Insight Magazine April 2014 by The American Chamber of Commerce in Shanghai

April 2014

128 floors

A Tall Order An inside look at Shanghai Tower â&#x20AC;&#x201C; a soaring symbol of Chinaâ&#x20AC;&#x2122;s economic power and worldly ambitions

106 elevators

INSIGHT APRIL 2014

The Journal of the American Chamber of Commerce in Shanghai

amcham shanghai President

Kenneth Jarrett VP OF PROGRAMS & Services

Scott Williams

F e at u r e s

13 Are We Too Optimistic? PRESIDENT’S REPORT

By Kenneth Jarrett

AmCham Shanghai’s President offers his insights into the China Business Report.

VP of Administration & Finance

Helen Ren Directors Business development & Marketing

Patsy Li Committees

Stefanie Myers COMMUNICATIONs & PUBLICATIONs

14 A Game Changer?

FREE TRADE ZONE

By Greg Pilarowski

China’s lifting of the ban on video games consoles is not likely to open up the floodgates to a vast new market.

Michael Cole Events

Jessica Wu Membership & CVP

Linda X. Wang

INSIGHT EDITOR-IN-CHIEF

Bryan Virasami

18 Summit by the Lake

APEC AND CHINA

By Shao Yuqun

China’s APEC agenda and implications for the region.

Senior Associate Editor

Erika Wang senior communications associate

Ryan Balis Design

Alicia Beebe Printing

Mickey Zhou Snap Printing, Inc.

21 Time to Do the Walk

TWO SESSIONS

By Peter Martin

Xi Jinping’s bold reform agenda is likely to create opportunities and present challenges for foreign companies.

INSIGHT Sponsorship (86-21) 6279-7119 ext. 5667 Story ideas, questions or comments on Insight: Please contact Bryan Virasami (86-21) 6279-7119 ext. 5668 bryan.virasami@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.

I n s ig h t s ta nd a r d s

5 News Briefs

11 Movers & Shakers

MONTH IN PICTURES

Highlights from Recent Events

EXECUTIVE Health

Fighting Stress at Work

INSIDE AmCham 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

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40 From the Chair 41 Board of Governors Meeting 46 Government Relations 47 Event Highlights Cover design by MICKEY ZHOU; Shanghai tower rendering courtesy gensler

Editor's note

Bryan Virasami editor-in-chief

f King Kong was to make an epic comeback today and visit a major metropolis and then somehow manage to climb the tallest building around, it probably wouldn’t be the Empire State Building. The giant gorilla – or his producers – would have an endless array of options in cities across the globe. We hope he might end up here and climb the Shanghai Tower before Tom Cruise finds a way to slide down the spiral-shaped tower. The Empire State Building was the tallest building for some 40 years since it was completed in 1932. It is 382 meters and 102 stories. Today, if you were to count all the tall buildings under construction around the world, the Empire State Building would be number 52, according to the Council on Tall Buildings and Urban Habitat. By 2019, the Kingdom Tower in Saudi Arabia will stand as the world’s tallest building at 1,000 meters and 167 floors. King Kong might have a problem with all that sand, however. That brings us back to the Shanghai Tower,

a swirling structure expected to be completed next year, that will include a major hotel, conference centers and offices in Luijiazui. Gensler’s Xiaomei Lee, the project director of Shanghai Tower, graciously provided the inside story on what is to be China’s tallest building – at least for a few years. The tower was designed to conserve electricity by reducing its dependence on air conditioning. And it will also have the world’s fastest elevator that will travel 18 meters per second. Too bad the traffic below doesn’t move so fast. Also in this issue, we have an analysis of a new regulation that will allow the sale of game consoles in China if manufactured in the Shanghai pilot Free Trade Zone. Also, we take an in-depth look at the Two Sessions in Beijing and at China’s agenda at this year’s APEC meeting in Beijing. We hope you find something worth reading in this month’s issue and please let us know what you think of our magazine by sending us a note.

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News

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CHINA BUSINESS

Tencent buys stake in JD.com Tencent Holdings, China’s largest internet corporation, has bought a 15% stake in e-commerce firm JD.com Inc. for US$215 million. The stake could increase to 20% after JD.com’s planned listing in the U.S., which aims to raise up to US$1.5 billion. Under the deal, JD.com will assume control of Tencent’s e-commerce business. Tencent plans to integrate its popular WeChat mobile messaging service, which allows for online payments, with JD.com. Beijing-based JD.com is the secondlargest B2C e-commerce business in China and recently said it teamed up with more than 10,000 convenience stores from 15 Chinese cities in a new online-to-offline strategy.

Hainan Airlines to expand fleet Hainan Airlines, China’s largest privately owned air transport company and the fourth largest airline in fleet size, said it will add an additional 27 aircraft to its total fleet in the coming year. Bringing the airline’s fleet to a total of 158 aircraft, the expansion will help further expand into North American cities such as Chicago, Seattle and Boston. The Haikou, southern Hainan-based airline said it will also begin international routes to Brussels, Berlin, Moscow and Paris. Hainan Airlines’ net income grew 9.2% year-on-year in 2013. The airline said it will continue to compete with rivals including Air China, China Southern and China Eastern for a chance to capitalize on increasing amounts of international travel to and from China.

Alibaba announces IPO in U.S. China’s top e-commerce company Alibaba Group announced in March that it will seek an initial public offering (IPO) in New York in what is expected to be the largest share offering by a tech firm since Facebook went public in 2012. At the time of the official announcement, the company said it had yet to decide a timetable, the underwriter, or the amount of money it hopes to raise through a listing. A Reuters poll put Alibaba’s market value at around US$140 billion and the value of the IPO at US$15 billion. The proposed IPO rides on a recent wave of Chinese tech companies flocking to the United States. NYSE Euronext Inc. said that 15 to 20 Chinese companies are expected to list at the exchange. Micro-blogging service Sina Weibo, one of China’s most popular social media platforms, on March 14 said it filed to raise US$500 million via a U.S. IPO. Alibaba holds 18% of Sina Weibo’s shares. Since the announcement, Alibaba has also invested US$215 million in U.S. mobile messaging app Tango, which counts with 200 million users.

Alipay to offer online credit cards China’s most popular online payment service, Alipay, said it joined China CITIC Bank to issue one million online credit cards with a minimum credit line of RMB200 (US$33). Maximum credit depends on actual credit conditions of users on Alipay, as well as on

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e-commerce sites Taobao and Tmall, the company said. Alipay has more than 300 million registered users. The credit cards can only be used for online purchases on Alipay’s website or mobile app, Alipay Wallet. To apply, users must first become a follower of China CITIC Bank on the app and apply for the cards online, and applications will immediately be approved or rejected.

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China, India, Brazil, Eastern Europe or Atlanta

When only the Best Recruiter will do - Cornerstone International Group

Chairman & CEO Simon Wan (Shanghai) simon-wan@cornerstone-group.com

President Larry Shoemaker (Atlanta) larry-shoemaker@cornerstone-group.com

Chair of Quality and Compliance Committee Ian Day (London)

Chair of USA, Eastern Region Audit Committee Chair Dan Heiman (Kansas City)

Executive Coaching Chair Eileen Hannegan (San Diego)

Head of Cornerstone Assessment Products Alberto Lares (Mexico City)

Chair of North and South Asia Vijay Karkare (Mumbai)

Chair of EMEA Region Alan Kneale (Liverpool)

Chair, Latin America Region Alejandra Aranda (Santiago)

Chair of Canada Region Jill MacLeod (Toronto)

Co-chair of Quality and Compliance Committee Manuel Cubas(Lima)

Marketing Committee Chair Goran Jansson(Stockholm)

Chair of Pacific & Asean David Ealson (Auckland)

Chair of USA, Western Region Peter Munson (Los Angeles)

Cornerstone International Group takes pride in its 25 years in Executive Search and also as industry leader in CEO Advisory (CCC) & we executive coach leaders worldwide. We are the FIRST!major global executive search network that is based in Shanghai CHINA, as well in Atlanta USA/Our 70 offices can be found in major cities around the world. We understand your needs and you can 'Achieve More with Cornerstone' Cornerstone International Group is: • • • • • •

A global recruiter and developer of talent. Located in 70 offices across 6 continents. In business for 25 years. The China offices of Cornerstone International Group were established in 1995 With 7 offices across the Greater China region. Industry recognitions received by Cornerstone in China included “China Recruitment Firm of the Year” award; The “Trustworthy HR Service Unit” award and Finalists of “Best Training Firm of the Year” awards.

Simon Wan, Chief Executive Cornerstone International Group Tel: 86 21 - 6474 7064 email: simon-wan@cornerstone-group.com Global website:www.cornerstone-group.com

Chinese-language online search engine Chinaso.com, China’s first search service set up by the country’s major news organizations, launched last month. Chinaso.com was developed by an information technology company jointly founded by the country’s news outlets and and state television, including People’s Daily, Xinhua News Agency and China Central Television. The site offers news, website, pictures, videos and maps, as well as 16 channels and applications for mobile users, according to Xinhua. According to the Internet Society of China, there are 4.61 million registered domain names and 3.51 million websites owned by 2.82 million entities in China. China has more than 618 million internet users, 80% of whom use mobile devices to go online.

U.S.-CHINA

LinkedIn launches Chinabased site The professional social networking site LinkedIn announced the launch of a Chinese-language site with restrictions to adhere to state censorship rules. The censorship of Facebook and Twitter has led to offshoot websites like Renren and

Sina Weibo that fit within government restrictions. However, there is no major professional social networking site in China; this gap in the market may allow LinkedIn to reach China’s growing internet community unchallenged by local competition. With 4 million LinkedIn users in China prior to the website launch, the new site projects to reach a total of 140 million professionals in China.

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China launches state-run search engine

Cisco to open China HQ in Hangzhou Cisco Systems Inc., the world’s largest maker of computer networking equipment, said it plans to set up its China headquarters in Hangzhou, eastern Zhejiang province, as part of its plan to participate in developing the country’s smart-connected industry. San Jose, Calif.-based Cisco said it will expand to areas such as healthcare, education, information and transportation in Hangzhou. The Hangzhou government has said it aims to construct a national leading smart-connected information infrastructure platform by 2015. Cisco entered China in 1994 and has 20 business branches with more than 4,000 employees.

AMD moves division to China

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Sunnyvale, Calif.-based chipmaker Advanced Micro Devices Inc. (AMD) said it moved its desktop chip business operations from the U.S. to China. AMD has a plant in Suzhou, which represents half of its global back-end testing capacity, and its largest research and development center outside the U.S. is in Shanghai. AMD’s move brings the company closer to customers such as Lenovo and to motherboard suppliers like Taiwan-based Asustek and MSI, which manufacture parts in China. AMD is the second-largest x86 processor maker globally after Intel. The company is also developing tailored products for users in China, company officials said.

Amazon China shuts thirdparty store U.S. e-commerce giant Amazon.com Inc.’s China unit closed down a thirdparty store following local media reports of fake cosmetic products being sold on the site. In a statement, Amazon’s China unit said that it was taking the China Central Television (CCTV) report “extremely seriously” and took a “zerotolerance policy” regarding counterfeit products. The state media report said that third-party sellers on Amazon and smaller local rival Dangdang were re-selling fake cosmetic products, some of which came from gray-market wholesalers. The company added it will refund purchasers of the products in question. Amazon holds a small share of China’s fragmented Internet retail market at 1.6% as of 2013, according to London-based market intelligence firm Euromonitor International.

