Insight Magazine January/February 2014 by The American Chamber of Commerce in Shanghai

INSIGHT JANUARY/FEBRUARY 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

11 The Year Ahead PRESIDENT’S REPORT

By Kenneth Jarrett

AmCham Shanghai president offers a synopsis of activities in the coming year

VP of Administration & Finance

Helen Ren Directors Business development & Marketing

Patsy Li Committees

Stefanie Myers Events

12 Government Dinner

14 ‘We’re Here to Serve’

EVENT SPOTLIGHT

Shanghai government officials and AmCham Shanghai members attend the Chamber’s annual government appreciation dinner

Jessica Wu Government Relations & CSR

Steven Chan Membership & CVP

Linda X. Wang

INSIGHT EDITOR-IN-CHIEF

Bryan Virasami

INTERVIEW

By Bryan Virasami

The U.S. Consulate’s new top commercial officer talks about his priorities, U.S. companies in China and assisting SMEs

Senior Associate Editor

Erika Wang senior communications associate

Ryan Balis Intern

Beverly Chan Design

Alicia Beebe

17 Special 2014 Preview

COVER STORY

Eight distinguished experts write on bilateral relations, the Chinese economy, the consumer market and other hot issues

Printing

Mickey Zhou Snap Printing, Inc.

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

10 China and the World

MONTH IN PICTURES

Highlights from Recent Events

EXECUTIVE reading room

Winter Reading List

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40 From the Chair 41 Board of Governors Meeting 46 Government Relations 47 Event Highlights Cover design by tian chi

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Special thanks to the 2013-2014 AmCham Shanghai President’s Circle Sponsors

Editor's note

Bryan Virasami editor-in-chief

hat can we say about politics, the economy and security in the Year of the Horse? There are a number of horse puns available – both positive and pessimistic – to describe China, the U.S. or both: China gallops to the top, betting against the odds, it’s a race to the finish, Xi cracks the whip, it’s a neck and neck battle between China and the U.S., someone will trample on someone, a sprint to the finish line or jockeying for the top spot. Thankfully, our eight superb China observers refrained from mixing their insightful analyses with ambiguous catch-phrases or puns. (We couldn’t resist putting one on the cover.) We hope you take the time to read comments from all or some of these exceptional China experts whose careers included stints with the U.S. government and who have held positions that offered them a bird’s eye view into China and the world. Some have written books and are leading scholars on China and U.S.-China relations. We lead off this special package on 2014 with David M. Lampton, author and professor at the Johns Hopkins School of Advanced International Studies and a former president of the National Committee on U.S.-China Relations. We are also

lucky to have a contribution from Paul Haenle, director of the Carnegie-Tsinghua Center for Global Policy, a foreign policy research institution based at Tsinghua University in Beijing. He served on the National Security Council staffs of former president George W. Bush and President Barack Obama. Derek Scissors of the American Enterprise Institute and Daniel Rosen have written for Insight before and we’re glad to welcome Nigel Hollis of Millward Brown, Gary Liu of CEIBS, Joseph Fewsmith of Boston University and Philippa Symington of FTI in Shanghai who suggests that the Chinese government is likely to step up investigations into corruption in the coming year. Elsewhere in this issue, we cover the Government Appreciation Dinner, where outgoing U.S. Ambassador to China Gary Locke highlighted the optimistic side of the U.S.-China relationship. Joel Fischl, the new commercial officer at the U.S. Consulate in Shanghai, sat down with us to talk about his goals. Finally, if you prefer not to carry around this magazine with you, we encourage you to do something nice for yourself and download our Insight iPad app on the Apple Store. Happy holidays!

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News

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CHINA BUSINESS

Guangzhou tops as best city for business Southern China’s Guangzhou city topped Forbes China’s latest list of the country’s best cities for business. The jump from No. 4 in the previous ranking was attributed to the city’s strength in cargo and passenger traffic infrastructure. Meanwhile, Shanghai slipped from No. 1 to No. 3 in the ranking, and Shenzhen climbed from No. 4 to No. 2. Nanjing, Wuxi, Hangzhou, Beijing, Ningbo, Suzhou and Foshan also made it on the top 10.

China’s car sales surge in 2013 China’s total sales of passenger cars, sport utility vehicles, multipurpose vehicles and minivans surged 14.9% year-onyear to 1.6 million units in November, according to the China Passenger Car Association. Sales rose 17.1% to 15.4 million units for the January–November period, signaling full-year growth of at least 15%, compared with an annual increase of 2.5% in 2011 and 4.3% in 2012. U.S. automaker General Motors Co., the largest in China by sales, said domestic sales jumped 13.3% to 294,500 vehicles in November, its second-best sales month in 2013. Ford Motor Co. said November sales were up 47% and up 51% to 840,975 units for the first 11 months.

China now Asia’s largest retail market China is now Asia’s largest retail economy with sales of US$1.7 billion forecast for 2013, according to a report by real estate consultancy Cushman & Wakefield. The report, “Uncovering Opportunities in

China Mobile, Apple talking iPhone deal China Mobile Ltd., the world’s largest mobile carrier by users, has signed a deal with Apple Inc. to offer iPhones on its network, The Wall Street Journal reported in early December, citing unnamed sources. China Mobile started taking preorders online for the iPhone 5s running on a 4G network on December 12, with more than 40,000 signed up by the next day, according to the company’s Beijing website. China Mobile’s network has more than 759 million subscribers, more than the company’s two smaller rivals, China Unicom (250 million) and China Telecom (181 million) combined and more than the population of any country except for India. China’s Ministry of Industry and Information Technology on December 4 granted China Mobile permission to operate LTE/fourth generation digital mobile telecommunications (TD-LTE) business. China Unicom and China Telecom also received 4G licenses and have offered iPhones using the more common 3G technology on their networks since 2009 and 2012, respectively. Greater China, including Hong Kong and Taiwan, is Cupertino, Californiabased Apple’s third largest revenue market after the United States and Europe. Asia’s Shifting Retail Landscape,” found that retail sales growth was higher in Tier 2 cities such as Chengdu, Wuhan, Nanjing, Shenyang and Chongqing, ranging from 13% to 17%, compared with Tier 1 cities Beijing, Shanghai, Shenzhen

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and Guangzhou, where retail sales growth ranged between 9% and 16%. Top retail centers in China Shin Kong Place in Beijing, Grandview Plaza Guangzhou, MixC Shenzhen reportedly make sales of about US$1 billion per year.

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CORPORATE NEWS

GLP launches US$3b China logistics fund Global Logistic Properties Limited (GLP), a provider of logistics facilities in China, Japan and Brazil, said it has launched a US$3 billion China-focused logistics infrastructure fund, the CLF Fund I, alongside six institutional investors from Asia, Europe and North America. As the asset manager, GLP will retain a 56% stake in the fund. The fund will invest in new wholly-owned logistics development projects in China over a three-year period. Singapore-listed GLP said its China portfolio has grown at a 68% compound annual growth rate over the past nine years and comprises 8.2 million square meters of completed facilities. CLF Fund I increases GLP’s fund management platform to US$11.4 billion of assets under management.

Merck to build new plant in China Merck Serono, a Switzerland-based biopharmaceutical division of Merck, said it is planning to spend about US$110 million for the construction of a new pharmaceutical manufacturing facility to produce medicine to treat diabetes, cardiovascular ailments and thyroid disorders. Located in the Nantong Economical Technological Development Area (NETDA) in eastern Jiangsu province, the plant will cover 400,000 square meters and is scheduled to start commercial production in 2017. According to the company, the plant will become Merck Serono’s second largest pharmaceutical manufacturing site in the world.

Microsoft to build China creative center U.S. software giant Microsoft said it will build a creative center in western China’s Shaanxi province, according to a memorandum of understanding the company signed in early December with Shaanxi Xixian New Area Development

and Construction Administrative Committee. Besides the creative center, Microsoft will establish a software service outsourcing talent training base, a technology practice center, a government education official cloud platform, as well as CityNext, a kind of smart city with Microsoft technology. Microsoft also plans to technologically support about 60 newly established software companies in Xixian New Area in the next three years.

Tencent invests US$1.6b in Qianhai Tencent Holdings Ltd., Asia’s largest Internet company, set up e-commerce and Internet finance businesses in the Qianhai economic zone, following similar steps by competitors Alibaba and Baidu to sell shopping services and online finance to China’s 591 million Internet users. The company will invest at least RMB10 billion (US$1.6 billion) in the district. Qianhai, a 15-square-kilometer (5.8 square mile) area located in the southern city of Shenzhen, was created in 2010 as a testing ground for more liberal financial policies, including freer RMB usage and capital-account convertibility.

Carrefour to open more stores in China French supermarket chain Carrefour is confident about market prospects in China and said it plans to expand its presence to 100 Chinese cities in three years. The company said it will open about 20 new outlets each year during the next few years and will step up expansion into second- and third-tier cities in central and western China, including those in the provinces of Henan, Hubei, Hunan, Anhui and Jiangxi. Carrefour owns 236 stores in 73 Chinese cities and employs a total of 66,000 people. MACROECONOMICS

China home prices continue to soar China’s new home prices rose 10.99%

in November from a year earlier to RMB10,758 (US$1,765) per square meter, said SouFun Holdings Ltd., the nation’s biggest real estate website owner. Compared with October, prices rose for an 18th consecutive month to 0.68%. Monthon-month, prices rose the most in the city of Zhanjiang, southern Guangdong province, at 3.51%, while the sharpest drop was seen in Baoding, northern Hebei province, at a 2.94% decrease. Prices soared despite more Chinese cities implementing new measures to suppress rising property prices. Three major cities – Shenzhen, Shanghai and Guangzhou – raised minimum down-payment requirements for second-home mortgages from 60% to 70%.

Factory growth clings to 18-month high China’s official Purchasing Managers’ Index (PMI) held on at an 18-month high of 51.4 in November, unchanged from October, according to the National Bureau of Statistics. A reading above 50 indicates expansion, while below 50 indicates contraction. The government said the data signaled steady improvement in the manufacturing sector. But many of the PMI’s key sub-indexes showed weaker growth. A sub-index for new orders, a measure of foreign and domestic demand, slipped to 52.3 from 52.5 in October. The production and business activity expectation sub-index also slid to 54.9 compared with October’s 57.5.

China statistics to incorporate big data China’s National Bureau of Statistics said it will work with high-tech companies to start using big data technology to improve the collecting, processing and producing of the country’s consumer price index, a key gauge of inflation. The bureau said it signed a strategic partnership agreement with 11 high-tech Chinese companies to develop big data technology. The companies include e-commerce giant Alibaba Group Holding Ltd., leading

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search engine Baidu Inc., the country’s second-largest mobile operator China United Network Communications Co. Ltd. and the FANYA Metal Exchange, one of the largest spot trading and investing platforms for rare metals. U.S.-CHINA

Skype gets new China partner Skype, the video calling and instant messaging service owned by Microsoft, announced a new partnership with Guangming Founder to replace its nineyear partnership with Tom Online in the management of Skype operations in China. Guangming Founder, a joint venture between Guangming Daily Newspaper Group and Founder Corporation that focuses on developing mobile Internet businesses, as well as linking media and information industries, will increase Skype’s connections to Chinese universities, according to Skype. With tough competition from QQ and WeChat, the company said it plans to use Guangming Founder’s expertise in content background and IT to increase services to users.

Evergrande to fund Harvard’s Green Center A new collaboration between Harvard University and Evergrande Real Estate Group Ltd., based in Guangzhou, will develop three major centers for the university that are dedicated to scientific and medical research. Evergrande Group said it has offered to help fund the Harvard Center for Green Buildings and Cities at the Harvard Graduate School of Design, the Evergrande Center for Immunologic Diseases at Harvard Medical School and Brigham and Women’s Hospital, and the Center for Mathematical Sciences and Applications in the Faculty of Arts and Sciences, as well as a number of educational programs and research facilities within the buildings. The deal was signed after Evergrande company officials visited the university to discuss building green residences.

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Warehouse developer gets US$120m loan E-Shang, a warehouse developer and operator based in Shanghai, has announced an agreement with Goldman Sachs for a US$120 million pre-IPO loan. The company already operates warehouses in major cities including Shanghai, Beijing and Guangzhou. Property developers and private equity firms are seeing more potential in investments within China’s logistics market due to growing domestic consumption and increasing demand in warehousing. According to a recent report by real estate services firm Jones Lang LaSalle, the logistics sector is the highest in demand for investments in China’s real estate market. GOVERNMENT & POLICY

financial institutions and payment companies from handling transactions with Bitcoins, citing potential risk to the stability and control of the nation’s monetary system. The announcement came after the country experienced a recent surge in investment in the digital currency, placing China as the world’s biggest trader of Bitcoins last year. While the regulation prevents Bitcoins from being used for speculation and money laundering, people can still engage in private Internet transactions at their own risk, according to a statement by the People’s Bank of China. Baidu Inc., which started accepting Bitcoins as payment last October, suspended the use of the currency as payment after the regulation announcement because of the recent fluctuations in value, the company said.

