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

May 2014

Ad Man Sold On China WPP Founder and CEO Sir Martin Sorrell talks candidly about social media, Google, innovation, and todayâ&#x20AC;&#x2122;s Chinese brands

Messages for Max

Local U.S. execs offer their new envoy some free advice

INSIGHT MAY 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

10 Take Control by Giving Control

12 Chicago 1920s Roars into Shanghai

leadership

By David Marquet

A former U.S. Navy submarine commander shares his secret to getting a team to think effectively

VP of Administration & Finance

Helen Ren Directors Business development & Marketing

Patsy Li Committees

Stefanie Myers COMMUNICATIONs & PUBLICATIONs

CHARITY GALA

By Erika Wang

Michael Cole

See snapshots from the special dinner that attracted nearly 400 guests

Events

Jessica Wu Membership & CVP

Linda X. Wang

INSIGHT EDITOR-IN-CHIEF

Bryan Virasami

26 Sir Martin Sorrell Opens Up

cover story

By Michael Cole

The CEO of WPP talks to Insight about advertising, China and social media

Senior Associate Editor

Erika Wang senior communications associate

Ryan Balis Design

Alicia Beebe Printing

Mickey Zhou Snap Printing, Inc.

33 New Ambassador in Town

DIPLOMACY

By Bryan Virasami

AmCham Shanghai members and top business executives tell the new ambassador about their top concerns in China

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 Movers & Shakers

MONTH IN PICTURES

Highlights from Recent Events

EXECUTIVE Dining Room

Favorite Alfresco Spots to Entertain Guests

INSIDE AmCham Shanghai Centre, Suite 568 1376 Nanjing West Road Shanghai, 200040 China tel: (86-21) 6279-7119 fax: (86-21) 6279-7643 www.amcham-shanghai.org

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40 From the Chair 41 Board of Governors Meeting 45 Government Relations 46 Event Highlights Cover design by MICKEY ZHOU

Editor's note

Bryan Virasami editor-in-chief

t’s safe to say that almost everyone who’s ever watched television, read a magazine or used the Internet has seen a commercial or saw an advertisement created by a WPP company. If you haven’t heard of WPP, you are most likely familiar with Young & Rubicam, Hill+Knowlton or Ogilvy & Mather. These and a few dozen other companies in the UK, the U.S., China and around the world are all part of WPP, which was created by Sir Martin Sorrell who is also CEO. Sir Martin recently visited China and shared his thoughts with Insight. He responded to questions about whether China’s brands will go global, social media use and intellectual property. In the interview, which begins on page 26, he voiced his optimism. “…All the seeds of strength in ‘brand China’ are being sown at the moment…people look at China and see a country that’s highly motivated, highly effective, hardworking,” he said. Sorrell is highly optimistic about China’s brands and the country’s ability to transform its reputation from a manufacturing base to one of

innovation. See the wide ranging interview in this issue. Also in this issue, we invited company heads and other top executives from companies such as MasterCard, Nielsen and Baxter to tell us what they would like to see at the top of Ambassador Max Baucus’ agenda. They had lots to say and you can find a story on the ambassador and the comments starting on page 32. We’re always looking for ways to improve Insight and it’s why we’re working on improving how we deliver the magazine on the website. Look out for more details on this in the near future. Also, since many of our readers have so many sources of news these days, we decided to drop our news briefs section and will be looking to expand our Movers and Shakers column. Finally, we want to know what you think of Insight, and so we are planning a short reader survey in coming weeks to find out what you like, dislike or want more of in these pages. We know there are more surveys out there than you’d like, but this one is short and we hope you fill it out.

M o ve r s a n d S h a k e r s co m p i l e d b y j oyc e b i a n

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

EATON EATON appointed Benjamin Yiu general manager, Asia Pacific, for its Aerospace Group in February.Yiu will be responsible for leading Eaton’s business activities in the Asia-Pacific region and will be based in Shanghai. Yiu began his career at Eaton in 1998 and became general manager for the Industrial Brake and Clutch business in Shanghai. Most recently, he was mobile business manager, Power and Motion Controls, Hydraulics Group. Benjamin Yiu

Private Sector JP MORGAN CHASE JP Morgan Chase appointed Frank Gong chairman of investment banking for China. Gong was vice chairman of China investment banking at JP Morgan and a former China economist at the bank. The Frank Gong appointment was made following the company’s announcement that Fang Fang, JP Morgan’s vice chairman of investment banking in Asia, would step down after more than a decade of making deals at the U.S. bank. HONEYWELL Honeywell appointed Mabel Ng vice president and general manager, Asia Pacific, for Honeywell Environmental and Combustion Controls in March. Ng joined Honeywell Security Group in 2005 as Mabel Ng general manager for China and Australia and sales director, Asia Pacific, for the group. The company also announced Jeffrey Sit will step up and take the position of vice president and general manager, Asia Pacific, for Honeywell Security Group at the end of February. Sit joined the company in 2006 and was formerly sales director, Asia Pacific, for the group.

AmCham Shanghai Tax Committee Brett Norwood became co-chair of the AmCham Shanghai Tax Committee in April. Norwood is a tax partner and a Ph.D. economist with KPMG’s global transfer pricing tax practice, based in Shanghai. In this role, Norwood works Brett Norwood both with multinational enterprises investing and operating in China, as well as Chinese companies investing and operating outside of China. Norwood joined KPMG in the summer of 2013. He was previously with Deloitte, moving from its NYC office to Beijing in 2007.

government State Council The State Council appointed Lin Nianxiu deputy director of the National Development and Reform Commission. Lin had been a member of the Party’s Standing Committee of the Guangxi Zhuang Autonomous Region since 2011 and deputy chairman of the regional government from 2007 to 2011. Jiangsu Provincial Government Jiangsu Provincial Government announced that Wang Junsheng was appointed deputy director general of the Jiangsu Industry and Commerce Administration Bureau in April.

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

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FTZ DIGEST

Arbitration rules for FTZ issued

The first arbitration regulation for the Shanghai pilot Free Trade Zone (FTZ) came into effect May 1. The rules, enacted by t h e Sh ang h ai Inte r n at i on a l E c onom i c and Tr a d e Arbitration Commission, allow disputing parties to either choose arbitrators from a list provided by the commission or hire their own. Previously, the selection of arbitrators was limited to a panel of 625 arbitrators, including 199 from 37 foreign countries and regions. In addition, companies involved in commercial disputes relating to less than R M B 1 0 0 , 0 0 0 ( U S $ 1 6 , 1 2 0 ) c an apply for a su m m ar y procedure of arbitration, which means a lower service fee and an earlier date for the case to be heard. The regulation also allows disputers to seek emergency relief prior to the formation of an arbitral tribunal. Previously, parties were required to table all issues until the arbitrators were appointed and the tribunal was constituted.

Telecom may open up to foreign firms

China has unveiled rules that will allow foreign companies based in the Shanghai pilot Free Trade Zone (FTZ) with a registered capital of no less than RMB1 million (US$161,000) to apply for investment in the value-added telecom business sector, according to the Ministry of Industry and Information Technology. The regulation stipulates that foreign companies that apply for the services are required to base their service facilities in the FTZ. The ministry also designated the Shanghai Communications Administration to handle the vetting procedures and slashed processing time to two months from the previous five months. Foreign companies will also be allowed to provide services including call centers, domestic multi-party communications and Internet access to the whole country, except for Internet access services that will be limited within the FTZ, according to the ministry.

FTZ reviews paperless declaration

Shanghai customs has started a paperless declaration review in the Shanghai pilot Free Trade Zone (FTZ) to improve efficiency. The practice allows corporate representatives to send digital copies of documents to customs to declare goods, instead of requiring them to go to customs counters to submit or i g i na ls . T he el e c t ron i c s y ste m w i l l d e te r m i ne t he qualification of the materials automatically by established risk parameters, including business type, price of the imported or exported goods, country of origin, airlines, logistics, records with customs and market watchdogs. Applications judged as high risk will be reviewed by customs workers if necessary. With the paperless system, nearly 3,400 applications are reviewed daily, according to Shanghai customs officials.

‘Negative list’ may be slashed by 40%

In order to further support trade and boost more interest, the “negative list” for the Shanghai pilot Free Trade Zone (FTZ) may be cut by 40 percent this year, according to zone administrators. With a shorter negative list, the FTZ will liberalize more service sectors, including senior care, architectural design, accounting and auditing, e-commerce and film production. With the aim to push forward financial reforms, the administration also said it plans to lower the threshold for foreign investment in emerging industries such as marine engineering equipment, aerospace manufacturing and new energy.

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CHINA & THE WORLD

ASIA-PACIFIC SIA PACIFIC SOUTH AMERICA

NEW ZEALAND: China, New Zealand begin direct currency trading China has granted approval to ANZ, HSBC and Westpac to act as market makers for direct currency trading between the Chinese renminbi and the New Zealand dollar, marking another step toward the internationalization of the Chinese currency. The New Zealand dollar is the sixth foreign currency that can be directly traded with the renminbi, after the U.S. dollar, the Japanese yen, the Australian dollar, the Russian ruble and the Malaysian ringgit. China is New Zealand’s largest export market. In 2013, New Zealand’s exports to China totaled US$8.1 billion, up from US$5.6 billion the previous year.

MIDDLE EAST

AFRICA

EUROPE ASIA-PACIFIC SIA PACIFIC

SOUTH AFRICA: Shanghai Zendai to develop US$8b project China’s Shanghai Zendai Property said it plans to break ground next year on a US$8 billion Modderfontein New City development near Johannesburg. The 1,600 hectare project is described as an international residential community, which will include offices, a park, housing for 100,000 people, as well as schools and entertainment centers. It is expected to take 15 years to complete. Shanghai Zendai last year agreed to pay South African commercial explosives firm AECI around 1 billion rand (US$95 million) for the land. Shanghai Zendai’s project is among the largest real estate deals by a Chinese firm.

NORTH AMERICA

FRANCE: China to buy 70 Airbus jets for US$10b State-owned China Aviation Supplies Holding signed an order for 70 Airbus jetliners, worth at least US$9.9 billion at list prices. China Aviation Supplies ordered 27 long-haul A330s and 43 smaller A320s to provide Chinese airlines in all segments of the market. Earlier, China’s Avicopter, part of the Aviation Industry Corporation of China (AVIC) signed a joint agreement with Airbus Helicopters (formerly Eurocopter) for the production of 1,000 new-generation EC175/AC352 rotocrafts. China also signed a new 10-year agreement allowing Airbus to continue building planes in Tianjin until 2025.

MIDDLE EAST EUROPE

MIDDLE EAST

AFRICA

UNITED ARAB EMIRATES: GeoHarbour sets up in Dubai GeoHarbour Group, a Shanghai green construction technology company, has set up its regional headquarters in Dubai, according to investment promotion agency Dubai FDI. The Dubai office of GeoHarbour, also known as GeoHarbour Middle East Construction, plans to offer technologies in soft ground improvement and the piling of foundation works to infrastructure developers across the UAE and Middle East. The Dubai office will serve as the headquarters for its marketing, engineering, financial, management and human resources operations in the Middle East and Africa.