GOVERNMENT & POLICY

China widens RMB trading band against dollar The Chinese government doubled the legal trading band on the renminbi (RMB) to 2% in late March. This band allows Chinese banks to exchange the RMB in the foreign exchange market at 2% above or below the currency’s rate

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against the U.S. dollar, announced daily by the China Foreign Exchange Trading System. According to the People’s Bank of China (PBoC), the increase of the trading band allows for improved efficiency of capital allocation and the increased role of markets. The news comes with rising concerns over the Chinese currency’s weakening against the U.S. dollar. Though experiencing a 15-year low in year-over-year growth, PBoC’s announcement indicates a continued push for economic reform.

China sets 2014 growth target at 7.5% Chinese Premier Li Keqiang announced a planned growth rate of 7.5% for China during the annual National People’s Conference (NPC) last month. The government’s moderate growth target is part of a continued effort to stabilize the Chinese economy after years of intense growth. An inflation

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goal for 3.5% was also set in an attempt to keep prices in check. Growth in 2012 and 2013 hovered around 7.7%. Li listed increasing personal incomes and addressing the property market as key priorities moving forward. China’s property market has boomed in recent years, leading many to worry about a possible property bubble.

China to introduce private banks The China Banking Regulatory Commission (CBRC) announced plans to introduce five private banks on a trial basis to be located in Shanghai, Tianjin and Zhejiang and Guangdong provinces. Each bank is to be co-sponsored by at least two private capital providers, said the CBRC. Some of the preparation in setting up the banks will be delegated to 10 private firms including internet giants Tencent and Alibaba. The banks will be subject to the same regulations as existing commercial

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banks, though these new private banks are set to focus on small businesses and residential communities.

China to tighten pollution restrictions National People’s Congress Standing Committee Chair Zhang Dejiang announced plans to expand environmental legislation and force polluters to pay compensation at the annual meeting of the NPC in March. In recent months, the northern coast of China has been blanketed by a thick layer of smog, leading to increased hospitalization. The smog level this January in Beijing reached nearly 20 times the level considered safe by the World Health Organization. Zhang directly addressed the issue of pollution and imminent increases in restrictive policy, yet refrained from announcing specific limitations. Current restrictions have not been fully enforced due to concern over an already-slowing economy.

CHINA & THE WORLD

ASIA-PACIFIC SIA PACIFIC SOUTH AMERICA

SRI LANKA: China Merchants lands US$1b infrastructure project China Merchants Group will build a US$1 billion expressway in Sri Lanka in the largest highway project in the island nation to date, according to the South Asian country’s Highways Ministry. The Northern Expressway is said to link the former war-torn north through the tourist city of Kandy to capital Colombo. When completed, the highway is expected to be about 300 kilometers long. Construction of the first phase, about 48 kilometers, is slated to begin in August and take a minimum of 18 months to complete. China has invested heavily in Sri Lanka’s infrastructure projects, including a US$1.3 billion coal power plant on the northwestern shore and a US$1.2 billion harbor along the southern coast.

MIDDLE EAST

EUROPE ASIA-PACIFIC SIA PACIFIC

AFRICA

NAMIBIA: CNNC buys stake in uranium mine The China National Nuclear Corporation (CNNC), via its subsidiary China Uranium Corp., Ltd., has agreed to buy a 25% stake in a uranium mine in Namibia from Perth-based Paladin Energy for US$190 million, in addition to a US$20 million non-refundable deposit. The mine produces around 5.2 million pounds of uranium concentrate every year. China currently has 20 nuclear reactors in use and the number of planned, proposed or under construction domestic reactors totals around 150 – more than a third of commercially operating reactors across the world. The deal has yet to gain approval from Chinese regulators but Paladin said it expects to finalize the agreement by mid-year.

MIDDLE EAST EUROPE

NORTH AMERICA MIDDLE EAST

MALTA: Shanghai Power acquires 33% of utility company China’s Shanghai Electric Power Company (SEP) purchased a 33% equity stake in Maltese utility Enemalta for 320 million euros (US$432 million) – the largest foreign direct investment in the southern European country. Under the deal, Shanghai Electric Power Company and Enemalta will form one joint-venture company to invest in renewable energy projects for distribution in Europe, and another to provide service to other Shanghai Electric power plants in Europe. The approval of the deal, expected to be finalized by September, reduces Enemalta’s debt from as much as 800 million euros to under 300 million euros.

SOUTH AMERICA AFRICA MIDDLE EAST

AFRICA

ISRAEL: US$100m fund to invest in Israeli companies Israel’s Catalyst Equity Management and Hong Kong-based China Everbright Limited announced the closing of a US$100 million round of financing for their new Catalyst CEL Fund. The fund will invest in Israeli companies that have technologies, products and services that China needs, with a focus in areas like technology, environmental and water technology, manufacturing and consumer needs. Everbright said it expects that the fund will go through several more funding rounds to top off at US$300 million.

ASIA-PACIFIC SIA PACIFIC NORTH AMERICA AFRICA

NORTH AMERICA

UNITED STATES: Chinese online gaming company to delist from NYSE Giant Investment Ltd. will acquire leading Chinese online game company Giant Interactive Group, which is listed in the New York Stock Exchange, for US$3 billion and take it private, citing low valuation on the exchange compared with the sector’s popularity in the domestic capital market. The move makes Giant Interactive Group China’s first U.S.-listed online gaming company to go private. The buyers’ group will obtain a loan of $850 million from a consortium of banks including China Minsheng Banking Corp Ltd, BNP Paribas SA and Credit Suisse Group AG. The transaction is expected to conclude in the second half of 2014.

SOUTH AMERICA

SOUTH AMERICA EUROPE NORTH AMERICA

BRAZIL: Petrobras hires BOC to organize bond Petroleo Brasilero SA (Petrobras) has hired the Bank of China (BOC), to organize a bond issue worth US$8.5 billion, the first debt issue by a Latin American company subscribed by a Chinese bank, Bloomberg reported. The deal is expected to include a loan to the Rio de Janeiro-based oil company to help fund US$221 billion of investment needs over the next five years. Petrobras, Brazil’s state oil company, is the world’s largest producer in waters deeper than 1,000 feet (305 meters), as well the most indebted oil company globally with US$114 billion in debt.

ASIA-PACIFIC SIA PACIFIC

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ASIA-PACIFIC SIA AMERICA PACIFIC SOUTH

insight

deal of the month By E ri k a Wan g

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Wanxiang buys U.S. automaker Fisker at auction A Fisker Karma displayed at Auto Shanghai 2011, a year before it went out of production

.S. hybrid-electric car maker Fisker Automotive was sold at auction for US$149.2 million to C h i n a’s l a r g e s t a u t o p a r t s company Wanxiang Group. The bid includes US$126.2 million in cash and US$8 million in assumed liabilities, as well as a contribution of common equity in an affiliate designed by Wanxiang, according to a statement from Fisker. Wanxiang outbid Hong Kong-based Hybrid Tech Holdings following 19 rounds, which started at US$55 million. Hangzhou-based Wanxiang, which also owns Fisker’s lithium b atter y supplier A123 Systems, s aid in a statement it will restart production at Fisker’s manufacturing plant in Finland and then potentially at an unused plant in Delaware, which Fisker bought from General Motors in 2010. Possible longer-term plans also include a production move to China. Founded in 2007 by Bernhard Koehler and He n r i k F i s ke r, a for m e r B M W d e s i g n e r, Anaheim, Calif.-based Fisker had been developing high-performance, extended-range sports cars such as the plug-in hybrid Karma. But by the time it filed for bankruptcy in

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Delaware last November, the Karma had already been out of production for a year, citing cost overruns and technical problems. Fisker had US$168 million in outstanding debt when it filed for bankruptcy. Wanx i ang , w h ich has re-l aunche d t he company as The New Fisker Automotive, said it will focus on sales in the United States and Europe, with the aim to sell at least 1,000 Karma vehicles in the next 18 months. The Karma, which runs on a small gasoline engine that kicks in when its battery is depleted, was previously sold at a starting price of around US$100,000. Fisker sold a total of 1,800 since its introduction in 2011. The company added that it will also accelerate the pace of development for new vehicles such as the Atlantic, a mid-sized gasoline-electric hybrid sedan positioned as a more affordable model which Fisker had originally slated for production in 2015. Both Fisker and A123 Systems received U.S. government loans meant to encourage clean-fuel technologies. Wanxiang purchased bankrupt U.S. battery maker A123 Systems last year for about US$250 million after outbidding Johnson Controls Inc.

M o ve r s a n d S h a k e r s c o m p i le d b y j o y 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.

DELPHI Simon Yang was appointed president of Delphi China in March. Yang will continue his current role as managing director of Delphi Connection Systems Asia Pacific. Yang has extensive experience in China’s automotive market. He started his career with Delphi in 1995 at its U.S. operations as a connector design engineer. In 2003,Yang was relocated to China to establish the company’s connection systems operations in Asia. In 2008, he was appointed managing director of Delphi’s connection systems and electric centers businesses in Asia Pacific. In this role, he is responsible for leading sales, engineering, operations and finance in the region. Yang is a member of AmCham Shanghai. Simon Yang

Private Sector CBRE CBRE named Dominic Chung and Johnny Shao as executive directors and co-heads of China Investment Properties (China IP) in March. In their capacity as co-heads, Chung and Shao will collaborate with other business-line and geographic leaders from within and outside of China to strengthen CBRE’s market presence. They will also be jointly responsible for identifying, recruiting, coaching and retaining a team of highly competent IP professionals to help CBRE achieve a market-leading position in the near future.

Dominic Chung

Johnny Shao

OAKWOOD RESIDENCES HANGZHOU Oakwood Asia Pacific announced the appointment of Peter Zaunmayr as general manager of their residence in Hangzhou effective January 2014. Zaunmayr has 30 years’ experience in luxury hotel management in Europe, Peter Zaunmayr Australia and China, with such reputable brands as Shangri-La Hotels & Resorts, Wyndham Hotels and most recently Tonino Lamborghini Boutique Hotel Suzhou.

L.E.K. CONSULTING Justin Wang was elected to the L.E.K.’s global partnership effective January 2014. Justin advises corporate and private equity clients in life sciences and broader industrials on activating growth strategies and investment decisions. Wang is based in Shanghai. Xiaofeng Yu joined L.E.K. in February 2014 and expands the company’s expertise in product marketing, portfolio management and sales force effectiveness. Yu is a well-known veteran in China’s healthcare industry and was formerly president of Loudon Marketing Consultant Company.

Justin Wang

Xiaofeng Yu

government Mu Hong was appointed deputy director of the General Office of the Central Reform Leading Group, China’s leading reform group established at the end of 2013. Mu was previously deputy director of the National Development and Reform Mu Hong Commission (NDRC), a position he was appointed to at the end of 2007.

If your company has executive personnel changes, please contact Joyce Bian at joyce.bian@amcham-shanghai.org.

