Ma. “We talk about Chengdu this way at GE. The people are open to change, and so is the government, and with its focus on technological innovation, Chengdu’s Tianfu high-tech area was a very good move for us.” Across the city, gleaming, occupied offices are testament to the steady trickle of companies

settling in the city. Companies – especially in the high-tech industries – are discovering Chengdu. For example, Dell and Cisco opened facilities in the city, in addition to Volvo and Volkswagen’s joint automobile ventures’ car manufacturing centers.

A rising city In AmCham Shanghai’s latest China Business Report, 58.3 percent of members said that their business was producing or sourcing goods in China for the China market. When members were asked to rank top second/third-tier cities in the order of where they are considering expansion, Chengdu has ranked number one for the past four years. The city was named by the Financial Times as one of the top Strategic Cities for Foreign Direct Investment in Asia for 2012. Chengdu’s volume of foreign trade topped US$34.1 billion in 2011, a 52.2 percent increase over the same period the year before, building on the city’s own investments and lower costs of labor and materials than China’s coastal cities. Another session during the three-day stay in Chengdu featured a matchmaking event between delegates and representatives of Sichuan province townships that were focused on different industries. Guang’an, for example, already famed as Deng Xiaoping’s hometown, hoped to attract interest in

Business delegate Rebecca Branham, center, with Chengdu government officials

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Across the city, gleaming, occupied offices are testament to the steady trickle of companies settling in the city.”

the development of its chemical industry and nonferrous metal processing facilities. Some hone in on specific industries. On the second day, delegates had the opportunity to take one of two site tours. The auto track featured a tour of an FAW Volkswagen auto factory and its home in C hengdu’s E conomic & Te chnolog ica l Development Zone. The healthcare track took delegates to the Institute of Drug Clinical Trials as well as Kanghong Sagent Pharmaceuticals. Gabriel Grisham, assistant vice president at ChinaVest, a Shanghai based merchant bank which focuses on cross-border strategic M&A, opted for the auto tour. “We have been especially interested in the development of the manufacturing and aftermarket services in the automotive industry in Chengdu for a while,” says Grisham. “With Chengdu’s rapid development in recent years and the ‘Go West’ policy advocated by the Central Government, there are lots of possibilities here.”

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Chengdu slated the 150 square kilometer Chengdu Economic & Technological Development Zone, east of the city, as an automotive industry function area in 2010, and it’s home to more than 240 whole vehicle and component manufacturers, automobile R&D centers and other auto-related companies. In 2010, industrial sales income topped RMB70 million, a year-on-year increase of 40 percent, according to the government-issued 2011 annual report. Rebecca Liu, general manager of Cook Medical, which develops healthcare devices, was equally interested in the healthcare track. “The tour of Clinical Trial Center (GCP) and the Tianfu Life Sciences Park gave us a very good overview of the healthcare development in Chengdu,” Liu says. “This is a great platform for U.S. companies to build up a network, have closer interaction with the local government and explore more opportunities in Sichuan and Chengdu in the future.”

Shanghai 2020 B y Rya n B al i s

The Road to Shanghai 2020 The Shanghai Tower is being built near the Shanghai World Financial Center in the Lujiazui Financial District in Pudong

In a soon-to-be released report, AmCham Shanghai assesses Shanghai’s plan to become an international financial center in eight years M AY 2 0 1 2

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n 2009, the State Council formally gave Shanghai the go-ahead to develop an international financial center (IFC) by 2020. The ambitious and far reaching plan calls for Shanghai to build a mature financial system, boasting well-established financial institutions, advanced markets and a wide range of globally competitive financial products and services – all in roughly a decade. M a n y d e t a i l s s u r r o u n d i n g t h e p l a n’s implementation and the eventual look and operation of a Shanghai IFC are in development. But the goal for China in building Shanghai into an IFC is not only for the city to mirror other major financial centers, such as New York, London or Tokyo, but eventually to become a true international financial center in its own right, ser ving the Chinese, Asian and worldwide financial markets. Shanghai officials have embraced the 2020 plan and have taken steps to accelerate development of the city’s financial services infrastructure to achieve it. Shanghai likely would gain enormous benefits in becoming an IFC, ranging from advancing economic development and garnering n at i on a l pre s t i ge to att r a c t i ng top - l e ve l professiona l t a lents and st imu lat ing city infrastructure and other quality of life improvements. Foreign financial institutions – many of which maintain a strong presence in Shanghai – also fully support Shanghai’s plan, albeit with a recognition of the many challenges involved for Shanghai as well as China as a whole. “As the authorities continue to move forward, it should provide excellent opportunities for foreign financial institutions to compete and do business within a Shanghai IFC,” says Benjamin Kinnas, senior vice president & general manager for Wells Fargo Bank in Shanghai. Eric Zheng, general manager for Chartis

Insurance Company China, echoes Kinnas that additional business opportunities will result following necessary developments. “When the regulatory environment improves, financial markets grow and more financial products become available, all stakeholders would benefit including foreign financial services providers in China,” he says. Is the plan for a Shanghai IFC achievable? With this question in mind, AmCham Shanghai and its Financial S er vices C ommittee, in conjunction with the Brookings Institution, a research organization in Washington, D.C., soon will release a report to assess Shanghai’s progress towards development into an IFC by 2020. The report, “Achieving 2020,” looks at the challenges faced by Shanghai and offers specific solutions zeroing in on development of the city’s equity, debt and derivatives markets. The report also takes a broad look at Shanghai’s role as a candidate IFC and compares Shanghai to other established IFCs, as well as to those cities who fell short. The report is scheduled for a May 2012 launch date in Shanghai, and details will follow. Below is an overview of the major issues addressed by the report.

Achieving a Shanghai IFC As China’s financial, industrial and commercial capital, Shanghai offers a compelling environment

for establishing an IFC. Already, the city has made e xc e l l e nt pro g re s s t ow ard s bu i l d i ng t h e foundations to achieve its goal. According to the report, Shanghai boasts the world’s 4th largest stock exchange by value and the 6th largest by market capitalization in addition to having China’s largest commodity exchange. The country’s debt capital market is the second largest in Asia, behind only Japan. In 2010, the city’s financial markets facilitated a trading volume of RMB386.2 trillion, roughly 10 times the amount registered five years earlier. A January 2012 plan jointly released by the National Development and Reform Commission (NDRC) and t he Shang hai Municip a l Government call for that number to reach RMB1,000 trillion (US$158 trillion) by 2015. The city continues to attract a large number of top caliber financial institutions, reaching 1,136 at the end of 2011, up from a little more than 600 at the end of 2005. Shanghai boasts roughly half of all foreign financial institutions in China, including the corporate headquarters of 21 foreign banks. The People’s Bank of China (PBoC), China’s central bank, and the stateowned Bank of China have set up Shanghai headquarters with China’s postal bank, exportimport bank and other large Chinese banks reportedly planning to follow suit. Meanwhile, progress is ongoing to gradually liberalize the country’s rigid financial market

istockphoto

What is an International Financial Center?

financial center is simply a location where a substantial amount of financial business is conducted. These centers come in different sizes and le vels of capability, with no clear dividing line between a local financial center, a national one, a regional one, and a global one. Nonetheless, it is

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controls. China is internationalizing the yuan by encouraging wider use of the currency in foreign trade and building up a robust supply of yuan offshore as a store of value. Overseas yuan may also be used as an investment currency, and foreign enterprises may be allowed to issue debt in China. Movement towards opening China’s financial markets is significant, say financial professionals. “As…liberalization measures come to fruition, then Shanghai is the obvious choice for a true international finance center,” says Kinnas. Yet, he adds that many important measures remain for Shanghai to become an IFC.

Going forward Although Shanghai’s plan to become an IFC is well under way, a great deal remains to be done with not much time remaining before the 2020 deadline. The report outlines many of the areas recommended where Shanghai and central government authorities should work to remove various financial regulatory roadblocks and work to further internationalize Shanghai’s financial markets. Chief among these is the need for Shanghai to continue pushing at the national level for capital market reforms. A fully convertible yuan is a prerequisite for Shanghai to serve as a central hub for regional and global capital flows. Other larger issues identified are for Shanghai

not that hard in practice to distinguish two global financial centers, London and New York, from the set of smaller regional and national financial centers that fall below them in the hierarchy, such as Frankfurt, Paris, or Singapore. Part of the difference is simply the scale of activity, which is much larger in the two global financial centers. More importantly, however, they are locations where a substantial amount of the business done has no inherent local connection. For example, if

to increase the transparency of its financial markets and adopt rules, regulations, laws and an improved tax system of a liberal financial system. Further development of Shanghai’s services sector also is critical to facilitate the city’s drive to feature mature, sophisticated financial markets. Through building an IFC, Shanghai will advance its role as China’s financial capital and facilitate progress towards the city becoming a global leader in this area, likely driving many positive developments. “Shanghai’s development as an international financial center will be a big help to the country as a whole to finance growth and help China as it becomes increasingly integrated with the world economy and global financial markets,” says Ker Gibbs, a private equity investor in Shanghai and former investment banker with HSBC. “This is good for China, good for Shanghai and a positive step for global financial markets as well.” “Achieving 2020,” is part of a larger effort by AmCham Shanghai to provide input and contribute to a dialogue with relevant city and national-level officials, financial practitioners and policy experts. In lending expertise, assistance and know-how, it is the Chamber’s objective to support Shanghai’s efforts in achieving its ambitious and worthwhile IFC goal.