NORTH AMERICA

ASIA-PACIFIC SIA PACIFIC AFRICA NORTH AMERICA

UNITED STATES: Weibo to list on Nasdaq The Chinese microblogging platform Weibo will list on the Nasdaq under the ticker symbol WB. Weibo plans to offer 20 million shares at a price of US$17 to US$19 a share that could raise as much as US$380 million in an initial public offering. With 130 million monthly active users, Weibo generated US$188 million in revenue in 2013, up from US$66 million the previous year. While still unprofitable, Weibo’s net losses narrowed from US$102 million in 2012 to US$38 million in 2013. It is a subsidiary of Sina Corp, which owns 77.6% of the company, and Alibaba, which bought a 19.3% stake for nearly US$600 million in April 2013.

SOUTH AMERICA

BRAZIL: Yingli Solar to power World Cup stadium Yingli Green Energy Holding Company Limited said it has supplied 1 megawatt (MW) of solar panels to Grupo Neoenergia, one of Brazil’s largest energy companies. The company, known as Yingli Solar, said the panels will be used to produce electricity for the solar project at Arena Pernambuco, a stadium which seats more than 46,000 people and that will host five 2014 FIFA World Cup matches. The 1 MW system, which marks the first solar power plant for Pernambuco state in Brazil, is expected to generate over 1,500 MWh of electricity annually, equivalent to about 6,000 Brazilians’ annual electricity consumption, and be used to meet 30% of Arena Pernambuco’s electricity demand.

ASIA-PACIFIC SIA PACIFIC 8

SOUTH AMERICA MIDDLE EAST AFRICA

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EUROPE NORTH AMERICA SOUTH AMERICA

SOUTH ASIA-PACIFIC SIA AMERICA PACIFIC

deal of the month B y Tat e G i e s e l m a n n

C h i n e s e c on s or t iu m l e d by M MG Lt d . , a u n it of s t at e controlled China Minmetals Corporation, purchased a Peruvian copper mining project from commodities trading and mining giant Glencore Xstrata for US$5.85 billion. The all-cash deal for Las Bambas, a long-life copper development project located in the S o u t h A m e r i c a n c o u n t r y ’s C o t a b a m b a s province in southern-central Apurímac region, is among China’s largest mining acquisitions in recent years. The Chinese joint purchasing venture also included Guoxin International Investment Corporation and CITIC Metal Company. As part of the deal, the joint venture partners will assume resp onsibi lit y for proj e c t c apit a l expenditures from January 1, 2014. According to an MMG media release, Las Bambas is one of the world’s largest copper projects currently under construction with a 10.5 million ton copper mineral resource and a 6.9 million ton copper ore reserve. The project is expected to enter production in 2015. “Las Bambas is expected to produce in excess of 2 million tons of copper in concentrate in its first five years of operation,” MMG Chief Executive Officer Andrew Michelmore said in a

Reproduced by kind permission of Glencore Xstrata

Chinese Consortium Acquires Copper Mine for US$5.85b

A worker looks over Glencore Xstrata’s Collahuasi copper operation in north Chile

media release. “We also believe there are opportunities to extend the existing resource and mine life as a significant proportion of the license area is currently unexplored.” The deal is the largest Chinese purchase of an overseas mining asset since state-owned Aluminum Corporation of China bought a 12 percent stake in Anglo-Australian mining company Rio Tinto PLC for US$14 billion in 2008. The transaction is expected to close by the third quarter, subject to regulatory approval and a vote by MMG’s shareholders. China is the world’s largest importer of copper, accounting for roughly 40 percent of global copper demand. The country is also the second largest producer of copper behind Chile, a c c o r d i n g t o d a t a b y t h e Un i t e d S t a t e s Geological Survey. Based in Beijing, China Minmetals is a major producer of zinc, and also mines copper, l e a d, gol d and s i lve r w it h op e r at i ons i n Au s t r a l i a , L a o s , A f r i c a , As i a an d Nor t h America. He a d q u a r t e r e d i n B a a r, S w i t z e r l a n d , Glencore Xstrata is among the world’s largest global diversified natural resource companies, with more than 150 mining and metallurgical sites, offshore oil production assets, farms and agricultural facilities.

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leadership B Y DAV ID MAR Q U E T

Take Control by Giving Control

David Marquet

A former U.S. Navy submarine commander shares his secret to getting a team to think effectively

n Shenzhen, four tables of directors at a Chinese manufacturing company were tr ying to answer a simple question: what had they seen? They had watched a 15-second video clip from the movie Master and Commander. Had there been land? How many sails were up? Had there been a pennant from the topmast? The groups had come to consensus but many answers were wrong or incomplete. They did the activity again. This time certain group me mb e rs h a d d r aw n re d c ard s and we re instructed to dissent with the group. Others could dissent if they wanted to but those with the red cards had to. The dissenters knew it was safe to dissent because they were told we would flip the cards up at the end and everyone would know they were dissenting because they had a red card. Still, when asked how it felt to dissent, they spoke of anxiety and stress. By the end the lesson was clear, after the dissenting opinions were heard, the groups had a better, more accurate picture of what they had seen than before. In other words, if we can present dissension in a safe way, so that it is not seen as disharmonious, the group will win in the long run. My experience as the captain on a nuclear powered submarine had strongly influenced my views on leadership. I had learned to cherish the dissenting voice. This was part of a broader pattern where I viewed my job as the leader to get people to think (not do) and create leaders (not followers). The key action to accomplish this was giving people control (not taking control). We called this approach leader-leader to distinguish it from the more traditional leader-follower. I found that giving control was scary. I was

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afraid that my team would make poor decisions. I was afraid I would be held accountable for their mistakes, or worse. I had an image of giving control resulting in chaos. Chaos is bad on a nuclear submarine.

Don’t lose control We worked hard on the idea of giving control without losing control. The fundamental idea is that the leader retains control of the environment, the organizational design; while the operational decisions are almost entirely delegated. For example, on the submarine whereas I would normally decide on when and where to submerge t he ship, I now delegate d t hat decision to the officer of the deck. As part of that decision, I needed to ensure the new d e c i s i o n m a k e r h a d a d e q u at e t e c h n i c a l competence and organizational clarity to make appropriate decisions – not necessarily the s ame d e c i s i on I wou l d h ave m a d e – but technically correct decisions that supported the mission of the submarine. Instead of me ordering the officer of the deck to submerge the ship, he would inform me “Captain, I intend to submerge the ship.” This was where we gave control to the officer. It may see like a slight change in language but it was tremendously powerful. In addition, the officer would then explain, “all hatches were shut, all men were below, and the ship was rigged for dive.” These corresponded to the supporting pillar of technical competence – was it safe to submerge the ship? Finally, he’d explain why we should be submerging the ship, why here, and why now. This discussion corresponded to the pillar of

“

organizational clarity – was submerging the ship the right thing to do now? If the discussion seemed complete, I would simply acknowledge with a “very well” and he would order it. We found that this was highly successful to get people below me to think; and below them to think. Pretty soon most of the officers were t h i n k i n g l i ke c apt ai n s . As t h i n k i ng an d involvement went up, so did morale, engagement and operational performance. The ship, which h a d b e e n d oi n g p o or l y, w on aw a rd s f or performance and created more subsequent leaders than any other submarine. The idea of leader-leader doesn’t have to be sold in North America and Europe. Leaders already want to move in this direction and want help in the mechanics.

I had an image of giving control resulting in chaos. Chaos is bad on a nuclear submarine.”

A tough sell In China I had expected the idea of leaderleader to be a tough sell based on its long history as a conforming culture. It wasn’t. D u r i n g a t a l k a t S h a n g h a i Ji a o To n g University we posed this question: Do Chinese people just want to be told what to do? The 150 participants paired up and discussed this for two minutes and then we had an open discussion. As soon as I set them on their discussion path the room erupted in talk. After two minutes we started hearing from the group. The answer was a resounding no. One of the last groups I talked to was the Executive MBA group at Tsinghua University in Beijing. It was an imposing group. The question came up again: Do Chinese people just want to be told what to do? This talk had been entirely i n E n g l i s h , n o i n t e r p r e t at i o n h a d b e e n necessary. However, this time, my 26-year-old Chinese interpreter Hanyi interrupted a skeptic to tell her story of how valued she felt when her ideas were heard and how it made a difference in her work. I can’t imagine the guts it took for her to jump in but the act more than anything else

The author’s book includes Navy stories

proved the point that at least she wasn’t waiting to be told what to do. I’m sure implementing leader-leader in a culture where following instructions and societal norms is so highly valued will be slow going. But the image of a world where everyone is thinking and bringing their creative best to work seems worth it. Based on Hanyi’s example at Tsinghua, I am hopeful.

David Marquet is the author of Turn the Ship Around! named Fortune Magazine’s No.1 Must Read Business book of the year and recently added to the U.S. Navy’s Professional Reading List. Marquet likes hearing stories from the workplace. You can connect with him @ldavidmarquet, or learn from preston@chinafoundations.com.

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Chicago 1920s Roars into Shanghai

B Y E r i k a wa n g

early 400 AmCham Shanghai members and friends attended the 2014 Charity Gala, a signature event which this year brought back the excitement of Chicago in the roaring 1920s – an era of jazz bands, flappers, bootleggers and marathon dancers. The evening’s festivities featured live and silent auctions, including firstclass tickets for two to the U.S. on American Airlines, a spectacular Disney experience in California and VIP tickets to the Shanghai Rolex Masters. Live music and performances showcased Studio 188, the Cotton Club’s Royal Hombres, jazz singer Frank Bray, host and DJ Brian Offenther and Moonglow Burlesque’s Leru and Lulu. AmCham Shanghai announced that the April 12 Charity Gala, an important part of the Chamber’s Corporate Social Responsibility program, successfully raised RMB400,000 thanks to the generous support of all. Proceeds from the event will go to support the Chi Heng Foundation, Shanghai Roots & Shoots and Teach for China. Chi Heng Foundation will use the money to construct two multimedia classrooms, with total capacity for 1,600 during a one-year period, for AIDS-impacted children in Henan and Yunnan provinces. Teach for China will support six fellows, talented graduates from top Chinese and American universities, to teach under-resourced schools in Yunnan and Guangdong provinces for one school year (September 2014 to June 2015). Shanghai Roots & Shoots will provide 335 eyeglasses, 469 dental checkups and treatment for third- to fifth-grade students in five migrant primary schools in Shanghai. “Every year, the gala is one of the highlights of our AmCham calendar, and gives us an opportunity to spend time with good friends and colleagues,” said AmCham Shanghai President Kenneth Jarrett. “More importantly, however, it’s also a chance to give something back to the community by supporting important charities.” AmCham Shanghai Chair Robert Theleen agreed: “As we have done each year now for more than a decade, AmCham Shanghai has hosted the annual charity gala that has raised millions of renminbi to benefit worthwhile Chinese charities.” This year AmCham Shanghai also established a special fund known as the “American Chamber of Commerce in Shanghai Charity Fund” in partnership with the Soong Ching Ling Foundation. For more information about the Chamber’s CSR program, visit www. amcham-shanghai.org/csr.