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PRESIDENT ’S Report

Are We Too Optimistic? Last month’s release of our annual business climate survey made the expected media splash. The Chinese media played up positive aspects of the survey – the high level of optimism (86 percent), large number of profitable companies (74 percent) and high priority attached to additional investments in China (top three global priority for 66 percent). The Western media gave more attention to rising costs, the growing attention to local compliance laws and the lack of progress on regulatory challenges. Some observers have expressed surprise at the large numbers with an optimistic five-year outlook, even though that number has been in the 86–91 percent range since 2009. How could Chamber members remain so optimistic in the face of growing competition, shrinking margins and a Chinese economy that is slowing down, some have asked? Indeed, an old China-hand friend, now living back home in Europe, half jokingly suggested that the survey results say more about the American character than market opportunities in China. To demonstrate this point, my friend noted that a 1937 survey of the Chamber also reported great optimism and comments that business had never been better. Two months later, Japan bombed Shanghai. In sharing this story, rest assured I am not suggesting disaster lurks around the corner. Far from it. Nor am I suggesting that the prognostic abilities of our predecessors in the Chamber, or today’s members, leave something to be desired. Yes, an abiding sense of optimism and positivism may be a national trait of Americans. On that count I optimistically plead guilty as charged. But that does not mean the optimism figure should be discounted or dismissed. My reading of the China Business Report in its entirety leaves me convinced that the high level of optimism is justified. First, keep in mind that respondents to the survey are an experienced lot. The majority have operated in China for over a decade, and many for two decades. This is a seasoned group of businesspeople who have learned how to navigate China’s challenging business environment. Second, the survey data clearly shows that American businesses have been successful. The vast majority are making money (74 percent), most are

enjoying growing revenues (67 percent) and many are seeing improved margins (47 percent). In addition, 72 percent consider themselves a market leader in their sector and 75 percent have seen their market share increase. With numbers like that, why not be optimistic? This is not to downplay the many challenges identified in the report. Operational and regulatory challenges abound. Many operational challenges, such as rising costs, are only getting worse. As for the basket of regulatory challenges, such as bureaucracy, unclear rules and local favoritism, our members see little progress. But the response is not to pack up and go home. Instead, our members are doubling down and taking additional steps to understand and succeed in this vital market. That “can-do” attitude of Americans, rather than being a character flaw, will help American companies succeed in a market that is growing increasingly competitive. Our optimism level might be higher than that found in other surveys, but I would view that as a strength of our members, not a weakness. One last word on the survey. We recently discussed our findings with Chinese government officials in Shanghai, Jiangsu and Zhejiang and will continue our road show. The level of interest in the results is intense. Local officials remain keen to attract investment and want to understand our concerns. Thus, the report serves as an excellent way to obtain government meetings as well as providing a substantive agenda for the meetings themselves. I encourage Chamber members to make use of the findings in your own engagement with the Chinese government. Thanks to those who participated in the survey and we hope to see even larger numbers next year.

Kenneth Jarrett President

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FREE TRADE ZONE BY GREG PILAROWSKI

A Game Changer?

Greg Pilarowski

China’s lifting of the ban on video games consoles is not likely to open up the floodgates to a vast new market

n Ja n u a r y, C h i n a’s S t a t e C o u n c i l officially ended their 14 year ban on the sale of video game consoles. Microsoft, Sony and Nintendo will soon be allowed to sell the Xbox One, the PlayStation 4 and the Wii throughout China, provided that these consoles are manufactured in Shanghai’s pilot Free Trade Zone and pass inspection by the Ministry of Culture. Will this change in law lead to a vast new market for game consoles and their software? The answer is probably no, at least in the near term. China’s game console ban began in 2000 with the stated intent of protecting the youth from the perceived corrupting influence of video games. Since then, companies like Tencent and Perfect World have helped to develop China’s US$13 billion (RMB83 billion) online game industry, with most games played on personal computers and, increasingly, on mobile phones and tablet computers. As a result, China’s youth have been exposed to plenty of video games for quite some time. Since the dominant game consoles are made by Amer ic an and Jap anes e comp anies, it app e are d t h at t h e out d at e d proh i bit i on , although no longer protecting the youth, was prote c t ing s ome one els e, namely C hina’s domestic game companies. The January announcement, along with a related announcement in S eptember, was greeted by many as the removal of a trade barrier that would lead to a vast new market for the dominant game console manufacturers, known in the industry as “first parties.” There are, however, several key obstacles standing between the first parties and that new market, including piracy, licensing requirements and a

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very competitive marketplace. According to a global piracy study by the Business Software Alliance, in 2011 the rate of software pirac y in China was 77 percent, compared with 60 percent in Asia-Pacific and 42 percent globally. Anyone who has lived in China knows that “daoban,” or illegal software, much like illegal copies of movies and music, are ubiquitous. This creates an enormous challenge for the console game business because their traditional model is to sell the hardware at a very modest price compared to total production costs, and to achieve the majority of profits through the sale of software. But when a US$60 copy of Assassins Creed IV: Black Flag for Xbox 360 sells for RMB9 (US$1.48) on Taobao, Alibaba’s popular e-commerce site, that business model does not work. One alternative, lifting hardware prices well above current U.S. rates of US$500 for the Xbox One and US$400 for PlayStation 4, is not the best market entry strategy in a country where 2012 average monthly income in Shanghai, mainland China’s wealthiest city by gross domestic product figures, was RMB4,692 (US$769) according to the Shanghai Human Resources and Social Security Bureau. On a positive note, the online game business m o d e l , l i k e o t h e r s of t w a re - a s - a - s e r v i c e businesses, has already solved the pirac y problem. China’s online game publishers give away the end user software for free. But to play the games, end users need to connect with the server-side software controlled by the publisher. That gives the publisher the ability to charge players for accessing the game, or in the now dominant free-to-play business model context, to sell virtual items and other in-game treats

that make playing more fun for the buyer. The obvious solution for the first parties is to take the online road, create console games that only work with Internet connectivity and charge users in the same way that China’s game publishers do. But there is one little problem. This solution would make Microsoft, Sony and Nintendo online game operators in China, which would require them to obtain an Internet culture license and an Internet publishing license, neither of which can be held by a foreign-invested entity. This means that the first parties can sell their consoles, but to make any money on software they must work with a local partner, and in the process most likely surrender a very large portion of the software profits. Depending on the deal that’s negotiated, however, this arrangement might still be worthwhile for the

first parties if it leads to a vast new market for their products. But creating that market will not be easy. For starters, notwithstanding the prior ban, game consoles have been sold illegally in China for many ye ars. Ni ko Par t ners, a market research firm, estimates that at least 1.2 million game console units were sold in China from 2002 to 2009. That means consoles with online games would compete against consoles with pirated software, much like online PC games compete with offline pirated PC games. A key difference is that there are many quality online PC games in the market, whereas online-only console games are rare. American McGee, founder of Spicy Horse and a wellknown game developer based in Shanghai, recently explained to me that “online-only games for consoles don’t exist yet.” As a result,

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Models in COSPLAY outfits promote online games at an annual conference in Shanghai

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the first parties would need to encourage game developers to create online games for release on their platforms. Once first parties have made their deals with local publishers and have recruited developers to create online games for their consoles, they will be ready to enter one of the world’s most competitive game markets, going head-to-head against the likes of Tencent, NetEase and Shanda in a market where games that succeeded outside of China have not always been wellreceive d. The game cons oles wou ld t hen compete with PCs and mobile devices as an alternative platform for playing games, with t h e i r u n i q u e c o nt r o l l e r s a n d t e l e v i s i o n connections.

Will it work? Will consoles fight their way into living rooms across China, bringing games home f rom Inter net c afés and out-of-b e dro om studies? Notwithstanding the challenges, Microsoft appears willing to try. In September 2013, it announced the establishment in the Shanghai pilot Free Trade Zone of a joint venture with China’s BesTV, investing up to US$237 million in family games and related services. And in December 2013, Perfect World, one of China’s leading online game operators, announced the establishment of a console game division, though it is not clear whether the new division will focus on the China market or the Western market as Perfect World has been successful in both regions. The quest for access to the living rooms of China is not a new one. Notwithstanding the prior ban on game consoles, several of China’s domestic companies failed in the marketplace with their own consoles, including Shanda in 2005 and Lenovo in 2012. S e ve r a l ye ars a go du r i ng an i n for m a l interview with officials at China’s Ministry of Culture, I asked whether China would one day lift the ban on game consoles. Their response was that it didn’t matter because game consoles,

PlayStation 4 is now officially available for sale in China if manufactured in the FTZ

in their view, were a dying business model. On a worldwide basis, however, video game console hardware and software represent approximately 47 percent of total game market re venue, according to Gar t ner, a market research firm, and are projected to increase to 48 percent and 49 percent in 2014 and 2015. In November 2013, Microsoft and Sony released their latest-generation game consoles, Xbox One and PlayStation 4. Sales have been very strong, with demand outpacing supply. Now that China has ended its ban on game consoles, we may soon find out whether that vast new market exists.

Greg Pilarowski is the founder of Pillar Legal, a boutique international law firm with offices in Shanghai and San Francisco that provides legal services for technology, media and entertainment companies with interests in China and/ or the United States. Firm website: www.pillarlegalpc.com.

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A P E C A N D C HIN A B Y SH A O Y U Q U N

Summit by the Lake China’s APEC agenda and implications for the region

n November, the Asia-Pacific Economic Cooperation summit, or APEC, will be held in Yanqi L ake, B eijing. It is a gathering that comes 13 years after China last hosted the meeting in Shanghai. The leaders of 21 APEC members will attend the summit. Given that China has been the engine of economic growth in the Asia-Pacific region and the future of this economy will influence, to a great extent, the future of all the regional economies, the coming APEC conferences, especially the summit, have attracted lots of attention from all the stakeholders. People keep asking about the Chinese agenda. The theme of this year’s APEC meeting is “Shaping the Future through Asia-Pacific Partnership” and the agenda of the summit will be decided through the consultation of all the members. China has declared three priorities for the meetings of the economic leaders: advancing regional economic integration; promoting innovative development, economic reform and growth; and strengthening comprehensive connectivity and infrastructure development.

TPP vs. RCEP The consensus within the Asia-Pacific region is that advancing regional economic integration is in the interest of all the regional economies; however, people differ on the approaches. Currently, two mechanisms are being negotiated simu lt ane ously. One is t he Trans-Pacif ic Partnership (TPP) and the other is the Regional Comprehensive Economic Partnership (RCEP). TPP countries produce around 33 percent of global GDP and the negotiation has been pushed by the United States aggressively. It shows that the U.S. would like to set the next-

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generation rules for trade and investment and let the TPP be the template for FTAs in the 21st century. Not only will the TPP be concerned about issues such as tariffs and quotas typically at the center of free trade agreements, but it also sets very high requirements for whole supply chains. The areas it addresses include labor conditions, governmental procurement, state-owned enterprises, intellectual property and environmental protection. The TPP wants to eliminate the non-tariff barriers, not the traditional tariff and quota issues. It is more like an “upgraded” trade agreement and it will affect the core of a country’s business model. The RCEP is an FTA scheme of the 10 ASEAN member states and other six countries: China, Japan, Korea, India, Australia and New Zealand. The negotiation process was launched during the 2012 ASEAN summit in Cambodia, and the goal of the relevant parties is that the negotiation will be concluded by the end of 2015. The current three focuses of the negotiation are goods trade, service trade and investment. The Chinese perspective is that the TPP is a very important component of the “rebalancing” policy of the United States. It has a high threshold, and currently it is very difficult for China to join the negotiation. Since participation in the agreement has to start with bilateral consultations and agreement on issues that have already been settled, China has very little room to bargain. Due to the high standards the TPP requires, China is unlikely to join before the current negotiations are done. If it joins afterward as a latecomer, not as an original negotiating member, the deals will be different and will have a greater impact on the Chinese economy and trade. China might as well wait until it has a relatively stronger competitive basis so the cost is smaller while its bargaining chip is bigger.

China is promoting the RCEP, because the RCEP is mainly comp os ed of de veloping countries and is more focused on development. The optimal condition is that the RCEP sets the developing standards while the TPP sets the competition standard. But China is open to the TPP and follows the negotiation pro cess carefully. And China will certainly use the APEC forum to push for the RCEP negotiation.

Innovative development One important characteristic of the world today is that most countries are pushing for domestic economic reform or transformation. In t he Unite d St ates, t he t ransfor mat ion includes the reflux of high-end manufacturing, creating more jobs and gradual reduction of quantitative easing and level of public debt.