Ryan Balis is Associate Editor of Insight.

a Japanese company chooses to raise U.S. dollars by issuing a bond in the London-based Eurodollar market, it is doing so in a foreign country and using a currency that is neither its own nor that of the country in which it is arranging the borrowing. The core reason for using London in this instance would be that the expertise and connections of the London investment banks will produce the funding on the best terms available in the global marketplace.

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Although Shanghai’s plan to become an IFC is well under way, a great deal remains to be done…”

R E GION A L F O C US B y J o n at h a n S h y u

imaginechina

Keeping the Lights On AmCham Shanghai members in the YRD may face some electric power issues this summer and fall

n recent years, companies that operate in the Yangtze River Delta (YRD) have experienced planned power cuts, including many AmCham Shanghai members who have facilities in the region. There are a variety of reasons why power is restricted in some cities but a chief reason is that energy supply simply canâ&#x20AC;&#x2122;t meet the growing demand. Growth in the manufacturing sector, new residential developments, construction and infrastructure developments, such as the Suzhou metro system, have strained the power grid. Wang Zhixuan, secretary-general of the China Electricity Council, has said that consumption â&#x20AC;&#x153;will witness relatively rapid growthâ&#x20AC;? within rural and urban households this year. As a whole, China will face a 40 million kilowatt deficit in

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2012, the China Electricity Council (CEC) says. AmCham Shanghai members experienced power shortages last year and they can expect to face the same issue again this summer and fall. Some members have complained that they were not given enough advanced notice about the power cuts so that they could plan around it. AmCham Shanghai has been taking steps to improve communication between local authorities and companies, and the result has been fruitful so far. Many companies received notices last year asking them to restrict power use during the hottest months, July to September, when power is in peak use. Local governments have said that they are working to mitigate risk of widespread power failure during periods of peak use during weekdays, specifically 9am to noon, in the

The impact

afternoon from 2pm to 5pm, and from 8pm to 10pm. In 2011, many members responded to an AmCham Shanghai poll on this issue. Several reported that they were presented with three options for limiting power use at peak times between July and September. They were told to limit work shifts every day for that period, stop operating for two days each week in order to operate at full capacity for the rest of the week, or shut down the plant for about two weeks and operate at full capacity at other times. Local governments have said they intend to inform companies about upcoming power cuts this year. Suzhou Industrial Park authorities have said that they will visit top users of power to communicate t heir p ower-s aving (p ower scheduling) initiatives.

Changing work schedules and adjusting to t he p ower c uts may not go smo ot h ly for everyone. While some companies can easily shift their production hours to nights and weekends, they may feel the impact on their bottom line in the form of additional costs for transportation for workers, higher cost for re-opening the factory at night, or an unwillingness of workers to fill shifts at night. Another consequence is that suppliers are not able to meet customer demand due to the loss of working days. Government officials have said that they realize the existing power grid in Ji a n g s u a n d Z h e j i a n g p r ov i n c e s w i l l b e constrained this summer, but their priority is to protect the overall grid from an acute power failure such as what occurred in Shenzhen in April when a power outage disrupted traffic and delayed bullet trains. Officials emphasized that they are not requiring manufacturers to necessarily use less electricity, but instead hope they will help alleviate the strain on the power grid which may occur during the peak hours of the day for the Suzhou Industrial Park (SIP) and mitigate risk for overall power failure for the entire area. They recommend shifting some production to the spring and fall or building needed inventory in the spring to better deal with the problem in the summer. The decision to limit power is not made locally but is transmitted from the top down, with the central government dictating energy quotas for the provincial governments who then relate their wishes to municipal governments who then implement limits in the prefectures where American companies are often located, leaving local authorities with less flexibility to make accommodations for more power supply. The local authorities said they understand the consequences of suddenly shutting down the power. Production cycles for certain complex products which may take a few days to complete may not be immediately recoverable if power is cut. One member said they always need a minimum amount of power in order to make

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Local governments have said that they are working to mitigate risk of widespread power failure during peak use during weekdaysâ&#x20AC;Śâ&#x20AC;?

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The decision to limit power is not made locally but is transmitted from the top down…”

shipments, and that last year he was able to fulfill his request.

Power dialogue Local governments said they encourage American companies to talk to them on an individual basis. In 2011, one member company, a supplier to healthcare facilities, persuaded the local government to raise their available power from 300 to 400 kilowatt hours given that the company was one of the main suppliers to critical healthcare facilities. Last year, AmCham Shang hai col le c te d comments f rom YRD members and presented the feedback to the Shanghai Power Bureau in conjunction with other foreign chambers of commerce. This April, AmCham Shanghai’s Suzhou Committee leaders met with Simon Zhang, director of the Investor Ser vice Division, Economic & Trade Development Bureau of Suzhou Industrial Park and hosted Nianzhong Cao, deputy director, Energy Office, Suzhou

E c o n o m i c & I n f o r m a t i o n Te c h n o l o g y Commission to discuss the current power supply situation. AmCham Shanghai members were able to communicate their concerns about receiving timely notice of power outages, and were provided with the time frame of when local officials would visit their facilities to talk more about power constraints. AmCham Shanghai will continue to work with YRD officials in an attempt to improve communication channels between the government and member companies in the area and mitigate power outages which may affect production cycles and supply chains of member companies.

To learn more about the AmCham Shanghai YRD Center, please contact Jonathan Shyu, Program Manager, at jonathan.shyu@amcham-shanghai.org.

Bill McEathron, chair, and Catherine Zhou, vice-chair, of AmCham Shanghai’s Suzhou Committee during a panel session in Suzhou

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s m all b u s i n e s s B y K i rt G r ee n b u r g

A Place for Smaller Firms

s China’s market has matured, it h a s att r a c t e d an i n c re a s i ng number of smaller businesses from the U.S. eager to compete here. AmCham Shanghai’s 20112012 China Business Report backs this up and shows that nearly 80 percent of SMEs have been in China for less than 10 years, compared to 40 percent of their larger counterparts. Much like how successive waves of immigration altered America’s demographics, SMEs are altering the U.S.-China business market and the services AmCham Shanghai is being asked to provide. The Chamber is a natural first stop for these SM E s e nt e r i ng C h i n a w h o appro a c h t h e organization with unique China challenges, not the least of which is a lack of resources to address their concerns. These challenges include hiring and retaining talent, finding customers in a new market, and finding trusted partners to assist them in g row i ng t h e i r bu s i n e ss e s . T h e i r re l at ive inexperience, driven primarily by their later entry into the China market, can compound these challenges. “Just getting here seems to be hurdle enough,” s a i d D a n K r a s s e n s t e i n , d i re c t or of As i a Operations at Procon Pacific, which produces industrial plastic bags. “But, once here, there are the questions of regulation, trusted counselors,

Top Challenges for SMEs

Govt. HR / Labor Competition Culture Costs Connecting - Partners / Customers Other

19% 17%

10% 30%

7% 10%

Source: AmCham Shanghai’s 2011 SME Member Survey

how to find partners, and how to cater your product to the China market.” Faced with these challenges, SME members, according to the Chamber’s report, were less profitable and experienced lower revenue growth than MNCs in 2011. That being said, their growth in operating margins was similar to that of the larger firms. Additionally, their outlook was bullish with 66 percent expecting revenue growth in 2012 and 87 percent were optimistic about their long-term business outlook in China. Optimism is tempered by the real challenges mentioned earlier, which affect SMEs entering the market as well as those who have been operating here for years. During summer 2011, AmCham Shanghai asked a sample of SME members to identify their biggest challenge. The

Smaller companies will benefit from a variety of new services at AmCham Shanghai’s SME Center

Sample responses from AmCham Shanghai's 2011 SME Member Survey What is your biggest challenge? • “Reaching the expat community. Databases and advertising very expensive for me as an SME.” • “Finding and keeping talent at all levels of the business.” • “Being compliant. Laws and regulations change rapidly yet few regulators understand the changes themselves.”

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state-owned firms, rising costs and a difficulty in understanding and adapting to China’s business culture.

Dan Krassenstein, director of Asia Operations, Procon Pacific

The SME Center

quest ion was lef t op en-ende d, and t hes e responses were then categorized. The three biggest challenges mentioned were hiring and retaining talent (31 percent), local government regulation and policy (20 percent), and difficulty i n c on n e c t i ng t o t h e r i g ht p ar t n e rs an d customers (17 percent). Other challenges included competition from local and primarily

The planned AmCham Shanghai SME Center will assist with these and other challenges facing SMEs by providing baseline resources for those who wish to do research on their own and facilitating connections to member experts for those who wish to delve more deeply into their business questions. Set to open in late summer 2012, the SME Center will feature a resource library – trade directories, document templates, and basic materials on doing business in China – and bestin-class electronic resources. Currently under design, this center will have a networking lounge area, space for one-on-one meetings and conference/training space. While the physical center will cater more to SMEs on the ground in China, the virtual center expected to launch later this year, will serve SMEs globally with, among other things, a service marketplace connecting SMEs with s er vice and content providers. AmC ham Shanghai is committed to providing an unbiased

What is the SME Center? AmCham Shanghai’s SME Center will be comprised of a physical resource and referral center and a virtual center. The SME Center will support the success of small and medium enterprises in China by: • Matchmaking - connecting them to the most appropriate member experts and other third parties • Providing access to best-in-class research tools – databases and directories • Providing informational briefings and tutorials on doing business in China • Create an additional marketing avenue for member service providers, especially into the non-resident SME marketplace • Assistance with basic requirements such as finding office space, obtaining visas and identifying suppliers • Directory of and access to relevant government agencies

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platform where its member service providers can market themselves and where users can easily find and compare them.