Shanghai lowers air quality benchmark

Beijing launches carbontrading platform

Shanghai’s Environmental Protection Bureau announced an adjustment of its air pollution standards to reduce the number of alerts. The bureau said it would no longer issue air pollution alerts when the concentration of PM2.5 falls below 115 micrograms per cubic meter. The previous benchmark was set at 75 micrograms per cubic meter. PM2.5 refers to particulate matter smaller than 2.5 microns in diameter that are the most hazardous to health. The move was perceived as a tacit acknowledgment of the city’s poor air quality, as levels of PM2.5 reached record highs in early December. The index hit a record 482 on December 6 to the “severe” level, according to local media, while U.S. Consulate in Shanghai readings hit 503, a level described as being “beyond index.” Experts attributed the noxious haze to factors including extra energy consumption in the winter, and industrial pollution and auto emissions trapped by cold, windless weather.

China’s capital launched a carbon trading market, whereby companies that emit more carbon dioxide than their given limits may buy credits from other companies that don’t produce as much emissions. According to the Beijing Municipal Commission of Development and Reform, an initial 490 companies participated in the market, which is based at the Beijing Environment Exchange. The China Beijing Environment Exchange reported that permit quotas will sell for around US$8.16 per ton. The carbontrading platform aims to help the country improve industrial restructuring and cut carbon emissions from 40% to 45% per GDP unit by the end of the decade. Such markets have already been established in Shenzhen and Shanghai.

Central bank imposes regulations on Bitcoins China’s central bank has restricted

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China launches rocket to moon China launched its first unmanned space probe to the moon, the Long March 3B rocket Chang’e-3 carrying a rover dubbed “Jade Rabbit,” on December 2, the Ministry of Industry and Information Technology said. China is the third

country to land a spacecraft on the moon, following the United States and the former Soviet Union. The rover will survey the moon’s geology and natural resources. China conducted its first manned docking mission in June 2012. According to the official Xinhua News Agency, the government’s next step, the third phase of its moon program, is to land a lunar rover and return it to Earth, a feat it hopes to achieve in 2017.

of marketing strategies and technical expertise from both companies, the statement said. BesTV will own 51% of the digital joint venture, while 49% will be owned by Walt Disney Company’s subsidiary in Shanghai, Walt Disney Shanghai Ltd.

SHANGHAI BUSINESS

Shanghai-based real estate developer Greenland Holding Group Co. recorded US$250 million during the opening week of apartment sales in the Greenland Centre in Sydney, its first Australian project, according to the selling agent CBRE Group Inc. The development sold 241 of the initial 250 units offered and will ultimately hold around 500 units in total, targeting buyers from international cities like Shanghai, Hong Kong, Singapore and Sydney. Acquired in March for US$438

Disney and BesTV form JV The Walt Disney Company has agreed to form a joint venture with BesTV, a digital media firm of Shanghai Media Group, to increase its presence in China’s growing entertainment industry and enhance digital services to the Chinese audience, according to a statement by BesTV. With a registered capital of US$4 million, the venture aims to provide family entertainment with a combination

Greenland generates US$250m from Sydney apartment sales

million, the project is set to become Sydney’s tallest residential tower with construction to be completed by the end of 2017. Greenland holds investments in most Chinese cities and totals more than US$10 billion in overseas investments.

HUPU and AFP to launch sports coverage Shanghai-based sports news provider HUPU has partnered with global news agency AFP to launch a new media service focused on delivering sports coverage in Chinese through a new website and smartphone applications. HUPU will select from a wide variety of stories and graphics provided by AFP and distribute content to viewers, executives from both companies said. The agency said it aims to use this partnership to increase its sports coverage and its Chinese audience. Slated to start in early 2014, the new service will enable HUPU to diversify international and domestic sports news.

CHINA & THE WORLD SOUTH AMERICA ASIA-PACIFIC SIA PACIFIC

MIDDLE EAST

MALAYSIA: R&F acquires 116 acres in Johor Bahru for US$1.4b Chinese property developer Guangzhou R&F Properties Co. said it plans to purchase 116 acres of land in Johor Bahru, Malaysia, from a royal family for US$1.4 billion, marking the company’s first venture outside of the mainland. According to R&F, the company will develop commercial and residential properties totaling 3.5 million square meters, including high-rise offices, housing, a shopping mall and a hotel. The property developer said it plans to pay for the new acquisition with four installments over a three year period.

ASIA-PACIFIC SIA PACIFIC EUROPE

ETHIOPIA: Huawei selected to provide 4G network Ethio Telecom, Ethiopia’s state-run mobile operator, chose China’s Huawei Technologies Co. Ltd. to supply high-speed 4G service in its capital city, Addis Ababa, as part of a US$1.6 billion deal signed with Huawei and ZTE Corp. The deal aims to improve mobile network infrastructure, increase phone subscribers to more than 50 million by 2015 and expand other mobile services such as 2G, 3G and IP (Internet Protocol) throughout the country. According to Ethio Telecom, Huawei’s 4G network is anticipated to service at least 400,000 subscribers.

EUROPE MIDDLE EAST

AFRICA

UNITED KINGDOM: Britain eases visa rules for Chinese British Prime Minister David Cameron, during a visit to China in December, announced changes in visa services to assist Chinese students, businessmen and tourists in obtaining visas to travel to the UK. Cameron said that there is no limit on the total of Chinese students studying abroad in the UK and plans to increase the number of Chinese students in the UK, currently at 105,000. He said he would also like to increase the number of Britons studying abroad in China, which stands at about 4,000. Additionally, the British visa system will issue visas to Chinese businessmen traveling to the UK on the day of application if they apply in Shanghai, a procedure that currently takes up to 15 business days.

NORTH AMERICA MIDDLE EAST

SAUDI ARABIA: Top petrochemical company opens center in Shanghai Riyadh-based petrochemical company SABIC (Saudi Basic Industries Corporation) announced the opening of a technology center in Shanghai to serve as the company’s main office in China. With an investment of US$100 million, the center includes 60,000 square meters of laboratory space and 500 employees. The company said the new center will improve solutions for customers in China and northeastern Asia, boosting the company’s presence in the Asian technology industry. Company officials said SABIC plans to sign a new deal with the Dalian Institute of Chemical Physics to increase research and develop advanced chemical production technology.

AFRICA

NORTH AMERICA

SOUTH AMERICA MIDDLE EAST AFRICA

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UNITED STATES: China’s COMAC launches first branch overseas in California Commercial Aircraft Corporation in China (COMAC) opened its first international branch in Newport Beach, California. COMAC America Corporation will support the company by recruiting aerospace specialists for research, strengthening relationships with local civil aviation companies and focusing on business development in areas such as marketing, employee training and supplier management. COMAC already collaborates with 16 major international suppliers, such as GE, UTC and Honeywell. COMAC manufactures China’s first domestically produced major passenger aircraft, the C919.

SOUTH AMERICA

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SOUTH AMERICA ASIA-PACIFIC SIA PACIFIC

ARGENTINA: China’s CMEC seals US$2.5b deal to revamp railway Argentina and China Machinery Engineering Corporation (CMEC) signed a US$2.5 billion deal to revamp and modernize the Belgrano Cargas railway service, Argentina’s top rail line that connects the northern part of the country to the western part, linking 17 of the country’s 23 provinces. With plans to build more locomotive cars, invest in new railway equipment and improve the train network, the project will be mostly funded by the China Development Bank with a loan over a 15-year period and 7.1% interest, according to Argentina’s Interior Ministry. The 9,282-kilometer railway will serve as the country’s leading mode of transportation for goods such as grains, sugar and coal to the Buenos Aires port.

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PRESIDENT ’S Report

The Year Ahead Happy New Year and early greetings for the approaching Year of the Horse. This issue of Insight includes articles from noted experts who have peered into their crystal balls to help us understand what to expect in 2014. AmCham Shanghai may not have the same global impact as the subjects of those articles, but let me offer my own modest projection of what our members can expect from their Chamber this year. We ended 2013 with a well-attended and successful Shanghai Government Appreciation Dinner, as described elsewhere in this edition of Insight. That event encapsulated all the core functions of the Chamber in one evening – providing a platform for networking and relationship building, sharing business intelligence and conducting policy advocacy. Networking was in full force throughout the evening, as all 400 participants can attest. The presence of Vice Mayor Zhou Bo, Director General Shang Yuying of the Shanghai Commerce Commission, Director General Li Yaoxin of the Economic and Informatization Commission and over 80 other Shanghai government participants provided an excellent opportunity for our members to meet important contacts. As for business intelligence, Vice Mayor Zhou’s comments on the Shanghai Free Trade Zone (FTZ), and conversations throughout the evening, helped our members better understand this and other important policy developments. And in the small meeting with Vice Mayor Zhou that preceded the dinner, we highlighted key issues on the minds of our members, even as we thanked the Vice Mayor for the Shanghai government’s strong support for U.S. companies. Networking. Business intelligence. Advocacy. That is what your Chamber is all about and those functions will also shape our activities in 2014. In terms of thematic priorities, making sense of the FTZ initiative will remain at the top of the list. Another key question for 2014 is what the Third Plenum outcome means for your business. The plenum produced a detailed road map for economic reform, but implementation is a critical variable in China and this applies to the plenum’s action plan as well. Lastly, the state of U.S.China relations will remain a key concern. Will tensions between the United States and China over China’s new air

defense identification zone (ADIZ) or the treatment of U.S. journalists ease or intensify, and with what impact on the overall bilateral relationship or commercial ties? All these issues are on our watch list and will factor into our programming this year so that you have the best possible understanding of the larger political and economic trends affecting the business climate. At the same time, we will continue with events designed to help you understand major business trends: outbound investment, e-commerce, consumer behavior, China’s shift to advanced manufacturing and advanced services, just to name a few. This year will also have a special feature – China is the 2014 host country for APEC. This will provide opportunities for the foreign business community to interact with senior government officials from all the APEC economies. China’s APEC calendar includes a number of events in the Yangtze River Delta region and we will be exploring ways for you to participate. China’s APEC year also presents an opportunity for AmCham Shanghai to boost its stature and influence and we want to make full use of the occasion. That’s a big-picture view of what is in store for 2014. For the first quarter of 2014, look for the results of our annual business climate survey, our annual customs taskforce survey and an associated workshop with Shanghai Customs, our HR master class and HR fair, and our Corporate Social Responsibility report. We will also launch an improved customer relations management software program that will enable us to better engage with our members. All in all, we are in for an exciting year. Don’t forget to renew your membership and participate in these activities so that you can enjoy the benefits that AmCham Shanghai can bring to your business.

Kenneth Jarrett President

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g o v e r n m e n t r e l at i o n s

U.S. Ambassador to China Gary Locke delivers remarks at the Thirteenth Annual Government Appreciation Dinner

Amb. Gary Locke Addresses Chamber Dinner in Shanghai

.S. Ambassador to China Gary Locke highlighted the economic and trade relationship between the United States and China and pointed to key achievements of his tenure during his remarks at the Thirteenth Annual Government Appreciation Dinner, held on December 12 at the Jing An Shangri-La in Shanghai. The annual event celebrates the long-standing p a r t n e r s h i p b e t w e e n t h e U. S . b u s i n e s s community, the U.S. government and the Shanghai Municipal Government which has greatly contributed to the rapid development of Shanghai, China’s commercial, industrial and financial capital. Addressing the crowd of 400 U.S. and Chinese businesspeople and government officials,

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Ambassador Locke commended the efforts of the Shanghai government to engage the American business community on opportunities to support the Shanghai Pilot Free Trade Zone (FTZ) development and implementation. “We are pleased that the municipal government has been consulting AmCham Shanghai on the Free Trade Zone because collaboration and information [exchange] between business and government can only make the Zone more successful.” Robert Theleen, chair of AmCham Shanghai, echoed Locke’s comments: “The FTZ will help advance objectives such as further development of Shanghai’s services sector growth, attracting additional foreign investment and supporting Shanghai’s plan to become an International Financial Center.” Ambassador Locke, who will step down early

next year, also highlighted key achievements of his tenure, including improving bilateral trade environment, streamlining the U.S. visa process for Chinese travelers and promoting Chinese foreign direct investment into the United States, noting that Chinese investment to the U.S. totaled US$18.5 billion dollars over the last 21 months â&#x20AC;&#x201C; more than the total value in the previous 11 years combined. Shanghai Vice Mayor Zhou Bo noted the important economic and trade relationship Shanghai maintains with the United States, adding that U.S. investment accounts for 7.2 percent of total foreign investment in Shanghai and outbound investment from Shanghai to the United States has exceeded US$2 billion, accounting for about 14 percent of the cityâ&#x20AC;&#x2122;s total overseas investment this year.