This transformation would definitely have a huge impact on the economic reform of the countries in the Asia-Pacific region and become one of the most crucial outside factors for their domestic policies. China created its own roadmap for economic reform during the Third Plenum of the 18th Party Congress. China’s reform emphasizes orderly and free flow of international and domestic economic factors (labor and capital), further marketization reform of interest rates, an opening up of the financial market, realization of the full convertibility of RMB capital account, targeting of monopoly and unfair competition and orderly opening of the services industry, including the finance, education, cultural and medical service industries. The economic reforms and transformation within the regional countries have influenced

“

…most countries are pushing for domestic economic reform or transformation.”

Chinese President Xi Jinping with U.S. Secretary of State John Kerry at the APEC meeting in Bali, Indonesia

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each other. And APEC offers a good platform for them to coordinate their policies and find opportunities for innovative development and economic growth.

Infrastructure development According to its own experience, China thinks that infrastructure is the key to economic development and the backwardness of the regional infrastructure has prevented the countries from realizing their huge potential. So last year, China proposed many initiatives to improve economic cooperation with neighboring countries. For example, the Silk Road economic belt and the Sea Silk Road, the BCIM economic corridor, the China-Pakistan economic corridor and the â&#x20AC;&#x153;2+7â&#x20AC;? cooperative framework. All these

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initiatives focus on infrastructure building and so far have been welcome by the relevant countries. And the coming APEC conferences are good opportunities for China to sell all these initiatives to broader audiences. Due to the uncertainty of the global economic situation and future of regional integration, the region needs more exchanges of ideas and policies. From this perspective, APEC is indispensable. Meanwhile, APEC should also think about its position after the TPP or the RCEP finalize negotiations and China should definitely play a leading role in the process.

Shao Yuqun, Ph.D., is acting director, Center for American Studies at the Shanghai Institutes for International Studies.

NPC B Y P E T E R M A R TIN

xinhua

Chinese President Xi Jinping

Time to Do the Walk

his year’s National People’s Congress (NPC) marked an important turning point in the administration of Xi Jinping and Li Keqiang, when they turned from consolidating power and setting their agenda to implementation. During Xi’s first year as president, power was consolidated and his desire to enact substantial reforms was made clear with a series of measures including bold speeches and reenacting Deng Xiaoping’s “Southern tour.” In the past five months, starting with the Third Plenum and ending with the NPC meeting in March, the leadership has plotted out and refined these reform objectives, and it is now moving towards enacting change. The key priorities which emerged from the “two meetings” (liang hui) of China’s National People’s Congress and the Chinese People’s Political Consultative Congress (CPPCC) appear to be financial reform, fiscal reform and streamlining China’s state-owned sector. The government also made modest moves to shift away from its historical focus on growth targets in addition to signaling its determination to respond to the

public’s concerns about pollution and terrorism. Implementation of this bold reform agenda will provide both opportunities and challenges for foreign companies, not least of which will be keeping up with the pace of China’s most activist government in decades.

Financial reform The most notable movement in terms of policy direction involves financial reform. Crucially, People’s Bank of China governor, Zhou Xiaochuan, laid out plans to remove limits on bank deposit rates over the next “one or two years.” If this is carried out effectively, over time it will reduce or even eliminate the shadow banking sector – the mix of off-book loans, virtual junk bonds and other mechanisms that many worry could lead to a financial crisis in China if not brought under control. Also significantly, China announced five pilot private banks. Shang Fulin, head of the China Banking Regulatory Commission, said the private banks would be established in Tianjin, Shanghai,

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Xi Jinping’s bold reform agenda is likely to create opportunities and present challenges for foreign companies

“

exact GDP growth figure is not important: the government’s focus is not on reaching fixed targets, but rather on setting a broad direction for economic develop-ment and maintaining a high level of employment. Minister of Finance Lou Jiwei further reinforced this message when he said that China could accept growth figures below the 7.5 percent target this year.

Implementation of this bold reform agenda will provide both opportunities and challenges for foreign companies…”

Fiscal reform

Li Keqiang

Zhejiang province and Guangdong province; a first step in bringing some balance to China’s statedominate d b an k ing system. Ten C hines e companies have been shortlisted to invest in the proposed banks, including Internet giants Alibaba and Tencent, both of which have already launched high-yielding wealth management products online. The moves are designed to open up China’s statedominated banking system to greater competition and to help increase lending to small and medium enterprises. On the broader topic of liberalizing the renminbi, Zhou struck a more cautious note telling journalists that, “we have a lot of homework to do before the renminbi becomes an international currency.”

‘Around 7.5 percent’ This year’s growth target of 7.5 percent, the same as the previous two years, was not surprising. More surprising was the way the figure was announced. In his Work Report, Li said that China would “increase GDP by about 7.5 percent.” By qualifying the target with the phrase “about” (zuoyou), Li is sending a signal that the

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The government aims to make the budgeting process in China more transparent by publishing the accounts of central and local government departments. It also stated that revenue budgets should become “more anticipatory and less binding” and that revenue targets should be “seen as projections instead of tasks to accomplish.” The aim of this is to ensure that local governments focus on controlling expenditures instead of raising revenues, which is important since many local governments are currently buried in debt and using underground funding schemes and real estate deals to make ends meet. The budget aims to ensure that this happens by moving to a three-year rather than annual planning cycle (allowing deficits to be made up in subsequent years), cleaning up local government tax breaks and subsidies, and imposing property and environmental taxes.

SOE reform State-owned enterprises (SOEs) also seem likely to be a priority for reforms in 2014, but not necessarily in the way multinational corporations (MNCs) might like. Xi summarized the government’s agenda in his remarks to the Shanghai Delegation saying, “deepening the reform of SOEs is a major task; not only should SOEs not be weakened, they must be strengthened.” Li’s Work Report outlined some of the ways in which the government hopes to achieve this objective. The government aims to make SOEs more competitive by imposing financial discipline on them, increasing the dividends they pay to the state and adjusting their ownership structures, allowing

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The ongoing strength of the anti-corruption campaign will continue to generate uncertainty for MNCs…”

for more opportunities from private investment. It also aims to force SOEs to compete by allowing greater private participation in state-dominated markets by reducing administrative approvals, reforming prices and making it easier to register private companies. The fact that the National Development and Reform Commission (NDRC) listed SOE reform as its second reform priority in its Work Report suggests that we may see further details emerge over the next year. If the government is successful in its efforts to create leaner, more competitive S O E s , t h e n M N C s c an e x p e c t i n c re a s e d competition from SOEs in a range of sectors in the coming years.

Do less, better Li announced that the government will abolish or delegate to lower-level government bodies another 200 administrative approval items. He said that the overall number of government employees will be reduced, suggesting that streamlining and downsizing may take place across several government ministries. However, he did not provide details on which ministries. NDRC Director Xu Shaoshi confirmed that the organization’s delayed “Three Sets Plan” (Sanding Fangan) had been approved and that this signals a shift in the organization’s role away from approvals and toward the more general supervision of the economy, probably including a greater role in antimonopoly enforcement. The Ministry of Transport also announced that it has completed the implementation of the bureaucratic restructuring announced at last year’s NPC.

Foreign investment Li’s Work Report didn’t have much to say about foreign investment, but what it did say was positive. Li promised to “level the playing field for domestic and foreign enterprises.” He also mentioned the importance of the Shanghai Free Trade Zone (FTZ) in promoting reform, even saying that the zone’s model “can be copied and extended” to other trial zones.

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Li’s prominent reference to the zone is significant in the context of the immediate disappointment that surrounded its launch. When it opened, its “negative list” failed to deliver meaningful concessions to investors and Li, with whom the FTZ is closely associated, failed to appear at the opening ceremony, leading to speculation that the top leadership was not united on supporting the zone. It was significant, then, that Xi also indicated his support for the Shanghai FTZ during the NPC when he met with delegates from the Shanghai Delegation. While the NPC did not offer new details of what the Shanghai zone or others will involve, these comments from Xi and Li suggest that the progress of the FTZ will be important for MNCs to track this year.

Corruption Over the past year and a half, the Xi administration’s anti-corruption campaign has targeted national and local politicians, state-owned enterprises and MNCs. In the words of Xi, who borrowed the phrase from Mao, the campaign has targeted both “tigers and flies,” or both powerful and minor corrupt officials alike. Despite the lack of any significant developments in the case of China’s lead tiger, Zhou Yongkang, the NPC provided no signs that the government will back down from its anti-graft efforts. Indeed, Li’s Work Report stated that the government would show “no mercy” in its struggle against corruption and the Work Reports of the Supreme People’s Procuratorate (SPP) and the Supreme People’s Court (SPC) focused strongly on anti-corruption efforts. The ongoing strength of the anti-corruption campaign will continue to generate uncertainty for MNCs, all of w hich shou ld st rengt hen t heir ef for ts at compliance to minimize risks.

Pollution Li had strong language on environmental protection. Warning against the dangers of “blind development,” he announced that the government

would “declare war on pollution.” The Work Report outlined measures to cut obsolete steel production capacity, lower cement production and shut down tens of thousands of coal-fired furnaces. These measures will be accompanied by changes in energy pricing intended to create a favorable environment for nuclear and renewable energy and by innovation in smart power transmission grids and low-carbon technology. Li also added that work on a new environmental protection tax was ongoing. Despite the strong rhetoric, skeptics pointed to a lack of detail and to discrepancies between the assertive rhetoric and the comparatively mild policy announcements. For instance, the 27 million metric tons of steel production that Li said would be cut this year only accounts for 1 to 2.5 percent of total capacity. Beijing’s ability to rally local governments’ support for a green agenda is also up for debate. In reality, the solution to these problems is probably a 10- to 20-year fix.

Can Xi do it? Having laid out a strong agenda for reform, the question remains: can the Xi government implement it? The sig ns s o far lo ok p osit ive. By t he administration’s own analysis, China’s reformers are up against a wide array of interest groups with a stake in maintaining the status quo, but the

reformers (and especially Xi) wield far more power than their predecessors. Xi, working with a lean seven-member Politburo Standing C ommittee, f irmly established leadership in key CPC, military and government positions early in his administration. Since then, he has further consolidated his power over important areas of the policymaking process by creating and leading new leading groups and commissions on deepening reform, national security and cybersecurity. These will enable him to sidestep many of the vested interests that could potentially thwart reform. Events at this year’s NPC also made the implementation of reform seem more likely. The government laid out its priorities for implementing reform over the next year and ministers from across government agencies also lined up to demonstrate their support for the pending reformation. What will the implementation of the reform agenda mean for MNCs? While there will be substantial opportunities for MNCs as key sectors of the economy liberalize and bureaucratic red tape is removed, there will also be significant challenges. Aside from the sheer difficulty of keeping up with the pace of policy change under Xi’s government, MNCs will need to be wary of the risks created by its continued anti-corruption drive, anti-trust enforcement, robust nationalism, as well as a reenergized and more competitive state sector. One thing is guaranteed for MNCs doing business in China – 2014 certainly won’t be boring.

Peter Martin is a consultant at APCO Worldwide’s Beijing office.