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AmCham Shanghai held the 2014 Charity Gala “Roaring ’20s Chicago” on April 12 at the Jing An Shangri-La, West Shanghai. Nearly 400 members and friends attended the event. Proceeds from the gala will go to support the Chi Heng Foundation, Shanghai Roots & Shoots and Teach for China.

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Chamber Adopts Membership Fee Changes

n response to rising costs, AmCham Shanghai has announced an increase in membership fees. These changes take effect May 1, 2014, for new members and July 1, 2014, for existing members seeking renewal. The new cost structure marks the first time AmCham Shanghai has increased membership fees since 2010 and is required for the Chamber to continue current levels of support t o i t s m e m b e r s h i p. A s a n o t - f o r - p r o f i t organization, the Chamberâ&#x20AC;&#x2122;s goal is simply to run a balanced budget. This adjustment follows a recent vote by the Board of Governors to address inflationary costs to the Chamb er and to ensure continued expansion and support for member services. AmCham Shanghai has introduced a range of enhanced services in recent years, including: Expansion of robust networking opportunities Enhanced avenues for understanding business conditions in China More active committee system in order to generate better business information

Improved conference facilities Enhanced member card discount benefits and new health insurance options Expansion of the Chamberâ&#x20AC;&#x2122;s range of services and reach in the Yangtze River Delta Establishment of the pioneering SME Center to generate business leads for our members Members can expect price increases of between 10 and 20 percent, varying according to the type of membership category. New bundling packages for additional associate members or legal entities can help reduce costs. A list of detailed member benefits and membership categories is available on the AmCham Shanghai website. As a member-driven organization, AmCham Shanghai is committed to ensuring expansion of services and resources and continually welcomes your feedback. Please contact the Membership Department at (+86 21) 6279-7119 ext. 5676, 5659, 5677 or membership@amcham-shanghai.org for any questions concerning the new membership fee structure.

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w o r k & h e a lt h B Y M ARGI E C HIANG

Health Takes a Backseat to Work imaginechina

Exercise is not a priority for many working professionals

alk into any department store food court any evening or weekend and it might look like a food festival is in town. Eating has been a family tradition in China for centuries but today, more and more people are finding that what they eat could pose a danger to their health. Paul French and Matthew Crabbe, the authors of Fat China: How Expanding Waistlines are Changing a Nation, said that by 2015, as many as 200 million Chinese will be morbidly obese. How did China go from famine to feast with physical proportions growing? According to Dr. Hau Liu, chief medical officer and endocrinologist at United Family

Hospital, industrialization and more choices are to blame. “In addition, the daily expenditure of calories that was common (i.e. commuting via biking) has been replaced with options that do not require physical exertion,” Liu said. Yet there are also deeper issues as revealed by interviews that I conducted to understand the reasons for the obesity epidemic – speaking to white collar professionals in Shanghai and health and wellness product and service providers that are introducing solutions.

‘Too tired to exercise’ According to a 2013 sur vey by Horizon

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Poor eating habits pose a growing risk to the health of working professionals

imaginechina

I don’t have time to think about what I am eating.”

‘A lot of 0s’

Work and poor eating habits trump health

“

My mother would never let me marry someone without a house. We look for the 4Cs: Cash, Condo, Credit Card and Car…” – Female marketing executive

Research Consultancy Group, Chinese people continue to have difficulty accessing proper health coverage. Additionally, 95 percent of respondents said that it was too expensive to seek care. According to Oki Alexander, movement architect at Building Movement, “In the past, a large family provided safety as the offspring provided resources. However, the one-child policy has decreased this safety net. As such, the focus is not on long-term goals such as good health yet instead short-term goals to create safety: the accumulation of wealth to hedge on future costs.” Interviews with some of Shanghai’s whitecollared professionals show that health takes a back seat to professional success. A 35-year-old-male vice president at an international communications firm said the pressure to succeed financially doesn’t allow time for fitness. “I need to own a house before anyone will marry me and after that, I need to take care of family and parents and in-laws. I need to make money, a lot of money,” said the man who asked to remain unnamed. “During the week, I am at client banquets or team building dinners – drinking/smoking and then off to karaoke. Next day is the same thing. I’m too tired to exercise and

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The same goes for Shen, 24, a marketing executive at an international retailer. “My mother would never let me marr y someone without a house. We look for the 4Cs: Cash, Condo, Credit Card and Car – I don’t care what the guy looks like. I can make him lose weight after we get married,” Shen says. Drew Campbell, CEO and founder of World Health Store, said that in the U.S. and other Western countries, fitness and health are important. “In China, you don’t need to be healthy and fit to be rewarded, if you are a guy you just need a lot of 0s before the decimal point in your bank account,” he says. For Chinese women, society rewards the “bamboo frame” – focused on slim and reed-like versus healthy and robust. Starvation diets are the preference versus healthy calorie management and increased movement. Amy, 25, a former concierge manager, recalled one period in her life when she ate almost nothing. “For two months, I ate 12 peanuts and one bowl of soup and lost 28 kilos. Chinese women would rather starve to lose weight instead of exercise,” she said. If this is the case, what explains increased obesity rates among females in urban areas? One theory is that “starvation dieting” is wreaking havoc on the metabolism. Some nutrition experts say that when people skip meals their metabolism slows down and your body conserves, rather than burns, calories. Fur thermore, star vation dieting is not sustainable. If the person does not learn how to properly manage calories, then he/she will return to the same unhealthy eating habits poststarvation mode and regain the weight, if not more.

Wealthy fatties The daily habit of moving has been nearly

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eliminated by motorized vehicles and the trappings of modernity that create efficiency. The result is there appears to be a link between lack of physical exertion and obesity. So is China’s obesity situation hopeless? Will the pursuit after the 4Cs and/or the association of this Holy Grail create a country of wealthy fatties? “Encouraging white-collared professionals to actively care about their health is a long-term process,” says Nancy Pon, general manager at Touchevents and creator of the public service WOW health and wellness campaign. “We have discovered that among white collared professionals, health in and of itself is not the goal. As such, we position good health as a means to an end that they are seeking, i.e., a life-long partner, smart children, increased focus at work.” Kimberly Ashton, health and nutrition coach

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and co-founder of Sprout Lifestyle Shanghai, pointed out that education is needed in schools, at work and should be stressed by parents. Campbell of World Health Store agrees, but with a caveat. “Sure, health education is essential but it will not impact behavior until there is a cultural re-prioritization of the rewards system. If one is not rewarded, one will not act.”

Margie Chiang builds health and wellness brands in China. At World Health Store, she led its Shanghai retail expansion. With Touchevents, Chiang boosts public health with the WOW health and wellness campaign in China’s taxi screens. Chiang is vice chair of AmCham Shanghai’s Marketing Committee and sponsor-chair of TedXShanghaiWomen.

FDI B Y N . B R U C E P I C K E RING

China’s High-Tech Surge

f all the forces shaping the global economic environment t o d a y, o n e o f t h e m o s t potentially transformative is the

including many states and localities, have launched campaigns to attract Chinese investors in order to boost economic vitality, create new jobs and shore up the tax base. In an e f for t t o s or t explosive growth of through conflicting claims Chinese investment and generate objective overseas. Since the postdata, Asia Society 1979 economic reforms, commissioned three C h i na’s e c onomy has Rhodium Group studies evolved quickly f rom on Chinese investment in low-cost manufacturing the U.S. Daniel Rosen and into increasingly highThilo Hanemann were the value-added sectors and principal authors of all global investment today. three. The year 2013 was a The first, An American landmark one. For the Open Door (2011), first time ever, Chinese indicated that Chinese direct investment in the direct investment abroad U.S. surpassed American (not just in the U.S.) could investment in China. amount to US$1 trillion to This structural shift is US$2 trillion by 2020 – a highly likely to continue, staggering total, but still profoundly altering the just half of the US$4 N. Bruce Pickering is vice president of global programs economic balance trillion foreign investment at Asia Society and executive between the two largest in the U.S. today. Based on director of Asia Society’s economies. Though its original dataset, the Northern California Center. starting from a very low re p or t c on c lu d e d t h at amount, Chinese Chinese investment in the investment has increased U.S. has b een a highly dramatically in a very short time – going from positive development and that the U.S. would do less than a billion dollars in 2008 to US$14.1 well to actively encourage it, while protecting at billion in 2013 – and more is clearly on the way. the same time legitimate areas of national What this means for the global business security. environment is not entirely clear, and much In 2012, Asia Society and Rhodium issued a dep ends on how t he invest ment surge is second report, Chinese Direct Investment in presented, both to the public and to business California. Like the first report, this study also leaders across the globe. In the U.S., Chinese documented the transformative impact of investment has been both celebrated and C h ines e invest ment , but a ls o note d t hat demonized. Some accuse the Chinese of stealing California needs to work harder to get its own jobs, technology and markets, while others, house in order, create a “one-stop shop” to

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A new Asia Society report analyses Chinese technology investment in America

shutterstock

A worker is preparing a machine in a high-tech pharmaceutical factory in the U.S.

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…Chinese firms are investing in the U.S. for many of the same reasons that American firms are investing in China…”

smo ot h t he way for prosp e c t ive C hines e investors and actively compete with other U.S. states – and indeed, other countries – for Chinese investments. In part based on the study’s conclusions, the State of California reopened its trade office in China in 2013 to step up its promotion efforts, and California Governor Jerry Brown drew on t h e re p or t re p e at e d l y du r i n g h i s h i g h l y publicized trade mission to China in April 2013. As the current report indicates, California has increasingly asserted itself as one of the most desirable lo c at ions for inb ound C hines e investment. Of particular note are the large number of investments in California – not first in the overall amount (that honor belongs to New York) but first in the number of deals.

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Commercial logic The newest Asia Society report, High Tech: The Next Wave of Chinese Investment in America, was released in April 2014 and narrows the focus yet again to Chinese investment in U.S. hightech sectors. The report finds that Chinese firms are investing in a broad range of U.S. technology sectors, including automotive, information technology, machinery, aviation and medical devices. According to the report, much of the recent investment growth is driven by movement up the product and technology ladders in China as well as greater freedom for private firms, which account for the vast majority of investments in

U.S. high tech. The report also finds that Chinese investments have already created or sustained more than 25,000 jobs in the U.S. and generate US$250 million in R&D spending each year, almost on par with Korean R&D in the U.S. With Chinese investment at its very initial stages, these numbers are bound to grow. One of the key findings of the new report is that Chinese firms are investing in the U.S. for many of the same reasons that American firms are investing in China â&#x20AC;&#x201C; access to markets, talent and distribution networks, and improving business efficiencies and bottom-line performance. In other words, they are following the same commercial logic as everybody else. As in previous reports, the study affirms the importance of protecting national security interests, but argues that screening processes like the Committee on Foreign Investment in the

United States are professional and effective. The report views CFIUS as a confidence building measure â&#x20AC;&#x201C; giving all concerned a sense of security that U.S. security concerns have been taken into consideration. Taken together, the three reports paint a picture of a U.S.-China economic relationship that, while constantly evolving and frequently beset by missteps or misunderstandings, is likely to grow in importance over time. Given the hostility and tension of recent years, this is very good news for both sides of the Pacific.