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interview B Y B R YAN VIRASAMI

photo by erika wang

‘We’re Here to Serve’

Joel Fischl, principal commercial officer at the U.S. Consulate General in Shanghai

The U.S. Consulate’s new top commercial officer talks about his priorities, U.S. companies in China and assisting SMEs

oel Fischl is the principal commercial officer at the U.S. Consulate General in Shanghai. As the U.S. government’s senior commercial diplomat in Shanghai, his m ai n m i ss i on i s to help A me r i c an companies access the China market. He has a long U.S. government career that includes the Department of Commerce’s International Trade Administration. He also served as commercial attaché in Beijing and held various senior posts in such cities as Hong Kong, Tokyo, Taipei and Riyadh, Saudi Arabia. Just weeks after he arrived to take up his new post in Shanghai, he sat down with Insight in early December to talk about his new job and some of the top issues facing U.S. companies here. The following are extended excerpts from the interview. Insight: What are your impressions so far in terms of the bu siness community here in Shanghai and what are you learning? Joel Fischl: “I’ve got to say, Shanghai makes a big first impression. This is a world-class city, no question about that. I was in Beijing from 1995– 1998, which was my first tour in the foreign service as a commercial diplomat. And since then

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I’ve lived in Hong Kong, and Taipei so I’ve been in the Chinese-speaking world. But this is my first time in the mainland since 1998. And man, the changes, t he y’re sp e c t ac u l ar, sur pr ising , breathtaking. I’ve been saying to my staff, it’s like drinking out of a fire hose – the volume of the work. The point I want to make about that is that it shows you how many U.S. companies are here, how much help they need, how interested they are in this market. We have dozens of companies that we’re working with every week. So my first impression was: ‘Wow this is going to be a busy tour.’” Insight: What are your priorities in terms of the issues you intend to tackle? JF: “We’re going to let the U.S. companies tell us what the priorities are. We are here to serve U.S. companies. These are the people on the ground, who are in the trenches; they are the ones that know what the issues are. What I know so far in the first five weeks or so, and before I got here too, was that human resources is a big problem, specifically rising labor costs. And everybody talks about IPR. Everybody talks about a levelplaying field, fair access to the market. So these are the things we’re going to concentrate on.

“We’re going to be responsive to where U.S. companies need the help. Those are the big three I’ve heard so far. And actually, I’d add due diligence. In the commercial service, we offer a number of core services to help U.S. companies. One of our core services is what we call an ‘international company profile.’ It’s really some background work on Chinese companies, and that is our number one requested service: ‘We’re thinking of partnering with this company, what can you tell us about it?’ Using public sources and our contacts, we’ll go out and do some research and try to give them the best information we can.” Insight: In terms of strengthening U.S. competitiveness in China, do you feel a lot of pressure? JF: “If you allow U.S. companies to compete on a level field with full access, give them the same

treatment that domestic companies get, the same treatment that companies all over the world get, I’ll put my money on the U.S. companies any day, based on the quality of the product and the quality of the service. So if the companies already provide great service and they already have great products to offer, what we have to do is advocate on their behalf. This is one way we try to level the playing field for U.S. companies. As commercial diplomats, we have access to the Chinese government at all different levels, and one of our big jobs is to use that on behalf of the U.S. companies. So that, too, is an important priority for me. That’s in the top three.” Insight: I just want to ask you about SMEs. Is it part of your job to help U.S. SMEs come to China and are you working on that?

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“

Everybody talks about a levelplaying field, fair access to the market. So these are the things we’re going to concentrate on.”

“

It’s part of our mission to focus on helping small and medium enterprises.”

JF: “It’s part of our mission to focus on helping small and medium enterprises. In an economy like China, there are so many big Fortune 500 companies here. And of course they at times need help too, but they’ve been here a long time. They need help on bigger issues, bigger policy issues or agreements that will give them better market access. But they’ve been here for 20 to 30 years in some cases; they’ve been doing pretty well. However, for the small- and medium-sized companies, when you look at a country like China, they say: ‘I want a small piece of that pie. I can’t afford to not be in China.’ So they know this, but it is a very daunting task. How do you enter this market? “I would say we probably spend two thirds of our time with small- and medium-sized companies. We help them with ver y basic things like finding agents and distributors. And before we do that, we counsel and advise them. We think of ourselves as consultants who give a d v i c e t o c o m p a n i e s . No w, w e’r e n o t a consultant like Bain, or Boston Consulting Group or PwC. If you hire us because you have a manufacturing process issue or a management issue, then you’re in trouble. That’s just not what we do. “What we do is advise and counsel companies on how to enter this market, where the pitfalls are, what you have to watch out for, and we help them meet people. I have counseled many small companies that come to China for their first time. And in many cases they have no idea what they’re getting themselves into and they have no idea how expensive it might be or how long the process will be. So we’re not just cheerleaders, we don’t just tell every mom and pop shop: ‘Oh, you gotta be in China! You can’t afford not to be!’ Because I don’t think that’s responsible. We hear companies out, see what their product is, what their services are, and to some we say: ‘You know, this might not be for you right now. You might not have the resources to really crack this market right now.’ We offer a wide range of services, and these are the people we would like to help the most because they need the help the most.”

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Insight: What type of companies would you encourage to come to China because of a demand for their services here? JF: “There are a wide range of opportunities now. We have recently been focusing a lot on, of course, the environment because U.S. companies have fantastic environmental technology and products. You just have to look out the window here to know that there’s a big demand. Also, in elderly care. There is an aging population here, but elderly care in China, as you probably know, is very different from elderly care in the U.S. For example, I have an 82-year-old father who is in a really nice retirement community that is like a college campus with a lot of services provided. They don’t have that type of thing in China now, but they are starting to think about it. I’ve spoken with several companies already. And these are big projects. It’s a little sensitive, culturally, too, because everybody wants to take care of their own parents and provide care for their elderly relatives. But there is a need. So we see a lot there, and we see a lot in retail, a lot in consumer products. The Chinese government has been clear that they want to develop their consumer economy here.” Insight: Is there anything you can tell us about the Trans-Pacific Partnership talks? JF: “The chief negotiators of the 12 countries just wrapped up a meeting, sometime in late November in Salt Lake City. What I’ve been told is that they’ve made a lot of progress. There’s a lot of sticky issues, that we’re all familiar with IPR, market access, government procurement, investment services, things like t h at , s an it ar y re qu i re m e nt s i n d i f fe re nt countries, etc. But what I hear is that they’ve made a lot of progress on all these issues. And the next step is that there is going to be a ministerial meeting in Singapore this month [December]. I’m not sure of the dates but it’s going to be quite soon. And I’m told that the chief negotiators have made enough progress that there should be some good outcomes at the ministerial meeting, so we’re keeping our fingers crossed. It’s been a long process.”

c o v e r s to r y

A SPECIAL LOOK AT THE YEAR OF THE HORSE Editor’s Note: Whether it was the Chinese economy, the South China Sea, the pilot Free Trade Zone or a new president in China, 2013 has been a year of changes and certainly not free of political drama and tensions. We’ve managed to track down some of the most outstanding thinkers of China-related issues to write eight insightful essays on what you, our readers, can expect in the Year of the Horse. We start off with an essay from David Lampton of the Johns Hopkins School of Advanced International Studies, followed by articles from Derek Scissors of the American Enterprise Institute and other timely pieces from distinguished China experts.

Special Report Table of Contents 18 A FORK IN THE ROAD? David Lampton, a professor and director of China Studies and director of SAIS China at the Johns Hopkins School of Advanced International Studies, writes on the myriad and complex topic of U.S.-China political relations. 21 THE SQUEEZE IS ON Philippa Symington, a managing director at FTI Consulting and who is based in Shanghai, talks about compliance issues and the government’s push to tackle corruption in China. 24 TREATY RESTS ON REFORM Derek Scissors, a resident scholar at the American Enterprise Institute and an occasional Insight contributor, writes on U.S.-China economic relations and focuses on whether an investment treaty is likely in the coming year. 26 WEIGHING THE FTZ PLAN Gary Liu, executive deputy director, CEIBS Lujiazui Institute of International Finance and author, argues that the premier needs courage and political skills to win over FTZ skeptics in 2014. 28 REACHING FOR THE GOOD LIFE Nigel Hollis, the Chief Global Analyst at Millward Brown and author, says that in 2014 big brands need to address the functional and emotional needs of the Chinese consumers. 30 THE XI DOCTRINE Joseph Fewsmith, a professor of international relations and political science at Boston University, author or editor of seven books, including, most recently, The Logic and Limits of Political Reform in China, asks whether China’s president can succeed in the face of entrenched interests. 32 CHINA’S ‘BIG BANG’ Daniel Rosen and Beibei Bao of the Rhodium Group write on the Chinese economy and focus on what should come after the Third Plenum and the ambitious reform agenda. 34 CHARM OFFENSIVE AT SEA Paul Haenle, director of the Carnegie-Tsinghua Center for Global Policy at Tsinghua University and former National Security Council staffer under George W. Bush and President Barack Obama, addresses the sensitive issues unfolding in the South China Sea.

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A FORK IN THE David M. Lampton is professor and director of China Studies and director of SAIS China at the Johns Hopkins School of Advanced International Studies. He is the author of the recently published book Following the Leader: Ruling China, from Deng Xiaoping to Xi Jinping and a former president of the National Committee on U.S.-China Relations.

The U.S. and China can build on areas of cooperation in 2014 or drift apart due to regional disagreements

By David M. Lampton

oming out of 2013, one can imagine the U.S.-China relationship going in two ver y different directions. For a positive trajectory, the drivers would be the interplay of revivified reform in China, an improving economy in both countries and a desire in both Beijing and Washington to reduce external friction so each could focus on crushing domestic concerns. For the negative scenario, among the drivers would be the interplay of nationalism and assertive military postures among China, its neighbors (principally Japan) and the U.S. If the dynamic of win-win economic and cultural cooperation can assert itself in a new type of major-power relationship, that would be welcome. History, however, signals that security concerns often trump other considerations. Considering first the positive scenario, the second half of 2013 had two signal positive developments, the first being the meeting of the two presidents at Sunnylands, California in June. There, they agreed to work towards “a new type of m aj o r- p ow e r r e l at i o n s h i p,” r o o t e d i n c o o p e r at i o n . Subsequently, military-to-military relations were accelerated, being manifest in joint live troop disaster and humanitarian relief exercises in Hawaii in November 2013. A second signature development was the November Sixty Point “Decision” of the Third Plenum, a wide-ranging and positive strategic guideline for comprehensive reform up to

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2020. The Decision, for the first time, explicitly affirms that the market will play the “decisive role” in resource allocation and holds out the prospect of more access to China’s markets for foreigners. The broad thrust of the Decision signals the intent to create a more level-playing field for state and nonstate, as well as foreign enterprises in China. The Decision, which can only be confidently evaluated as implementation proceeds, also has some positive political implications: promising less political influence over internal and external capital flows; trying to rein-in local influence over courts; and promising an end to the reform through labor system, as well as easing up further on the one-child policy. Whether or not there are significant changes in the household registration and rural land transfer systems remain uncertain, but there are positive possibilities. Finally, the Decision promotes the Shanghai Pilot Free Trade Zone, an initiative to which the People’s Bank of China in early December gave greater specificity in quite positive directions. If even a major fraction of these initiatives is effectively implemented, the period of China’s relatively high-speed growth could be extended a decade or two further than would otherwise be the case. As to the U.S., its economy may have turned the bend of the great recession in the final quarter of 2013 (with lower unemployment and more job creation). If this trend continues, it would reduce incentives for immoderate

U . S . - C HINA R E L ATIONS

ROAD? congressional politics and be a welcome development for global growth. It would be helpful to keeping congressional waters calm if Beijing did not engage in practices that raise the issue of the reciprocal treatment of foreign journalists.