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TOWER IN THE A symbol of China’s economic power and worldly ambitions, the Shanghai Tower will be the tallest building in China, at least for a year

BY SUSIE GORDON

fter two Russian daredevils covertly climbed to the top of the Shanghai Tower construction site over the Chinese New Year holiday and shared their heroics on a YouTube video, it wasn’t so much their vertiginous heroics that awed the world. It was the dizzying height of the construction itself. After its expected completion next year, the 632-meter Shanghai Tower in the Lujiazui financial district will be China’s tallest building, and the world’s second tallest. It isn’t just an architectural marvel but arguably one of the symbols of China’s rising economic power that also represents the nation’s collective dream to show the world that the country has arrived on the global stage. The question is, however, are these monoliths merely a symbol of China’s desire to compete on a world scale, as some believe? Are they giant follies, or do they fit into the economic and architectural landscape of modern times and represent

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the city of tomorrow? “Super-tall buildings have tended to take on a role as showcasing the development of a city, its coming of age in emerging markets – a way of putting the city on the map,” says Graham Coutts, International Director of Strategic Consulting at JLL (formerly known as Jones Lang LaSalle). Xiaomei Lee, principal and managing director of Gensler Architecture Consulting Shanghai and the project director of Shanghai Tower, sees the the issue as a quintessential chickenand-the-egg question. “Do super-tall buildings precede a country’s development or are they a by-product thereof ?” Lee said during an interview with Insight. “Frankly, what China is doing now isn’t too different than what Western countries did during the peak of their development. At the time, many of New York City’s buildings were deemed ludicrous, wasteful, or even dangerous by people from other countries that had never built anything of a similar scale.”

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SKIES Once completed, the tower will cast a shadow over the neighboring Jin Mao Tower and World Financial Center. While China may be in a race to the top, there’s also domestic competition among Chinese cities to erect the biggest, largest and tallest buildings. And this goes for large cities and smaller ones like Suzhou. Victor Zarnowski, principal of Asia projects for the Melbourne-based Buchan Group, points out that China’s ambition to compete with buildings isn’t new and goes back to the early 20th century. “The Soviet Union, in its desire to equal and surpass the United States, attempted to transplant New York’s 1930s art deco towers to Russia, at the Moscow State University, in order to assert its ideological and political prowess,” he says. “It is not a coincidence that they have been mainly proposed in newly emerging countries, whether it is the Soviet Union, or more recently China, Korea, UAE or Saudi Arabia.” Even before it’s completed, the tower is getting competition from Changsha’s 838-meter Sky City, a proposed building that, if it is completed, will surpass both the Shanghai Tower and Dubai’s Burj Khalifa, currently the world’s tallest.

Do super-tall buildings precede a country’s development or are they a by-product thereof?” – Xiaomei Lee, project director of Shanghai Tower

The project is a new milestone for the design firm, which had never before designed a super-tall tower from start to finish. The project is unique in that it employs best practices in sustainability and high-performance design. The Shanghai Tower incorporates many green architecture elements, designed to meet standards for sustainable design from the China Green Building Committee and the U.S. Green Building Council. Lee of Gensler said the company sought “to strike a balance between implementing the most cutting-edge building

Going green Gensler, an international design firm, designed the tower and is also behind many of the world’s tallest buildings. On the laying of the final structural beam of the Shanghai Tower, Gensler co-founder Art Gensler was quoted saying that the tower and other large buildings represent “a new way of defining and creating cities.”

Xiaomei Lee, project director, Shanghai Tower

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The Worldâ&#x20AC;&#x2122;s Tallest

In addition to completed buildings, this list also includes those now under construction or topped out, along with the expected year of completion.

Name

1. 2. 3. 4. 5. 6. 7.

8. 9. 10. 11. 11.

13. 14. 15.

City

Kingdom Tower

Meter Floors Year

Jeddah (SA)

1,000

167

2019

Dubai (AE)

828

163

2010

Suzhou (CN)

700

138

Shenzhen (CN)

660

115

2016

Wuhan Greenland Center

Wuhan (CN)

636

125

2017

Shanghai Tower

Shanghai (CN)

632

128

2015

Makkah Royal Clock Tower Hotel

Mecca (SA)

601

120

2012

Goldin Finance 117

Tianjin (CN)

597

128

2016

Lotte World Tower

Seoul (KR)

555

123

2016

One World Trade Center New York City (US)

541

2014

The CTF Guangzhou

Guangzhou (CN)

530

111

2017

Tianjin Chow Tai Fook Binhai Center

Tianjin (CN)

530

2017

Zhongguo Zun

Beijing (CN)

528

108

2018

Taipei 101

Taipei (TW)

508

101

2004

Shanghai (CN)

492

101

2008

Burj Khalifa Suzhou Zhongnan Center Ping An Finance Center

Shanghai World Financial Center

Information about buildings are provided to the CTBUH by member companies including Shanghai Tower

completed

topped out

construction

Courtesy of the Council on Tall Buildings and Urban Habitat and the Skyscraper Center.

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mainland China building

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technology while still finding solutions to reduce costs.” The exterior design of the tower has considerations that go beyond aesthetics. During wind-tunnel testing, Gensler designers experimented with several different degrees of rotation to find the optimal shape for reducing the wind loads that Shanghai’s typhoon season brings. The tower’s tapered, 120-degree rotation saved US$54 million in construction costs and reduced wind loads by 24 percent. The construction practices were likewise tweaked for sustainability. Most of the building’s energy will come from conventional power systems, but vertical-axis wind turbines near the top of the tower will generate up to 350,000 kWh of supplementary electricity per annum. The double-layered glass façade has insulating properties as well as a high tolerance for shifts in temperature, and will limit the need for indoor air conditioning. The tower’s heating and cooling systems will use geothermal energy sources. Although it is often assumed that Western companies give more consideration to sustainability than their Chinese counterparts, James Shepherd, executive director of research at property consultancy Cushman Wakefield’s office in Shanghai, has seen the opposite. “Chinese de velop ers are more interested in LEED (Leadership in Energy & Environmental Design) certifications than others. They are concerned about what the government will do in terms of future legislation.” Indeed, with the most recent Five-Year Plan focusing so strongly on environmental sustainability, this seems sensible.

Financial gains The construction of tall buildings is generally a reflection of high land values that arise from scarcity, or the value c r e at e d b y p r o x i m i t y a n d p r e m i u m r e s u l t i n g f r o m accessibility. JLL’s Coutts says much of it depends on the city and whether there are tenants willing to pay for the privilege of being a client in such a building. “In a cost-conscious environment, limited numbers of corporations are prepared to pay the necessary premium,” he says. The design of the tower may also have an impact on the appeal to tenants, according to Cushman’s Shepherd. “The building has a massive office component of around 220,000 square meters, but because of the interesting design, the layout of each floor is unusually shaped, which might affect its desirability as an office location,” Shepherd says. The developer will look to target high-profile international

Graham Coutts, International Director of Strategic Consulting at JLL

companies in the busy financial district. Shepherd believes that the tenant demographic at the Shanghai Tower may be different. “Lujiazui is an extremely popular business district currently and has recently seen strong demand from domestic companies resulting in low vacancies and escalating rentals. As a landmark building with considerable prestige and a government-linked background, Shanghai Tower will be an attractive option to such domestic firms on launch,” he says. The tower is expected to be a mixed-use building that incorporates a hotel, retail and cultural space, as well as offices, and that’s a positive. For tall buildings in general, mixed-use reduces risk – if the office market is down, the hotel can keep it going. However, super-tall buildings can be very cost effective, creating premiums from prestige and convenience that outweigh the risks and costs of their creation. Most also add value to their surroundings, which is a bonus for developers who control an entire precinct.

Timing is key Market watchers and archite c ts a li ke obs er ve t he construction of super-tall buildings with interest, partly

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Claims to Fame It isn’t just height were China is breaking records. As well as being the country’s tallest building, the Shanghai Tower will be China’s tallest twisted structure, and the world’s second tallest (No.1 is the Cayan Tower in Dubai at 307 meters). Chengdu’s New Century Global Center is the world’s largest freestanding structure. At 500 meters long, 400 meters wide and 100 meters high, it could accommodate 20 Sydney Opera Houses. With a floor space of 1.7 million square meters, it contains cinemas, offices, hotels, a beach and a replica Mediterranean village, offering artificial sunshine 24 hours a day. T he apt ly n ame d Sh i m a o Wond e rl and i n Shanghai’s Songjiang District will be something of an eye-opener when it opens next year. The 19-floor hotel extends not upwards but downwards, into an abandoned quarry. With an investment of US$555 million from Shimao Land and designed by British firm Atkins, the Intercontinental property will include extreme sport facilities as well as some underwater rooms.

imaginechina

because of the unintended lessons they offer. The Skyscraper Index – conceived in January 1999 by economic researcher Andrew Lawrence – shows that the completion of the world’s tallest buildings has augured economic downturns. On October 23, 1929, the spire of the Chrysler Building in New York City was raised at a height of 319 meters. Five days later, the Wall Street Crash took 13 percent off the stock market and triggered the Great Depression. In March 1996, the Petronas Towers in Kuala Lumpur were completed. Sixteen months later, the Asian Financial Crisis began, and the Malaysian stock market lost half of its value over the following year. Two months after the opening of the Burj Khalifa in Dubai in October 2009, a massive debt crisis hit the Emirate. Similar situations ensue after the completion of the Empire State Building, New York World Trade Center and Taipei 101. This is most likely due to the fact that investment in skyscrapers peaks when cyclical growth is exhausted and the economy is poised for recession. However, the Shanghai Tower’s effect on China’s wider

Chengdu’s New Century Global Center

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A rendering of the cafeteria inside Shanghai Tower

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are among the few truly contemporary skyscrapers in Europe. However, the risks taken made by a city in the pursuit of unique architecture that may not gel with its existing skyline are often worth it. The presence of the Guggenheim Museum in Bilbao has led to a new term – “the Gehry effect” – to describe a formerly little-known city rising to world acclaim thanks to a piece of outstanding architecture. Indeed, announcing a super-tall building project is enough to put a city on the map. Michael Stacy, director of tenant strategies & solutions at Cushman & Wakefield, uses the example of Changsha’s beleaguered Sky City project. “The announcement itself drew attention to Changsha. Few people outside of China had heard of it until this project was proposed.” Stacy explains that despite the results, the international clout that comes from building a super-tall building is often enough for some cities. “They are catalysts for business, tourism, real estate and countless other industries that benefit from their creation,”

economic spectrum is yet to be made manifest. When the project was started in 2008, the progress of the Global Financial Crisis had spurred China into beginning a period of loose monetary policies designed to jump-start its economy and liquidity in the hope of attracting investment. This led to a credit boom of easy money and a construction spree. Andrew Lawrence, (who now leads Hong Kong and China property research at CIMB Group) remarked on CNN that China’s building bubble will be responsible for 40 percent of the world’s skyscrapers over the next four years. The Council on Tall Buildings and Urban Habitat has found that nine of the 20 tallest buildings currently being built across the globe are in China.

Aesthetic Some in the industr y believe that the cities of the developing world form a sort of “testing ground” for architects who would not be able to let their creative quirks loose on the staid, more established metropolises of the West. London’s Gherkin and Shard, with their somewhat jarring silhouettes,

Victor Zarnowski, principal of Asia projects at Buchan Group

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INSIGHT The Journal of the American Chamber of Commerce in Shanghai

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shutterstock

Skyline view of downtown Dubai showing the Burj Khalifa

Stacy says. “Residents of a city often have very strong feelings about super-tall structures, and regardless of whether their view is positive or negative, it revives interest amongst a city’s inhabitants in the way their hometown is shaped. That in itself is a spectacular and very healthy thing.” In cities that may lack a substantive corporate base or have yet to play an international role, such projects are more about engendering a feel of pride in its citizenry, Coutts says. “Whatever its aspirations and economic rationale, Kingdom Tower is never going to make Jeddah a global city in the same way as Kingdom Centre didn’t really put Riyadh on the international map.” Still, it pays to be wary of allowing super-tall buildings to dominate the physical and metaphysical landscapes. Lee of Gensler agrees that super-tall buildings may not be suitable for any and all cities. “Super-tall towers are useless if a city lacks the necessary means for sustenance and growth. There are plenty of cities

with incredible architectural monuments that remain unused, unfinished and unoccupied. A city’s status will always be judged by its capacity to evolve and interact in an increasingly globalized world,” Lee says. On winning the Pritzker Prize for his Ningbo Museum of Art in 2012, Chinese architect Wang Shu warned of the dangers of urbanization and the building boom that has followed in its wake, calling it a “high-speed railway” in which “the people inside can’t see the direction.” In his acceptance speech he asked, “Is there a way for us to express our architectural pursuit with stories and feelings without resorting to gigantic, symbolic and iconic structure?” The answer remains to be seen, but for now, China is well on its way to placing highly in this race to the top.