For more information and to download High Tech: The Next Wave of Chinese Investment in America, please visit AsiaSociety.org/ChinaHiTechInvestment.

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IN D U STR Y INSIGHT B Y TAT E GI E S E L M ANN

Shanghai’s Race for Space

hina’s service sector is growing. Though China grew out of the Reform and Opening period as an export-based, manufacturing economy, the central government is now promoting the growth of a consumerist middle class with a directly correlating service sector. In Shanghai, this growth of the service sector is directly linked with office space growth. As the service sector grows, Grade A office space – spaces with high-quality infrastructure and construction – will increase in demand. Over 6 million square meters of Grade A office space are currently is occupied in Shanghai. Though that number is quite a jump from what it was a few years ago, it is expected to skyrocket in years to come. By the year 2020, the amount of occupied Grade A office space in Shanghai is expected to double to over 13 million square meters. A new report released by JLL, previously Jones Lang LaSalle, Offices 2020 Shanghai: Double the Stock, Double the Demand? examines developments in the Grade A office space market and the drivers for office space demand in the coming years. The question is: will Shanghai’s service sector grow quickly enough to fill the increased amount of space? The answer, according to JLL, is yes; increased office space occupancy will be led by two main drivers.

Shanghai is expected to double its available office space by 2020 but will there be demand for it?

Courtesy JLL

Shanghai will experience the biggest increase in office space compared to other major Asia-Pacific business hubs

80%

Shanghai Mumbai Tokyo Singapore Hong Kong Sydney

62% 43%

43% 15%

Increase in Grade A Office Stock

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Drivers The two factors that will fill office space in the next five years are growth in the service sector and the recent establishment of the Shanghai Free Trade Zone (FTZ). Service sector growth comprises a majority of current office space demand. In the report, JLL s t a t e s t h a t “t h e s e r v i c e s e c t o r b r o a d l y encompasses a significant majority of the demand for office space.” According to linear regression models by JLL, as tertiary GDP continues to rise in Shanghai, the amount of occupied office space will follow. “In fact, even as the office stock nearly doubles, our model suggests that the vacancy rate will not exceed 10 percent in 2020,” notes Anthony Couse, JLL managing director for East China. Of the service sector, the two industries that stoke the most demand for Grade A office space are financial and professional services, including healthcare and legal practices, according to JLL. Of all industries in Shanghai, these two services fill 43 percent of all current Grade A office space. Colliers International’s Shanghai Office 1Q 2014 report, notes that demand for Shanghai’s Grade A office market will be led by domestic firms in the sectors of finance, professional services, pharmaceuticals and consumer goods. Meanwhile, Knight Frank’s Q4 2013 Shanghai Office Market Report says office demand will also remain steady, particularly in the financial, professional services and high-end manufacturing industries. Though the finance industry is already the largest source of demand in Shanghai’s Grade A office space market, support from China’s government policies is expected to boost future growth. Continued financial deregulation will encourage foreign banks to relocate their Asian base from outside the mainland, and the government’s push to shape Shanghai into a world

financial center makes the city a prime location for this relocation, the JLL report said. The growth of the finance industry, expected to double by 2020, will allow for new markets and actors, increasing the need for high-quality office space. Young managers, accustomed to high-quality offices abroad, will demand an increase in local quality.

Financial sector Growth in the professional industry is directly linked to the financial industry. As Shanghai’s financial services continue to expand, demand for legal, accounting, consulting, marketing and headhunting services will rise. According to the JLL report, hospitals and retail offices are also expected to contribute to the industries demand for Grade A office space. The growth of the service industry will be aided

by the rise of the Shanghai FTZ. The FTZ, established last fall amid promises of reform and benefits for 18 service industries, has yet to show real results. However, analysts are banking on the FTZ transforming into a center for multinationals and domestics alike in the vein of Deng Xiaoping’s “special economic zones” in Shenzhen, Shanghai and other cities. As JLL highlights, such an occurrence would provide a stable foundation for the simultaneous augmentation of service industries. As Shanghai’s Grade A office space swells to 13 million square meters by 2020, the demand for this space will follow due to growth in the tertiary industry and the expanded role of the Shanghai FTZ. The future is hard to predict – especially in China. However, if the economy continues on its current trajectory, the vast amounts of Grade A office space to be built in Shanghai will be full of service sector employees by the year 2020.

“

…[T]he two industries that stoke the most demand for Grade A office space are financial and professional services…”

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Sir Martin Opens CEO of WPP Group talks candidly about Chinese brands, innovation, Google and social media

This interview was conducted by Michael Cole, director of Communications and Publications at AmCham Shanghai, with support from Erika Wang and Tate Gieselmann.

Sir Martin Sorrell, founder and CEO, WPP

t’s difficult to describe the man behind WPP, chief executive of the parent company to some of the world’s most well-known and most influential advertising and marketing companies. These range from global agencies J W T, Og i lv y & Mat he r to Hi l l+ Know lton and Wunderman, names that have become synonymous with

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television and print advertising, public relations and brand marketing. Sir Martin Sorrell founded WPP in 1985 when he gained control of Wire & Plastics Products PLC, and a year later, he bought 10 marketing services companies followed by J. Walter Thompson in 1987 and the Ogilvy Group two years later. WPP provides advertising and marketing to some of the biggest brands in the world including household names like Nike, CocaCola, Starbucks and Canon. It employs about 175,000 people in 110 countries including China. Last year, WPP reported revenues of US$17.3 billion and billings of US$72.3 billion. Sir Martin, 69, is active in various international business schools and sits on many boards and charities. In late March, he traveled to China to take part in the China Development Forum described by a Xinhua news report as a “platform for the business and academic communities to interact with Chinese decision makers and economic planners.” WPP has made it clear the company will develop its network in fast-growing markets and China is high on that list, particularly in the digital area. In March, WPP announced it will acquire XMKT Group, a Shanghai-based marketing services agency that offers strategic guidance with events, retail, entertainment and digital marketing. In addition, WPP announced JWT is set to acquire Shanghai Egift Design and Production which provides gifting services and distribution. Egift’s clients include Conde Nast, Novartis and Johnson & Johnson. Also in March, Hill+Knowlton unveiled plans to

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Up on China acquire Rice5, a digital creative agency with offices in Shanghai and Hong Kong. At present, China is WPP’s third largest market behind the United States and the UK. “China is no longer an emerging market, it’s a fast-growth market,” Sorrell said during an CNBC interview while in China. He stressed that the government understands the importance of an economy building on strength and the growth is fueled by consumption. He added he was optimistic that plans to grow the economy would succeed. “The plans that they’re talking about read like a charter for WPP,” he said. The following interview was edited for space and clarity. – BRYAN VIRASAMI Insight: In China, there has been a lot of talk about Chinese companies over the years, and everyone says “Oh, they’re just copycats and they don’t really do anything innovative.” Do you think a Chinese company will produce a product that turns into a global brand like Apple or Coca-Cola? Sir Martin Sorrell: “Well, I think that’s sort of a comfortable, Western view. I think it couldn’t be further from the truth. I think the conventional wisdom – and I had a conference in London where this point came up, and one person said – China does not respect intellectual property and copies, and I had to interject and say that I think that I couldn’t disagree more strongly. “China is starting to become very advanced in technology, and my colleague Scott Spirit and I did about 10 days of traveling around China. Not just the coastal plain, not just B eijing, Shanghai and Guangzhou, but also Chengdu, Chongqing and Nanjing, and we saw 15 to 20 companies in the period of 10 days. These are leading Chinese companies that we work for, and we met the CEOs and Chairs of all of them. This was about a year ago – what struck me was their intelligent understanding of technology. Some of them were technology

companies but others, even the retail companies, all of these companies had a fundamental understanding of the impact of the Web and e-commerce on their businesses. “At that time we met with Jack Ma in Hangzhou, and Jack Ma introduced us to the new CEO of Alibaba because he is pulling back to focus on their logistics platform and international transactions platform. And Robin Li from Baidu.com came to our strategy conference in Beijing a year or so ago, and he has a banking license too. And of course we now know that Alibaba and Tencent are getting into the financial transactions business. I wrote a piece a few months ago on LinkedIn which highlighted the fact that China is increasingly becoming very technologically sophisticated and may well lead in some of the areas that we’re talking about. What they’re doing on financial transactions may be something that American companies follow. Of course, it has big implications for banks, for traditional retail banks. Out of 1.3 billion people, as intelligence is distributed I am told on a normal bell curve, the odds are that the U.S. with 300 million people and the UK with 60 million people will be at a disadvantage over time.

The WPP companies

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Insight: We often hear about unfair competition with stateowned enterprises and a lack of market access for foreign brands in China. Do you or your clients see this as a challenge, and if so do you see a way of overcoming that? MS: “Well, I do think in some minister’s drawer in Beijing there is a list of industries that are strategically important to China or strategically fundamental to China, and that the Chinese government (and we can argue whether this is the right way to do it or not, but I think it’s probably true) wants to protect or develop certain industries. It doesn’t appear, to date, that that includes the advertising and marketing services industry, and maybe that is part of the reason we are so bullish about China. “Our view is that this market is a market where we’ve been at it for 28 years, we’ve been in China since we acquired JWT in 1987. I made my first visit here around 1988–9, and we had the first WPP board meeting in Guangzhou in 1988 or 1989. So, we’ve been at this for a very long period of time; that doesn’t mean to say we haven’t had challenges, but by and large China has represented a very large opportunity for us and is our third-largest market now with US$1.5 billion of revenue and about 16,000 people.

Jack Ma of Alibaba

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“I think net-net, China is a tremendous opportunity. If you’re running a multinational company you cannot ignore it, or you ignore it at your peril. We often get the question, ‘Is China more important than India?’ or vice versa and the answer is both, it’s all of the bricks on the next level because that is where there has been superior growth, at least historically, and we think there will be in the future. But, for understandable reasons, governments (including the Chinese government) want to see certain industries that they regard as being important flourish within their borders and not be crippled by more sophisticated overseas competition. I think that’s understandable, we’re obviously happy with that and our business is profitable in China. They are extremely strong, the people are extremely good, there is a talent shortage in China which we tried to address by setting up the WPP advertising school in Shanghai, where we’re basically training young Chinese students in all of the disciplines that we do.” Insight: Do you think there is any downside to having so many mediums available for advertisers today or, is this something that actually works to the advertiser’s advantage?