Virtual services Chris Wingo, managing director of China Sage Consultants, is one service provider who sees the value in a marketplace of this kind. His c omp any a s s i s t s SM E s i n d e s i g n i ng an d executing viable China sales strategies. Chris says that the greatest challenge that he faces in growing his business is “…making U.S. clients aware that we have an alternative for them to open and sell in China.” He said the SME Center will be an additional channel to make more people aware of his services. In addition to the physical and virtual SME Center, AmCham Shanghai is organizing its first

SME Conference to bring together SMEs and those who assist in supporting their businesses – investors, service providers and, of course, potential customers. The conference will be held later this year. Krassenstein, who is also a member of AmCham Shanghai’s 2012 Board of Governors, sees the SME Center as a logical next step in the Chamber’s services: “The Chamber has been offering services to help SMEs, but we think the SME Center will be able to deliver services in a more targeted and consistent way.”

For up-to-date information on the SME Center or to sign up to participate in the Center’s programs and marketplace, please visit the website at sme.amcham-shanghai.org.

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Drama in the Hall

At this year’s National People’s Congress, economic development, affordable housing and healthcare were key government priorities but the controversial sacking of Bo Xilai captured the public’s attention

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c ov e R s to ry

Xinhua

By Kenneth Jarrett and Peter Martin

his year’s carefully-staged National People’s Congress (NPC) was overshadowed by events outside the conference hall. The public sacking of Chongqing Party Secretary Bo Xilai the day after the NPC ended, the increased scrutiny of Chinese “netizens” over the proceedings and growing talk of economic reform provided this year’s drama in Beijing. Events inside the Great Hall of the People saw the reiteration of familiar themes such as slower growth, economic rebalancing, industrial upgrading, and continued control over inflation. Despite the drama surrounding Bo’s fall, the emphasis on well-established themes suggests a high degree of policy continuity in the short- to medium-term. In addition, this year’s meeting provided the latest illustration of the growing importance of China’s social media. Chinese netizens engaged in debates surrounding events both inside and outside the NPC, and influential delegates leveraged this medium to create and guide conversations.

Wen’s report Premier Wen Jiabao’s annual work report, which sums up the government’s assessment of its achievements over the last year and current priorities, contained few surprises. Delivered in a gloomy global economic environment, Wen’s 2012 work report reiterated the government’s desire to increase domestic consumption and move China away from its investment-heavy and export-reliant economy.

Wen argues that the government’s primary focus for 2012 will be boosting domestic demand, with promises to improve social safety nets, including increased minimum wages and public health care services. Wen’s work report established a 7.5 percent growth target for 2012. Much was made of this move in the media, but it was in fact unsurprising. The government has accepted that a slower rate of economic growth will be necessary to realize its economic rebalancing agenda and last year’s 12th Five-Year Plan called for 7 percent growth from 2011 to 2015. Wen was also adamant about continuing controls on the housing market, despite the dissatisfaction these controls have caused among local governments, which rely on property sales for revenue. The work report also recognizes the need to provide affordable housing and calls for the completion of 5 million units and the beginning of construction of an additional 7 million units. Wen once again placed a strong emphasis on the development of the seven “Strategic Emerging Industries” (SEIs) identified in the 12th Five-Year Plan. China’s leadership has identified these industries as part of the effort to refocus China’s economic development on sectors where China can become a global leader. These prioritized sectors include green industries, biotechnology, next-generation IT, high-end manufacturing such as airplane manufacturing, and new energy vehicles. These areas should provide opportunities for foreign investment in coming years, although fears sur-

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Measures to support this include hospital reforms, particularly those policies aimed at addressing expanding costs and preventing over-prescription; increasing the reach and power of insurance systems; and regulating drug prices, which should be interpreted as price reductions. Healthcare providers should prepare themselves for a challenging landscape as China transitions from a policy emphasis on service expansion to a focus on cost controls.

‘Harmonious’ budget?

rounding forced technology transfer and unfair advantages given to Chinese companies persist.

Healthcare reform Once again, reforms to China’s healthcare system were highlighted during the annual NPC session. Wen praised the success of China’s reforms to date, which have resulted in the vast expansion of basic medical insurance and services. His comments also hinted at what many see as an ongoing shift in emphasis from service expansion to cost reductions.

The 2012 budget, released by the Ministry of Finance (MOF), reflected the core themes of the Hu-Wen administration: a focus on increasing domestic demand and raising living standards. Specifically, the budget saw a 21.9 percent increase in social security and employment, an education spending increase of 16.4 percent and a similar 16.4 percent increase in healthcare spending (year-on-year). The NPC is a high-profile legislative meeting, but one where not much actual legislating happens. The event is more about setting the tone for government work – the details come later in the form of regulations from ministries. In fact, only one piece of legislation was passed in 2012: revisions to the Criminal Procedure Law. The other votes held during the session reviewed the work of various institutions, such as the government work report, the

Who are the delegates?

According to China’s constitution, the National People’s Congress is the country’s most powerful political body. In reality, its decisions follow the directions of the Communist Party (CPC).The body consists of some 3,000 delegates who meet once a year to discuss a pre-determined agenda. Concurrently, the Chinese People’s Consultative Conference (CPPCC), China’s other legislative branch designed to represent nonCPC elements of Chinese society, also holds its annual meeting. Despite CPC dominance, the “two meetings” mark an important point on China’s political calendar. They pass important legislation, ratify key government appointments and approve China’s annual budget. They also present the chance for the leadership to shape the political agenda for the year ahead, most notably through the work report presented each year by the premier.

NPC delegates are selected through a multi-tiered electoral system, which selects delegates at the village level, who in turn elect representatives for the municipal, provincial and ultimately national congresses. Approximately 70 percent of delegates are members of the Communist Party. NPC delegates include some of the wealthiest and most powerful people in China. Figures from Hurun, a Shanghai-based publisher, show that the net worth of the richest 70 members of the NPC increased $11.5 billion over the year to $89.8 billion. In comparison, the net worth of all 660 top officials in the U.S. government totaled just $7.5 billion.

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What is the NPC?

Supreme Court work report and that of the Supreme Procuratorate.

The Weibo equation

Bo Xilai The usual backroom politicking that takes place before Chinese leadership transitions burst to the surface this year in the form of a political sideshow between Chongqing Party Secretary Bo Xilai and Wang Lijun, one of Chongqing’s vice mayors and imaginechina

While the government does its best to carefully orchestrate the events of the NPC, China’s vibrant social media scene has given the event itself a new relevance in recent years. Social media platforms have exposed NPC delegates to a level of scrutiny previously unknown to China’s political class. Photographs of delegates in and outside of the meeting hall also enabled intense scrutiny of the extravagant clothing and accessories flaunted by some delegates. CPPCC committee member Xu Jiajin, for example, was seen wearing an Hermès belt apparently worth RMB20,000 (US$3,175). Social media also helped to facilitate a more effective political conversation than China has seen in years. Before Weibo, controversial or interesting comments by delegates would fall on the deaf ears of China’s stale and unresponsive official media. Now, Chinese journalists post interesting and sometimes colorful comments on Weibo and watch the debate continue in cyberspace. Many delegates began to engage in social media themselves. According to BBC Monitoring, 141 NPC delegates and 183 CPPCC members are active on Weibo. Li Dongsheng, an NPC deputy and chair-

man of TCL Corporation, for example, has 2.7 million followers and used his account this year to start a lively debate about China’s individual income-tax threshold, soliciting opinions from netizens and representing their views in discussions.

Why does the NPC legislate so little? imaginechina

Only a small proportion of the laws and regulations affecting business in China ever go near the NPC’s annual meeting or its leaner Standing Committee which meets more frequently and handles the bulk of China’s statutory legislation. Beyond China’s official statute book, there is a vast array of different levels of rules and regulations which can shape MNCs’ operating environments in profound ways: The State Council can formulate administrative regulations. Ministries and commissions under the State Council can issue “guidances,” “opinions” and “planning documents.” Provincial and municipal People’s Congresses formulate local laws and regulations, and provincial and municipal governments can also formulate local administrative regulations.

Great Hall of the People

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its former police chief. The incident ignited a media frenzy after Wang entered the U.S. Consulate in Chengdu for 24 hours in the weeks before the session. Few predicted, however, that Bo’s political career would effectively be over within one day of the event’s conclusion. On April 10, four weeks after he was dismissed as Chongqing’s party chief, Bo was suspended from his party positions. He was also placed under investigation for corruption and his wife was arrested in connection with last year’s suspected murder of British national Neil Heywood in Chongqing. Bo gained notoriety in recent years through his high-profile, public campaigns in a country run by technocrats. His campaign to sing “red songs” gained particular acclaim as it evoked memo-

ries of Maoism and the Cultural Revolution, as did his hardline and extra-legal campaign against the Chongqing mafia. Wang was formerly seen as a key ally of Bo, whom many ranked as a leading candidate for the country’s top political organization, the ninemember Politburo Standing Committee. Bo spent much of his time during this year’s NPC doing crisis control. He admitted mistakes, saying he had “neglected my oversight duties,” but his apologies were not enough to save him. By the time Wen Jiabao issued his strongly-worded rebuke of Bo at the closing press conference, stating that the “government in Chongqing must seriously reflect on the Wang Lijun incident,” Bo’s fate was almost certainly determined. While many have been quick to comment on the implications of Bo’s removal for the so-called “Chongqing model” of development, his sudden fall from grace more likely stems from a personal struggle for influence than from ideological differences. Bo’s controversial campaigns have stirred unease within the central leadership, reflected by the fact that neither President Hu Jintao nor Premier Wen Jiabao visited Chongqing during Bo’s term as party secretary. Bo’s personal campaigning was seen as an affront to the Chinese political system which stresses consensus and unity above personality. As Bo Xilai’s political career effectively ended, however, other players were making their mark. Wang Yang, the party secretary of Guangdong province, who is seen by many as a long-term rival of Bo, made a confident appearance at a number of meetings and press conferences. Wang, who is associated with a more liberal, open style

Even if its actual powers of oversight are limited, the NPC can provide a sounding board for disparate voices and opinions, especially on issues not directly related to political stability. For example, animal rights campaigners, academics and charities have worked with NPC delegates such as Gao Hong from Yunnan province to raise the profile of their cause, submitting numerous draft proposals on animal protection since 2004. These campaigns have succeeded in bringing about some regulatory changes, with Guizhou and Ningxia provinces issuing animal slaughter regulations in 2011 and 2012 respectively, and have influenced national discussions on animal welfare. The rise of social media in China has increased the relevance of the NPC even further, as comments and suggestions from delegates were picked up on Weibo, allowing discussion to continue online.