Susie Gordon is a freelance writer based in Shanghai.

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s mall b u s i n e s s B Y B E N J A M E N D O VA L E

Small Firms Spreading Deep Roots Shanghai’s SMEs fill the services niche

mall- to medium-sized enterprises (SMEs) are at the forefront of China’s transition from a low-cost, manufacturing-based economy towards a more consumer-focused, consumption-based and service-oriented economy. As the Chinese economy begins to mature and the middle class grows, more established higherend goods and services are taking root in the

From left: Stephany Zoo, Diana Tsai and Michael Cignarale of Bundshop

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Chinese marketplace, especially in cities like Shanghai. Being a smaller enterprise allows business owners some flexibility and the ability to adapt and explore more niche areas of the growing service economy. In particular, as consumer tastes shift and they demand better quality products and food, a handful of entrepreneurs are taking advantage of this opportunity to open a small business to cater to this need. Others bring their companies to China to fulfill that niche gap in services. Although these innovative companies operating in the avant-garde are changing concepts surrounding wellness and design, they also face unique challenges due to the complexities of the Chinese labor market and preconceptions instilled among Chinese consumers. Consumer concepts such as organic foods and wellness are well established in the West, but present both opportunities and challenges for SMEs trying to set up shop in the China market. In particular, educating consumers has been one of the major challenges for SMEs seeking to expand in China. In the area of health and wellness, Kimberly Ashton, a native Australian whose website identifies her as the “Chief Sprouting Officer” at the company, is one of the founders of Sprout Lifestyle. The company, which has a shop, initially focused on bringing organic food options to corporate customers. However, Ashton said she shifted her focus to regular consumers after noticing the lack of healthy food options in China. To overcome obstacles faced from operating in such a nascent sector, Sprout Lifestyle uses a combination of cooking classes, organic farm tours and a weekly bilingual newsletter to inform customers about her products. Ashton regularly leads cooking classes that promote Sprout Lifestyle’s wellness philosophy.

This is one of the pillars in Sprout Lifestyle’s strategy to outreach to Chinese consumers, as they provide an opportunity for Chinese consumers to become acquainted with their cooking methods. In addition to the cooking classes, Ashton uses organic farm tours to educate customers about her products. These tours give the expat and Chinese community alike an opportunity to overcome widely held biases against organic food products in China. Interaction with the farmers who grow organic pro duce and obser vation of the metho ds employed allay most fears that consumers have about food safety and the quality of organic

farming in China, notes Ashton. SMEs appear to be playing a growing role in the services sector in China and this was reflected in AmCham Shanghai’s China Business Report. Results from t h e re c e nt l y pu b l i s h e d re p or t highlight the important role that SMEs play in the growth of the service sector in China. According to the report, 66 percent of SMEs identified themselves as a service company in 2013, up from 42 percent the previous year. Survey results show that more than three quarters of SMEs that responded generate 20 percent of their revenue from services activities, compared to only 43 percent of larger firms. The changing Chinese economy and growing sophistication of the local consumer base has

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Being a smaller enterprise allows business owners some flexibility and the ability to adapt…”

created many new opportunities for designer goods and services. Bundshop, founded by Stephany Zoo and Diana Tsai, is a Shanghai-based branding and design consulting agency that works with local Chinese designers to develop brand incubation strategies involving public relations, event management, logistics and distribution. Being a full service agency for local designers, Bundshop’s e-commerce business focuses on the logistical aspects of developing and expanding designers’ ability to produce and market their products. As many artists lack the resources to develop business relationships with producers and distributors, Bundshop fills the void by matching markets and artists. Working in such a nascent field is not without its challenges, says Zoo. In particular, Zoo highlights the importance of collaboration with

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local Shanghainese partners. “It is impossible to succeed without local partners,” says Zoo. Specifically, a local Shanghainese partner who is familiar with the lay of the land and business practices is paramount to any success. Being an SME also presents a good opportunity for Bundshop to develop a targeted customer base. Due to the smaller, more nimble nature of these businesses, they can more effectively service and develop comprehensive strategies for their customers. For example, through its corporate branding program, Bundshop uses its array of artistic expertise to foster trust-driven relationships between companies and artists.

Benjamen DoVale is an intern at AmCham Shanghai’s SME Center.

FTZ DIGEST

Shanghai Exchange approved for trading platform in FTZ The Shanghai Stock Exchange (SSE), the world’s fourth-largest stock market by capitalization, said it has been approved to set up an international trading center in the Shanghai pilot Free Trade Zone (FTZ). The exchange is preparing a team to study ways to develop the trading platform, officials said. Currently, no foreign companies are allowed to issue shares on Chinese bourses. China has announced it would allow a trial of a fully convertible RMB capital account in the FTZ, raising hopes for a loosening of tight measures that bar foreign companies from raising capital through IPOs.

Shanghai FTZ lifts foreign-exchange rate deposit cap

The People’s Bank of China (PBoC), the country’s central bank, removed a cap on foreign-currency deposit rates in Shanghai’s pilot Free Trade Zone (FTZ) starting from March 1. According to a statement from the PBoC’s Shanghai branch, the ceiling will be lifted for deposits of less than US$3 million inside the FTZ and applies to accounts of companies registered in the zone as well as individuals working there for more than one year. The zone has about US$1.2 billion in foreign currency deposits of less than US$3 million, and about US$4.8 billion in total foreign currency deposits, according to the PBoC. The last time the PBoC adjusted the ceiling on foreign-currency deposit rates was in May 2005. Financial institutions in China have been allowed to freely negotiate interest rates with clients for deposits of US$3 million or more since 2000.

First Commercial Bank to set up in Shanghai FTZ

The flagship banking arm of Taiwan-based First Financial Holding Co., First Commercial Bank, said it has obtained approval from the China Banking Regulatory Commission's

Shanghai office to set up an outlet in the Shanghai pilot Free Trade Zone (FTZ). The sub-branch is expected to begin operations in six months, the bank said. First Bank opened its Shanghai branch in December 2010. Last year, the Shanghai branch posted US$10.34 million in pretax profit, up from US$1 million a year earlier. In addition to Shanghai, First Bank said it will set up a branch by the end of June in Chengdu, southwestern Sichuan province, and is also planning to open a branch in Xiamen, southeastern Fujian province.

Shanghai’s trade expands 16.5% on FTZ

Shanghai’s trade expanded 16.5% from a year earlier in January, higher than the national average of 10.3%, due to its pilot Free Trade Zone (FTZ), said the Shanghai Statistics Bureau. Exports rose 9.8% to US$19.6 billion in January, compared with a 2.5% rise a month earlier, while imports jumped 22.9% to US$22.8 billion. Shanghai’s gross domestic product grew 7.7% in 2013, equaling the national level and above 7.5% the previous year. The city’s Consumer Price Index, the main gauge of inflation, rose 3% in January, compared with 2.4% in December. The city government said it will seek progress on reforms, including cross-border settlement in the RMB, its convertibility under the capital account and interest rate liberalization in the FTZ, which opened last September.

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Chamber’s HR Fair Draws 400

h e 2 0 1 4 A m C h a m S h a n g h a i H R Fa i r & Workshop, held on February 27 at the Four Seasons Hotel Shanghai, drew more than 400 human resources professionals and industry experts to discuss pressing HR issues facing international companies operating in China. Pagney Zhai, general manager of Shanghai Foreign Services Company HR Consulting, delivered the keynote on “Analysis on the Critical Provisions of Latest Labor Dispatch Regulations and Forecast of the Implication on HR management.” Vashist Kommunuri, HR Director of ADP GlobalView for Asia-Pacific, who spoke on “Driving Business

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Transformation with The HR New Paradigm,” noted that a strategic HR Business Partner (HRBP) role can improve HRline support effectiveness by up to 33 percent. He moreover distinguished between leading and lagging HR Business Partners. Leading HRBPs spend their time on strategic tasks that help achieve the top business priorities, effectively deliver against aligned HR and business agendas, get seen as part of top talent in the organization, focus more time in talent development and clearly measure the value they bring, he stressed. On the other hand, lagging HRBPs retain a large proportion of operational duties, find difficulty to manage the balance between HR and business agendas,

APRIL 2014

struggle to make an impact to business and require further support with developing critical business or HR skills, he added. Margaret Cheng, group head of Human Resources at Hong Kong Exchanges and Clearing and vice president of the Hong Kong Institute of Human Resource Management, focused on the topic of employee engagement. She noted that top engagement drivers include senior management interest in employee well-being, opportunities to improve skills and c ap abi l it i e s , an org an i z at i onâ&#x20AC;&#x2122;s re put at i on for s o c i a l responsibility, input into decision making, setting high personal standards, career advancement opportunities and

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challenging work assignments that broaden skills. Other speakers included Angie Eagan, managing director for China, MRIC â&#x20AC;&#x201C; The MRI China Group; Mukesh Tiwari, global HR manager at ILS, Caterpillar Enterprise System Group; Seth Yu, chief ethics and compliance officer at CHC Healthcare; Clara Wong, VP of human resources at Coach Shanghai; Kevin Zhou, regional vice president of global health benefits at Cigna & CMB; Greta Mikelonis, global client strategy manager for key global accounts at Cigna; Jerry Wu, China director of sales effectiveness and rewards at Towers Watson; and Bill Chen, deputy general manager of Essential Healthcare.