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MS: “Well, I suppose it is good news, bad news in the sense that it’s more fragmented, and it’s making the markets therefore much more difficult to analyze. From our point of view that’s good news because we become more important as a purveyor or as an advisor on what our clients should do, how much they should spend and where they should spend it. Social media is not proven yet, but it’s probably easier to target and easier to measure, and certainly easier to provide detailed data on.” Insight: If Xi Jinping were to call you up at WPP today and say, “Sir Martin, we’re trying to create a brand for China and we really need your advice on the campaign strategy.” What would be your advice in terms of creating an international brand for China? MS: “I wish he would call, actually [laughs]. I’d be on the line immediately. In a way, it’s already been fashioned. If you go back to the Olympics in Beijing, I think we knew what China stood for and what China was trying to do, but I think that event in and of itself or the Shanghai Expo as another example. We haven’t had a World Cup in here China yet but I think that in the future my bet would be that we will have a World Cup here in China. Having said that, I think the brand has been fashioned. “The problem with China’s brand is that it’s very much seen as being manufacturing-based, and coming back to our previous discussion, it’s very much I.P. copying, state-owned enterprise domination that is seen as being very much manufacturing and very much lacking in creativity. So, the best way to put it is that we’re trying to change it from made in China to created in China. “I think, actually, that all the seeds of strength in ‘brand China’ are being sown at the moment. I mean, I think people look at China and see a country that’s highly motivated, highly effective, hardworking, obviously state-directed capitalism, a mixed system with strong state control, but at the same time a capitalist system, a sort of two-part system. “One thing that always strikes me is that I see a lot of similarities between China and Singapore, in the sense that (and China does it on a much bigger scale) the message is very wellcoordinated and well-orchestrated. For instance, you almost feel as if every Chinese delegate that you meet, whether it’s in the private sector or the public sector, has a little card in their pocket with three points that they want to get over. “So, if he (Xi) wants to call, I would say it’s going in the right direction. Of course there are concerns, Western concerns about all the things that you’re well aware of. “For us, we regard ‘brand China’ as being very strong, and I think there’s an opportunity if we were doing a campaign to stress the innovative qualities of China, the technological

At a Glance WPP companies include JWT, Ogilvy & Mather Ad v e r t i s i n g , Y & R , G re y, M i n d s h are , M E C , MediaCom, Kantar (including Millward Brown and T N S ) , Wu n d e r m a n , B u r s o n - M a r s t e l l e r , Hill+Knowlton Strategies, Landor, Brand Union, Fitch, The Partners, AKQA and WPP Digital. Sir Martin is involved in various charities and independent organizations. He is a non-executive director of Alpha Topco, the Formula 1 company and Alcoa. He is on the Executive Committee of the World Economic Forum International Business Council and a member of the Business Council in the U.S. Sorrell is a trustee of the British Museum, a member of the corporate Advisory Group of the Tate Gallery, and on the International Advisory Board of The Russian Museum in St. Petersburg. A few years ago, he was appointed to the Board of Directors of the Bloomberg Family Foundation.

capabilities. I mean very few people really understand that Alibaba could be a US$150 billion to US$200 billion company. They don’t know that Tencent is US$140 billion, they don’t know that Baidu is US$60 billion; they tend to just think Apple, Google and Microsoft and not of these companies. Insight: If you look at say, Tencent, its killer app is something called WeChat. If Facebook can go out and buy WhatsApp, do you think that Chinese companies can compete globally with these types of innovations?

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Tencent is expanding into other businesses

“

I always laugh inwardly when people say Google hasn’t come to China…”

MS: “Yes, I think they can and I think they have to pick their territories carefully. For example, I was in Latin America recently, in Mexico City right before Christmas, when the energy reform was being passed. I was amazed. Alcatel is the high-selling smartphone. That’s a Huawei phone being branded in Mexico and Latin America (as Alcatel). “If China’s foreign policy is around Latin American or African countries, or Middle Eastern, you don’t go down the conventional routes. What you do is to focus on those countries which are not being focus on by others and where you have an

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advantage. For example, when we talked to Baidu, I think Robin Li talked about places like Turkey, Egypt and Russia rather than going head-to-head in the U.S. I think the answer to your question is yes.” Insight: Do you think there is any advantage in social media, say, in terms of letting the advertiser start a conversation with the consumer? M S : “Ye s , I t h i n k s o c i a l te nds to b e more br and i ng mechanisms rather than advertising or sales mechanisms. Things like Facebook or Twitter cause a bit of confusion; certainly ‘search’ is probably the most effective sales medium of the five that we’re talking about, and that would be search either of the desktop or of the mobile type. A good example is we know that 85 to 90 percent of sales of cars and trucks in the United States are influenced by search in one way or another. So, if you think about some of these channels as being effective sales tools or advertising tools, with the other channels being very effective brand-builders, that is a better way of looking at it.”

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“ A Huawei phone ad in Mexico

Insight: What do you think needs to be done for foreign brands that want to come into China and want to compete in terms of selling their products? MS: “Well, my colleague Tom Doctoroff wrote a book some years ago which I always quote, Billions, and he tried to analyze the difference between local Chinese companies and multinational companies; and I think the broad generalizations (and they are broad generalizations) hold true. They are not just applicable to China; they could be applicable to India or Russia or Brazil. Broadly, local companies have very strong awareness and distribution and their price points tend to be lower. Foreign companies have very strong brand loyalty: take a Nike, or a Gucci or a Prada. Not as much awareness and certainly not as much distribution and a higher price point. So what a foreign company has to do is tailor its products to the Chinese market and get more distribution and awareness. What the local companies have to do is convert their awareness and distribution into brand loyalty. The Chinese like brands a lot, just like the Japanese, I think that’s something you can capitalize on. That being said there are some differences. Some of our biggest businesses are in China; these are businesses like Always and Dawson who distribute their products through the 180 or however many cities with over a million people in China.” Insight: I know that WPP has strong relationships with Google and Baidu, what do you think of in terms of Google’s challenges in China, is that something that has an impact on other clients or is it something that is isolated to one company? MS: “I always laugh inwardly when people say Google hasn’t come to China and then you look at the penetration of Android into China, I don’t know what it’s up to but it’s well over half in terms of the platform that is used on the smartphone. Google is in China, they may not choose or want

So, the best way to put it is that we’re trying to change it from Made in China to Created in China.”

to be but they are by default or design.” Insight: So when people are talking of Google’s problems in China they are referring really to the search business. MS: “Well they have chosen, they chose to do that at a time when they didn’t have penetration into the Japanese market, so it’s very interesting that they made a decision not to come into China or weren’t allowed to come into China on their terms. They’ve since repaired the problem in Japan but at that time they were shut out of Japan too by Yahoo!, but they’ve now done their deal with Sensan. But that was a pretty gutsy decision at that time because you were denying yourself access to what was then the third largest market and is now the second largest market. And whilst you were out of the third largest market as well, namely Japan. Now having said that, that’s a choice they made but that’s given an opportunity to Robin Li and to Tencent, to Alibaba and others to capitalize on it.” Insight: I know that your company has done a lot of acquisitions in the online space, e-commerce tends to be where the profits come from online. Do you see a future for U.S. companies succeeding with e-commerce in China? MS: “Yes, most definitely. We’re building platforms. Our business is becoming increasingly focused on not just the CMO but the CIO and being technology-based. So I think the answer is yes. We’ve acquired a number of companies in the e-commerce area, we just won a big piece of business for a major company in Europe competing against technology consultancies instead of the traditional competition. So I think that will increasingly intensify because within companies they are trying to make sure the platforms they have, whether they are e-commerce or whatever, are the same rather than disparate and diverse.”

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D I P LO M A C Y B Y B R YA N V I R A S A M I

‘We Must Get It Right’

U.S. Ambassador Max Baucus with his wife Melodee Hanes during a reception at the embassy in Beijing on April 9

n his first month as U.S. ambassador to China, Max Baucus barely had time to settle in before he was called to high -profile meetings with both Chinese and American officials. During those first weeks in Bejing, he met with Chinese President Xi Jinping, escorted First Lady Michelle Obama during her visit to China and took part in toplevel meetings on security issues with Defense Secretary Chuck Hagel during his tour. Not to mention the Boao forum in Hainan. Baucus, who represented Montana for more than three decades in the United States Congress, replaced Gary Locke as ambassador on Feb. 21. The new top envoy is taking up the position at a time when both President Xi Jinping and Barack

Obama have made clear the need to improve understanding of each other’s priorities. The ambassador inherits an inbox with plenty to do, ranging from differences over cyber security, improving military cooperation, finding more common ground on Iran and Syria and reducing tensions from China’s maritime disputes with Japan and several ASEAN countries. At his confirmation hearing in the Senate Committee on Foreign Relations in January, Baucus said he was working on a list of priorities if confirmed as ambassador but identified three goals. “The first is to strengthen our economic relationship with China in a way that is mutually beneficial and ensures a level playing field for

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New U.S. ambassador Max Baucus will have to tackle a long list of bilateral and regional challenges during his tenure in Beijing

MAX SIEBEN BAUCUS Age: 72 Sworn in: Feb. 21, 2014 Career Highlights: U.S. Senate since 1978 until his retirement in 2013, Montana’s longest serving U.S. senator. House of Representatives: 1975 to 1978 Montana House of Representatives: 1973 to 1974 Education: Stanford University, Bachelor’s and law degree Personal: Married, one son and two stepchildren

American businesses and workers to compete fairly with their Chinese counterparts,” he told the senators. The next priority named was to “partner with China to tackle common global challenges, while also urging China to support the laws, the norms, the values and human rights that undergird the current international system from which we all benefit.” The ambassador said his third goal is to promote strong “people-to-people ties between us, including students, tourists, business people, and others.” While most U.S. executives in China would agree with the ambassador on his top goals, they may agree more with another issue the Montanan pointed out: healthcare, intellectual property rights and market access.

imaginechina

Ambassador Baucus welcomes U.S. Secretary of Defense Chuck Hagel, left, at Qingdao Liuting International Airport April 7

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At the hearing, he also cited regional security – mainly North Korea and Iran as key concerns, along with global priorities “such as cyber security, climate change, wildlife trafficking, pandemic disease, transnational law enforcement, clean energy.” In his farewell address to his colleagues in the Senate earlier this year, Baucus said that in his youth he hitchhiked through Europe, Africa and Asia including Hong Kong, and declared the experience was instrumental in his decision to seek out a life in public service and made him even more pleased to take up his new role in China. “The U.S.-China bilateral relationship, I believe, is one of the most important bilateral relationships in the world. It will shape global affairs for generations, we must get it right,” he said. Baucus, 72, was nominated to the post after he announced his intention not to seek reelection to the Senate. A running enthusiast, he half-jokingly said he was planning to take part in the Beijing Marathon. While the senators were mostly cordial during the hearing, they cautioned the nominee to try to understand China’s real intentions when it comes to issues where differences may exist between

China and the U.S. Sen. Robert Menendez (D-N.J.), for example, identified cyber security and IPR issues, which AmCham Shanghai members also consider important. “China will benefit more in the future the more China protects its own intellectual property and follows more rules-based solutions,” Baucus said. Sen. John McCain (R-AZ), stressed that China wants to be the “dominant” force in Asia, pointing to the country’s “aggressive behavior” in the South China Sea and referring to territorial disputes with Japan, the Philippines and other neighboring countries. “The construction and acquisition of an aircraft carrier is a statement of a desire to be able to project power,” McCain said. “The role that China is playing in Asia today should be of great concern to all of us.” Baucus reiterated that he was aware of those concerns and stressed the need for constructive dialogue to improve ties. “The overarching goal here I think is for us to engage China with eyes wide open, to try to find common ground,” he said.

