Insight Magazine December 2009

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

INSIGHT The Journal of the American Chamber of Commerce in Shanghai December 2009

COMPANY PROFILE

Chartis Insurance POLICY INSIGHT

Tackling Climate Change EXPO UPDATE

USA Pavilion Update

Shanghai’s Financial Future On Shanghai’s goal of becoming an international financial center by 2020

INSIGHT December 2009

The Journal of the American Chamber of Commerce in Shanghai

AMCHAM SHANGHAI

Karen Yuen COMMITTEES

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24

28

JASON PYM

DIRECTORS BUSINESS DEVELOPMENT & MARKETING

CHARTIS CHINA

David Turchetti

17

ISTOCKPHOTO

17 Onwards and Upwards EXPO UPDATE

V I C E P R E S I D E N T, P RO G R A M S

By Justin Chan

Insight talks to USA Pavilion Chief Operation Officer Mark Germyn for the latest on the progress of fundraising and construction of the pavilion building.

18 The Value of CSR INTERVIEW

Siobhan M. Das COMMUNICATIONS & PUBLICATIONS

David Basmajian EVENTS

Jessica Wu FINANCE & ADMINISTRATION

By David Basmajian

Intel’s Shelly Esque talks about the development of corporate social responsibility in China and how a strong corporate social responsibility program can benefit a company.

21 The Road to Copenhagen

Helen Ren

POLICY INSIGHT

MEMBERSHIP & CVP

Linda X. Wang

By Randy Kreider

The long-awaited United Nations Climate Change Conference in Copenhagen is finally here. Will the conference deliver a new protocol on carbon emissions? What role will China and the United States play in creating a new solution?

INSIGHT EDITOR-IN-CHIEF

Justin Chan

EDITORIAL ASSOCIATE

24 Charting the Course

Elaine Wu

COMPANY PROFILE

COMMUNICATIONS ASSOCIATE

Weina Yang

By Justin Chan

Chartis Insurance China, the general insurance arm of global financial services company AIG is set to grow and develop the market for innovative products and value-added services in China.

DESIGN

Alicia Beebe LAYOUT & PRINTING

Ella Shan Snap Printing, Inc.

COVER STORY

INSIGHT SPONSORSHIP MARKETING ASSISTANT MANAGER

Sophia Chen

(86-21) 6279-7119 ext. 5667 Story ideas, questions or comments on Insight: Please contact Justin Chan (86-21) 6279-7119 ext. 5668 justin.chan@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.

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

F E AT U R E S

IMAGINECHINA

PRESIDENT

Brenda Foster

28 Shanghai's Financial Future

By Lauren Hilgers

Shanghai has outlined a very ambitious goal of becoming an international financial center by 2020. While it will certainly prove to be a challenge, a strong plan exists to make it happen.

I N S I G H T S TA N DA R D S

3 News Briefs 10 Manager's Notebook

40 Deal of the Month 11 Business Bookshelf

13 China to Lead Global Wind 15 Staying on Track Energy Development MARKET PROFILE

ANALYSIS

China is in position to be a major player in the development of wind turbine technology.

PricewaterhouseCoopers research indicates that Shanghai will remain among the world’s fastest growing cities.

INSIDE AMCHAM

34 From the Chairman: Representing American Business 37 2009 Annual General Meeting

38 2009 CSR Awards Winners 41 Events in Review 42 Committee Highlights

Special thanks to the 2009-2010 AmCham Shanghai President’s Circle Sponsors

MARCH 2009

INSIGHT

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Inside INSIGHT

I

justin chan editor-in-chief

t is December already and after a challenging 2009, many are starting to look forward to 2010. The global economic crisis that began in late-2008 has certainly affected most businesses in China, but all indicators are beginning to point up as we move along the path towards recovery.

global leaders to discuss among other issues, climate change. With the widely anticipated UN Climate Change Conference in Copenhagen to be held this month, this month's policy insight offers an overview of the latest discussions on emissions and what can be expected from the conference.

One of the U.S. companies that suffered the most over the past year was AIG, which was blamed by many in the media for causing the financial crisis.