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Sounding board

Many Chinese followed the Bo Xilai saga on Weibo

These changes suggest that the NPC may provide an interesting new channel for government engagement in China, allowing companies to raise the profile of selected issues by reaching out to delegates and leveraging social media to further the conversation.

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“Bo’s personal campaigning was seen as an affront to the Chinese political system which stresses consensus and unity above personality.” of governance, made bold statements about the importance of “small government and big society” in the run-up to the NPC. During the event itself, he played down recent experiments with political reform in the “Wukan incident,” a village uprising which was resolved with a compromise and village elections, arguing that the outcome was in keeping with CPC practice. Other rising stars were also quietly working to raise their profiles without associating themselves with Bo’s personal campaigns or ideological fervor. Tianjin Party Secretary Zhang Gaoli, for instance, denied the existence of a “Tianjin model” and asserted that “anything about the 18th Party Congress is just speculation.” Finally, Zhang Dejiang, Bo’s replacement in Chongqing, assumed his role without fanfare or self-promotion.

Calls for reform

People’s Daily, argued that “although reform is risky, with no reform the party will be in danger,” and a report jointly published by the State Council’s think tank – the Development Research Center – and the World Bank called for fundamental changes to China’s development model. Fundamental reform was never likely at this year’s NPC, however, because of the leadership’s focus on stability ahead of the upcoming leadership transition as well as the fact that efforts at reform are increasingly faced without powerful vested interests opposed to changes in the status quo.

Although the NPC was marked by predictable and carefullymanaged content, discussions in the weeks leading up to the congress and on the sidelines of the event itself illustrate a growing feeling that fundamental reform, particularly economic reform, is necessary. In the run-up to the event, the party newspaper, The

Jarrett is chairman for Greater China of APCO Worldwide, a Washington-based public affairs consultancy, and Martin is a consultant in the firm’s Beijing office. This article was excerpted from APCO’s report, “Understanding the 2012 National People's Congress.”

Some of the odder proposals? imaginechina

China’s One Child Policy was the subject of one delegate’s proposal

This year’s NPC deputies submitted 489 motions, and CPPCC members 6,069 proposals. As in previous years, there were more than a few odd proposals, with NPC Deputy Li Xinghao’s recommendation topping the charts. He recommended that those with the right to a second child be able to sell this right, suggesting that this would help the poor and improve the quality of China’s population.

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No Signs of a

Hard Landing

By Andy Rothman

A macro strategist says the government stands ready to ease enforcement of housing policy measures if necessary

review of China’s first quarter macro data leads to two clear conclusions. First, the Chinese economic slowdown is in line with expectations I outlined in my article in the January/February Insight article (“China’s Economy in the Year of the Dragon.” At 8.1 percent year-on-year (YoY), GDP growth came in faster than I’d expected at the start of the year, and given that it should be the weakest quarter of 2012, hitting my 8.5 percent target should not be difficult. Many key data points improved in March, as the economy and the Party-controlled banking system worked through some beginning of the year hiccups. I don’t see any signs of a looming “hard landing.” Second, because growth is also in line with Communist Party expectations, there is very little chance of a big policy easing where the Chinese government alters course and loosens monetary policy.

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Is China’s real estate market cooling off?

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Strong income growth Income of Chinese households continues to rise at a rapid pace. Urban income, adjusted for inflation, rose by almost 10 percent last year while real rural income increased by almost 13 percent. These rates are slightly slower than those of the last quarter of 2011, largely because the government is raising its minimum wage guidelines at a slower pace this year. Note that in Shanghai the minimum wage was boosted 171 percent over the past decade. This strong income growth, along with rising consumer confidence, is why China is the world’s best consumption story.

Property puzzle For many months I have been tracking the steady weakening of new home prices, sales and starts, which represents the most serious risk to China’s economic health next year, because falling sales have lead developers to cut back on starts, which could lead to dismal growth next year in residential investment, which last year accounted for 15 percent of overall investment. I have, however, argued that because the Party is usually pragmatic with economic policy, I believe there is a 75 percent chance they will relax enforcement of their housing policy measures by the summer, avoiding crashing the residential sector and leading to an acceleration of home sales and construction activity in the second half of 2012. So where are we today? In some ways, China’s property market is continuing to weaken. Residential investment rose by only 15 percent YoY in March, down from 23 percent in January/February. To put this into context, during 2011 and 2010, residential investment rose by more than 20 percent in all but one month, and it rose by more than 30 percent in 19 of 24 months. But even the currently slow pace of residential investment growth is not sustainable without policy easing. First, because

residential investment has recently been driven by a huge YoY jump in spending on low-income housing, but that investment is likely to peak this year. Second, developers have pre-sold a lot of flats that were started in past years, resulting in decent growth in residential investment and completions (up 40 percent in 1Q12). But that trend can’t continue because new starts have collapsed. If current trends continue, the steep slowdown in starts will lead to fewer presales and thus significantly slower growth in residential investment. That would lead to a marked slowdown in overall fixed asset investment in the first half of next year, which would mean much slower GDP growth. It seems unlikely, however, that the Party leadership will allow this to happen, given that their restrictions on home purchases and mortgages have been the cause of the sales slowdown. This is why we’ve expected the Party to ease enforcement of its restrictions in 2Q12. And there are some signs that easing may have begun. The growth rate of new home sales (on a square meter basis) is

terrible, but it appears to be stabilizing and weekly sales numbers in larger cities have been improving. Developers tell us that firsttime buyers, who account for 60 percent of sales, have found it increasingly easier to obtain a mortgage, and interest rates have come down. Given the Party’s control over China’s banks, those changes must have been policy-driven. I still expect a steady, gradual recovery in the residential property sector in second half of the year, as the Party continues to quietly ease up on enforcement of the restrictions that have been suppressing strong demand.

Easing expectations In the stock market, investors appear to be hanging their hopes on a dramatic policy easing by the Communist Party. Some are waiting for another cut in the banks’ required reserve ratio (RRR) - the proportion of a bank's deposits that must be kept in reserve - despite the fact that RRR cuts are clearly neutral

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Workers sew clothes at a factory in Huaibei, Anhui province

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“I still expect a steady, gradual recovery in the residential property sector in second half of the year…”

in terms of credit and liquidity flows. More RRR cuts are coming, but this is housekeeping, not easing, and will not result in more than the expected RMB8-8.5 trillion in new lending or 14 percent M2 growth. With most major macro indicators ticking up and GDP growth on track for 8.5 percent for the full year, I don’t see any economic grounds for anything more than the margin easing that is already underway. I believe the Party will take a similar view, and the ab-

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Andy Rothman is the Shanghai-based China macro strategist for CLSA Asia-Pacific Markets.

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Housing construction is expected to accelerate this year

sence of greater easing should be attributed to economic fundamentals, rather than to Bo Xilai’s sacking or other political intrigue. This is a transition period for the leadership, but given that the two presumptive new leaders Xi Jinping and Le Keqiang have been part of the small group running the country for the past five years, this is not a lame-duck government. If, for example, exports were to collapse, leading to significant layoffs in Southern China, I have no doubt a new fiscal stimulus would once again be quickly implemented. But if export growth holds in mid-single digits and the far more important domestic investment and consumption cylinders continue to fire smoothly, big easing will remain an investor’s dream.

Misplaced Optimism By Michele Geraci

A China watcher argues that the European debt crisis is far from over and that China should not be expected to step in

he recent European Sovereign debt crisis appears to have lost prominent space in the Western press. For some reason, the international public opinion now seems to be that the worst is over and that we can go back to business as usual. The positive mood has been reinforced by statements made

by Chinese authorities following recent visits by German Chancellor Merkel and Italian Prime Minister Monti, indicating their confidence about Europe’s ability to solve the crisis successfully and hinting at China’s willingness to help. I believe this optimism is misplaced. Europe’s problems are not solved yet and China has more pressing issues to address than worry about the future of countries the size of a handful of large Chinese cities put together. Regardless of their true intentions, China does not have the means to really help Europe. This does not bode well for the U.S. balance of payment and, particularly, for those U.S. companies that wish to export to those markets. Except for OPEC countries - naturally export-led economies - China and Europe are the largest U.S. trading partners. Trying to reduce the U.S. international trade deficit on a macro level or have Chinese and European consumers buy more U.S. goods and services – on a individual company level – will be a challenge in the years to come. If we also consider currency-related issues, such as a weakening Euro and a possible path-reversing Renminbi/U.S. dollar exchange rate, there is little that any a future qualitative easing can do to help U.S. exporters. Furthermore, although Chinese policy makers are busy fighting an infinite battle to help raise domestic consumption, given the low level of personal income, it will be hard for the average Chinese consumer to increase consumption expenditures. Excited by the fact that China is now the second largest economy in the world, we often forget that on a per capita basis, its citizens rank, roughly, the 100th poorest in the world.