The zone Public opinion in the U.S. (as measured by Pew and the

Council on Foreign Relations in fall 2013) is quite positive about “more foreign companies setting up operations in the U.S.” (63 percent believe that it “mostly helps”). China is one of those foreign investors, with probably over 100 PRCinvested firms in the Detroit metro area alone. One straw in the wind, after a lot of congressional and public discussion in the U.S., was the fall 2013 acquisition of Smithfield Foods Inc. by Shuanghui International Holdings Ltd. for approximately US$4.7 billion. More than 96 percent of the voting shareholders favored the transaction, despite fears in China that such acquisitions would be scuttled in a fusillade of charges and politically inspired obstructionism. Moreover, local governments throughout the U.S. are energetically pursuing stronger economic relations with the PRC. Toward year’s end, however, friction in the security realm

State Department photo

Secretary of State John Kerry and Chinese Vice Premier Liu Yandong sign a memorandum to continue U.S.-China High-Level Consultation on People-to-People Exchange at the U.S. Department of State in Washington in November

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Official White House Photo by Pete Souza

President Barack Obama and President Xi Jinping talk before their bilateral meeting at the Annenberg Retreat at Sunnylands in Rancho Mirage, Calif. on June 8, 2013

increased markedly. In November, Beijing abruptly declared an Air Defense Identification Zone (ADIZ) in some of the airspace over t he E ast China S ea, overlapping zones previously declared by Japan and South Korea and including the small islands in dispute with Tokyo. While China was entitled to do so, the abrupt move, and some initially announced PRC regulations that were inconsistent with general practice, caused uncertainty among users of the air

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â&#x20AC;&#x153;

The degree to which Washington reassures China of its intentions, it inspires fear in Tokyo that it is not steadfast.â&#x20AC;?

corridor and precipitated ramped-up military activity in the region (with two American B-52s flying through the zone without notifying Beijing, as the PRC had initially required). All this exacerbated already-high tensions involving ships maneuvering in close quarters on the waters below near the Diaoyu/Senkaku Islands. The dangers of accident and miscalculation now have been expanded to a broader swath of the skies above. Any mishap could ignite a Sino-Japanese crisis, in turn involving Japanâ&#x20AC;&#x2122;s ally, the U.S. This entire episode has raised the question as to whether or not Beijing was determined to push its security buffer out substantially from its shores, felt that the concerns of its neighbors and the U.S. were less important priorities and was willing to forego better political relations in the search for what it regarded as its legitimate security interests and its sovereignty conflict with Japan. Looking ahead to 2014, therefore, the keystone issue in U.S.-China relations is whether or not both nations can focus on the many opportunities for cooperation and mutual benefit (not least economic), or will become fur ther entangled in the tar baby of regional disagreements, contending nationalisms and the mutual animosities of Japan, China and Korea. The dangers for the U.S. are apparent. The degree to which Washington reassures China of its intentions, it inspires fear in Tokyo that it is not steadfast. The degree to which Washington supports its treaty ally, it inflames Beijing. And the Washington-Tokyo-Seoul relationship among allies is extremely difficult to manage given the legacy of hostility between Japan and Korea, among other things. As just one indicator, in reaction to the Chinese ADIZ, Seoul expanded its own ADIZ to cover submerged land features that also are claimed by Tokyo and Beijing. Such complex relations among the U.S. and its allies invites China to try to drive wedges among them. In short, 2014 will be an important year in which America and China either build on the positive possibilities of 2013 or allow themselves to make decisions driven by their fears rather than their hopes, and by the long-standing animosities in the region.

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The Squeeze is On Multinationals should review their compliance controls in light of the government’s push to tackle corruption and rein in wayward officials

Philippa Symington is a managing director of FTI Consulting. She specializes in conducting complex investigative assignments across Asia.

BY PHILIPPA SYMINGTON

hina is in the midst of an extended government campaign to tackle corruption. What began as a p ol it i c a l c r a ckd ow n on g r af t , w it h s ome prominent prosecutions of local officials, quickly expanded into the commercial sphere. While GSK has been the most high profile company targeted to date, many other international and domestic entities have been swept up in the crackdown. With the November 2013 Central Committee meeting of the Party highlighting the sustained official interest

in this campaign, the anti-corruption drive is expected to continue through 2014. In response, it is increasingly important for MNCs active in China to develop appropriate internal compliance controls to navigate the bribery risk. During 2013, Chinese authorities were increasingly aggressive in their pursuit of corrupt activities. The leadership transition provided a renewed opportunity for the Party to take a stand on corruption, with President Xi Jinping warning of prosecutions against both “the tigers and the flies.”

imaginechina

China has stepped up investigations into graft. Here, Yang Dacai, former head of the work safety administration of Shaanxi Province, stands trial for corruption in Xian Intermediate People’s Court in August

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…the anti-corruption drive seems more than the short-term political rhetoric expected following a change in leadership.”

The political sphere was first under the radar, with a significant number of tigers – i.e. senior government figures – detained over alleged corruption violations. Most notably this included Bo Xilai, the former Politburo member, who faced a series of lurid allegations and is now serving a life sentence for abuse of power. There has also been a steady flow of investigations against lower-level officials, with stories of unethical behavior reported on almost a daily basis via increasingly important and influential social media. In the latter half of 2013, international corporations operating in China became the focus of official corruption probes, as major pharmaceutical companies were investigated for allegedly paying bribes to doctors and government officials funded through local travel agencies. This spawned an interest in the local practices of other multinationals concerning their official interaction, with reported probes of companies operating in the broader medical industry and also the construction sector, for example. Allegations of slush funds, unwarranted overseas trips and other inappropriate entertainment of officials abound.

Tackling graft While increased enforcement action has been conducted under existing anti-bribery laws, there is now stronger

interpretation of these regulations by the government, notably a keen focus on the bribe giver as well as the taker, with differing interpretations as to the rationale. The corruption campaign has conveniently coincided with official efforts to bring down prices of premium medical-related products and reduce the dominance of foreign players in certain markets. The initial targeting of large foreign firms could also pave the way for a similar probe of the operations of domestic SOEs, leading to further reforms. Already senior managers at China National Petroleum C orp. have been arrested and an investigation into state-owned shipping giant China COSCO Holdings launched. Meanwhile, this growing enforcement trend potentially enables Chinese authorities to tap into an attractive new revenue source from substantial fines (much as the FCPA is a significant revenue source for the U.S. government) – a lucrative upside of China’s commitment to increased transparency. Closer to home, the Communist Party is also keen to curb the abuse of power that is threatening its future, a challenge recognized by President Xi. Efforts to develop a clean government will respond to widespread concern about entrenched official corruption, with public anger fueled by revelations in the foreign press over lavish lifestyles and vast wealth of political families. The appointment of Wang Qishan, a greatly respected Party figure, as head of the anti-corruption department, suggests enhanced efforts ahead to rein in wayward officials, further shoring up the Party’s legitimacy with the Chinese public.

Enforcement trends Whatever the reasons for the crackdown on corrupt activities, the anti-corruption drive seems more than the shortterm political rhetoric expected following a change in leadership. The Communist Party’s Third Plenum affirmed that the

China-Focused Compliance Procedures Considering this heightened enforcement action, U.S. companies operating in China must be especially wary of certain activities that may attract the attention of local authorities: Use of third parties: Legitimate business justification will increasingly be needed for engagement of third-party middlemen. Any agents utilized should go through thorough due diligence to ensure they have the suitable track record and capabilities to provide the contracted services, with no major “red flags” regarding their reputation or connections.

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Gifts and entertainment expenses: Proper controls must be in place, including approval processes, caps and checks on appropriateness of any significant spending. Meanwhile, careful regulation is needed of interaction with any government representatives, SOE contacts and any other officials, particularly given the authorities’ recent targeting of the bribe giver. Equally essential is the accurate recording of business-related expenses, especially as regards any facilitation payments if permissible.

government will continue its campaign through the year ahead. Systems are gradually being improved to address high-level graft, such as a proposed official residence program to prevent government figures accumulating real estate. FTI Consulting also expects to see several trends affecting the commercial sphere. Increased local power: Chinese law can be vague, and there is much discretion in interpreting regulations. But there appears to be growing autonomy for local party officials, with anecdotal evidence of more commercial briber y investigations led by local offices of the Administration for Industry and Commerce. As a result, it is important for any company operating in China to monitor changes in regulatory and investigative focus, to understand the latest trigger for finding administrative offence. Growing employee awareness: Alongside the increased official activity by PRC authorities, FTI Consulting also expects to see more internal investigations, detention of corporate executives and personnel, whistleblower allegations and resulting PR issues, as local company employees become empowered to speak out. These emergent trends are expected to mirror developments seen in other countries, with the private sector following the lead of the government in rooting out corruption. Global enforcement: As China narrows the regulatory gap with developed markets, there is the potential for simultaneous enforcement actions from several different authorities. While America’s FCPA took 30 years to bare its teeth (from its establishment in 1977), growing activity from UK authorities is expected over the year ahead under the UK Bribery Act. Combined with a more assertive China in the compliance space, companies could run afoul of multiple regulations simultaneously. Several global companies have re c e nt ly f a c e d U. S . SE C a c t i on for C h i n a - rel ate d misdemeanors, and could be at risk of further local investigation.

Payment of commissions: Based on the areas of investigation concerning the pharma industr y in 2013, awards of consultancy costs, commissions, PR fees, etc. should face greater scrutiny. In general, money paid to any external vendor must be proportionate to the service provided, with appropriate justification for any additional fees. Again, the purpose must be accurately documented in the books and records of the company.

Wang Qishan, a member of the Standing Committee of the Political Bureau of the CPC Central Committee and secretary of the CPC Central Commission for Discipline Inspection, is responsible for rooting out corruption

Although corruption is obviously a global problem, it is a primary concern affecting many companies operating in China, as a high-risk jurisdiction – ranked 80 in Transparency International’s Corruption Perception Index 2013. With increased interest by local authorities, multinationals should review their internal processes, monitor government activity and anticipate issues of focus to protect themselves from being the next frontpage story. Since the only way to combat the problem is to invest substantial time and energy in identifying and mitigating exposure to corruption, compliance costs in China will undoubtedly increase in 2014.

It is essential that more general compliance policies common in Western countries are fully rolled out to every company’s China operations. These include development of Chinese language SOPs and training materials, with regular reviews to incorporate current regulations and relevant case studies. Continued vigilance of local government enforcement trends will alert a company to emerging areas of risk in their operations, but random audits of local operations are also vital to identify non-compliant practices.

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Deputy U.S. Trade Representative Demetrios Marantis, third from right, poses with trade ministers from Trans-Pacific Countries

Treaty Rests on Derek Scissors is a resident scholar at the American Enterprise Institute (AEI), where he studies Asian economic issues and trends. His focus includes U.S. economic relations with China and India. Scissors is also an adjunct professor at George Washington University, where he teaches a course on the Chinese economy.

BY DEREK SCISSORS

Reaching an agreement on the investment treaty may take years but that allows time to develop a meaningful pact

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he Party Plenum is a wrap and the U.S. Congress may approve Trade Promotion Authority for American participation in the Trans-Pacific Partnership in the next two months. What weâ&#x20AC;&#x2122;ve just seen and what we are about to see leave the earliest possible date for the signing of a bilateral investment treaty (BIT) between the U.S. and China as sometime in 2017. The silver lining is this leaves plenty of time for the U.S. and China to fashion a good BIT. The time is likely better spent limiting anti-competitive subsidies than negotiating better protection for intellectual property. The American side is fairly simple. The debate over trade promotion authority tied to the TPP will be ugly. The request for such authority has been delayed because the Obama administration wants to avoid having two entirely separate, drawn-out political battles over TPA and then TPP, which would be

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U . S . - C h i n a E c o n o m i c R el at i o n s State Department photo by William Ng

Reform twice the pain for the protectionist wing of the Democratic Party. But the addition of Japan and delays in finishing the TPP have pushed the conclusion of the process into an election year, an election where each of the two parties has lofty dreams and serious vulnerabilities. It is not even certain that the TPP will be passed in 2014 and, for political reasons, no other international economic agreement will be brought up. The 2014 election will of course shape the 2015 legislative agenda and the place of international economic agreements. If TPP is done, the top priority is likely to be “TPP+”: adding comparatively easy countries such as Korea and fixing issues that arise from the agreement. If TPP is done, the EU will push harder on trans-Atlantic talks, making them politically salient. It is barely possible that a China-U.S. BIT could come up for a vote in late 2015 but much more likely that the TPP delay has closed that door, both in terms of administration resources and Congressional willingness. There is no chance of an economic agreement with the PRC being passed during the presidential election year in 2016. By 2017, the American political and legislative calendar will fade as the crucial factor and the Chinese economic calendar will move to the forefront. By that time, it will be clear whether Beijing has reinvigorated the reform process after the Hu-Wen statist reversion. A clear return to reform is absolutely necessary for a BIT to pass, as

the prevailing view of China is relatively quiet but largely negative. In my view, the widespread positive reception for the Plenum is unjustified. That is obviously a matter of debate but it may be more broadly accepted that the trade and investment pledges were (properly) minor in comparison to potential internal reform in land ownership, labor mobility, finance and private enterprise. The external sector was mentioned in connection with yet another vague vow to open the capital account and promises of additional Free Trade Zones, presumably on the Shanghai model. Since there is almost no content yet to the Shanghai FTZ, extending it means little. The BIT talks have an obvious path: drag together China’s domestic reform plans from one side and American objectives for Chinese trade and investment policy from the other. In light of the choices implied at the Plenum, this will be difficult. While it has been made easier for domestic private banks to be established, the capital requirement for foreign banks has been sharply increased. The opportunity to cooperate more with SOEs, offered to domestic private firms, is not appealing to most American companies. An obvious candidate for progress is the negative list, accepted in connection with a BIT and adopted in the Shanghai zone. The Shanghai negative list is almost farcically long and BIT talks will consist in large part of establishing a national negative list, which can only be longer than Shanghai’s at the outset, and phasing in removal of items. A more subtle issue concerns subsidies and the competition faced by American companies. If the market is to be “decisive” in resource allocation, subsidies for inputs to production should be reduced. This includes capital, at least in principle. While it is difficult to imagine SOEs paying market prices for land or not having loans rolled over, a true domestic reform program would reduce those benefits. A BIT, in turn, should quantify and schedule some reductions. Just as important, it should limit the situations under which subsidies can again be increased. More legal space to operate, through a shrinking negative list, and less competitive disadvantage are worthy BIT goals, in addition to anticipated discussions of such matters as transparency and Chinese investment access to the U.S. The Plenum documents also indicate what the U.S. should not emphasize. While intellectual property is vitally important to the U.S., it was not stressed at the Plenum. China’s behavior as a WTO member and in the Strategic and Economic Dialogue demonstrates that change must be internally driven; it is essentially impossible to pin Beijing down through international agreement to changes it has not already accepted. A BIT is not a comprehensive economic agreement and the Plenum means intellectual property should be outside its scope. To act otherwise risks a politically dangerous failure. On the positive side, an implemented schedule for a valuable negative list and substantially reduced subsidies, as well as lesser changes, would be considerable achievements requiring a long, hard slog. And American politics means there is plenty of time.