For this month's company profile, I sat down with John J. Carey, president and chief executive officer of AIG's rebranded Chartis Insurance unit in China to discuss the fallout from the crisis and the company's business and prospects in China. Despite an ongoing tough environment in the U.S., the company that was founded in Shanghai 90 years ago remains strongly committed to the China market today.

Sustainable development is becoming a core part of the corporate social responsibility of many companies today. In this month's interview, we spoke to Shelly Esque, director of corporate affairs for Intel, which is widely considered to be a global leader in corporate social responsibility. She talks about how having a robust corporate social responsibility program can boost a company's bottom line, as well as the development of the concept in China.

During his visit to China last month, U.S. President Barack Obama reiterated his commitment to forging stronger ties with China on all fronts, whether on political or commercial issues. While in Asia, President Obama also attended the 2009 APEC meeting in Singapore, where he met with

This month's cover story looks at another major development in China – Shanghai's goal of becoming an international financial center by 2020. Developing into an international hub for financial services will require many different pieces to fall into place and is an ambitious goal that promises to be challenging, but China has long demonstrated its ability to follow through and achieve the goals that it sets.

Nestled within a 588,500sq.m landscape of lush greeneries and a stunning central lake, Shanghai Pudong Software Park (SPSP) is in the forefront of the newly touted Silicon Valley of Shanghai situated within a 5-minute stroll from Metro Line 2.

SPSP is well recognized as the national software industry base, as well as the nation’s premier software outsourcing base.

Equipped with affluent IT talent pool and IT training classes, it is no surprise that many renowned global IT companies are already calling the prestigious SPSP their home.

LEASING HOTLINE

86-21-61821816 Email: info@spsp.com.cn www.spsp.com.cn

Furthermore, SPSP offers an extensive range of offices, conference centers and hotels for your business requirements. It also offers a diverse collection of modern residential spaces, restaurants, cafes and sports facilities.

Come and embrace the holistic vision of Work, Live and Play that will appeal to both your talented employees as well as raising the profile of your Corporation among your peers and competitors.

imaginechina

News

n ne ew ws s b br r ii e ef fs s

china business

China’s auto market expands China’s automobile market continued its robust growth in October, jumping nearly 80% year-on-year to a total of 923,154 units, according to the China Passenger Car Association. The expansion brought total passenger vehicle sales for the first ten months of the year to 8.08 million, up 52.4% from the same period in 2008. China is now expected to surpass the United States to be the world’s largest automobile market for 2009. China’s automotive industry has seen escalated activity following the government’s stimulus package, which lowered the purchase tax on many cars and provided allowances for farmers to upgrade farm vehicles.

China maintains FDI growth China attracted US$7.1 billion in foreign direct investment (FDI) in October, a 5.7% year-on-year increase, Commerce Ministry spokesman Yao Jian said at a news conference. The increase marked the third month in a row that investment inflows have risen after falling for ten consecutive months previously. Despite the growth, China’s year-to-date FDI is down 12.6% from the same period in 2008, a reduction that the government blames on the global economic downturn. China approved the establishment of 1,815 new overseas-funded enterprises in October, bringing the total for the first ten months of the year up to 18,163.

Agricultural Bank’s profits jump The Agricultural Bank of China reported profit growth in the first three quarters of the year as it boosted its lending and prepared itself for an eventual public

President Obama makes first visit to China During U.S. President Barack Obama’s first trip to China, discussions with President Hu Jintao and Premier Wen Jiabao resulted in pledges of closer communication and cooperation between China and the U.S. On the trade front, Obama and Hu agreed to promote trade and pursue diplomatic negotiations to resolve trade policy disputes. At the same time, China urged a “rejection of protectionism” in response to U.S. claims of unfair pricing and imposition of anti-dumping tariffs on Chinese steel and tire products. On the policy side, Hu and Obama agreed to support G20 commitments, uphold the Non-Proliferation Treaty (NPT), engage in talks with North Korea and Iran to resolve nuclear issues, and support the efforts of Afghanistan and Pakistan to fight terrorism. Currency valuation continues to be a point of contention. Obama urged relaxed controls on the yuan and emphasized the benefit of a market-oriented exchange rate in rebalancing global economies, while Chinese Vice Foreign Minister He Yafei spoke of a stable yuan benefiting counter-crisis efforts and promoting global financial stability. Prior to arriving in Beijing, Obama stopped in Shanghai, where he met with city officials and held a “town hall” meeting with Chinese students. listing. The bank saw its net profits climb to RMB49.7 billion by the end of the third quarter, a 13% year-on-year rise. Its total assets also rose to RMB8.6 trillion as the bank issued fresh loans worth RMB939.4 billion, a 30.5% year-on-year increase in lending. The increased lending practices come as the Agricultural Bank moves