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Europe remains a wealthy region for the time being, but that’s exactly what it is, wealthy. In many cases, personal consumption holds up because it is financed through tapping into existing assets (that is, parents who made money in the 1970s, 80s and 90s are now supporting their children in their mid-20s and 30s), not through income generated by the younger generations. One only needs to look at the youth unemployment figure in Europe (21 percent) and in certain countries (Greece 44 percent, Spain 46 percent, Italy 29 percent, Portugal 30 percent, even France 22 percent) to grasp the extent of the problem. Only Germany and few smaller economies remain below the 10 percent threshold. For now, that is Debt, GDP and currency Now why do I say that the European debt crisis is not solved yet? To put it simply, the Eurozone faces three main problems: high public debt, low GDP growth and a single-currency system. Most of the recent measures agreed by the non-democratically elected government of Greece and Italy are aimed at reducing government expenditure, with the view that by doing that the public debt level can be reduced. Not much has been done to stimulate the economy and enhance the level of competitiveness of European industry, therefore economic growth remains stagnant. Moreover, during periods of weak economic performance, governments should, generally speaking, increase the level of investment in order to stimulate growth. But, what they are doing now – cutting expenditures – is exactly the opposite. As a result, while they may be somewhat successful at reducing debt, the side effect is that GDP may also be reduced or, at best, show anaemic growth. The overall effect is that the Debt/GDP ratio is not likely to go down quickly enough. Realizing this, some have come up with the brilliant idea to “deleverage” the government debt positions by taking money away from their own citizens. On top of indirect transfers, such as reduction in healthcare, education, etc., a plethora of new taxes have been introduced. In other words, citizens are getting poorer. There are two potential

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reactions: either they will stoically accept that their purchasing power and their standard of living will decline, or, they will remember they live in electoral democracies and make their voices heard, thus putting a break on these unpopular reforms. Either way, I cannot see how European consumption can increase on a sustainable basis in the future. One alternative solution is to take action on monetary policy, but the European Central Bank is only half of a central bank, as its policies are not aimed at stimulating economic growth, but only to keep inflation low. This is the paradox: during times of high indebtedness, creditors would hope for high inflation that will reduce the value of their liabilities; but the European Central Bank’s mandate is to keep inflation low, not high. Even if this was not true and there was a loose monetary policy, the result would be a weakening of the Euro, resulting in even lower purchasing power of European consumers who want to by foreign (say, U.S.) goods. In summary, no matter which way one looks at it, the situation is quite entangled. On top of that, let’s keep an eye on French elections: a victory by Nicolas Sarkozy’s opponent, Francois Hollande, may cool-off France’s interest in Europe. Can China come to help? I believe that purchasing government bonds does not really do much: it may only solve some immediate liquidity problems but it does not do much to address the structural problems discussed above. The one potentially useful action that Beijing can take is to invest in Europe by acquiring companies. Stronger shareholders (Chinese) would provide European companies with much needed financial muscle to expand their activities. It could also help open the door to the Chinese market. Of course, Chinese corporations are interested in purchasing assets that they don’t have and through those acquisitions acquire their know-how and expertise, of which Europe is still rich. Unfortunately, European public opinion is not ready yet to “sell off to the Chinese” mostly because the average person does not yet fully realize the crisis that they may face in

China’s Vice President Xi Jinping with President Barack Obama at the White House in February

the long-term. If anything, the tendency that I observe in European countries is to block cross-border mergers and create “national champions” instead. We can call it “protectionism” or “nationalism” but the fact remains that the M&A door for Chinese companies is, in general, closed in Europe and, I would add in the U.S. as well. I recall when President Obama was in Beijing, he half jokingly said to President Hu Jintao, “We want to sell you all kind of stuff.” However, when it comes to real business what he probably meant was, “We want to sell you some stuff, but not the ones you really want.” Premier Wen Jiabao during his press conference in March, called for the U.S. to lower barriers to Chinese goods and investments. The case of CNOOC/Unocal still has not been forgotten. All in all, it seems to me that this new tri-polar world composed of the U.S., Europe and China is inherently more stable

“I cannot see how European consumption can increase on a sustainable basis in the future…” than the old bipolar system. Stability is good when things are going well; unfortunately it is not well suited when swift changes need to be implemented.

Michele Geraci is the head of China Research for the Global Policy Institute, London Metropolitan University, and Senior Research Fellow and Adjunct Professor at Zhejiang University, Hangzhou.

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E D U C ATI O N

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John Sexton, president of New York University and Yu Lizhong, president of East China Normal University and the chancellor of New York University Shanghai at the groundbreaking ceremony in Shanghai in March 2011.

ver the course of the last 40 years, China has undergone unprecedented development. The countr y has become an o u t p o s t f o r c r e at i v i t y a n d innovation, fueling a demand for more and different educational opportunities. At the same time, last year 9.33 million Chinese students studied tirelessly for the College Entrance Exam, known as the Gaokao, with only 72.3 percent of them entering any college, and far fewer admitted into one of China’s elite universities in a major city like Beijing and Shanghai. Thus, the students who make it into an elite school will be some of the brightest and hardest working high school graduates ever to be educated. The opportunity to tap into the talent of China’s high school students and train these students is appealing to both domestic and international universities. To do so in the megacity of Shanghai is doubly attractive. On its current trajectory, we believe the city of Shanghai is a talent magnet destined to become one of the world’s knowledge outposts or “idea capitals.” And with campuses in two other idea capitals (New York and Abu Dhabi), it is natural for New York University as the world’s first global network university, to have a presence in Shanghai.

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Why NYU is Coming to Shanghai B Y J o h n Se x to n

NYU Shanghai will be a comprehensive fouryear liberal arts and science research university. Along with Abu Dhabi and New York, it will become one of three degree-granting campuses within a global system of 14 academic centers. NYU Shanghai students will have the opportunity to work with notable, prize-winning professors and talented classmates from around the world and China. The large pool of excellent students will also allow the university to recruit only those who truly exemplify the university’s beliefs while maintaining NYU’s ver y high admissions standards. NYU Shanghai will not be the right fit for every Chinese student; it will be for students who want to go beyond their comfort zones in the pursuit of knowledge and personal growth, and further both their understanding of the world and those with whom they interact. It will be for those students who don’t just want to be citizens of their own country, but for those who want to be citizens of the world. NYU is going to Shanghai because it believes there is an abundance of these students who are just waiting to be nurtured. These future global citizens will unite with international students in Shanghai and NYU’s diverse student population throughout the global network and together

realize their dreams of a 21st century education through exchange, collaboration, and global perspectives. NYU has partnered with the highly regarded East China Normal University (ECNU), with supp or t f rom t he Shang hai Mu n i c ip a l Government and the Pudong New Area District, to establish its new campus. ECNU is a leader in the internationalization of education in China, and with our shared commitment to global education, is an ideal partner for us. Indeed, we have just announced that ECNU’s current President Yu Lizhong will be the first Chancellor of NYU Shanghai. It is the first American university to receive independent registration status from China's Ministry of Education. Ground was broken on March 28, 2011 in Shanghai. P r e s i d e nt Yu’s c o m m i t m e nt t o i nt e rnationalization and emphasis on quality teaching are well known in China and abroad. He will partner with Jeffrey S. Lehman, who will be Vice Chancellor of NYU Shanghai. Mr. Lehman has b e e n s e r v i ng as t he Fou nd i ng D e an and Chancellor of Peking University School of Transnational Law, located in Shenzhen, China, since 2007. Prior to this, he served as the 11th President of Cornell University and as the 13th Dean of the University of Michigan Law School. With his robust leadership experience in international higher education, commitment to educational excellence, and as a great friend of China, we are excited to have him. The inaugural undergraduate class for NYU Sh ang h ai w i l l e nte r i n 2 0 1 3 . Give n ou r commitment to excellence, we will start with a small class of approximately 200 to 300 students. We started with a similar number in NYU Abu Dhabi, the first overseas degree-granting campus in NYU’s global network. Our experience in Abu Dhabi taught us that finding truly exceptional students and hiring top quality faculty is key to getting a new campus off to a promising start. We are confident we will be able to replicate that experience here in Shanghai. The NYU Shanghai student body will be unique – at once bicultural and multicultural –

with just slightly more than half of the students coming from China and the other half coming from all around the world. Although we will start small, eventually the population will grow to 2,000 to 4,000 of the brightest and most t hou g ht f u l stu d e nt s ( i nclu d i ng g r a du ate students) to be found across the globe. Students will benefit from a low student to faculty ratio, a chance to work closely and conduct research with leading professors, and developing a breadth of knowledge through the liberal arts and sciences curriculum while developing a depth of knowledge in a particular field through their major. NYU Shanghai students will also benefit from NYU’s global network and the ability to leverage resources all across the world. Each student will spend one to three semesters studying abroad at one of NYU’s 13 other global sites. Economics students may elect to spend a semester in New York to work with Nobel Laureate Professor Tom Sargent; Biology majors may want to take an environmental studies course in Sydney; students of art history may want to study abroad in Florence, the “ b i r t h p l a c e” o f t h e R e n n a i s s a n c e . T h e educational passions of NYU Shanghai students will not be hampered by logistics. Students and faculty will be able to move and learn throughout the world, all the while remaining within NYU’s global network. My personal experiences in China and our progress thus far have convinced me that Shanghai will be an exciting and dynamic part of NYU’s global network. The Chinese educators and officials I have had the pleasure to meet have been simultaneously brilliant and humble; it is truly a privilege to work with them. The addition of Shanghai to NYU’s global network couldn’t be happening at a more promising time – for NYU and for Shanghai. The students graduating from NYU Shanghai, like those throughout NYU’s global network, will be well equipped to work in and contribute to our globalizing world.