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Weighing the FTZ Plan Gary Liu is executive deputy director, CEIBS Lujiazui Institute of International Finance, and a member of Global Agenda Council of the World Economic Forum. He has written several books.

The premier needs to display courage and political skills to win over FTZ skeptics in 2014

BY GARY LIU

he recent Third Plenum of the CPC caught global attention. No doubt this was the most important event of 2013 anywhere in the world. By launching an ambitious Decision document outlining a number of important reforms, Xi Jinping and Li Keqiang met their promises of introducing new reforms to rejuvenate the economy. It would take years to implement those 60 reform items listed in the Decision. However, the Shanghai FTZ might provide a window into the future of reform. The Shanghai FTZ is important in several dimensions. First, it is included in the Decision to serve as a role model for Chinaâ&#x20AC;&#x2122;s next-phase of reform. Second, as a project initiated by Li, it is also a pilot for the so-called Likonomics. Third, it is also a window to observe whether Xi and Li could really break the obstacles of reform and make significant progress. We must bear in mind that the Shanghai FTZ has dual purposes. On one hand, it signifies Chinaâ&#x20AC;&#x2122;s willingness to further open the country by promoting trade and investment liberalization, especially in service sectors like financial ser vices. On the other hand, it is used to accumulate experiences/lessons for implementing the Decision on Reform. The FTZ is intended to promote trade and investment liberalization. Although China joined the WTO more than 10 years ago, China is still far from open enough, especially in service sectors like financial services. In addition, China has

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no choice but to redefine the relationship between government and business if it really wants to establish an efficient market system. There are two key elements in Shanghai FTZ reform, the Negative List for Investment, and financial liberalization. In September, Shanghai announced its Negative List, but was widely criticized for not producing a real break from previous policies. Officials admitted the limitations of the list and promised to update the list year by year. However, this proves there is strong opposition from Beijing ministries. Now, everyone is holding their breath and waiting for the plan of financial liberalization. According to official information, there is already a detailed plan. The delay in announcing the plan shows that there are different voices in the government. The government has asserted to promote financial liberalization in the FTZ, including interest rate and RMB convertibility. The core of the debate is how to liberalize financial markets in the FTZ without causing significant capital arbitrage. Given the strict financial repression in China, there will be obvious differences in the interest rate between the FTZ and the rest of China. In Chinaâ&#x20AC;&#x2122;s shadow banking system, the interest rate could be as high as 30 percent per year, several times larger than the bank rate. In theory, regulators could design a special banking account

the FTZ

system to prevent arbitrage. Each company registered in the FTZ would be required to open an FTZ bank account, which could be monitored by regulators. However, in reality, the Chinese companies are always good at evading the rules. What makes things complex is that the Shanghai FTZ is inside China, and there are already many companies and families that have existed in the FTZ for many years. As clearly stated by Chinese officials, the financial reform in the FTZ will be incremental to avoid financial risks. The State Council allows Shanghai three years to do experiments in the FTZ. So, the financial liberalization plan of the FTZ will be released soon, but may fall short of market expectations. B u t o f c o u r s e , t h e S h a n g h a i F T Z m e a n s g r e at e r liberalization than in the rest of China. This sounds attractive to multinationals. Multinationals could make use of this opportunity in several ways. First, the Shanghai FTZ will serve as a low-cost and highefficiency place for international trade. Second, the Shanghai FTZ could serve as a better place to manage RMB funds. Third, the RMB would be relatively more convertible in the FTZ. But if you want to move you money between the FTZ and the rest

â&#x20AC;&#x153;

The delay in announcing the plan shows that there are different voices in the government.â&#x20AC;?

of China, you still have to face strict reviews and approvals. Over the past decade, we have seen too many failed reforms in China. Will the Shanghai FTZ become another failure? At least we are not optimistic. After all, when Li encouraged Shanghai officials to put forward the concept of the FTZ, Li didnâ&#x20AC;&#x2122;t discuss this concept in detail with his ministers. The ministers dare not refuse the FTZ, but they could find excuses to delay progress. Financial risk is a good excuse, because Chinese leaders are obsessed with social stability. Li needs both skills and courage to persuade the ministers to support his FTZ experiment.

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Officials will have to weigh risks before implementing FTZ policies

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Dreaming of the Nigel Hollis is chief global analyst at Millward Brown. He is the author of The Meaningful Brand, published by Palgrave Macmillan. See his thoughts on brands, marketing and marketing research at http://www.millwardbrown.com/Global/ Blog/StraightTalk.aspx. Sacha Cody also contributed research.

Brands must address the functional and emotional needs of today’s Chinese consumers

By Nigel Hollis

hinese consumers believe they are the most poisoned on earth.” I heard this thoughtprovoking statement from the group marketing director of a major Chinese food and beverage company last year. He went on to say that concern about food safety, in particular, had now reached a point where the more compelling the claim that you could make about a product, the more likely it is to be disbelieved. With thousands of people willing to investigate each claim, the slightest hint of malpractice, real or not, is likely to spread quickly across Weibo and other social media platforms. As we look to what 2014 will bring for brands in China, we can no more ignore this wave of distrust than we can a tsunami. Trust, as measured by Millward Brown’s most valuable brands research, finds that Chinese consumers’ trust in the top 30 brands in China declined from 50 percent in 2011 to 37 percent in 2013. The aftermath of the milk crisis and ongoing stories of malpractice, combined with the incredible power of social media in China, faces all marketers with a huge challenge: How do you market your brand effectively when everything you say and do will face intense scrutiny? I believe part of the answer lies in better addressing the needs of the Chinese people – both functional and emotional. Up until now the most important driver of brand success in China has been salience; that is, the bigger the brand and the more easily it came to mind the more likely it was to be chosen. This “attention

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economy” is typical of emerging markets where any brand is a step up from a commodity and global brands are assumed to be better simply because they are global. As incomes rise and Chinese become more familiar with brands, however, they judge them by higher standards. Logo fixation is still apparent for luxury items, but increasingly, people are looking for brands to meet their specific needs and desires. They are looking for brands that add meaning to their lives and are willing to pay a premium for them. This is part of a continuing shift away from buying solely on price that is most apparent among Tier 1 consumers but increasingly apparent in lower tiers as well. Unfortunately, however, this does not make life easier for the brand owner since the Chinese are still largely repertoire buyers, choosing between a set of acceptable brands rather than focusing on one. There are many factors at work to promote this shift. Some are structural. The rise of modern trade has leveled the playing field for many packaged goods brands. Salience is far less impactful when all brands in a category are arrayed on one set of shelves. The Internet is doing the same for services, durables and high-tech products. The majority of younger Chinese consumers turn to their peers and opinion leaders for advice before they buy. In the past, the Internet was not necessarily trusted. Now, the Chinese are leveraging e-commerce to open up a new world of choices. Faced with increased air pollution, for instance, some Chinese are buying premium air filters direct from foreign

c o n s umer o u t lo o k

“

Good Life

With the Chinese eager to know how the products they consume are made, brands will need to demonstrate that they have nothing to hide.”

imaginechina

Blue Moon detergent has adopted a creative way to engage consumers

manufacturers over the Internet and cutting out local importers. Behind the scenes, however, perhaps a more fundamental change is taking place. The more affluent consumer is beginning to ask what the “good life” means for them. Wealth at any cost is beginning to seem less attractive for many. This is leading to a reevaluation of how to live, work and raise a child, and a whole host of other things including what to consume. Academic success, cars, houses and watches are taking a rear seat to fundamental needs like health and personal well-being, and once these are satisfied, higher-order needs like self-expression and gratification. Chinese history and heritage are woven into this new zeitgeist, offering Chinese brands new grounds on which to compete with global brands. So what can brands do to succeed in this brave new world? Brands must not only address supply chain issues but also address the issue of trust. With the Chinese eager to know how the products they consume are made, brands will need to demonstrate that they have nothing to hide. Transparency will be the name of the game. However, when claims made in traditional media are met with distrust, brands need to find new ways to engage their potential consumer. KFC and Yili are leading the way by inviting consumers to tour their production facilities. And we can expect a further shift toward bottom up marketing where companies find new ways for consumers to experience the brand firsthand and then share their experience with others. As we move into 2014, I expect we will see more brands that seek creative ways to engage directly with their consumers. One excellent example is Blue Moon detergent, which in 2012 shifted much of its US$500 million advertising spending into in-store activation. Blue Moon promotional girls engage people at the point of purchase and encourage them to smell the brand’s fragrance as if it were a fine perfume. This is a great way to engage people with the sensory experience of the brand and side step some of the inherent distrust leveled at brands and advertising. It may also give us a hint of things to come.

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The Xi Doctrine Joseph Fewsmith is professor of international relations and political science at Boston University. He is the author or editor of seven books, including, most recently, The Logic and Limits of Political Reform in China.

The president has outlined an ambitious reform agenda but can he succeed in the face of entrenched interests? BY JOSEPH FEWSMITH III

he Hu Jintao-Wen Jiabao era did not end well. Whatever progress they made over their 10-year term – and they certainly pushed a variety of welfare measures forward – there was a certain fin de siècle atmosphere as they went out the door. Deng Yuwen, the deputy editor of Study Times published by the Central Party School, listed 10 major issues – including declining social morality, a weak middle class, a worsening environment and the need for political reform – and concluded that the decade of Hu-Wen leadership had witnessed the “festering or creation of immense problems,” the magnitude of which “may even be greater than the achievements.” Perhaps worse, the divisions within the Chinese Communist Party were palpable. Bo Xilai, the former populist party secretary of Chongqing,

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led a neo-Maoist revival, while liberal intellectuals called for constitutional government. Declining social order, exploding corruption and the seeming inability of the country’s leadership to articulate a convincing vision led to a dyspeptic population; the economy might be improving but the population was grumbling. Politburo member Wang Qishan encouraged people to read Alexis de Tocqueville’s The Ancien Regime and the French Revolution. This was not an enviable time to take up the reins of power, and the urgency Chinese leaders felt was reflected in new General Secretary Xi Jinping’s call to realize the “China Dream” of “revitalizing the Chinese nation.” A trip to the Special Economic Zone of Shenzhen to lay a wreath at the feet of a bronze statue of Deng Xiaoping signaled very clearly Xi’s intention to follow the Dengist blueprint – and that he has done over the past year. Deng’s course has been described as a “middle path,” and Xi has very clearly moved against both the left and the right while defining his own agenda of reform. Bo Xilai was arrested before Xi Jinping was elevated to the top spot, but Xi has forged ahead with the prosecution of Bo, ending with Bo being sentenced to life imprisonment in September. The prosecution of Bo has deflated leftist critics of reform and opened space for Xi. Similarly, when the editors of Southern Weekend declared in a New Year’s editorial that their idea of the China dream was “constitutional government,” Xi struck hard, issuing “Document No. 9” in March forbidding discussion of constitutional government, civil society, universal values, freedom of the press and other topics. Xu Zhiyong, one of China’s leading legal experts, was detained in April, arrested in July and seems likely to be tried and jailed on a charge of disrupting public order in the near future. Finally in November, with the convening of the Third Plenary Session, Xi had an opportunity to lay out his vision of reform. Like Deng, it focused on economic reform, but it also touched on political issues in ways that may become important. Although issues like relaxing the one-child policy and abolishing the education through labor system have caught public

Chinese politics

attention, there are at least four issues that will begin to play out in the new year that are more important. First, the role of the state versus the role of the market. The Plenum’s Decision seemed unequivocal that the market should play the “decisive” role in allocating resources. But as Xi made clear in his “Explanation,” the government will still have a strong role. Given the statist tendencies in China, it is hard to imagine the central government giving up much control. Second, and closely related, the Plenum called for the creation of a new Leadership Small Group for Comprehensive Reform. Although leadership small groups are par ty organizations designed to coordinate policy in different areas, it appears that China will wait until the National People’s Congress (NPC) meets in the spring to announce the membership of this group (and any corresponding state body) to discuss publicly its staffing and responsibilities. One assumes that it will be headed by Premier Li Keqiang, who has overall responsibility for the economy. The key question is how it will relate to the NDRC (National Development and Reform Commission), which currently exercises control over critical economic policy areas. Given that the new leadership group seems tasked with riding herd on China’s “vested interests” – those major economic interests often deeply involved with the political elite and that prosper by holding monopoly or oligarchical positions in the economy – it is bound to encounter major resistance. Third, the Decision also calls for the creation of a national security council. Again, it appears that the composition and functions of this body will be taken up by the NPC. Although this body will have some responsibilities in foreign policy, it appears that much of its function will revolve around internal security. Such a function raises many questions about its relationship to the powerful Political and Legal Commission and to the Central Commission on Comprehensive Social Management, which coordinates agencies involved in “maintaining stability.” Surely, many turf questions will arise. Fourth, in an effort to control corruption, the Decision declared that in the future the Discipline Inspection Commissions (DIC) at various levels will have primary responsibility for naming the heads of the DIC one level below and for undertaking criminal investigations (such as corruption). The party has done this in the past without notable success. One wonders what can be done differently this time to achieve a better result. The Decision makes clear that the party’s hierarchical principle of “the party controls the cadres” will remain in place, so it will be interesting to watch how the cadre

President Xi Jinping has moved swiftly to consolidate power

system interacts with the discipline system. Over the past year, Xi has consolidated power much more quickly than expected, been quite decisive in dealing with perceived threats from the “left” and “right,” and articulated a reform agenda that is surprising in its breadth and depth. The problem for next year will be implementation. The political and bureaucratic obstacles are enormous; Xi’s agenda will clearly affect many interests. Can he move forward against entrenched interests? And if he can, will market forces clash with efforts to tighten central political control? Xi clearly understands the depth of the problems China faces, but the solutions – at least as seen from the outside – seem to clash with the assertion of party control in general and central control in particular.