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i n s i de am c h am f r om t h e c h a i r

Changing with the Times A countr y in dramatic transition requires our organization to change with it or risk becoming obsolete to our members. China has always challenged AmCham Shanghai to change with the times, and I am proud to say that, in recent years, we have generally kept pace with our members’ business focus. However, the current rate of change in China’s economic priorities creates everincreasing challenges and opportunities which affect the quality of life of China’s population. American industry has been a leader in innovation and technology and a partner with the City of Shanghai in a myriad of ways. This past month, AmCham Shanghai launched our first Morning Coffee with the board and our Committee chairs. I am happy to report that we had an excellent turnout at the 8 a.m. meeting in March. Ken Jarrett and I deliberately avoided a formal agenda, thus encouraging our board and the chairs to interact on issues and ideas that were on their minds. Some of the issues were about program relevance, how do we re cr uit younger professiona ls and, m o s t i m p o r t a n t l y, h o w w e c r e a t e and encourage more women to join AmCham Shanghai, get involved and run for the board. We are fortunate to have Cecilia Ho, an outstanding leader in her industry, on our current board, but we would welcome more women from all areas of business. From my p e rsp e c t ive, t he re are two issues we must address: b oard sust ainabi lit y and U.S. cit izenship

Robert Theleen Chair of the Board of Governors

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required to become AmCham Shanghai’s chair. Presently, our by-laws require us to elect a new Board of Governors every year. Putting aside the cost and time requirements of managing this annual election process, can we continue to run an organization such as AmCham Shanghai with an annually elected board? There was a time, not too many years ago, that one could know personally most of the members and obtain a sense of strategic focus in a matter of days. Today, with 22 separate committees and nearly 4,000 members, this is a virtually impossible task. We need to consider a term of perhaps two years in order to create the experience and knowledge required of governance of our complex organization. T h e s e c on d i s s u e re l at e s t o t h e requirement that a candidate for AmCham Shanghai’s chair be a U.S. citizen. However, as more and more companies localize their top management teams in China, does this policy make sense for AmCham Shanghai? I can tell you that on every board that I have served on over the past several years, we have had enormously talented and qualified individuals who did not hold U.S. passports, and they would have made outstanding chairs. Therefore, I would welcome all of you who read this to send your comments to either Ken or myself as we develop your guidance on these two issues in order that this Board of Governors considers possible changes to our charter, which reflects the need for better governance and e x p and t he p o ol of ot he r w i s e qualified candidates for the chair.

i n s i de am c h am B O A R D of g ove r n o r s b r i ef i n g

Board Approves Budget and Finalizes Plans for Charity Gala Highlights from the March 2014 Board of Governors Meeting AmCham Shanghai’s Board of Governors held its monthly meeting on Tuesday, March 11, 2014 to approve the 2014–2015 budget, discuss ways to improve benefits to AmCham Shanghai members and finalize plans for the upcoming charity gala. Approving the Budget and Improving Benefits Following a series of meetings to discuss programs and financial plans for the 2014–2015 financial year, AmCham Shanghai’s Board approved the FY 2014–2015 budget. The agreement on the new financial plan passed unanimously. In addition to the budget, the Board reviewed and approved a proposal to increase membership tariffs so that the Chamber can ensure ongoing delivery of services to its membership. The new rates will be formally announced in April.

Charity Gala Following discussion of the budget plans, the Board also reviewed progress toward the Chamber’s charity gala, scheduled for April 12. While arrangements for the annual event were still in progress at the time of the meeting, AmCham Shanghai executives expressed confidence in reaching their targets and assured the Board that goals for attendance and sponsorship would be met. About AmCham Shanghai’s Board Meetings To ensure that the Chamber is an effective voice for American business in China and that members receive maximum benefits from AmCham Shanghai’s events, programs and activities, the Board of Governors meets monthly to plan strategy and review the Chamber’s performance. These notes are provided as a way to keep all members updated on the Board’s discussions.

The AmCham Shanghai 2014 Board of Governors Governors

Chair

Jeremy Burks Dow Corning

Jimmy Chen FedEx Express

Chen Lienjing Pratt & Whitney

Michael Crotty MKT & Associates

Jun Ge Intel China

Ker Gibbs BW Ventures

Cecilia Ho International Paper Asia

Curtis Hutchins Eaton (China) Investments

Eric Zheng AIG Insurance

Robert Theleen ChinaVest

Vice Chair

Sherman Chu Cisco Systems

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AmCham Shanghai

AmCham Shanghaiâ&#x20AC;&#x2122;s 2013â&#x20AC;&#x201C;2014 China Business Report release event on February 25

AmCham Shanghai President Kenneth Jarrett awards the winner of the China Business Climate Survey lucky draw

Hong Yanwei, left, vice party secretary of CPC Working Committee of Wuxi New District (WND), shakes hands with AmCham Shanghai VP Scott Williams after signing a memorandum of 4agreement 2 i n s i g h tonAFebruary P R I L 2 0 1 4 19

Panelists at the NGO Meets Enterprise workshop on February 28

Month in Pictures

AmCham Shanghaiâ&#x20AC;&#x2122;s Business Council for Sustainability and Responsibility (BCSR) roundtable on volunteerism in China

An attendee poses a question at the NGO Meets Enterprise workshop on February 28

Attendees at a Hongqiao Central Business District (CBD) briefing on March 12

AmCham Shanghai New Members U.S. Corporate Membership

Beijing Algoblu Limited SHI Min

CIeNET Technologies (Beijing) Co., Ltd. JAN I-Hsun Ducker Management Consulting (Shanghai) Co., Ltd. CARLSTEDT Robert HSB Technical Consulting & Service (Shanghai) Company, Ltd. LEWIS Robert

Beijing CCIParis Consulting Co., Ltd. JIANG Anais China Enterprise Consulting (Shanghai) Co., Ltd. JURAN Jeff Interstate China Hotels & Resorts XIA Kent

HUSCO Automotive (Shanghai) Ltd. DENOMME James Michael

Management Tools International (Shanghai) Co., Ltd. SEAH Louis

Mars Food (China) Co., Ltd. HU Katie

Manning Selvage & Lee Public Relations Consultancy Beijing Co., Ltd. Shanghai Branch NIU Lusha

Pinkerton Consulting Services (Shanghai) Ltd. YU Hongwei Shanghai AAG Automotive Products Trading Co., Ltd. ZHOU Jesse Stellar Construction Design Consultation (Shanghai) Co., Ltd. BICKERTON Derek

SBA Stone Forest Corporate Advisory (Shanghai) Co., Ltd. TAN Lee Lee Shanghai Sunivo Supply Chain Management Co., Ltd. DING Johnny Sumisho E-Commerce (Shanghai) Limited JIN Kim

Yanfeng Visteon Investment Co., Ltd. JI Manqin

URBN Hotel Shanghai GOLDMANN Sebastian U.S. Associated Corporate Waldorf Astoria Shanghai on the Bund Membership COURAGE Bjorn Belden Hirschmann Networking System Trading (Shanghai) Co., Ltd. GAO Wen Associate Membership Dow Corning (Zhangjiagang) Co., Ltd. MULLAN Steven

AECOM, Ltd. CHEUNG Freeman

Egencia (China) Information Technology Co., Ltd. DU Michael

Alcoa Fastening Systems (Suzhou) Co., Ltd. WAN Jun APCO (Beijing) Consulting Company Ltd. Shanghai Branch ZHOU Joe

ERICO, Ltd. MASON Yongyi Flextronics Computing (Suzhou) Co., Ltd LAI Dongwen

Becton Dickinson Medical Devices (Shanghai) Co., Ltd. CHEN Xi YUAN Jianzhong

Littelfuse Semiconductor (Wuxi) Co., Ltd. TEY Siew Seet

Beijing Algoblu Limited ZHOU Ge

Motorola Solutions (China) Co., Ltd. CHOY Kit Hoi

BGRS Consulting (Shanghai) Co., Ltd. HU Qingmei

PerkinElmer Healthcare Diagnostics (Shanghai) Co., Ltd. XIN Weidong

Briggs & Stratton (Shanghai) International Trading Co., Ltd. YAN Lyon YIN George

Wessco Trading (Shanghai) Co., Ltd. ZHAO Xiaoping Zoetis International Trading (Shanghai) Co., Ltd. TAN Zilong

C&A Advisors Enterprise Management Consulting (Shanghai) Co., Ltd. D’AMORE Marco CCI China PEI Qinghua

Corporate Int’l Affiliate Membership AJINGA (Shanghai) Management Consulting Co., Ltd. FIEDLER Eric B&Q (China) Investment Co., Ltd. REN Richard 44

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CDP Group, Limited ZHAI Charlie Cushman & Wakefield (Shanghai) Co., Ltd. SHEPHERD James Dacheng Law Offices, Chicago Office, Ltd. CHEN Shaokai

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Delphi Automotive Systems (China) Holding Co., Ltd. VALDEZ Rachelle Renee Dow Corning (China) Holding Co., Ltd. NOLAN Matthew Eaton (China) Investments Co., Ltd. BAO Xue Yun CHEN Zora eBaoTech Corporation YANG Jun Emerson Process Management Co., Ltd. COOTE Richard John Emerson Process Management Power & Water Solutions (Shanghai) Co., Ltd. COOTE Richard John Faegre & Benson LLP Shanghai Office ZHAO Claire Fellowes Office Products (Suzhou) Co., Ltd. DING Yaming Flextronics Computing (Suzhou) Co., Ltd. ZHOU Yingjie GoIndustry DoveBid (Shanghai) Co., Ltd. LI Rico Graco H.K., Ltd., Shanghai Rep. Office KNUTSON Christopher Hamilton Sundstrand (Shanghai) Management Co., Ltd. CHIN Ziyu Harman Automotive Electronic Systems (Suzhou) Co., Ltd. SEIDL David HSBC Bank (China) Co., Ltd. DU Minyi WANG Zhangming Intel Asia-Pacific Research & Development, Ltd. CHEN Joanna Interstate China Hotels & Resorts LEE Jackie John Portman Associates, Inc., Shanghai Rep. Office ZHEN Jie JPMorgan Chase Bank (China) Company Limited Shanghai Branch KRAUSE Brett K & L Gates LLP Shanghai Rep. Office (USA) BOON Siew Kam HONG Sum Yee Cindy WU Dan Knowles Electronics (Suzhou) Co., Ltd. SUN Wenqian Kraton Polymers Trading (Shanghai) Co., Ltd. SWINCHATT Tom Lear (Shanghai) Management Consultancy Limited BRAUN Achim Michael Lend Lease Project Management & Construction (Shanghai) Co., Ltd. QIAN Yingchu

Do you want to share more information about your company? Contact Patsy Li at (86 21) 6279-7119 ext. 8966 or patsy.li@amcham-shanghai.org for a “Standout Listing” opportunity in the New Members Section.

AmCham Shanghai New Members Manning Selvage & Lee Public Relations Consultancy Beijing Co., Ltd. Shanghai Branch CARMOSKY Janet MeadWestvaco (China) Holding Co., Ltd. XU Konghuan Medtronic (Shanghai) Management Co., Ltd. LEE Heeyeol Motorola Solutions (China) Co., Ltd. LV Gang YU Hao YU William Murphy EControls Technologies (Hangzhou) Co., Ltd. BAO Huangqi HONG Min Panasonic Avionics Corporation Shanghai Representative Office XIA Qun Panduit Network Connectivity Distribution Co., (Shanghai), Ltd. LIN Tony Parsons Brinckerhoff Engineering Technology (Beijing) Co., Ltd., Shanghai Branch LEE Kuo-Liang LI Raymond Bin Prologis China KWAN Kenneth

Qualcomm (Shanghai) Co., Ltd. HE Yuanyuan Savills Property Services (Shanghai) Co., Ltd. MACDONALD James Textron Trading (Shanghai) Co., Ltd. WANG Zi

INCH Jason LAU Steven LOCKSTROM Martin LU Hsiu Yi NG Wijaya SHONIKER Patrick TUNG Kenneth XU Xin

UPS Parcel Delivery Service (Guangdong) Co., Ltd., Shanghai Branch ZHOU May

Individual U.S. Citizen Membership

BHA International Hong Kong Limited SU Betty

BAKHSHANDAGI Reja GALE Kyle Allen HUNG William HURLONG Lisa LEUNG Ying LIN Tommy Ping Hui PARKER Jacob Lyle TALASILA Tirumala Rao TONG Ignatius VAITHEESWARAN Vijay

The New York Office For CEFC Shanghai Branch Limited Liability Company ZHUANG Jianzhong

Non-Resident Corporate Membership

Non-Resident Individual Membership KEITH James

Small Business Membership C&A Advisors Enterprise Management Individual Intâ&#x20AC;&#x2122;l Affiliate Consulting (Shanghai) Co., Ltd. Membership CHAO Tse BAUMGARTNER Doris DAS Siobhan

Government Relations Customs Official Discusses ‘SingleWindow System’ for Applications to FTZ AmCham Shanghai’s Trade Facilitation Task Force hosted Shanghai Customs Director General Li Shuyu, who presented on Shanghai Customs’ goals for 2014, its pilot programs and its role in the China (Shanghai) Pilot Free Trade Zone (FTZ). Among the government agency’s priorities, DG Li noted at the March 4 event that Shanghai Shanghai Customs Director General Li Shuyu discusses the Customs is working with the China Inspection and government agency’s goals and roles Quarantine Services (CIQ) to create a “single-window system” that will reduce the number of double-filings that companies will need to do to pass the inspection of Customs and CIQ. Moreover, improvements in the IT infrastructure and a move towards greater electronic filing systems will not only improve the speed and efficiency of clearances, he noted, but also reduce the workload and time for companies and Shanghai Customs. In the Shanghai FTZ, the move to paperless declaration has already been instituted and more than 30 percent of applications have already begun to use the paperless declaration system, a figure they would like to see reach 80 percent, noted DG Li.