towards an eventual stock market listing; it is the only one of China’s state-owned “Big Four” banks yet to be listed. Chinese banks have issued RMB9.35 trillion worth of new loans during the first three quarters of the year. Of these, the five major banks (the “Big Four” plus the Bank of Communications) accounted for 47.4%.

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corporate news

charged, with a maximum speed of 160 kilometers per hour.

Toyota plans R&D center in China Toyota Motor Corp. plans to build its first research and development center in China as early as next year, according to a report by Japan’s Nikkei Business Daily. The Japanese automaker would reportedly spend between US$330 and 440 million on the facility, which would be built on the outskirts of Shanghai. The center would help Toyota better cater to local demand in China, where it currently only has about a 6% market share. Toyota sold 65,500 vehicles in China in October, a 42% year-on-year rise that brought its total sales in China so far this year up to 551,769 vehicles.

Suntech announces U.S. plant Suntech Power, China’s leading solar power company and the world’s largest solar module manufacturer, announced plans to build a U.S. headquarters and manufacturing plant near Phoenix, Arizona. The plant, which Suntech expects to open by the third quarter of 2010 with an initial capacity of 30 megawatts and a staff of 75 people, would represent about 3% of the company’s total production. Although the cost of the plant has yet to be announced, Suntech’s managing director Roger Efird said that the company applied for a 30% investment tax credit from the U.S. stimulus package.

Suntech’s sales revenue in 2008 reached about US$2 billion.

Beijing Auto launches electric car The Beijing Automotive Industry Holdings Co. (BAIC) has set up a new energy company to produce electric and hybrid cars, and has also begun construction of a new manufacturing facility on the outskirts of Beijing. The company expects to make and sell between 20,000 and 40,000 new energy cars by 2011 and achieve additional annual sales of RMB15 billion by 2015. BAIC also unveiled its first self-developed electric sedan, the BE701, which is capable of traveling as far as 200 kilometers on electricity when fully

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GE enters avionics JV General Electric Co. has established a 50-50 joint venture with China’s Aviation Industry Corp. (AVIC) to jointly supply avionics systems for jetliner makers worldwide.

Avionics systems help pilots navigate and operate planes. GE sees the joint venture as an essential opportunity to bring advanced avionics technology to the global market.

GE further aims to join in efforts by stateowned Commercial Aircraft Corp. (an AVIC offshoot) to launch a large passenger jet (C919) by 2016 that will compete with the popular Boeing (B737) and Airbus (A320) models currently dominating the market. GE Chief Executive Jeffrey Immelt predicts that in the next few decades the Chinese aviation industry will become one of the largest, if not the largest, in the world. macroeconomics

China’s industrial output grows China’s industrial production grew 16.1% year-on-year in October, announced China’s National Bureau of Statistics.

The growth was the fastest that China’s industrial sector has achieved since March 2008 and the sixth consecutive month of rising year-on-year growth. China’s Minister of Industry and Information Technology, Li Yizhong, said he expects China’s full-year industrial output growth to reach around 10.5% if roughly 16% yearon-year growth is maintained in November and December. This yearly growth, along with signs of growing company profits, rising power consumption and increasing export orders, signals notable recovery for China’s industrial production, said Li.

Housing prices jump in major cities Property prices in 70 cities rose 3.9% year-on-year in October, the fastest rate of property inflation China has seen since September 2008. In 20 of those cities, prices

December 2009

jumped more than 1% from the month before. New home prices around China also rose by 0.9% in October from September, while second-hand housing prices rose 0.4% year-on-year. The continuing rise in housing prices has some analysts warning that China could be experiencing an asset bubble that could leave China’s economy insecure and push the price of real estate out of reach for many Chinese. However, a new report by the Chinese Academy of Social Sciences says that housing prices are expected to fall slightly in the fourth quarter of this year, as reduced lending could restrain property demand.