John Sexton is the president of New York University.

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On its current trajectory, we believe the city of Shanghai is a talent magnet…”

i n s i de a m c h a m from the chair

New York, New York!

n Saturday, April 21, two kindred cities – Shanghai and New York – came together as one as AmCham Shanghai hosted its tenth annual Charity Gala, appropriately themed “New York, New York.” The evening was a reminder of how much these two great cities resemble each other. Shanghai and New York are dynamic and diverse centers of commerce, finance and culture, but that’s not all they have in common. Both cities are known for a sense of style, big ambitions and big egos! At the Gala, some 400 guests enjoyed a spectacular evening. The Chamber’s terrific team did such an outstanding job evoking the spirit of New York, that as a native New Yorker, I felt positively homesick. The Gala raised money for two worthwhile charities: the Soong Ching Ling Foundation’s Mother and Infant Care Program and the Heifer Foundation’s Community Rehabilitation Program. The Chamber has partnered with these foundations for many years already. Our support has contributed to the healthy births of over 5,000 babies in Guizhou, Guangxi and Yunnan provinces and to infrastructure development in five villages in Sichuan and Anhui provinces. These are important examples of the Chamber’s strong CSR program and I thank the donors and sponsors for your generous contributions to the 2012 Charity Gala. Your support will ensure the success of our charitable programs this year. Elsewhere in this edition of Insight are examples of some of the Chamber’s other programs in action. The recent trip to Chengdu was another in a series of provincial trips that will strengthen our institutional ties with key provinces in China as well as provide relationship-building opportunities for participating companies. There is an update on the SME Center, one of the Chamber’s key initiatives for 2012, and a report from our man in Suzhou on one of the perennial concerns of member companies in the Yangtze River Delta – will there be enough electrical power this coming summer. Looking beyond our immediate YRD geography, there is ample evidence that the political season is moving into high gear. China’s leadership succession, which at one point looked like it would be rather uneventful save for questions surrounding one or two senior positions, is proving to be anything but that. The dismissal of Chongqing Party Secretary Bo Xilai has raised questions about tensions at the top, possible policy rifts within the leadership, and the long-term impact of these damaging revelations on the legitimacy of the Communist Party. Back in the United States, the contours of our presidential race are also shaping up, but the degree to which China will factor in the campaign rhetoric remains an open question. In the coming months, the Chamber will look for ways in our programming to offer insights into these complex issues. Equally important, through our outreach to Chinese and U.S. government officials, and to opinion leaders in both countries, we will do our best to encourage an informed debate of U.S.-China trade and commercial issues so that leaders in the United States and China alike will promote policies that bring benefits to both sides.

Kenneth Jarrett Chair of the Board of Governors

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i n s i de a m c h a m B O A R D o f g ov e r n o r s b r i e f i n g

Highlights from the April 2012 Board of Governors Meeting 2012/2013 NEC Chair Kenneth Jarrett, AmCham Shanghai Chair, reviewed the important role the Nominations and Election Committee (NEC) Chair plays in electing members of the Board of Governors. Board members voted unanimously to name Eddy Chan, AmCham Shanghai Governor, as the 2012/2013 NEC chair, noting his experience and expertise. Chengdu Provincial Tour Re-cap Jessica Wu, Director of Events at AmCham Shanghai, provided a report on activities undertaken as part of the AmCham Shanghai Chengdu Regional Business Delegation held from March 22â&#x20AC;&#x201C;24, 2012. Delegates included twenty members of AmCham Shanghai, nine guests from AmCham Southwest and several AmCham Shanghai staff. Key government representatives attended meetings and networking functions, including Vice Governor of Sichuan province Gan Lin, Chairman of Sichuan CCPIT Li Gang and Tang Limin, Director General of Sichuan Development and Reform Commission. YRD Center Update AmCham Shanghai provided Board members a re-cap on the expansion strategy, activities of the past three months and proposed the programming plan for the next three months. Feedback from YRD general managers was also presented and Board members discussed the important role the YRD Center

will play for discussion of business issues and to support general managers in the YRD region as they address business challenges. SME Center Kirt Greenburg, SME Center Program Manager, presented the SME Center build out plan. Construction on the Center is scheduled to commence on May 28, 2012. The SME Advisory Committee was discussed and Board members reviewed a number of elements of the proposed Committee. Board members agreed a focus for the recruitment and participation on the Committee should be to ensure the right mix of skills and network to be able to reach out to the broader community on SME issues and provide appropriate advice to the Chamber.

In Attendance Governors: Andrew Au, Eddy Chan, Ted Hornbein, Kenneth Jarrett (Chair), Marie Kissel, Dan Krassenstein, Jim Mullinax Apologies: David Basmajian, William Brekke, Lienjing Chen, Brenda Foster (President), Jim Rice, Peter Sykes, Robert Theleen, Eric Zheng Attendees: Kirt Greenburg, Stefanie Myers, Helen Ren, Jonathan Shyu, Linda Wang, Jessica Wu, Karen Yuen

The AmCham Shanghai 2012 Board of Governors Chair

Governors

Andrew Au Citibank China

Eddy Chan FedEx Express

Chen Lienjing Pratt & Whitney

Ted Hornbein Richco

Marie Kissel Baxter Asia-Pacific

Daniel M. Krassenstein Procon Pacific

James Rice CSM nv China

Peter Sykes Dow Chemical

Eric Zheng Chartis Insurance

Kenneth Jarrett APCO Worldwide

Vice Chair

Robert Theleen ChinaVest

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Some 400 AmCham Shanghai members and other guests enjoyed an evening of glamour and revelry at the 2012 Charity Gala on Saturday, April 21. The guests danced the night away at the beautiful Kerry Hotel Pudong to live bands, enjoyed delicious food inspired by the great city itself, participated in live and silent auctions and played friendly casino games. Prizes included a New York travel package, a painting by Jiang Haicang and a four night stay at Villa Atas Awan in Ubud, Bali. The Annual Charity Gala is an important part of AmCham Shanghai's CSR (Corporate Social Responsibility) program. The 2012 Charity Gala patrons' circle raised funds for two worthy charities. Shanghai Soong Ching Ling Foundation Mother and Infant Care Program, a fifth-year recipient of AmCham Shanghai funding, supports healthcare services for women and infants in rural Guizhou, Guangxi and Yunnan provinces by building up birth centers and providing staff training. Over the past five years, AmCham Shanghai members have contributed RMB3.14 million to this program, helping to build 28 county level birth centers and 72 village clinics, as well as purchase six ambulances. Heifer Foundation Community Rehabilitation Program, a third-year recipient of AmCham Shanghai funding, helps underprivileged farmers in rural China. This project supports three project sites in areas of infrastructure, community development and public health. Over the past three years, AmCham Shanghai members have contributed RMB381,610 to this program, benefiting 204 families and 1,125 residents from five destitute villages in Sichuan and Anhui provinces.

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In-Kind Sponsors

AmCham Shanghai New Members: March 2012 U.S. Corporate Membership

Associate Membership

California Personal Evolution Management Center ZHANG Sophia

Akzo Nobel (Asia) Co., Ltd. ZHU Julie

Comrise (Sichuan) Consulting Inc. FONOW Bob

Apple Procurement and Operations Management (Shanghai) Co., Ltd. CADARIU Patrick

Emerson InSinkErator Appliance (Nanjing) Co., Ltd. JIANG Haibo

Audatex Information Systems (Shanghai) Co., Ltd. LI Yi

INTL FCStone Trading Co., Ltd. LAMBERT JR James Roy Milliken Commercial and Trading (Shanghai) Co., Ltd. ZHAO Xiaodong

Avery Dennison (China) Co., Ltd. JIN Jie LEE Jim Heng Avery Dennison China Co., Ltd., Shanghai Branch LEE Jim Heng

U.S. Associated Corporate Membership

Cognizant Technology Solutions (Shanghai) Co., Ltd. FAN Steven

Lord International Trading (Shanghai) Co., Ltd. CONNER Edward Charles George

Cooper Electric (Shanghai) Co., Ltd. WU Fred

Amphenol (Changzhou) Advanced Connector Co., Ltd. LIN Weili

Cytec Industries (Shanghai) Co., Ltd. GONG Zhen

Novelis Maderia, Unipessoal, Lda., Shanghai Rep. Office LIU Qing

Dow Chemical (China) Co., Ltd. SHUJI SUE Ding-Lee Duke Global, Inc. SHI Mingzheng

Giantec Semiconductor (Shanghai) Corporation PU Hanhu

Dura Automotive Systems, Inc., Shanghai Rep. Office CHENG Jay

Greif (Shanghai) Investment Management Co.,Ltd. SHEN Kyle FESCO Adecco Human Resources Service Shanghai Co., Ltd. ZENG John