President Barack Obama approaches President Xi Jinping of China at the Palace of Congresses in St. Petersburg, Russia last year

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The overarching goal here I think is for us to engage China with eyes wide open…”

Advice for the Ambassador Norwell Coquillard President & CEO, Enactus China While there are obviously many issues that the ambassador must take up immediately – particularly in the area of regional security – I would suggest that the ambassador push for greater market access for U.S. goods and services and to complete an investment treaty with China. In my area of expertise – food and agriculture – there are still barriers for the importation and distribution of a number of American products – U.S. beef is a good example. Presently, such products are banned or restricted by overly cautious or unnecessary regulations. There continues to be uneven enforcement of regulations that put U.S. companies at risk in trading food and agricultural products with China. The U.S. and China have a mutually beneficial relationship when it comes to the trade of food products and I would like to see the ambassador focus on making this trade smoother and more predictable. Another important issue he should pursue is the completion of an investment treaty so that U.S. companies would receive national treatment in their operations in China.

Dennis Chang General Manager, China, MasterCard MasterCard is a global payments and technology company that connects billions of consumers, thousands of financial institutions, millions of merchants, governments and businesses in more than 210 countries and territories, enabling them to use electronic forms of payment instead of cash and checks. MasterCard’s vision is a world beyond cash, a vision of shared prosperity and better quality of life through advances in technology. MasterCard has already been offering its payment technologies to Chinese customers and cardholders to facilitate the cross-border trade and tourism between China and outside world since 1988 when it first established its representative office in Beijing. However, as of today, foreign electronic payment services providers are still unable to offer their services in China for RMB-denominated transactions. As China continues to reform and open up, we look forward to extending our world-class technologies and services to its domestic market, unleashing far greater benefits through innovation, competition and cooperation. The China-U.S. relationship is one of the most important bilateral relations that have significant bearings on businesses. This is no exception for MasterCard. MasterCard is excited to have Ambassador Baucus in China and we look forward to working with the Ambassador for a better U.S.-China trade relationship, and a better future where electronic payment services can play a bigger role in the process as China continues its reform and opening up.

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U.S. executives highlight top issues they hope new envoy will tackle QUESTION: Max Baucus recently arrived in Beijing to take up his new post as U.S. ambassador to China. As a business executive in China, what issue would you encourage the ambassador to prioritize or focus on?

Neil Wang Partner and Managing Director, China, Frost & Sullivan China’s environmental issues are now becoming increasingly intense and complex. People do not just focus on the obvious problems like water and waste – although these are still one of the priorities. A growing number of people are starting to shift their attention to these “hidden problems,” represented by air quality, underground water and soil contamination. Heavy metals like mercury, cadmium, small particulates like PM2.5, persistent organic pollutants (POPs) have become the major contaminants with rising attention in recent years. The latest data from the China Meteorological Administration shows that the national average number of hazy days reached 29.9 in 2013, which was a record high in the last 52 years. The root causes include heavy reliance on coal energy in China, lower emission standards for both industrial and mobile sources, and loose implementation and supervision compared with developed countries. Several days ago, the preliminary result of the first national soil contamination investigation in China showed that 16.1 percent of total soil and 19.1 percent of cultivated land exceeded the safety limit. Seven percent of the soil contained an excessive amount of cadmium, a toxic heavy metal pollutant. Soil contamination has posed a big threat to food safety. Both the Chinese government and industry players have started to seek solutions for the improvement of poor environmental quality in China, through either terminal treatment or fountainhead treatment. A series of incentive policies have been launched to reinforce the control on emission of pollutants and promote relevant businesses, creating a great space for the environmental protection industry as a whole. Key areas with high-growth potential include environmental services and outsourcing, environmental monitoring and analysis, industrial air filtration, sludge management and disposal, site remediation, water recycling, etc. It is believed it will take years or even decades for making a big change. It would create business opportunities for U.S. enterprises as well as help preserve the Chinese environments if Mr. Baucus works with China to leverage the latest advanced environmental technologies in the U.S.

Sanjay Prabhakaran President, Greater China, Baxter China Ltd. According to the U.S. Consulate in Shanghai, Ambassador Baucus has ranked extending opportunities for U.S. healthcare companies operating in China as his number one priority. We’re happy to hear that. The healthcare market in China is expanding rapidly with plenty of opportunities for a company like Baxter. But it is also quite challenging and I would encourage the ambassador to continue to work with the Chinese government on revising foreign investment laws to be in line with China’s ongoing efforts to promote economic reform and lower investment hurdles. The concept behind the Shanghai Free Trade Zone is not a bad model. This would help ensure foreign and local companies are playing on a level playing field where I’m confident U.S. companies have a great shot to compete and win in the China market.

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Sarah Butler Managing Director, Greater China, Strategy& (Formerly Booz & Company) We hope the U.S. ambassador could strengthen the relationship between the U.S. and China and encourage more cooperation on both business and social development. With the rise of Chinese companies, many are actively expanding to the U.S. to access capabilities, resources and markets. Meanwhile, despite some slowdown and challenges, U.S. companies continue to come to China to seek growth in what remains a critical market. Both U.S. and Chinese companies have opportunities and challenges on achieving profitable growth as the market matures, consumer wealth increases and needs become more sophisticated, and as they face growing competition and over-capacity both in the premium segment and the mid-market. There will be opportunities for collaboration and best-practices sharing to succeed both in China and globally if this leads to a win-win outcome. This could be facilitated through the U.S. ambassador enabling a “bridging role” to facilitate the business expansion and development for both Chinese and U.S. companies, supported by aligned regulatory frameworks. In addition, the U.S. ambassador could play a role in helping the Chinese government to achieve their agenda, especially on social issues like air pollution and safety, in order to provide a better environment for people living in China.

Thomas A. Myers President, China Trade Institute The U.S. should work on a reasonable accommodation regarding the Big Four audit workpapers that have been subpoenaed by the SEC and PCAOB (Public Company Accounting Oversight Board). A possible solution is to have the China Securities Regulatory Commission redact the audit workpapers, before turning them over, for any material deemed a China “state secret,” with the independent auditor opining on the materiality of the redacted material, but not the specific details. Regardless, an accommodation must be reached that respects China’s autonomy while ensuring U.S. investors that acceptable international standards of financial transparency and disclosure will be made by all China companies listed in the U.S. The global capital markets are best served by less polarization and greater integration of China’s world-class enterprises. The same is true regarding the integration of Western companies into China’s markets. Cross-pollination is a good thing.

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Howard Gough CEO of Global Employer Segment, Middle East & Asia Pacific Region, Cigna Corporation Cigna President and CEO met with the ambassador on March 25. We feel honored and appreciated the ambassador’s attention to us. The Ambassador was very enthusiastic in helping American companies in China. One of the key areas that USTR and the U.S. Embassy have been pushing very hard on our behalf is on geographic expansion for foreign joint ventures including us. Foreign joint ventures have not always enjoyed same treatment as domestic companies ever since China joined the WTO. Also we hope that after years of excellent collaborative work around free and fair trade of products, the two countries will similarly focus on the fair and free trade of services, working together to remove any restrictions that would require the localization of services, including the technologies in support of the same, in order to promote economic relations between our two countries. We believe U.S. companies that do business in China should have more opportunities and platforms to share their thoughts and ideas with local regulators before the establishment of the local policies and regulations.

Yan Xuan President, Greater China, Nielsen First, a warm welcome to Ambassador Baucus to China. As a member of the U.S. business community, I am impressed with and excited about Ambassador Baucus’ distinguished record of government service and the unique credibility and assets he brings to this critically important position. There are many issues to focus on but I believe three of them stand out as the top priorities that have the biggest impact on a more sustainable and constructive U.S.-China relationship. Trade protectionism is alive and well in both countries and both governments have an opportunity to take the moral and policy high ground on this contentious issue. Secondly, support the Chinese government’s ongoing SOE reform to further reduce the government’s ownership in China’s largest banking, financial and commercial enterprises. Decades ago, the U.S. demonstrated tremendous thought leadership and provided many well received know-hows to the Chinese government on trade and investment liberalization which have benefited both countries and the world economy. The same great opportunity exists for enabling deeper SOE reform now. Thirdly, help China execute its domestic consumption led GDP growth policy. A bigger share of Chinese domestic consumption ensures less trade frictions between China and its major trading partners particularly the U.S. and gives China a higher quality and more balanced growth.

Ken Wilcox Chairman, Silicon Valley Bank The best advice I could give would be to spend the first several months trying to understand China, before forming any lasting opinions or making any actionable judgments. Sadly, especially for an ambassador, it takes years to peel back the layer of the onion. Both China and the U.S. see each other through distortion lenses. Understanding those lenses is a necessary first step. Acting too early could only make the job more difficult. Also of great importance: Chinese people like to spend a lot of time getting to know their conversation partners before they disclose themselves (if ever). As a result, first (and second and third) impressions usually require revision later in the game. Other than that, best of luck.

Jerry L. Palmer Managing Director, Chemicals Lead, APAC The rapid emergence of a Chinese urban middle-class has dramatically altered the agriculture and food expectations of the Chinese people. The demands for a high-quality protein diet in conjunction with more access to fresh fruits and vegetables have served to heighten Chinese consumer demands for safe food. Food safety is becoming an emerging consumer consideration for the Chinese people. China now is the largest market for U.S. agricultural products. The United States and China have established cooperation on food security, sustainable agriculture and food safety. There is great potential to further deepen and expand the cooperation through helping China implement best practices in agronomy and advancing science-based policies and regulations. In the long run, the most effective means to attain both food security and safety is a transparent, stable and consistent policy for effectuating both trade of products and intellectual property. A direct benefit to such policies will be a sustainable, consistent and obvious improvement in air and water quality in both the rural and urban environments. These new agriculture and food opportunities and demands will not necessarily be forced into a Western based and designed system. We should be willing to spend more time developing the necessary insights for China’s agriculture industry.

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Taking Down Barriers In my last column, I mentioned that our board was considering proposing a vote to the membership that would consider the revision of our bylaws to permit non-U.S. passport holders to run for the chairâ&#x20AC;&#x2122;s position. As I mentioned, I would welcome your views that you can share with Ken Jarrett, myself or other members of the board on this subject. I have already received quite a number of comments from members and I am grateful for your thoughtful remarks. In addition, the board is considering a resolution to extend the term of each governor to two years instead of the current one-year period. I feel that our organization is changing rapidly and becoming more complex than it was a few years ago. It reflects the expansion of the American business community, the close relationships we have forged, over the years, with both the Shanghai Municipal Government as well as the regional governments throughout the Yangtze River Delta. When a new board member is elected, it takes that person a considerable amount of time and effort to grasp his or her responsibilities, to understand how the organization operates and to be able to make meaningful contributions to the overall governance of AmCham Shanghai. Our president, Ken Jarrett, has carefully compared the terms of office of most of the other AmChams in Asia. Not to our surprise, a large number of them have two -year or even three-year terms. Either of these options makes sense to me.