Retail sales rise in October China’s retail sales rose 16.2% year-on-year in October to RMB1.17 trillion, according to the National Bureau of Statistics. The growth brought total sales in the first ten months of the year up to RMB10.14 trillion, a 15.3% rise from the same period in 2008.

According to analysts, the growth is widely due to stimulus measures put into place by China’s government to spur consumption, including tax cuts for auto purchases and new subsidies for home appliances. The rising domestic demand comes amid a falling consumer price index: China’s CPI fell 0.5% year-on-year in October, the ninth consecutive month of decline.

Luxury goods market continues rise A study by consulting firm Bain & Co. recently noted the importance of emerging Asian nations, with their rapid growth and newly affluent populations, to the luxury retail industry, especially during the economic crisis. The Chinese luxury market is expected to grow by 12% this year, in contrast to the 8% decline in the market globally. As companies set their sights on China, they are finding major differences from Western markets, namely in the age and taste of their target consumers.

Chinese consumers who shop at luxury boutiques are on average 15 years younger than their Western counterparts and have correspondingly younger tastes, with a

December 2009

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preference for sports apparel and “upper casual” attire. At the same time, the Chinese appreciation for skilled craftsmanship is also boosting sales of high-end goods.

Ermenegildo Zegna, the Italian luxury menswear company, was among the first luxury retailers to open a shop in mainland China in 1991. The company has found that Asian customers prefer modern, sleek shop designs along with in-depth information about the craftsmanship that goes into their suits and textiles.

on December 8 to begin bilateral talks with North Korea. After boycotting the six-party talks in April, North Korea demanded direct dialogue with the United States on the denuclearization issues. Although the U.S. agreed to hold bilateral discussions, it has insisted that the six-party talks, which would also include China, Japan, South Korea and Russia, should guide and facilitate the denuclearization process of the Korean Peninsula.

u.s. - china

Preparations underway for next S&ED

Chicago hosts greentech summit

Chinese President Hu Jintao announced that preparations for the second round of the China-U.S. Strategic and Economic Dialogue to be held next summer in Beijing will begin as soon as possible.

Implementation of some of the agreements reached in July at the first round of talks in Washington, D.C. is underway. The S&ED is an important mechanism in strengthening mutual trust and cooperation between the two countries, said Hu. After meeting with U.S. President Barack Obama during his state visit to China, Hu said that each side believes the constant regular contact between high level officials, as well as regular dialogue and consultation on different levels will ensure the ongoing development of bilateral relations.

The Chicago-China Green Building and Technology Summit kicked off in Chicago last month to explore sustainable building and energy efficiency practices, with participation from business experts and government officials from the United States and China. “This summit brings together Chicago and China-based corporations, education institutions and governments, and represents another important step forward in sharing best practices and initiating new projects and partnerships,” said Rita Athas, president of World Business Chicago. Speakers noted the advancement of clean energy technologies in each country, and the incredible opportunity to learn from one another. The summit was attended by a 30-person delegation from Shanghai.

Chu Maoming, deputy consul general at the Chinese Consulate in Chicago, also announced the establishment of a U.S.China Clean Energy Research Center that will be staffed by scientists and engineers from each country.

China supports U.S. envoy to Pyongyang China is looking forward to the visit to North Korea by U.S. Special Envoy Stephen Bosworth in December, said Foreign Ministry spokesman Qin Gang.

While in Seoul, South Korea, for the final leg of his Asia visit, U.S. President Barack Obama announced a visit to the North Korean capital by nuclear envoy Bosworth

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CHINA OVERSEAS

CIC buys stake in AES The China Investment Corp., China’s sovereign wealth fund, signed a deal with AES Corp. in November to buy a 15% stake in the global power company. Under the deal, CIC agreed to purchase US$1.58 billion in stock at US$12.50 a share from AES, which is based in Virginia but develops and operates power plants in 29 different countries. CIC also signed a letter of intent to take over 35% of AES’s wind-generation business, an additional investment of US$571 million. AES said that the funds would allow it to sustain its development while building a relationship with China and strengthening its prospects in the key growth market.