APEC’s Robert Wang Briefs Chamber AmCham Shanghai hosted a briefing with Robert Wang, U.S. State Department Senior Official for Asia-Pacific Economic Cooperation (APEC), on February 24. Wang provided AmCham Shanghai members with an overview of APEC, the United States’ priorities for the year (which is hosted by China) and what goals the U.S. hopes can be accomplished at APEC. Wang headed to Ningbo after his meeting with AmCham Shanghai to participate in the Senior Officials Meeting I (SOM I), the first of several SOMs scheduled to take place this year.

NGO Meets Enterprise Workshop Sheds Light on Cross-sector Partnerships AmCham Shanghai hosted a quarterly NGO Meets Enterprise workshop on February 28 featuring Heifer China, Stepping Stones, Unilove and Horizon Corporate Volunteer Consultancy. More than 40 participants discussed partnership opportunities in CSR programs and activities. An attendee poses a question to Taiyong Chen, director of Heifer China

Taiyong Chen, director of Heifer China, described possible partnership opportunities and mutual benefits for corporations to connect with their programs that focus on hunger and poverty alleviation in Sichuan province. Sebastien Carrier, operations and research manager of Stepping Stones, showcased several programs in China that focus on rural and migrant children. Kathy Cao, communications officer of Unilove, introduced several areas of need where corporations can contribute in educational and extracurricular activities with disabled and impoverished children after natural disasters in China. Yucca Yu, senior project manager of Horizon Corporate Volunteer Consultancy, presented volunteer programs that take place throughout China to benefit senior citizens, children and people with disabilities.

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Event highlights

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FTZ Official Updates Chamber Audience AmCham Shanghai, as a part of its Perspectives on the China (Shanghai) Pilot Free Trade Zone series, hosted Jian Danian, vice chairman of the Free Trade Zone (FTZ) Administration, who provided an overview of the current state of the Shanghai Pilot FTZâ&#x20AC;&#x2122;s development on February 18 to the more than 200 people. Jian told the audience that the Shanghai pilot FTZ is not just a singular development zone, but rather a test bed for policies that the government hopes can be used throughout the country. Jian cautioned, Jian Danian, vice chairman of the Free Trade however, that this is going to be a step-by-step process. The government does Zone (FTZ) Administration not, he said, see this as a place where anything can happen; rather, it will cautiously remove restrictions in order to encourage investment and experiment with new policies. In discussing the 2013 negative list, Jian noted that the Shanghai FTZ Administration and the Chinese National government had heard the concerns of the list being too long, too nebulous and having internal contradictions. The government is currently working on the 2014 revision of the list, which is a major priority for the administration. He also said that they had heard the concerns of the financial sector on the recent Peopleâ&#x20AC;&#x2122;s Bank of China (PBoC) regulations being too complex. While he said he understood their concerns, he said it was important that the Chinese government control risks and not allow the creation of systemic failures. Jian said that 6,000 companies had already registered in the Shanghai Pilot FTZ, so the Administration already had a significant number of clients to serve in 2014. Further, he added, more than 20 Chinese cities had submitted applications to develop their own FTZs. Jian said the Shanghai FTZ had strong support throughout the Chinese government and his administration is working to meet all of their deadlines, meet their expectations and expand quickly in 2014.

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Event highlights

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Product Testing Guru Discusses Consumer Protection AmCham Shanghai hosted James Feldkamp, co-founder and CEO of consumer product testing company MingJian at the monthly member briefing on March 4. Feldkamp briefed attendees on China’s updated Consumer Protection Law that took effect in mid March. As the first legislative update on consumer protection in China in more than 20 years, it will increase manufacturers’ mandatory return policy of durable goods to six months, require online retailers to record personal information only with the consent of the consumer and allow consumer associations to pursue class-action lawsuits. Feldkamp highlighted how MingJian uses sophisticated and intensive tests to produce comparative reports of products across a range of markets, allowing customers to compare product ratings and choose the product most suitable to their need. He further described the history and impact of World Consumer Rights Day, which is March 15. The day, instituted in support of consumer rights worldwide, has the potential to spotlight disputes between businesses and consumers because of the increasingly close attention placed on consumer rights. Citing past cases of tension between consumers and companies, Feldkamp advised companies to be proactive and prepared in case of disputes.

Hongqiao CBD Briefing Highlights Planned Development The Chamber hosted Hongqiao Central Business District (CBD) Deputy Director Chen Weili and Minhang Governor Zhao Zhuping on March 12 to brief attendees on the development of Shanghai’s Hongqiao CBD. The Hongqiao CBD is located on the west side of downtown Shanghai and is the center position of the transportation network of the Yangtze River Delta. It covers an area of 86.6 square Minhang Governor Zhao Zhuping, second left, briefs kilometers, among which the current members on the development of Shanghai’s Hongqiao CBD key development area is 4.7 square kilometers. The planning exhibition area is 500,000 square meters, which will surpass that of the conference and exhibition center in Hanover, Germany, to become the biggest conference and exhibition complex in the world. Chen explained the local government’s plan for Hongqiao to feature a flourishing business district and eco-friendly building development, with the aim to draw international firms and developers into the CBD. Development of an international trade center in the Hongqiao CBD will enhance the growth of Shanghai’s service sector, he noted. Chen also outlined a plan to use Hongqiao’s already-bustling transportation hub to create a travel network from Shanghai to other cities in the Yangtze River Delta. Zhao briefed attendees on Minhang District, home to the Hongqiao Transportation Hub and much of the planned business district. Zhao noted that Minhang provides a fitting background for the planned international trade community.

For more information on AmCham Shanghai’s 22 industry-specific committees, please contact committees@amcham-shanghai.org.

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Committee highlights

i n s i d e amc h am

Information Technology (IT) Committee Dianping.com Executive Discusses Monetizing Techniques AmCham Shanghai’s Information Technology (IT) Committee on February 25 hosted Schubert Lou, general manager of information platform at Dianping.com, for a discussion on the user-generated review website’s business model in China. Lou discussed how the company monetizes its services through a combination review and e-commerce model, how it sells membership cards and e-coupons, as well as how it provides key analytics and data for restaurant owners locally.

Schubert Lou, second left, general manager of information platform at Dianping.com, visits AmCham Shanghai to talk about the review website’s business model

As of the third quarter of 2013, Dianping.com had more than 75 million monthly active users, more than 28 million reviews and more than six million local businesses covering approximately 2,300 cities across China. Earlier this year, Tencent acquired a 20 percent stake in Dianping.com in a strategic partnership that signals Dianping.com’s entrance into WeChat and its 600 million Chinese users. This in turn will give Dianping.com an access point to lucrative third and fourth tier cities, he noted. Dianping.com has already begun to take advantage of this partnership by launching promotions through WeChat payment for its Group Buying restaurant promotions. Group Buying is a RMB30 billion plus market opportunity in China today. Dianping.com’s goal is to cover 150 cities by the end of 2014. Mobile transactions within this are already more than 50 percent of total purchases. The second emerging opportunity is in reservations, a RMB100 billion potential market that Dianping.com has just begun to tap. Lou shared the company’s ultimate goal: to cover 30,000 merchants in 2014 to surpass OpenTable and close the payment loop.

Marketing & Media Committee Kantar Reps Discuss Consumer Trends AmCham Shanghai’s Marketing & Media Committee organized an event on February 21 on consumer retails trends in China with Christophe Meuter, managing director for North Asia at Kantar Retail, and Oceanne Zhang, Kantar Retail market insight leader. Meuter highlighted how retailers are struggling with rising labor and rental fees and how in the face of rising operation costs retailers are in turn becoming more cautious with store expansion. Unaffordable operating costs are forcing retailers today to close inefficient stores to save money and compete for efficiency. He explained how traditional retail transactions are decreasing but are still the largest market component – with e-commerce making up 10 percent and growing. China already offers a multi-channel retail market, with normal supermarkets, mini-marts, premium supermarkets, CVS, category specialists and e-commerce all rapidly growing. Meuter added that China’s e-commerce market is forecast to reach 20 percent penetration by 2018 and has already surpassed the U.S. in terms of share of total retail sales in 2012. In 2013, China was the largest e-commerce market in the world with only 46 percent online shopper penetration and still a great deal of upward potential. E-commerce in China enjoys 89 percent average annual growth. Despite high potential and rapid growth, the online market is fragmented and complicated when it comes to C2C and B2C platforms. B2C is the next big trend, with forecasts that 50 percent of online sales will be B2C by 2017. The retail landscape in 2020 will be more organized and concentrated, but still multi-format, he said.

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EXECUTIVE HEALTH We know the workplace can be stressful at times. Besides more traditional methods such as exercise, what’s your best advice to fight or alleviate work-related stress? Adil Husain, Managing Director, Emerging Strategy Advice: A fun activity Remarks: “We have a dedicated recreation area in our office which is equipped with a foosball table, a Wii video game console, a juicer and other diversions. To relieve stress while at the office, I find it is effective to spend some time away from the desk and to play a game, make some fresh juice or to go for a walk in the park across the street. In the past I have also brought my golden retriever into the office occasionally on days that I know are likely to be particularly stressful. Having a dog around cheers people up, especially a dog that likes to play.”

Mary Rezek, Founder and Principal Consultant, Saatori Advice: Go for a walk Remarks: “When issues stack up, I put on my headphones with my favorite music and go for a 15minute walk to shift my mindset and mood. I often get an ‘ah-ha’ moment when walking.” Also likes: Baking Remarks: “Baking bread has always been my way of working out stress. Baking reminds me that a lot can be accomplished in three hours – making something from nothing.”

William T. H. Chang, President, Lytone Enterprise, Inc. Advice: Massage Remarks: “I would say honestly the best way to relieve stress for me is to get a good, 90-minute foot massage. A good masseuse can put me to sleep within 10 minutes. When I wake up I will be fresh as new and ready to go.”

Jeff Kirwan, President, Gap Inc. Greater China Advice: Exercise Remarks: “To fight stress I try to ensure I have a variety of activities that are physically demanding built into my week. These can be the traditional exercises of running and the gym but I also like doing more extreme activities. Heli-boarding, surfing the pipeline in Hawaii, or jumping out of a plane (with a parachute) to name a few. Both the

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traditional and the more extreme activities help me break away from the day-to-day challenges so when I return I am more focused.”

Simon Wan, Chief Executive, Cornerstone International Group worldwide Advice: Write things down Remarks: “When I try to sleep at night, many ideas and some burning issues might pop out and affect my sleep. I resolve this by putting a piece of paper and pen beside my bed and when that happens, I quickly write down on that piece of paper all these ideas and issues to be addressed tomorrow and I would quickly get to sleep.” Also Likes: Peer support Remarks: “I invest in relationships with three to four trusted CEO friends who are also based in China but outside of my company for confidential discussions on some burning issues that need practical advice.”

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