Robert Theleen Chair of the Board of Governors

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For many of you who have attended recent seminars we have held on the Shanghai Free Trade Zone, the Bilateral Investment Treaty (BIT) and the TransPacific Partnership (TPP), you know that Beijing and Washington have been working diligently to remove many of the regulatory and trade barriers which pre ve nt a mu ch g re ate r e x p ans i on of business across the Pacific. What you may not be aware of is that the Chinese government has been pushing Washington to give higher priority to these foreign trade and investment programs. It may very well be that, in an election year, the likelihood of successful passage of these programs appears dim. But it is our objective at AmCham Shanghai to stay on top of the progress of these negotiations for our members. If you have not done so, you may wish to contact our staff for insights to share with your corporate colleagues back home who may not be aware of some of the progress both sides are making. Finally, I wish to thank all of you who contributed to the success of our annual Charity Gala. I was dazzled by the glamour and glitz of the theme of Chicago in the roaring â&#x20AC;&#x2122;20s. We had a remarkable turnout and the net result was a substantial contribution to our CSR recipients who all were appreciative of your caring generosity for the Chinese communities where our funds were directed.

i n s i de amc h am B O A R D of g over n or s br i ef i n g

Women’s Executive Network Approved at Board Meeting Highlights from the April 2014 Board of Governors Meeting AmCham Shanghai’s Board of Governors held its monthly meeting on April 8 to approve the formation of a new committee for senior-level women in the Chamber, appoint a new chair for the Nominations and Elections Committee and finalize plans for rolling out a new membership fee structure.

for posts at the Chamber goes smoothly, by appointing a new chair for the Nominations and Elections Committee (NEC). The NEC is responsible for overseeing the process for election of new officers and governors for AmCham Shanghai. Board member Eric Zheng was unanimously approved to chair the committee for the coming year.

Women’s Executive Network Approved At the meeting, AmCham Shanghai Committees Director Stefanie Myers introduced a request by the membership to formalize the Women’s Executive Network as a new committee. The Network supports the advancement of senior women executives in AmCham Shanghai. Myers explained that the new committee is open to women members who hold senior management positions. Formation of the Women’s Executive Network was approved unanimously by the board.

New Fee Structure and Other Items The governors also continued to look after the Chamber’s budget in this latest meeting by reviewing the rollout of new membership fees, which go into effect on May 1. Also on the agenda was a final review of preparations for the Charity Gala, which took place on April 12.

New Chair for the Nominations and Elections Committee In addition to setting up the new committee, the board also put team members in place to ensure that the next round of elections

About AmCham Shanghai’s Board Meetings To ensure that the Chamber is an effective voice for American business in China and that members receive maximum benefits from AmCham Shanghai’s events, programs and activities, the Board of Governors meets monthly to plan strategy and review the Chamber’s performance. These notes are provided as a way to keep all members updated on the Board’s discussions.

The AmCham Shanghai 2014 Board of Governors Governors

Chair

Jeremy Burks Dow Corning

Jimmy Chen FedEx Express

Chen Lienjing Pratt & Whitney

Michael Crotty MKT & Associates

Jun Ge Intel China

Ker Gibbs BW Ventures

Cecilia Ho International Paper Asia

Curtis Hutchins Eaton (China) Investments

Eric Zheng AIG Insurance

Robert Theleen ChinaVest

Vice Chair

Sherman Chu Cisco Systems

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AmCham Shanghai

AmCham Shanghai President Kenneth Jarrett with attendees at the Ninth Annual Corporate Social Responsibility (CSR) Awards ceremony on March 26

Nora Wu, PwC Shanghai lead partner, receives award for CSR Leadership

A guest poses a question at the CSR Awards ceremony

AmCham Shanghaiâ&#x20AC;&#x2122;s SME Center Orientation China Author series launch event featuring John Leary, second right, partner at White & Case LLP, on March 28 42

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Month in Pictures Panel discussion at the first annual AmCham Shanghai China E-Commerce Forum on March 19

Senator Patrick Leahy (VT) with AmCham Shanghai President Kenneth Jarrett during a briefing with a visiting U.S. congressional delegation on April 16 Senator Richard Shelby (AL) addresses the audience

Author Series event with Eswar Prasad, author of The Dollar Trap: How the U.S. Dollar Tightened Its Grip on Global Finance, on April 18 at the AmCham Shanghai Conference Center

Senator Mike Crapo (ID) answers a question during the event

AmCham Shanghai New Members U.S. Corporate Membership

FutureBrand LAU Daniel WODUSCHEGG William

Beijing GTECH Computer Technology Co., Ltd. HUANG Wen

Greenberg Traurig LLP Shanghai Representative Office LIN Sandy

Calgon Carbon (Suzhou) Co., Ltd. CHEN Truman

INVISTA Management (Shanghai) Company Limited WALTON Julie

The Parthenon Group LLC (Shanghai) REEB Adam UL-CCIC Co., Ltd. YAO Yujuan

JSM Shanghai Representative Office (Hong Kong) TAM Fung Kwan Betty U.S. Associated Corporate Laureate Investment Consulting (Shanghai) Membership Co., Ltd. LI Siyan Litepoint Technology (Shanghai) Co., Ltd. WANG Gang Links Recruitment (Shanghai) Co., Ltd. MATSON Deborah Nemak Nanjing Aluminum Foundry Co., Ltd. WANG Weiye Nemak Nanjing Aluminum Foundry Co., Ltd. SAENZ DIAZ Jose Ernesto Thrane& Thrane A/S Shanghai Rep. Office SUN Jie TANG Chengyu Newell Rubbermaid Trading (Shanghai) Co., Ltd. TURNBULL Laura

Valeo Management (Shanghai) Co., Ltd. LI Maoxiang

RTKL Architectural Design Consulting (Shanghai) Co., Ltd. WEI May

Corporate Int’l Affiliate Membership Fosroc Guangzhou Limited YU Jaczen FutureBrand HENDERSON Nick L’ OREAL (China) Co., Ltd. BROWNE Sanford Links Recruitment (Shanghai) Co., Ltd. LAM Ivy Shanghai Nirun International Trade Company Limited WANG Yang

ANDERSON Angelia Sheets DEMERS Traci HORRIGAN Brenda LEVINSON Daniel Joshua REINHARDT Ryan Trevor ROBERTSON Simon SI Stella Rong TARLIN Jennifer TURGEL Daniel WANG Qun WISNEWSKI Warren

YU Philip Individual Int’l Affiliate Membership

Shanghai Kelly Services Human Resources Co., Ltd. REGGIANI Francesco

ZAUNMAYR Peter

NARGOTRA Rajesh PYLE Ryan

Shanghai Roche Pharmaceuticals, Ltd. YANG Helen

Non-Resident Corporate Membership

Shanghai United Family Hospital, Inc. HAN Joy QU Xiaoying

Kairos Future International LARSSON Tomas

Technomic Asia (Shanghai) Consulting Co., Ltd. CRANDALL Steven P. Associate Membership

Technomic Asia (Shanghai) Consulting Co., Ltd. GANSTER Steven SERSTAD Jim

Bristol-Myers Squibb (China) Investment Co., Ltd. GRILLS James

Zhongyin Law Firm KOH Peter Hyong Sik

LANGMANS Eric

Stellar Construction Design Consultation (Shanghai) Co., Ltd. CHUA Enrico

Acorn International GAO Weiji

China Highland Capital Management XU Randy

Shanghai Eurest Food Technologies Service Co., Ltd. TANG Ally

Simmons & Simmons (Shanghai Office) XU Jianhui

Sheraton Shanghai Hongkou Hotel ALTRICHTER Uli

At Your Service Pte Ltd. MATHIESEN Nayoung Chung

Texas Instruments Semiconductor Technologies (Shanghai) Co., Ltd. SHEN Zhihuan The Parthenon Group LLC (Shanghai) CAI Wei

The Institute Of Management Accountants FAN Du US Floors Inc. DOSSCHE Julian Non-Resident Individual Membership Yosemite International Consultants LTD LLC NADOLSKI Joseph Small Business Membership Achieve Wise Management Consulting Company HSIA Sih Ming

Capvision Partners (Shanghai) Co., Ltd. YE Alex X.

Thrane & Thrane A/S Shanghai Rep. Office YAO Hui

Carlisle (Shanghai) Management Co., Ltd. ANDREWS Mark DI CRISTINA Daniele

Veolia Water Solutions & Technologies (Shanghai) Co., Ltd. SHARROCK Jonathan

CCI China MACDONALD Timothy NORTHCOTT Simon

Webster University WU YI

Shanghai Foresight Restaurant Co., Ltd. MITTOO Sudhir

Winston & Strawn LLP, Shanghai Rep. Office LIU Jerry

X-PM Partners China Consulting Co., Ltd. MASEDA Silvia

Yingke Law Firm LLC TZHORI Michal Michelle

YouGov YOO Min

Eaton (China) Investments Co., Ltd. ZHOU Joyce Flupac Piping Systems (Shanghai) Co., Ltd. MARIAGE Antoine 44

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Collectors Universe (Shanghai) Ltd. ZHU Chaoping Emigra Business Consultants (Shanghai) Co., Ltd. CHIN Calvin

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.

Government Relations AmCham Shanghai Hosts U.S. Congressional Delegation AmCham Shanghai on April 16 hosted a U.S. congressional delegation that included Senator Patrick Leahy (VT), Senator Richard Shelby (AL), Senator Mike Crapo (ID), Congressman Jim Cooper (TN) and Congressman Peter Welch (VT). Senator Leahy noted that he had been traveling to China for the past 40 years, with his first trip in 1978. He said that congressional delegations give senators and congressmen the opportunity to engage with Chinese lawmakers as well as American businesses. He noted that Senator Patrick Leahy speaks during a briefing with members one of the major issues that the delegation had brought up with the Chinese is that of protecting intellectual property rights, and how improving protection will help not only American businesses, but Chinese businesses as well. The delegation also visited Hong Kong and Vietnam before heading back to the United States.

Consulate Highlights Ambassador’s Priorities AmCham Shanghai and the US-China Business Council hosted a joint event on April 14 during which William Duff, consul and political and economic section chief of the U.S. Consulate General in Shanghai, provided remarks. Duff noted that Ambassador Max Baucus had just completed his first month on the job, during which he met with Chinese President Xi Jinping, hosted First Lady Michelle Obama and Secretary of Defense Chuck Hagel, as well as met with business leaders and hosted events in Chengdu, Guangzhou and Hainan. Duff added that the Ambassador’s three priorities include expanding medical care access for American medical firms, increasing intellectual property rights protection in China and improving market access for American firms in the Chinese market.

Chamber Unveils CSR Award Winners

Winners of the 2014 AmCham Shanghai CSR Awards

AmCham Shanghai held its Ninth Annual Corporate Social Responsibility (CSR) Awards ceremony on March 26. This year’s award winners were: PwC China for CSR Leadership, Philips China for CSR Innovation, Dow Chemical and Junior Achievement for Partnership, Johnson and Johnson for Employee Engagement, Melinda Gao from KPMG China for CSR Practitioner and Hainan Yin from IBM for CSR Entrepreneurship.