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China’s ‘Big Bang’ Daniel Rosen leads China work at Rhodium Group in New York, is a visiting fellow at the Peterson Institute for Internal Economics and teaches at Columbia University.

Beibei Bao is a China analyst at Rhodium Group, leading the firm’s evaluation of Chinese economic data, policy dynamics and market trends.

Xi Jinping’s fingerprints are all over the reform agenda unveiled after the Third Plenum but they must be implemented soon to meet the country’s 2020 deadline BY DANIEL ROSEN AND BEIBEI BAO

ith the endorsement of “big bang” reforms by November’s Party Plenum, it is safe to anticipate more volatility in the Chinese economy. There are many questions about what comes next, and a close analysis of the reforms, from which one can sketch a pattern for growth in 2014, provides answers. The reform agenda laid out in the key Plenum policy document, the Decisions, is less anodyne than the Plenum Communiqué, which came out first and baited some pessimists to declare victory prematurely and erroneously. Some 40 percent of the Decisions deal with economic policy matters and political processes, essentially consolidating power in Xi Jinping’s hands t hroug h t he cre ation of exec utive of f ice-typ e p olic y implementation bodies above the traditional bureaucracies, including the National Development and Reform Commission (NDRC). Traditionally, the Third Plenum has been dedicated to economics, and this one certainly was – as well as the politics key to passing meaningful economic reforms. Some observers had predicted the scope and timing of Beijing’s actions as far back as December 2012, but most were

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taken by surprise by the breadth of reform. The formal Decisions and Xi’s informal gloss together present an unequivocal statement that economic reform and domestic and external opening to market forces, not state intervention, have been the source of China’s success the past 35 years. Moreover, they made clear that continued reform and opening to market forces is the only way to succeed in the future – for the people, for the Party and for China as a great power. Our favorite maxim is from President Xi Jinping: “Reform and opening up was a crucial decision that decided the destiny of contemporary China.” That is unambiguous. And this is Xi Jinping’s baby – not the tagline of some technocrats, negotiated into the rhetoric by committee decision. Xi’s personal ownership of the Plenum and the reform program is everywhere to be seen. He is responsible for tightening the leash on civil society, which he believes is necessary to maintain order as the nation dives into a period of necessary structural adjustment and military and security modernization to become more powerful, perhaps with more political oversight and less corruption. On the foreign policy front, there have been discussions

Chinese Economy

Recently announced reforms are intended to reignite the Chinese economy

about whether China would “hide its capabilities and bide time” – a diplomatic strategy that Chinese government attributed to Deng Xiaoping – as it did in the past two decades. Keep in mind that political leaders faced with severe domestic adjustment risks sometimes emphasize external tensions to distract attention away from internal challenges.

The deadline The Plenum documents only mentioned 2020 as a completion date for the reform goals. If Beijing is serious about 2020, there must be immediate, meaningful implementation on most fronts. The People’s Bank of China (PBOC) on December 2 issued implementation guidance for the Shanghai Free Trade Zone (SFTZ), for example, setting out aggressive cross-border capital flow policy changes for Shanghai. Shanghai PBOC Chief Zhang Xin said the goal was to implement most of the measures in three months, and then forge a financial management model applicable to the rest of China in one year from now. This is far more aggressive than the two- to three-year timeline laid out in the initial SFTZ development plan by the State Council in September. Looking forward, our short-term assessment is that China will average GDP growth around 7 percent in 2014. Most analysts are looking for higher numbers bolstered by growth drivers unleashed by the Plenum package, ranging from 7.2 percent to 7.8 percent, and the IMF has it at 7.3 percent (down from 2013, which should come in around 7.6 or 7.7 percent). To

us, those higher numbers suggest less restructuring. The lower outcome would be significant for two reasons: it would acknowledge a trend that potential growth is slowing as a result of moderation in the unproductive components of fixed investment; and it would demonstrate that Beijing is not palliating the economy with policy-driven offsetting investments to counter that reality. To do so would undermine that structural adjustment and reform imperatives they are committed to, and which are critical in order to buttress sustainable growth over the medium-term and beyond.

The upside Looking to the medium-term (2015–2017), assuming that Beijing sustains its commitment to the reform course – which we do assume – the arithmetic supports a 7 percent trend GDP growth average. We would expect the end of 2014 and 2015 to be on the higher side of the trend line, as investment appetite surges from the volatility and dislocations of the first half of 2014 as businesses digest the upside opportunity created by reform. By the end of 2017, we are on the lower side of the period average, call it the high 6s, and for the three years 2018–2020 we are looking at 6 to 6.5 percent potential real GDP growth. For 2021–2025 we are between 5.5 and 6 percent. These growth rates are off a much higher base (at some point in that period China is very likely to have surpassed the nominal size of the U.S. economy), and a much different base of activity than the heavy industry, heavy footprint we know China for today.

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Charm Offensive Paul Haenle is the director of the Carnegie-Tsinghua Center for Global Policy, a foreign policy research institution based at Tsinghua University in Beijing. He was previously director for China, Taiwan and Mongolian Affairs on the National Security Council staffs of former President George W. Bush and President Barack Obama. Haenle is also a senior advisor at Teneo Strategy, a global business-consulting firm that provides strategy and counsel to CEOs of Fortune 500 companies.

Can China continue to assert its territorial claims in the South China Sea and claim its intentions are peaceful in nature?

BY PAUL HAENLE

ince Chinese President Xi Jinping began his leadership transition in November 2012, he has undertaken a more proactive diplomatic approach to reassure the AsiaPacific region that China’s rise is in fact peaceful. Xi seems to recognize that the success of his domestic agenda depends on the efficacy of China’s regional diplomacy to create a more welcoming peripheral environment. But China’s new leaders have also taken steps that have caused anxiety and uncertainty in the Asia-Pacific, and heightened the risks surrounding regional security flashpoints. This divergent behavior will undermine China’s primary regional diplomatic strategy if continued. In their first months in office, China’s new leadership team completed tours of Southeast Asia to shore up relations by participating in high-level summitry and expanding trade ties and infrastructure financing. In a two-week period in October 2013, Xi and Premier Li Keqiang visited five Southeast Asian nations,

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attended the APEC meeting and East Asia summits (without U.S. President Barack Obama) and made encouraging statements about handling territorial disputes in a peaceful manner so as not to obstruct China-ASEAN comprehensive relations or lead to undesired conflict. At the APEC summit, Xi set a goal to more than double ChinaASEAN annual trade to US$1 trillion over the next decade, and proposed the formation of an Asian infrastructure development bank. In front of ASEAN leaders, Li reaffirmed China’s pledge to complete negotiations on the Regional Comprehensive Economic Partnership (RCEP) free trade pact by 2015. From October 24–25, the full Politburo Standing Committee attended a work forum on diplomacy in China’s periphery to address policy missteps in Beijing’s more aggressive approach to regional territorial claims in past years, which has caused backlash and hedging behavior among China’s neighbors and impeded economic development. At the same time as Beijing has embarked on this regional charm offensive, Xi and his leadership team have also demonstrated an assertive and uncompromising policy regarding China’s territorial claims that undermines their regional diplomatic approach. Even before taking office, in mid-2012, Xi took charge of the leading small group on the protection of maritime interests, responsible for Beijing’s strong reaction to the Japanese government’s nationalization of the Diaoyu/Senkaku islands in September of that year. Ever since, China’s newly consolidated and armed coast guard has fundamentally changed the security environment in China’s near seas by maintaining near-constant patrols around the Diaoyu/

re g i o n a l s ecur i t y

at Sea Senkaku Islands and consistently venturing into the islands’ territorial waters. Chinese and Japanese ships now operate in close proximity of each other. The possibility of an inadvertent collision between the two n at i on s w h o s e m i l it ar i e s an d governments lack necessar y communication channels and crisis management mechanisms has greatly Vice President Joe Biden met with Chinese President Xi Jinping during his visit to Beijing where China’s air defense zone was discussed increased. The situation in the East China Sea intensified even further in September 2013 when Beijing flew bombers and a drone over Japan, and on November 23, abruptly declared the establishment of an air defense identification zone (ADIZ) covering an area of the East China Sea that includes the disputed Diaoyu/Senkaku Islands and overlaps with the already-established ADIZs of Japan, South Korea and Taiwan. The Chinese foreign ministry has not concealed its interest in establishing other zones in the South China Sea and Yellow Sea where contests over territorial sovereignty have experienced a brief but welcome respite from brinksmanship in recent months. The near-collision of a U.S. Navy vessel and PLA Navy ship in the South region of China’s peaceful intentions if, at the same time, they China Sea on December 5 was a stark reminder that conflicts over want to aggressively expand China’s territorial claims and demand rocks in the Asia-Pacific could trigger a military conflict between greater accommodation of its interests. the three largest economies in the world. As Xi enters his second year of leadership, he confronts no China’s unwavering stance on issues of territorial sovereignty shortage of foreign and domestic challenges. By establishing more and its desire to maintain peaceful relations with its neighbors are ADIZs in the South China Sea and continuing a coercive and not necessarily new foreign policy objectives for Beijing. The destabilizing strategy to China’s maritime territorial claims, Xi can difference today is that Chinese leaders are attempting to pursue expect his diplomatic overtures with neighboring countries, as well as both goals in a much more forceful manner, with little success. with the U.S., to be seriously undermined. Xi’s all-important domestic While China’s charm offensive with ASEAN nations has economic agenda will also become more difficult to achieve. helped to expand economic ties and bolster China’s influence, its If, on the other, Xi can focus on building mutually beneficial sudden announcement of the establishment of its East China Sea economic and commercial partnerships with neighbors, he can ADIZ has triggered a strong regional and international backlash, better assure the achievement of his own domestic goals and the a renewed demand for greater U.S. security presence in Asia and region’s broader peace and stability. Given the stakes, all parties escalated risk of inadvertent conflict. The dilemma for China’s should look for ways to encourage the latter approach. leaders will increasingly be how to succeed at reassuring the

“

The Chinese foreign ministry has not concealed its interest in establishing other zones in the South China Sea and Yellow Sea…”

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FTZ DIGEST Shanghai pilot FTZ attracts 1,400 companies

More than 1,400 companies have registered in Shanghai’s pilot Free Trade Zone (FTZ) within two months since its launch in late September, according to Ai Baojun, head of the FTZ’s administrative committee in an interview published on November 28 in the Financial Times. Ai said that 1,434 companies had registered in the zone, with another 6,000 that were undergoing the application process. While only two foreign banks had established branches in the zone on its opening, the figure reached 12 by late November.

China issues rules for certificates of deposit

Rules for trading of certificates of deposit (CDs) on the interbank market were issued by the People’s Bank of China (PBOC), according to a statement on its website posted on December 8. The rules, which took effect on December 9, set the CDs’ minimum amount at RMB50 million (US$8.2 million), using as reference for pricing the Shanghai Interbank Offered Rate. Markets will determine the certificates’ interest rates and prices, said the PBOC. Other requirements must also be met, though the PBOC did not elaborate. Fixed-rate certificate maturities range from one month to one year and floating-rate CDs can have maturities of one, two or three years. Issuers are prohibited from buying their own CDs.