December 2009

China pledges loans to Africa In an address at the Forum on ChinaAfrican Cooperation in Egypt, Chinese Premier Wen Jiabao pledged US$10 billion in low-cost loans to African nations over the next three years. He also announced China’s plans to develop environmental programs in Africa, including 100 clean energy projects. In his address, Wen argued against accusations that China is strengthening its relationship with Africa in order to plunder the continent’s resources. “This allegation, in my view, is totally untenable,” he told a news conference. China had previously pledged US$5 billion in loans to Africa at the last cooperation summit in Beijing in 2006. government & policy

China raises fuel prices The Chinese government raised the price of both gasoline and diesel by RMB480 per ton in November in response to global rises in oil prices, the National Development and Reform Commission said. The increase amounted to a 7.25% rise for the cost of gasoline and 8.16% rise in the price of diesel. In Shanghai, the price for commonly-used 93-octane gasoline rose to RMB6.61 per liter, a 12% increase.

The change came as part of China’s new fuel pricing system that tracks a basket of global oil prices and responds when the 22-day moving average changes by more than 4%. The last time China adjusted prices was on September 30, when it lowered the rates by RMB190 per ton.

NDRC launches high-tech funds China’s National Development and Reform Commission, backed by several provincial governments and private investors, launched 20 venture capital funds totaling RMB9 billion to support the country’s high-tech sector. The funds will collect and direct capital to China’s electronic, information, biological, pharmaceutical, environmental and energy-related industries. The central government contributed RMB1 billion and another RMB1.2 billion came from

local governments in Beijing, Jilin, Shanghai, Anhui, Hunan, Chongqing and Shenzhen. The remainder came from private investors. “The purpose of setting up the funds is to direct capital to invest in competitive high-tech enterprises and to improve their capacity for innovation,” the NDRC said in a statement.

Shanghai Business

Shanghai’s GDP to see strong growth According to a research report by PricewaterhouseCoopers, Shanghai’s economy is projected to rise from 25th to 9th on the list of the world’s top 30 cities ranked by gross domestic product from 2008 to 2025, exhibiting the strongest growth among the world’s largest cities.

According to the report, the city’s economy will top US$692 billion in terms of purchasing power parity. In real terms, cities including Shanghai, Beijing and Mumbai are projected to grow between 6-7% annually between 2008 and 2025, putting them closer to leading cities like

New York, Tokyo, Chicago and London, which are set to grow on average around 2% annually.

while the medical technology market alone is expected to grow 20% CAGR.

Student startups struggling Philips selects Suzhou for new facility Royal Philips Electronics will construct a medical imaging system facility in the Suzhou Industrial Park that will employ roughly 500 people and occupy 62,000 square meters. Due to be completed in 2012, the US$54 million facility will integrate manufacturing, research and development, and assembly and sourcing to produce CT and MRI machines as well as X-ray equipment. The Philips facility is an effort to expand the company’s presence in China, already its third-largest regional market worldwide. China’s large and aging population, increased prevalence of lifestyle diseases, and a US$120 billion government reform package have all contributed to the nation’s rapidly growing healthcare market. China’s healthcare spending is expected to grow more than 18% CAGR during 2010-12,

December 2009

A review by the Shanghai government’s Shanghai Technology Entrepreneurship Foundation for graduates classified more than half of student businesses it subsidized as “mediocre” or “bad.” The 423 startups were evaluated on fund management, profit, market performance and potential.

According to Li Jun, executive of the Foundation’s education and research department, although many student business companies have good products, they lack an effective marketing strategy.

The Foundation provides guidance to help the ventures turn around, but as new market entrants, the startups have been particularly vulnerable to the economic crisis and volatility of consumer demand.

Those businesses that do poorly will lose their grants while those that manage to perform well may be offered additional funding to fulfill their growth potential.

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CHINA & THE WORLD Singapore Chinese President Hu Jintao’s attendance at the Asia-Pacific Economic Cooperation (APEC) forum in Singapore last month was a great success, said Chinese Foreign Minister Yang Jiechi. During his speech at the APEC Economic Leaders meeting, President Hu stated that APEC needs to reform in order to improve the efficiency of regional cooperation during challenging times. Hu announced a US$10 million ChinaAPEC Cooperation Fund that will support economic and technical cooperation between APEC members and relevant Chinese departments and businesses. Hu also called on members to take part in the upcoming APEC human resources and sustainability measures.