Eastman (Shanghai) Chemical Commercial Co., Ltd. Jingan Branch BHATTACHARYA Deepanjan ESP International SULLIVAN Ming

Corporate Int’l Affiliate Membership KITAIRU Trading (Shanghai) Co., Ltd. CHERKASOV Alexander Flugger Paint (Shanghai) Co., Ltd. LARSEN Henrik Gert GAC Forwarding & Shipping (Shanghai) Limited QIAN Galton

Individual Int’l Affiliate Memberhsip Asianet China Ltd. LIU Daniel Bayer Material Science (China) Co., Ltd. WONG Francis

CHEN Bo COHADE Pierre SHE&JUL FILMS PAN Julliet Windsor Property Management (Shanghai) Co., Ltd. MASSY Jean-Philippe

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Medtronic (Shanghai) Management Co., Ltd. THOMAS John Melaleuca (China) Wellness Products Co., Ltd. DONG Jiawei KOT Nam Shan MA Bing Owens Corning (China) Investment Co., Ltd. WU Addons Kam Pui Penske (Shanghai) Logistics Co., Ltd. LIN Stan PricewaterhouseCoopers PELAEZ Heather Shanghai Howard Johnson Hotel Management Co., Ltd. CARSON Micheal KASTEN David Tempel (Changzhou) Precision Metal Products Co., Ltd. ZHANG Huangqing Tyco Healthcare International Trading (Shanghai) Co., Ltd. SHEN Jidong WestPoint Home (Shanghai), Inc. WANG Jane WPMI (Shanghai) Enterprise Service Co., Ltd. SONG Jesse

Individual U.S. Citizen Membership

Fiat (China) Business Co., Ltd. Shanghai Branch BORGIALLO Paolo

ebm-papst Ventilator (Shanghai) Co., Ltd. SHIRING Mark James

G4S Facilities Management, Ltd. HU Pan

Grant Thornton LLP CREASY Michael

Hamilton Sundstrand (Shanghai) Management Co., Ltd. ZHAO Guoquan

Lionheart Project Logitics, Inc., Joint Venture with Qingdao Ocean Logistics Co., Ltd. BAILEY Casey

Harvard Center (Shanghai) Co., Ltd. YANG Patrick Chao

AN Shu

Improved Piping Products Ltd., Shanghai XUE Judy

Finland China Innovation Center LI Kristal

Langfang MK Foods Co., Ltd. O’BRIEN Vince

FESCO Adecco Human Resources Service Shanghai Co., Ltd. GAO Quennie XU Sarah

HSBC Bank (China) Co., Ltd. HUCK Jason

Fedex Express (CN), Ltd. TEE Brian

Kohler China Investment Co., Ltd. ZHU Zhaohui

Basell Asia Pacific Consulting CHU You Hwa Eva

ERWIN Ryan Oakwood Residence Hangzhou CONNELLY Brian Padmaraga Gems Co., Ltd. LING Arnold Yi

Intel China Ltd. GE Jun YEUNG Chung Yun

SoilTap China NIXON Devon

Johnson Matthey (Shanghai) Catalyst Co., Ltd. JIN Hai

The J & R Group Company Limited REICH Ken

Kimberly- Clark (China) Co., Ltd. HSU Hsi-Kwei MONTEIRO Naomi Bernadette WHITAKER Kenneth

Yu Yu International MCELROY Esther

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Do you want to share more information about your company? Contact Sophia Chen at (86 21) 6279-7119 ext. 5667 or sophia.chen@amcham-shanghai.org for a “Standout Listing” opportunity in the New Members Section.

GoverNment Relations Healthcare Committee Meets with Medical Center Director AmCham Shanghai’s Healthcare Committee welcomed Dr. Wan Xingwang, director of the Shanghai International Medical Exchange Center, to share his views on the state of non-public hospitals in Shanghai. This meeting kick-started the Committee’s long-term dialogue with the Shanghai government on healthcare reform policies. This first meeting focused on the increasing role of nonpublic healthcare institutions and included a short exchange of views on Shanghai’s policies related to the biopharmaceutical industry. Director Wan reported that Shanghai plans to gradually increase the ratio of private hospitals to public hospitals by reducing the number of public hospitals/clinics and increasing private institutions. To support this, the municipality intends to increase transparency regarding tax and procurement policies, develop the commercial medical insurance industry and increase coverage of public insurance to private entities. Projections show that by 2015, 23 percent of Shanghai’s population will be elderly, thus spurring the need for better medical and insurance coverage. Director Wan hopes that through an increased dialogue and learning with foreign healthcare enterprises, the city can better meet these challenges. (Mar. 9)

Shanghai Intellectual Property Administration Presents IP Developments in 2011 Lv Guoqiang, director general of the Shanghai Intellectual Property Right Administration, hosted a meeting with various foreign investment representative bodies, foreign consular offices and other representatives of the foreign business community, including AmCham Shanghai, to present an overview of intellectual property (IP) developments in Shanghai in 2011. Growth of IP is a critical factor in Shanghai’s economic transformation, said Director General Lv, and thus IP protection and regulation, particularly towards strategic growth industries, has been given special priority. The city’s Twelfth Year Plan Related to IP outlines steps the city plans to take into 2020. Among these are the expansion of patent and trademark trading platforms as well as promoting the growth of small and medium enterprises through funding with IP as collateral (In 2011, 97 enterprises obtained RMB 220 million in loans using IP collateral). Following the presentation, the Director General answered questions from the various agencies. (April 17)

Peak Energy Season Approaching at Suzhou Industrial Park Summer is peak energy use season for Suzhou Industrial Park (SIP). As a way to prepare and reduce stress for companies in the zone, AmCham Shanghai, the Chamber’s Suzhou Committee chairs and Suzhou members met with SIP administration to discuss the power situation in this coming summer. Officials in Suzhou SIP provided an overview of energy issues for the summer of 2012, in addition to best practices in energy savings. Since 2009, there has been a clear shortage of available electricity in East China, but all major stakeholders have made efforts to ease this. The power forecast for this year is better than last. Peak times for electricity use are: 09:00-11:00, 15:00-17:00, and 20:00-22:00. SIP hopes that manufacturers can be flexible where possible in moving certain production shifts away from peak times in order to reduce the risk of power failure for the entire park. SIP understands that companies have different production cycles and a power cut may result in problems on the production line. Companies should communicate and negotiate with the government to mitigate any expected issues related to the rise of electricity use, or the inability to meet a flexible production schedule during off-peak hours. If manufacturers are anticipating excess orders, they should negotiate with the government on electricity use. Companies were forewarned that the use of diesel generators is noncompliant for environmental reasons. (April 17)

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Suzhou Launch of AmCham Shanghai's 2011–2012 China Business Report

David Basmajian, Kent Kedl, Bill McEathron, Catherine Zhou and Nancy Hasi speak on the business environment in Suzhou

AmCham Shanghai hosted the Suzhou launch of the 2011– 2012 China Business Report at the Renaissance Hotel in Suzhou. In addition to providing a detailed look at the current business environment for U.S. companies in China as a whole, the report includes details on the distinct challenges and opportunities of doing business in the Yangtze River Delta (YRD), which consists of Jiangsu and Zhejiang provinces. Kent Kedl, managing director of Greater China and North Asia of Control Risks, presented a specific breakdown of the report’s results in the YRD. Kedl noted that rising costs rank as the leading challenge for U.S. companies in the YRD and are more intense in the YRD compared to other areas in China. Nearly half (49 percent) of responding U.S. companies in the YRD consider rising costs to be a “serious hindrance” to their business compared to 34 percent of firms in China as a whole. HR constraints are also a major challenge, ranking second according to the survey, with 34 percent of YRD companies considering it to be a serious hindrance to their business. However, increasing competition is less of a business challenge for YRD firms. According to the survey, 19 percent of YRD-based U.S. companies responded that increasing competition is a serious hindrance compared to 26 percent of U.S. firms based elsewhere in China. Kedl noted that China has moved from a “nice to have” to a “need to have” asset for U.S. companies with China ranking within the top three priorities for more than two-thirds of surveyed companies. In addition, the China market is maturing and companies are staying the course and succeeding in China despite a host of business as well as legal/regulatory challenges. (Mar. 14)

ECWG Hosts First 2012 Export Compliance Training and Development Course AmCham Shanghai’s Export Compliance Working Group (ECWG), in joint cooperation with AmCham China in Beijing, hosted its first 2012 ECWG Training and Development Course. Vice President of LTI Associates, Nina Hsu, led the training, entitled Chinese Export Control Basics, which included topics such as China’s role in global trade controls, Chinese dual-use export control laws and regulations, key issues in Chinese classification, end-use controls, technology exports and Chinese government inquiries and licensing processes. After the training presentation, the floor was opened for specific questions from participants about the challenges facing exporters in China regarding licensing registration and customs issues. The discussion content will be used to formulate talking points for future engagements with the Chinese government on its export control system, policies and procedures. (Mar. 15)

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AmCham Shanghai Vice Chair Robert Theleen Addresses USDA Trade Delegation Members of AmCham Shanghai’s leadership participated in a private breakfast briefing with U.S. Department of Agriculture (USDA) Acting Under Secretary for Farm and Foreign Agricultural Services Michael Scuse on opportunities and challenges in China’s agriculture market. Acting Undersecretary Scuse led a delegation to China that included 39 U.S. and state level agriculture officials and American business representatives, making stops in Shanghai and Chengdu on what marked the USDA’s largest ever trade mission. Robert Theleen addresses delegates from USDA AmCham Shanghai 2012 Vice Chair Robert Theleen addressed delegates on how U.S. agricultural companies are helping, literally, to feed the economic success of China. American agriculture companies have credibility in international markets and produce products that Chinese consumers find attractive thanks to well known brand-name products, noted Theleen. The Chinese government, said Theleen, has begun to recognize that American companies in China play a legitimate role as an enabler in the Chinese economy, providing a tremendous opportunity to drive U.S. agriculture exports and support job growth back home. “For every American company that wants to enter China, there is a Chinese company that wants to partner with you,” said Theleen.