ANZ gains approval for Shanghai pilot FTZ

Australia and New Zealand (ANZ) Banking, Australia’s third-largest bank by market value, said in November it had won approval to set up a sub-branch in the Shanghai pilot free-trade zone, joining the ranks of other major foreign banks including Deutsche Bank, Citibank, DBS, Hang Seng Bank, HSBC and Bank of East Asia in receiving approvals to start operations in the zone. ANZ said it will offer a range of banking products to companies in the free trade zone in both renminbi and foreign currencies. The bank said it plans to open the sub-branch in 2014. ANZ entered China in 1986 and has five branches and three sub-branches across Beijing, Shanghai, Guangzhou, Chongqing and Hangzhou.

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Chamber Honors SIP Officials at Dinner

mCham Shanghai hosted Suzhou Industrial Park (SIP) Administrative Committee Director General Yang Zhi Ping, Vice Director Sun Yan Yan and more than 20 other SIP officials at a government recognition dinner at the InterContinental Suzhou on December 5. AmCham Shanghai President Kenneth Jarrett, B oard of Governor Eric Zheng, Principal Commercial Officer Joel Fischl of the U.S. Consulate in Shanghai and Suzhou Committee Vice Chairs Robert Kong and Strong Kong, and representatives from more than 80 AmCham Shanghai member companies were in attendance to demonstrate the Chamber’s appreciation for SIP’s ef for ts in cre at ing a supp or t ive business environment and to celebrate the growing partnership between the U.S. business community and SIP. Jarrett said: “Suzhou offers U.S. companies a dynamic area to expand their business. In building a strong reputation as an attractive place to do business, Suzhou offers access to fast growing domestic markets and distribution channels, as well as a highly skilled, highly educated and experienced workforce. Increasingly, U.S. companies are leveraging Suzhou’s growing international profile by establishing Asia-Pacific hubs to implement a regional growth strategy.” Yang expressed special thanks to AmCham Shanghai for establishing its YRD Center Suzhou office in the SIP and mentioned that there are more

than 500 U.S. invested enterprises in SIP, comprising over 10 percent of the investment of the park. He mentioned the importance of SIP in helping U.S. companies continue their expansion through growth with SIP in other areas in which SIP is expanding its presence, such as Suqian, Nantong and Chuzhou. He added that the YRD Center will serve as a platform for SIP to better service U.S. companies in its jurisdiction. AmCham Shanghai has established a strong presence in Suzhou, with the Chamber launching the Yangtze River Delta (YRD) Center in 2012 to expand the programs and services for YRD members and American business interests in Jiangsu and Zhejiang provinces. On October 15, 2013, AmCham Shanghai opened a permanent YRD Center office in the SIP. The YRD Center Suzhou office serves as a business center to host the more than 60 annual programs which are held in Suzhou, including monthly roundtables for general managers, finance and HR directors, as well as government workshops and training sessions for member companies. The office plays a central role in AmCham Shanghai’s strategy to expand its footprint in the fast-growing Yangtze River Delta.

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

Celebrating Success On December 12, AmCham Shanghai hosted our 13th annual Shanghai Government Appreciation Dinner. It was a record turnout with more than 400 attendees, representing much of t he le adersh ip f rom t he Shanghai Municipal Government, as well as a large contingent of our members. We were grateful that our outgoing U.S. Ambassador to China, Gary Locke, took the time and effort, once again, to share with us some of his accomplishments in his years as our highest U.S. official in China. As Ambassador Locke told the audience, he and his team have brought the visa interview waiting period for Chinese nationals from approximately 70 days in Shanghai down to an average of less than a week. We a r e v e r y p r o u d t h a t o u r AmCham Shanghai Corporate Visa Program is still very popular with our members as it facilitates your sponsored customers’ visa applications here in Shanghai. Ambassador Locke views the increase in Chinese visitors to the U.S., as I do, as an important part of contributing to better Sino-American relations – economic, political and cultural. In my remarks at the dinner, I express e d t he incre as e d business activities of AmCham Shanghai and our members here in China and that,

Robert Theleen Chair of the Board of Governors

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by and large, our members continue to be optimistic about their respective business opportunities in China. I also mentioned that much depends on the recent reforms announced in the Third Plenum and of the importance of the success of the Shanghai Free Trade Zone. For AmCham Shanghai, we will continue to focus on market access for our members through our YRD expansion and in our new SME Center website. I w i s h t o e x p r e s s my d e e p e s t appreciation to two important people who have contributed so much to our success – Brenda Foster, our indefatigable former president w ho ste pp e d d ow n l ast Ju ly, and her successor, Ken Jarrett, who has smoothly taken over where Brenda left off. I would also like to thank our Board of Governors who contributed, so generously, in time and in their vast business experience, to AmCham Shanghai’s success. And finally, a huge thanks goes out to our talented and dedicated professional staff, who work, often quietly, but always with professional commitment, to make our Chamber the largest and finest in Asia. We truly are the voice of American business in China. I wish all of you a happy holiday season and a prosperous and healthy 2014.

i n s i de a m c h a m B OAR D o f g o v e r n o r s b r i ef i n g

Highlights from the December 2013 Board of Governors Meeting Congratulations to Incoming Board of Governors Robert Theleen (Chair) opened the meeting by welcoming the newly elected 2014 Board of Governors and expressing appreciation to the outgoing Board of Governors. All outgoing members of the Board were recognized with a certificate of appreciation and a photo framed plaque.

Nomination & Election Committee Update On behalf of NEC Chair Andrew Au, Ken Jarrett (President) reported on a recent NEC meeting held to discuss the development of campaign guidelines for the next Board of Governors Election. The NEC will make a formal recommendation to the Board before the end of December 2013.

Management Report Ken Jarrett updated Board members on planning for the 2013 Government Appreciation Dinner. He also briefed Board members on a review of the Chamberâ&#x20AC;&#x2122;s membership and fee structure now under way by Chamber staff.

In Attendance Governors: Jimmy Chen, Keith Cole, Pilar Dieter, William Duff, Joel Fischl, Curtis Hutchins (call-in), Robert Theleen (Chair), Peter Sykes, Eric Zheng Apologies: Andrew Au, Lienjing Chen, Sherman Chu Attendees: Kenneth Jarrett (President), Helen Ren, Scott Williams, Jessica Wu

The AmCham Shanghai 2014 Board of Governors Governors

Chair

Robert Theleen ChinaVest

Jeremy Burks Dow Corning

Jimmy Chen FedEx Express

Sherman Chu Cisco Systems

Keith Cole General Motors

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

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AmCham Shanghai New Members U.S. Corporate Membership ASC Fine Wines (Shanghai) Co., Ltd. TEDESCO Daniel Chemtura China Holding Company Limited CROSS Chet Asia Pacific Properties, Ltd. GAN Kimberly Covisint Software Services (Shanghai) Co., Ltd. ZHANG Yan BGRS Consulting (Shanghai) Co., Ltd. YOUNG Derrick Eugro Holding Corp. Shanghai Representative Office Chang International (Qingdao) Inc. WANG Allen YE Hong Linyi Standard Textile Co., Ltd. CIGNA & CMC Life Insurance Company OREN Yoav Limited MIKELONIS Greta Katherine Pro-Link Global China Ltd. FENG Xiaolin Corning China (Shanghai) Regional Headquarter SID Tool Co., Inc. Shanghai Rep. Office WANG Liming BAILEY Christopher Charles Deloitte Touche Tohmatsu Certified Public Accountants LLP U.S. Associated Corporate TSANG Shun Fuk Membership DHL Global Forwarding (China) Co., Ltd. Alcan (Tianjin) Alloy Products Co., Ltd. WILLARD Edward Dodsworth Shanghai Branch DuPont China Holding Co., Ltd. THAM Alex MA Lan Axalta Coating Systems (Shanghai) Greenberg Traurig LLP. Shanghai Company Limited Representative Office DAWE Tim RAO Weisun CSM Foods (Shanghai) Co., Ltd. GSE ZHU Jun MEIKLE Jonathan Lenovo (Shanghai) Electronics & Technology Haworth Furniture (Shanghai) Co., Ltd. Co., Ltd. DEVRIES John MA Wanbo SONNEVELDT Austin Schweitzer-Mauduit International (China) TEDESCO Vicki Ltd., Shanghai Rep. Office Herbalife (China) Health Products Ltd. DAVISON Curtis ZHOU Lili Honeywell (China) Co., Ltd. Corporate Int’l Affiliate LAN Lan Membership Husky Injection Molding System (Shanghai), Ltd. China Container Line (Shanghai) Limited BRASH Christopher QIAN Wei Intel China Ltd., Shanghai Branch Sheraton Huzhou Hot Spring Resort LAM T. Maria CHOI Stephanie ITW (China) Investment Co., Ltd. QIU Karl Associate Membership Lamb Weston (Shanghai) Commercial Co., Ltd. AAM Investment Management (Shanghai) FOO Sak Kean Co., Ltd. Linyi Standard Textile Co., Ltd. OWENS Cliff LI Ping Abbott Medical Devices Trading (Shanghai) Mercury Marine Technology Suzhou Co., Ltd. Co., Ltd. LIU Eric ZHANG Wei Momentive Performance Materials Alcan (Tianjin) Alloy Products Co., Ltd. (Shanghai) Management Co., Ltd. Shanghai Branch HE Xiaolan HE Ting HE Xiaolan SHI Tony MulvannyG2 Architecture (Shanghai) WEI Olivia Consulting Co., Ltd. WEI Hong CIAPETTI Dale YE Shelley Pratt & Whitney Management (Shanghai) Amway (China) Co., Ltd., Shanghai Branch Co., Ltd. LIAO Anna XU Michael Zheng XU Apple

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Shanghai Hospira Distribution Co., Ltd. LIU Carol Squire, Sanders & Dempsey L.L.P. Shanghai Rep. Office KROYMANN Benjamin The Walt Disney Company (Shanghai), Ltd. ERNEST William Tracy Towers Watson Consulting (Shanghai) Ltd. LU Xiaojun WU Jerry

Individual U.S. Citizen Membership AVIC Shanghai Aviation Electric Co., Ltd. SAINTONGE Gilles CCI Architecture Design & Consulting Co., Ltd. PILGREEN Todd China Fortune Land Development Co., Ltd. ZHANG Eric Lequn Colorquartz HUANG Rune Wen H&T Naturals International Trade QU Tara N/A STERLING Robin ZHENG Connie PDC Capital Group SHEN Dennis Shanghai Ximco Insurance Brokers Ltd. CHAU Tienmann Thinkbenefits Consulting Ltd. TANG Chung Man UC Berkeley Haas School Of Business HSU An Individual Int’l Affiliate Membership AE Partners Investment & Trade Co., Ltd. GLAGLANON Ludovic Anselme Fusion Systems ZHAO Changpeng Global Caliber KING Ryan John Lagerinn EHF KUZUCUOGLU Fergul Sears Holdings Global Sourcing Ltd. LIU Fanny Non-Resident Individual Membership N/A WILLIAMS Pauline Spectra Gases(Shanghai) Trading Co., Ltd . YANG Mark Zhixuan

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

AmCham Shanghai presents a plaque to Ambassador Gary Locke in recognition of his support and advocacy on behalf of the American business community in China

Peter Sykes, President of Dow Asia Pacific, greets Ambassador Gary Locke

VIP meeting with Ambassador Gary Locke and Shanghai Vice Mayor Zhou Bo at the 13th Annual Shanghai Government Appreciation Dinner on December 12

Guests at the Thirteenth Annual Shanghai Government Appreciation Dinner

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Month in Pictures

Senior women diplomats in Shanghai participate in a panel hosted by AmCham Shanghai and the Expatriate Professional Womenâ&#x20AC;&#x2122;s Society on November 27

Manufacturersâ&#x20AC;&#x2122; Business Council (MBC) members tour the Makino China facilities in Kunshan on November 27

AmCham Shanghai staff teach English to students at Chuang Ye Migrant Workers Primary School during a team building activity in Tonglu

Panel discussion on the results of the Third Plenum on December 4

AmCham Shanghai Third Annual Suzhou Industrial Park Government Recognition Dinner on December 5 january / f e b ruary 2 0 1 4

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Government Relations EPA Administrator Regina McCarthy Briefs Members AmCham Shanghai hosted the Administrator of the Environmental Protection Agency (EPA) Regina McCarthy on December 11 for a discussion on her recent trip to China, the EPA’s ongoing engagements with Chinese government and other environmental challenges in China. During the off-the-record meeting, McCarthy highlighted EPA’s priorities Environmental Protection Agency (EPA) Administrator Regina in China, including strengthening McCarthy, center, with U.S. Consul General Shanghai Robert Griffiths, enforcement and compliance, left, and AmCham Shanghai President Kenneth Jarrett increasing environmental infrastructure, enhancing regional capacity and addressing challenges related to air, chemicals and water. AmCham Shanghai members provided insights on their experiences working in China and suggestions for how EPA could partner with the U.S. business community on capacity building programs with the Chinese government.