ASIA-PACIFIC

MIDDLE EAST

Japan China and Japan signed 42 deals to enhance cooperation in energy conservation and environmental protection during the recent China-Japan Energy Conservation Forum in Beijing. The deals ranged from sewage treatment construction to electronic waste disposal and research into energy-saving procedures. The forum, the fourth of its kind after China and Japan launched the first one in 2005, brought together approximately 1,000 representatives from the two countries. According to analysts, Japanese companies who produce fuel-efficient technologies will benefit most from the deal as Japan opens up trade further with China, already the country’s largest trading partner.

EUROPE

Ethiopia China signed an agreement with Ethiopia to provide a US$349 million loan to help fund construction of the country’s first expressway. The 79-kilometer expressway, which will begin construction early next year, will link Ethiopia’s capital, Addis Ababa, with the country’s second largest city, Nazeret. It is expected to be completed by 2014. The deal was signed between Li Ruogu, president of China’s Export Import Bank, and Ahmed Shide, Ethiopia’s state minister of finance and economic development.

AFRICA

MIDDLE EAST

Ghana China’s largest offshore oil producer, the China National Offshore Oil Corp., was blocked from bidding on a 23.49 percent stake in Ghana’s offshore Jubilee oilfield. Kosmos Energy LLC was expected to sell the stake to Exxon Mobil, but Ghana maintains absolute approval rights over oil exploration. Ghana is said to be acquiring the stake and considering proposals for partnerships from foreign oil companies, including Exxon and BP. The country’s petroleum industry is still nascent and is not expected to produce oil for export for at least a year. Nonetheless, top energy companies around the world have eyed the 1.8 billion-barrel Jubilee oilfield since its discovery in June 2007. The field is anticipated to pump 500,000 barrels a day by 2014.

MIDDLE EAST

NORTH AMERICA AFRICA

Iraq Iraqi Oil Minister Hussain al-Shahristani finalized a deal with a British-Chinese consortium to develop the country’s largest oil field. Britain’s BP PLC and China’s CNPC have gained development rights to the southern Rumaila field’s 17.8 billion barrels of crude oil for the next two decades. Rights to the Rumaila field were the only ones successfully auctioned out of eight oil and two gas fields. Oil accounts for nearly 95% of Iraq’s revenues, yet despite possessing the world’s third largest proven oil reserves, Iraq has struggled to attract foreign investment and expertise to rebuild its oil sector, which has been crippled by years of sanctions, neglect and war.

MIDDLE EAST AFRICA

SOUTH AMERICA

NORTH AMERICA

United States The U.S. Commerce Department established anti-dumping duties as high as 99% on US$2.63 billion worth of imported Chinese steel pipes used in the U.S. oil and gas industry. Soon after, China launched anti-dumping investigations of imported U.S. autos, as well as U.S.- and European-made hot rolled and stainless steel. The accusations by both sides that products are sold at prices below domestic rates or costs of production center around the issue of WTO-determined “market economy status.” Until China is recognized as a market economy, trading partners can evaluate its product pricing relative to different cost structures regarding labor or transport. As stipulated by the WTO, China has until 2016 to achieve market economy status, and Chinese officials are actively pressing for such recognition in trade meetings with U.S. officials.

AFRICA NORTH AMERICA

ASIA-PACIFIC

NORTH AMERICA SOUTH AMERICA

SOUTH AMERICA

Brazil The China Development Bank signed contracts with Brazilian state-controlled oil company Petrobras in November to finance a 10-year, US$10 billion financial deal between the two countries.

The loan package will be used to support Petrobras’s 2009-2013 investment plan, which is expected to cost US$174.4 billion. In addition, an oil supply agreement between Petrobras and China Petrochemical Corp. (Sinopec), will go into effect when Petrobras receives its first funds; through that deal, Sinopec will receive 150,000 barrels of crude oil a day for the first year, followed by 200,000 barrels a day for the next nine years.

EUROPE

SOUTH AMERICA ASIA-PACIFIC

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ASIA-PACIFIC

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M A N A G E R ’ S N OT E B O O K

Writing Your Own Performance Review

Prepare yourself in order to make the most of the annual performance review process.