Despite the many business and legal/regulatory challenges of operating in China, Theleen recommended U.S. companies leverage the successes of other companies that have been in China. Theleen spoke about how American companies are willing to share information and answer questions as a community. Theleen was joined at the briefing by AmCham Shanghai Governors Jim Rice and Dan Krassenstein, who also shared their experience of doing business in China and understanding the market. (Mar. 27)

Chris Marquis speaks on the business values of CSR initiatives

April Monthly Member Briefing AmCham Shanghai welcomed Chris Marquis, Associate Professor of Business Administration at Harvard Business School and judge for the AmCham Shanghai Corporate Social Responsibility (CSR) Awards, who briefed members on the business values of CSR initiatives for increasing companies’ competitive advantage. AmCham Shanghai’s monthly briefing is an exclusive opportunity to hear from top government officials and issue-area experts on current events and political-economic trends impacting business in China.

Marquis said companies adopt CSR strategies through philanthropic activities tied to company interests or objectives, as well as through efforts to change the external environment by shifting consumer preferences or government standards. By connecting their business and social value, companies can receive important benefits from CSR activities. These include deriving cost reductions and cost enhancements, deepening companies’ connection with consumers and improving competitive conditions through investment in the community, among others. Marquis spoke about why companies engage in CSR initiatives. In the U.S. and Europe, pressure to have CSR programs is driven predominantly from the “bottom up” through, for example, consumer efforts. But in China the focus tends to be satisfying government interest and pressure for CSR activities and social efforts to advance a larger mission of helping the country move forward, said Marquis. He noted that the general lack of NGO infrastructure in China is a challenge for fostering development of CSR, since companies often partner with NGOs to deliver CSR initiatives. (April 10)

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Education & Training Committee Managing and Driving Customer Focus AmCham Shanghai’s Education and Training Committee hosted an interactive event focusing on customer service at the ELS American Education Center. Led by guest speaker Ben Keher, a leadership and communications expert and financial services industry veteran, members explored various methods of improving customer relations and discussed the current need for improved customer service in the Chinese market. Attendees discuss customer service

In the first half of the event, Keher discussed the current customer service situation in China. He expressed this through a survey which showed that Chinese consumers felt disappointed with the customer service of Chinese companies when compared to their international counterparts, emphasizing the cultural gap between the way international and domestic firms do business. However, the survey also brought good news as consumers noted that while still not up to expectations, customer service in China has improved over recent years. Keher then divided the audience into groups to brainstorm reasons for the lack of customer service from the perspectives of producers and consumers. For the rest of the presentation, the topic shifted to tips and tools for better customer service. Ideas brought up ranged from creating a rewards system to encourage employees to go out of their way to improve customer experience, to changing the business culture in China. The main takeaway from this event was that when it comes to customer service, attitude is key. (Mar. 12)

Michael House speaks on U.S.-China trade tensions, with Frank Zhang

Legal Committee Impact of Escalating U.S.-China Trade Tensions on U.S.-China Business AmCham Shanghai’s Legal Committee hosted an event on the “Impact of Escalating U.S.-China Trade Tensions on U.S.-China Business” at the Four Seasons Hotel. Increasing trade tensions between the U.S. and China in the past six months have had an effect on merchandise trade between the two countries, particularly the renewable energy and rare earth minerals sectors.

Michael House, a partner at Perkins Coie LLP, addressed the challenges both the U.S. and China have faced with trade disputes in a variety of areas such as rare earth minerals, currency “manipulations,” and forced technology transfer and trade secrets misappropriation to name a few. In addition, House highlighted the importance of the U.S.-China trade relationship given the upcoming presidential election. This is seen by the GPX court decision to push U.S.-China trade policy to the top of the legislative agenda under a timetable not anticipated by Congress. Therefore, given the environment of the upcoming presidential election and the heightened targeting of U.S. exports to China for retaliatory action by the Chinese government, the next few months will have a strong focus on trade relations between the U.S. and China. Frank Zhang, a partner at Dowway Partners, touched on trade remedy actions between the U.S. and China. The amount of cases filed by the U.S. is three times the amount in AD cases or six times the amount in AD/CVD. The majority of cases filed by the U.S. against China since China joined the WTO (after December 2001) are in steel, chemical and light industry products. Cases filed by China against the U.S. are 64% in chemical products, with light industrial and agricultural products following close behind. Overall, the climate of trade tension between the U.S. and China will be one to watch in the coming months with a U.S. presidential election and the increase in trade disputes between the two countries. (Mar. 13)

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Marketing & Media Committee Driving Brand Advocacy with Tom Doctoroff, JWT’s North Asia CEO AmCham Shanghai’s Marketing & Media Committee hosted Tom Doctoroff, JWT’s North Asia CEO, for a presentation entitled “Driving Brand Advocacy.” Time and technology have changed the way marketers advocate for their brands, says Doctoroff. In China, digital media has long since overtaken TV and radio as the main source of information for the average consumer. Whereas TV advertising is a passive form of marketing, digital marketing is very interactive – engaging consumers is the key.

Tom Doctoroff, center, with Bryce Whitwam and Chris Beebe

Doctoroff noted that building a brand was traditionally a “top down” model, with companies controlling the consumer’s train of thought and advertisements telling consumers what was best for them. Today, brands are built from the ground up, with everyday people, celebrity bloggers and e-personalities being deemed online experts, or ‘efluencers,’ who control public opinions about products by promoting the ones they like best. Grabbing the efluencer’s attention is where brand advocacy starts, and in order to do this a brand must develop and remain committed to a ‘brand idea.’ A successful brand idea is consistent over time and appeals to three aspects of a consumer’s perspective: Me, We and World, says Doctoroff. The ‘Me’ aspect targets the consumer’s need to express oneself and stand out, while the ‘We’ gives them an opportunity to connect with others with a common interest. Finally, the ‘World’ aspect encourages one to be great, have dreams and be a part of something bigger. (Mar. 20)

Mark Filip speaks on the FCPA and its implications

Legal Committee The Foreign Corrupt Practices Act and American Businesses Abroad Mark Filip, the former Deputy Attorney General in the U.S. Department of Justice (DOJ), spoke to the Legal Committee at AmCham Shanghai regarding the Foreign Corrupt Practices Act (FCPA). Filip is a partner at Kirkland & Ellis LLP’s Chicago and Washington, D.C. offices and a formal federal judge.

The FCPA, which is jointly enforced by DOJ and the U.S. Securities and Exchange Commission (SEC), addresses enforcement for accounting transparency as well as measures against bribery of foreign officials. The law has become of particular concern for U.S. companies operating abroad since FCPA enforcement actions have increased significantly in recent years, rising to a record 74 cases in 2010.Filip spoke about business opportunities between China and the United States optimistically, and supported continued business exchanges between the two countries. While acknowledging the rigorous enforcement environment, particularly in the U.S., he expressed confidence in companies that plan for problems in advance and deal with issues resolutely, quickly and aggressively when they arise. The risk of corruption should not prevent a company from doing business. Instead, it should strive to reduce risk and avoid criminal liability.

Reporting by Ryan Balis, Ally Chiu, Christine Francois, Krisanna Oopik, Simon Smith and Weston Waldo

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EXECUTIVE GETAWAY In this issue, executives tell us where they go to escape the hustle and bustle of Shanghai Kent D. Kedl Managing Director, Greater China and North Asia, Control Risks Spot: Garden

area of the Garden Hotel, Shanghai

“Right in the heart of the city, it has grass, trees and fresh(ish) air. I use to bring my kids there when they were little for grass-aversion therapy and I still love to go there and just walk barefoot on the grass - one of the very few places in Shanghai where grass is not treated like the crown jewels. Sometimes, there is an amateur saxophone player who will come there to practice and the sound bounces wonderfully off the hotel edifice and drifts back into the trees of the garden. Truly a little slice of heaven in the 7th Ring of Heck that is Huaihai Road.” Rebecca Liu General Manager, China & Hong Kong of Cook (China) Medical Trading Co., Ltd Spot: Flair

Rooftop, 58th floor of The Ritz-Carlton Hotel Pudong

“I usually spend weekend afternoons just relaxing and having some cocktails here. There is an outdoor area, which allows me to enjoy the fresh air and sunshine. The view is spectacular; you can see all the buildings both in Puxi and Pudong, including the Bund and Lujiazui areas. I feel very quiet and peaceful when I have drinks or read books there.” Also recommends: Tomato

Farm in Songjiang

“This place is 100km away from Shanghai city. I go fishing with my family over there even though the fishing pool is not a big one - it gives me fresh air and a sense of change, especially with the smell of green grass. The local cuisine on the farm is also delicious. They cook in a countryside style, and it tastes fresh and healthy.” James Rice Vice President, CSM nv, CEO, CSM Bakery Supplies Greater China Spot: Thousand

Island Lake, Intercontinental Hotel

“The beautiful scenery, the green mountains and hills make me think I'm far, far away from Shanghai. And relative to the drive time, it's really not far from Shanghai. It's a great getaway, even for one night.”

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