Chamber Hosts Washington State Trade Delegation AmCham Shanghai hosted members of Washington Governor Jay Inslee’s trade delegation to China in November. The delegation comprised executives from Washington businesses, state agency leaders and state government staff. AmCham Shanghai Vice President of Programs and Services Scott Williams provided a briefing on the current business climate in Shanghai and highlights of AmCham Shanghai SME Center. Brian Bonlender, director of the Washington State Department of Commerce, noted the important role that China plays in the Washington economy. China is Washington’s largest export market and has a large Chinese and Chinese-American community and a strong relationship with U.S. Ambassador to China Gary Locke who previously served as governor. Bonlender said that nearly 9,000 Washington firms are exporting each year. Washington is the second largest health center in the world behind Geneva and home to some of the world’s best-known technology companies such as Microsoft and Valve, as well as the home of Starbucks Coffee. The state is second only to California in the number of commodities grown each year, with several delegates representing the agriculture and food and beverage sectors, he added.

Shanghai Commission of Commerce Holds Discussion on the FTZ On December 5, Liu Chaohui, Deputy Director of the Foreign Investment Administration Division of the Shanghai Commission of Commerce (SCOFCOM), briefed AmCham Shanghai members on the China (Shanghai) Pilot Free Trade Zone (FTZ) and SCOFCOM’s 2014 outlook and priorities. Liu updated the current FTZ implementation progress including investment policies and negative list development. The event provided an exclusive opportunity for AmCham Shanghai members to hear directly from a government official and addressed questions and concerns regarding the FTZ.

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Event highlights

inside amcham

Chamber Leaders Meet Vice President Biden in Beijing A delegation from AmCham Shanghai led by 2013 Chair Robert Theleen and President Kenneth Jarrett joined a breakfast event with visiting Vice President Joe Biden on December 5 in Beijing. The delegation joined similar delegations from AmCham China, AmCham South China and the US-China Business Council. Altogether, some 50 representatives from major U.S. companies in China attended the function at Beijing’s St. Regis Hotel. After an introduction by U.S. Ambassador Gary Locke, the Vice President presented a substantive 15-minute speech on his visit AmCham Shanghai Chair Robert Theleen, second left, and U.S.-China relations overall. Noting that he had spent four with Vice President Joe Biden, center, in Beijing and a half hours the previous day in “candid” discussions with China’s President Xi Jinping, the Vice President offered that U.S.China relations are at an inflection point. In the Vice President’s view, the only path for the two countries is tangible cooperation and effective management of differences. The Vice President offered well-deserved praise for Ambassador Locke’s tenure and thanked the American business community in China for its many contributions to the bilateral relationship. He acknowledged that while political leaders and governments played an important role, citizen diplomacy – such as from the business community – was the real “glue” to the relationship. The Vice President pledged continued efforts to address challenges U.S. companies face in China and create a level-playing field.

Courtesy www.YovohaGrafie.de

Consuls General Join Panel on Women in Diplomacy

Sara Yun, economic unit chief at the U.S. Consulate General, speaks at a panel on women in diplomacy

AmCham Shanghai, together with the Expatriate Professional Women’s Society (EPWS), hosted a panel discussion on November 27 with senior women diplomats in Shanghai, including Alice Cawte, Australian consul general; Ana Candida Perez, consul general of Brazil; Hasanthi Dissanayake, consul general of Sri Lanka; Anna Viktoria Li, consul general of Sweden; Deniz Eke, Turkish consul general; and Sara Yun, economic unit chief at the U.S. Consulate General’s office. Pilar Dieter of Solidiance and Lucy Lei of Beaulieu Asia and President of EPWS moderated the discussion.

Panelists focused on the advantages of women in diplomacy as well as adaptability and cross-cultural best practices. As one panelist noted, female diplomats have a distinct advantage in bridging gaps between the diplomatic and business worlds by identifying with and partnering with rising women business leaders. Panelists agreed that traditional diplomacy has given way to more public, transparent diplomacy where national interests are no longer measured in national security terms, but rather has to consider commercial, environment, consumer safety, immigration and other factors. The speakers highlighted key areas their country missions focus on in their engagement with the Chinese people. While some measures were consistent across countries, such as visas issued, countries varied in how they “branded” their country to the China market, for example, with Sweden emphasizing their association with quality design and Sri Lanka with tourism.

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Committee highlights

inside amcham

Automotive Committee Trends & Opportunities in the Component Industry AmCham Shanghai’s Automotive Committee hosted a members-only meeting on November 25 on the state of China’s automotive component suppliers. Simon Zhang of InterChina Consulting noted that the number of auto component suppliers has drastically dropped, mostly due to consolidation through M&As and organic growth. He added that the quality of consolidations has been improving as pressures on Chinese suppliers increase, and offered recent case studies. Dominic Seto of Delphi China noted that as design centers are being increasingly located within China, it becomes even more important to protect IP and retain knowledge within an organization. He stressed finding the right people with the right skill sets and instilling a sense of corporate culture in new employees as a means to combat IP loss. During the Q&A session, members discussed how global auto component suppliers can partner with “winning” local OEMs. For many, it is a question of resource allocation. For local OEMs, they view partnering with global component suppliers as a means to increase brand awareness and public relations. Other questions touched on the component certification and regulatory environment, IPR issues, localization strategies and market penetration to outer tier cities.

Human Resources and IT Committees Experts Discuss Talent Demands in Emerging Industries

Ning Wright, partner in charge of Shared Services & Outsourcing Advisory at KPMG China, speaks during a panel on talent demands in emerging industries

AmCham Shanghai’s Human Resources and Information Technology (IT) committees on November 21 hosted a discussion on talent demands in emerging industries with Ning Wright, partner in charge of Shared Services & Outsourcing Advisory at KPMG China; Wayne Wang, CEO of CDP Group; Michael Ye, vice president of Yida Industrial Investment; and Raymond Wu, vice president and general manager of China Operations at Merkle Inc.

Wright noted that while getting the right people for the right job is paramount in any industry, this is especially seen in emerging industries – cloud computing, big data, e-commerce/platform economy and mobile Internet. She also noted that what China needs now, in terms of workforce demographics, is more middle and senior managers, instead of relying on entry-level and junior associates. Wang said that in the next five years, cloud computing software will be increasingly used by organizations for HR issues. He stressed that companies will use new technologies to make their HR process smarter and more efficient. According to Ye, the ideal candidate in emerging industries is one who has solid domain knowledge, ability to learn quickly and to innovate, has foreign language ability, can work across industries and has an international business view. He noted that regional science and technology parks have the ability to attract these talent sets to help further cultivate strategic emerging industries. For more information on AmCham Shanghai’s 22 industry-specific committees, please contact committees@amcham-shanghai.org.

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Committee highlights

inside amcham

Manufacturers’ Business Council Makino Factory Tour and Roundtable AmCham Shanghai’s Manufacturers’ Business Council (MBC) hosted a factory tour of the Makino (China) Co., Ltd. facilities in Kunshan on November 27. S.K. Sankaran, COO of Makino Asia, Neo Eng Chong, president of Makino Asia China Operations, and Zhu Liang, vice president at Makino China, offered an overview of the company’s products and services. Members visited the showroom, production and finishing lines, as well as the new Makino China training facilities.

Members tour Makino (China) Co., Ltd. facilities in Kunshan

James Li, head of Robotics China for ABB, delivered a presentation on automation trends in China. Li noted that the moniker of China being the “world’s factory” is undergoing a transition due to changing demographics in China which directly influence how manufacturing is conducted. He argued that China is currently in a “smart age” of industrialization, with smarter technology and smarter manufacturing processes. This, coupled with government incentives for manufacturers to upgrade, makes a persuasive case for increased automation. According to Li, the next five to 10 years will witness major developments in China’s smart manufacturing. As this occurs, China manufacturing will move up the value chain and will shift from “made in China” to “created in China.” The biggest challenge to this predicted upgrade is not the amount of robotics available, but rather a lack of application know-how, he said.

Legal and Financial Services Committees Members Examine Trends and Developments in IPO Markets

Panelists share insights on IPO markets in China

AmCham Shanghai’s Legal and Financial Services committees held a joint event on November 13 on IPO trends and developments. Jing Qian, managing director and head of China Investment Banking Coverage & Advisory at Deutsche Bank, pointed out that as a result of the stoppage of IPOs in the Chinese domestic market, 800 companies are waiting to list in the Chinese market. Meanwhile, companies will either have to wait for change in CBC policy or seek IPOs in different global markets.

Ker Gibbs, executive director at BW Ventures and chair of the AmCham Shanghai Financial Services Committee, moderated a panel discussion on U.S., Hong Kong and Chinese IPOs featuring Don Williams, co-chair of AmCham Shanghai’s legal committee and managing partner at Sheppard Mullin; Steven Winegar, managing partner at Paul Hastings Hong Kong; and Henry Huang, partner at Grandall law firm. Williams highlighted the U.S. disclosure-based system in which if a company would like to list, the company must disclose and then it is up to the investors to decide whether the company is profitable. The U.S. system also allows for creativity and flexibility and allies for reverse structuring but these creative business solutions are sometimes used in destructive ways and the system is abused, he said. Huang spoke about Chinese companies and how they view the U.S., Hong Kong and domestic IPO markets. For all markets, the sector in which a company operates is a big determination of where to list. More importantly, having an infrastructure built around this industry and having a jurisdiction favorable are key for choosing the market of choice. Although some Chinese companies feel that listing in the U.S. or Hong Kong is good for the company’s image and establishment of a global player, many Chinese companies are turning to foreign markets since the option to list on the domestic market is not possible at the moment and there are many companies waiting to be approved for listing once regulations are changed.

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EXECUTIVE READING ROOM We asked executives to tell us about their 2014 reading list and here is what they said. John Jullens, Partner, Booz & Company Book: How Asia Works – Success and

Failure in the World’s Most Dynamic Region by Joe Studwell Remarks: “Studwell’s latest has been sitting, spine unbroken, on my bookshelf for almost six months now. I’m looking forward to finally reading it in 2014, hopefully with a head start during the Christmas break.” Book: Bach – Music in the Castle of Heaven by John Eliot Gardiner Remarks: “I admire people who are able to combine deep scholarship with real ‘been-there, done-that’ experience, so am very curious about Gardiner’s new biography from the perspective of someone who’s performed just about Bach’s entire musical output all around the world.” Also recommends: Take Your Eye Off the Ball by Pat Kirwan

Marc de Roo, Strategy Director and CEO, Link Design Book: Brand New China: Advertising, Media, and Commercial Culture by Jing Wang Remarks: “Wang examines the impact of new media practices on Chinese advertising, deliberates on the convergence of grassroots creative culture and viral marketing strategies. She samples successful advertising campaigns and provides us practical insights about Chinese consumer segments.”

Eddy Chan, Head of China, Senior Vice President, FedEx Express Book: The Road to Serfdom by F.A. Hayek Remarks: “The book was written at the time when planned economy and welfare state were well supported by politicians. Mr. Hayek, on the contrary, advocated ‘Liberalism’ and redefined the role of government in economy.” Also recommends: The Economic System of China: The 30th Anniversary of China’s Economic Reform by Professor Steven N.S. Cheung and Success and Failure of Different Economic Reforms in Chinese History by Xiao-Bo Wu

Richard Mueller, Superintendent, Shanghai American School Book: Beyond the Beautiful Forevers by Katherine Boo Remarks: “A compelling and well-written book about the poorest of the

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poor in Mumbai. Despite their desperate poverty, they continue to have hopes and dreams about their future – a universal insight into many societies.” Book: China in Ten Words by Yu Hua Remarks: “Glimpses of post-1949 Chinese society by a Chinese author (for a change).” Also recommends: Vermeer’s Hat: The

Seventeenth Century and the Dawn of the Global World by Timothy Brook; To Change China: Western Advisers in China by Jonathan Spence; Matterhorn by Karl Marlantes; and Wealth and Power: China’s Long March to the 21st Century by

Orville Schell and John Delury

Michael Whelan, Founder and Managing Partner, The Palio Group Book: In the Jaws of the Dragon by Eamonn Fingleton Remarks: “It’s a pretty sobering look at China’s game plan in action. ‘Riveting and provocative’ are appropriate descriptors.” Book: Songwriting Secrets of the Beatles by Dominic Pedler Remarks: “A book I have been studying on and off for the better part of a year – absolutely fascinating for this music theory nerd and fan of the Fab Four.” Also recommends: Inside Out, India and China: Local Politics Go Global by William Antholis and China Goes Global: The Partial Power by David Shambaugh

Dean Ho, AmCham Shanghai member since 1987 Book: River Town: Two Years on the Yangtze by Peter Hessler Remarks: “The author plops himself in a Yangtze rural community where he teaches English Literature to students destined to a life of teaching. I took a similar cultural cold shower in 1985. From such close contact over two years, the book shows remarkable distance from his subjects. This is a compelling read for those who have spent time close to very traditional young people who become swept into rapid change. The author’s hourglass was the rise of the Yangtze behind the Three Gorges Dam. I will go on to his other books.”

INSIGHT The Journal of the American Chamber of Commerce in Shanghai

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