Julie Broussard, country program manager for the UN Women China Office, delivered the keynote address on the role of gender equality in CSR and the cutting-edge idea of Creating Shared Value developed over recent years to explain how businesses can and should innovate in order to align productivity with a clear social mission. Broussard linked gender-diverse companies with those that have sustainable business models to exemplify the significant impact made upon societies around them. She stressed that the greatest challenge companies face today is innovation, while the greatest human challenge is prejudice. When companies diversify their workforce and allow women to take on leadership positions, they not only improve internally but also have a positive impact externally, Broussard said.

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Event highlights

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People’s Bank of China Rep. Speaks at FTZ Briefing AmCham Shanghai, as a part of its Perspectives on the China (Shanghai) Pilot Free Trade Zone (FTZ) Series, hosted Deputy Director General Shi Liya of the RMB Cross-border Business Department of the People’s Bank of China (PBoC), Shanghai on April 17. Shi briefed members on the goals of PBoC regulations and policies in the FTZ, including raising convertibility of RMB under capital and finance accounts, facilitating the opening of China’s capital market, building a macro, prudential-oriented policy framework for cross-border capital flows, simplifying PBoC involvement in registration and filing procedures, as well as making the RMB a freely convertible and internationally usable currency. Shi shared SWIFT data showing the RMB now ranks No. 8 in world payment currencies, with the U.S. RMB market at No. 4 in global RMB activity. She added that key priorities for PBoC moving forward will be the implementation of policies supporting the introduction of a “Free Trade Account” service to allow for simplified foreign exchange convertibility, as well as further simplification and unification of account regulations. The event was supported by FTZ Program Sponsors HSBC and O’Melveny and Myers, as well as Supporting Organization Deloitte. For more information on the Shanghai FTZ, visit AmCham Shanghai’s dedicated FTZ website at www.amcham-shanghai.org/ftz.

Manufacturers’ Business Council Highlights Caterpillar Best Practices AmCham Shanghai’s Manufacturers’ Business Council hosted a best-practice sharing roundtable on April 15 of the Caterpillar Sustainability Program, featuring Frank Li, general manager of Caterpillar Global mining and Asia Pacific Remanufacturing.

Frank Li of Caterpillar shares best practices in sustainability

Li identified trends including urbanization and a growing middle class, as well as industry needs like infrastructure, energy and commodities, as major global drivers for economic growth.

According to Li, Caterpillar believes the most successful companies are those that integrate sustainability into their core businesses over the next decade, including developing key sustainability principles to prevent waste, develop better systems and improve quality. He noted how Caterpillar works on each part of their machines to improve visibility, reduce operating noise and lifetime operating costs, extend the life of the electric drive train and reduce fuel consumption. Li moreover introduced a successful recycling economic business model in the remanufacturing industry of Caterpillar. As opposed to repairing and rebuilding, the Caterpillar remanufacturing model involves completely disassembling and checking for reusability, replacing all bearing and seals, and rebuilding all salvaged components to a “like new” condition.

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Event highlights

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SME’s Author Series Features John Leary AmCham Shanghai’s SME Center launched its Orientation China Author series webinar on March 28. The first of the series features John Leary, partner at White & Case, LLP, who co-authored a section in AmCham Shanghai’s Orientation China Guidebook on “Three structural approaches to entering the Chinese market.” Leary described the three ways a company can establish business in China: a “greenfield” investment, a joint venture or an acquisition. John Leary, partner at White & Case, LLP, briefs SME A greenfield investment involves a company establishing a brandmembers on ways to enter the China market new, independent branch in the Chinese market, he noted, adding that the two types of greenfield investments are representative offices in which firms cannot do business but can establish connections within China, and Wholly Foreign-Owned Enterprises (WFOE). Greenfield investments allow companies complete control of their business in China. A joint venture, where a foreign company purchases a portion of a Chinese entity or forms a new company with an existing Chinese corporation, helps companies within the “restricted” category enter the Chinese market, said Leary. Finally, he noted that acquisitions in which a foreign company completely takes control of a Chinese company allow companies to immediately participate in the market and reduce competition.

SME Center webinars are free for all registered users. To learn more, visit sme.amcham-shanghai.org/webinars.

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Committee highlights

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Environmental Committee Reviewing China’s Carbon Market

Li Jin of the Shanghai Environment Energy Exchange (SEEE) provides an overview of Shanghai’s carbon market

AmCham Shanghai’s Environmental Committee hosted a roundtable on April 10 on China’s carbon market and its implications. Marco Terruzzin of Evolution Markets noted that China currently has seven pilot trading programs located in Beijing, Tianjin, Chongqing, Hebei, Guangdong, Shenzhen and Shanghai. He provided comparisons of each area’s pilot programs and emission thresholds. Noting that Shenzhen’s Emissions Trading Scheme (ETS) is the most aggressive in terms of participating entities and emissions threshold, he cautioned, however, that it will take a few more years to see clear which scheme emerges as the most effective.

Edward Shei of Future Perfect provided a look at the importance of monitoring, reporting and verification (MRV). He stressed that having the right person in place to conduct reporting and having clear data management systems are imperative to those involved in emissions reporting. He also noted that for companies in the early stages of MRV, there is indeed a steep learning curve and that a 100-percent accurate verification is nearly impossible. Li Jin of the Shanghai Environment Energy Exchange (SEEE) provided an introduction of the SEEE and updates on the current development of Shanghai’s carbon market. The SEEE was established in 2008 and saw its first completed reform in 2011. It covers scope, allocation, MRV, trading, incentive and compliance as well as risk control and regulation for the Shanghai ETS. She discussed the goals of the SEEE after three phases, noting that in 2015 they anticipate having a clearer picture of how the Shanghai ETS fits into a national scheme.

Food Agriculture & Beverage and Logistics & Transportation Committees Seminar on Cold Storage, Cold Chain AmCham Shanghai’s Food, Agriculture & Beverage and Logistics & Transportation committees on March 27 hosted a joint seminar discussing China’s cold storage and cold chain logistics industry. Clement Lam, director and general manager of Swire Pacific Cold Storage, provided a general overview of the cold chain logistics industry of China, describing the market as fragmented and insufficiently small. Compared with 32 percent in the U.S., up to 60 percent of the retail price of food in China goes into logistics. Lam indicated that the growth and development of the logistics sector will accelerate due to key drivers including a relevant solution to reduce waste of agricultural products and logistics costs, growth of affluence and the urban population, food safety concerns and government policy support. Accordingly to Lam, the current national cold chain market is valued at RMB35 billion and is expected to grow at or above 8 percent over the next 10 years. Swen Neufeldt, vice president of Hormel Foods International, explained how Hormel works closely with supermarkets or third parties to guarantee their products have been shelved promptly with proper temperatures and procedures. Hormel has also made innovations in the field of logistics to minimize the risk and waste during transportation, including products with minimum shelf life of 12 months and products that can survive ambient distribution, significant temperature abuse and still maintain a 60–90 day shelf life, Neufeldt added.

For more information on AmCham Shanghai’s 23 industry-specific committees, please contact committees@amcham-shanghai.org.

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Committee highlights

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Real Estate Committee Year-end Review and 2014 Market Outlook Roundtable AmCham Shanghai’s Real Estate Committee held an industry roundtable on March 25 which looked back on 2013 and forward to 2014 on the China real estate market. James Macdonald, head of Savills Research China, noted that while the moderate recovery in Western markets supported by the stabilization of exports is good news, the China market is experiencing a slowdown of investment into office developments due to concerns of oversupply. And in the case of the office market, Macdonald said that southern markets outperformed other regions due to the more active expansion of SMEs in the Pearl River Delta (particularly in Shenzhen). Steven McCord, director of China Retail Research at Jones Lang LaSalle, delved into the retail and investment real estate subsectors. He noted that major challenges for landlords in China include intense competition from high volumes of new supply, the rise of e-commence and slower consumption growth. Up to 217 new shopping centers may be completed in 2014 in the top 28 markets, and these new retail developers are increasingly delivering better tenant mixes, construction quality, management and design, said McCord. Noting how e-commerce is challenging the status quo, McCord described strategies that traditional malls are implementing such as offering experiential shops, pop-up stores, free Wi-Fi and other technologies, and more parking. McCord added that logistics will remain a hot sector for investors in China.

Legal Committee Members Discuss Amendments to the PRC Company Law AmCham Shanghai’s Legal Committee hosted an event on March 27 on recent updates of PRC laws and regulations regarding foreign-invested enterprises (FIEs). Nancy Sun, senior partner and head of the International Department of DaCheng Law Offices (Shanghai), concentrated on three categories: registration reforms, approval of FDI and cross-border security.

Nancy Sun, senior partner and head of the International Department of DaCheng Law Offices (Shanghai), briefs members on updates to China’s company law

Registration reform includes key changes which include no minimum registered capital (except those subject to special laws and regulations), no mandatory capital contribution period, no minimum portion of cash contribution and no requirement of verification reports. Although registration reforms have been announced, it remains unclear if those companies founded before March 1, 2013, would be grandfathered-in or allowed to follow new regulations, Sun noted. Since there is no minimum registered capital required, a company could technically be founded with RMB1, but this RMB1 would not be viable for investors; therefore, those wishing to start a company should analyze their situation and be attractive for investors. In addition to registration reform, there have been changes in the annual reporting systems and new requirements will again need to be checked with local authorities. Electronic Business Licenses will also be available in lieu of the paper ones. There will also be new systems for enterprise credit information and overseas recovery guarantee systems. As for foreign direct investment, there are no longer prior approvals required unless they are encouraged projects that must be controlled by Chinese investors when possible NDRC, MOFCOM and local government approvals would be needed and if the project is considered restricted, Sun added.

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EXECUTIVE dining room As the weather warms up, what’s your favorite outdoor/alfresco place in Shanghai to have a meeting or impress business associates? Courtesy Simply the Group

Michael D. Crotty, Founder and President, MKT & Associates Place: Cotton’s on Anting Lu Remarks: “It is a beautiful old and secluded home in the former French Concession with a great outdoor setting. Cotton, the owner, is very warm and gracious and her staff courteous and efficient. Food is good as well.” Courtesy Cotton’s

Jeff Hasenfratz, Managing Director, Mindsight Executive Development Services Place: Pin Chuan Sichuanese Restaurant (corner of Taojiang Road and Wulumuqi Road) Remarks: “The food is great and reasonably priced, even if they don't have much room outside!” imaginechina

Chuan de La Hosseraye, CEO of AWB – A Well Being Company Place: Yongfoo Elite Remarks: “The outdoor terrace at Yongfoo Elite has a very special atmosphere. With its colonial-style architecture and peaceful garden, we had the impression of having suddenly traveled back in time and disconnected from the busy life of this modern city. It’s a perfect place to enjoy a cup of tea while discussing business topics with your partners or clients.” imaginechina

Michael Zhou, President, Jiangsu Eastman Heavy Machinery Place: Overnight in Suzhou Zhou Ancient Water Village Remarks: “Completely relax in natural environment with strong ancient cultural flavor.” Devon Nixon, CEO, SoilTap China Place: Xin Dau Ji Remarks: “Xin Dau Ji, which sits on the periphery of Xiangyang Park, serves excellent dim sum. The thousand-year-old egg and suckling pig are delicious.”

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