P

erformance review time is potentially one of the least desired events of the year. Your experiences could range from receiving seemingly arbitrary comments, vacuous praise, and a sense that your manager hates this more than you do, to comments on a job well done and even the occasional useful comment. Is there a way to make this a better experience? Can you do anything to prepare? The answer is yes. There are certain steps you can take to prepare and shape your own review throughout the year.

Learn everything you can about the review process. What is the corporate policy on reviews? How does an individual’s review influence his compensation? Is there an overall summary, a letter or ranking?

If there is a summary, is it completely at the discretion of the manager, done by a management team, or based on some form of forced ranking? How are the rankings linked to overall corporate or group performance?

Understand your boss’s objectives and beliefs. Is he doing this to check off a box?

Does he want to present his employees in the best possible light to others? Is he truly interested in your development or does he have a hidden agenda? Is there any political benefit to your manager for investing his time in this process?

Sherry L. Read is a Certifi ed Professio nal Coach and Princip al of Read Solutions G roup. (www.reads olutionsgr oup.com)

10

INSIGHT

Gather the relevant information.

Throughout the year, keep files of accomplishments ranging from completed project plans, letters of acknowledgment, or notes from phone calls. Gather your position description, the goal document for the current year, last year’s performance review, mid-year reviews, and desired competencies for your job (or the one you aspire to).

Put yourself in the shoes of management.

What results and contribution was management looking for from you this year? What did you do that contributed to your boss’s reputation? What behavior was your boss looking for from you (e.g., cooperation, team leadership, delivery of results, innovation)? Did you solve or cause any political problems in the organization?

carefully. Listen for the acknowledgments of contributions and strengths. Listen for the suggestions and criticisms. Don’t argue, but try to learn what the message is. What behaviors and contributions is he looking for from you?

Debrief. Review the meeting as objectively as possible. Quiet your internal voice that agrees or disagrees with comments made and try to note the words and tone used.

Once again, look at the world through your boss’s eyes and needs – what did he get from you and what does he need from you?

What pressures is he under that led him to these conclusions? What beliefs, values and motivations drive him that you might or might not hold?

Write it up. Write it up from the perspective of the boss – what did you do for him and his organization this year? For format, think about how your boss likes to receive information – does he want all of the gory details? Is he swayed by evidence? Does he want just the facts? Is he interested in shared credit? Put aside your natural style, and provide a review for your boss based on his style. Focus attention on your contributions, your strengths, and how they align with the organization’s and your boss’s objectives.

Some systems allow or even encourage responding to written performance reviews.

If you believe your performance review is unfair, carefully evaluate whether the issue is a matter of degree or if there is some basis, whether there are any political motivations, and whether you have clear evidence supporting your position. If, after careful consideration, you believe that you have a case, meet with your reviewer and present any counter-evidence you have. If the review stands (remembering that the boss usually wins), you might have to consider whether you are in the right job.

Meet with your manager. Ideally, your manager will use your performance review to acknowledge your contributions and strengths. He will give you a few helpful suggestions for the next year, and then move on to how to build success. Unfortunately, performance reviews are rarely ideal. If you have done your homework, you should be able to anticipate the mood of the meeting.

Check your emotions at the door and listen

Ideally, performance reviews provide you with an opportunity to review your contributions, calibrate your understanding of expectations, receive affirmation of your strengths, and learn about how to contribute more. More likely, you need to be doing your best to influence opinion throughout the year. Remember that the more you are able to see the world through the eyes of your boss, the more likely you are to be able to meet his expectations.

DECEMBER 2009

BUSINESS BOOKSHELF B Y R A N DY K R E I D E R

KFC in China: Secret Recipe for Success

By Warren K. Liu (Wiley 2008) China is one of the world’s most competitive markets in many industries and fast food is no different.

Consumers in China, especially in its booming coastal cities, have a myriad of choices of where to eat.

However, KFC has risen to the top of the industry in the two decades since it opened its first restaurant in China in 1987. By 2005, KFC had become the single largest restaurant chain in China, accounting for 1 percent of the industry total.

In KFC in China: Secret Recipe for Success, Warren K. Liu explores the factors that allowed this American food brand to achieve its leading status in a country known for its distinctive cuisine. While Liu attributes part of KFC’s success in China to timing – it was the first well-known Western restaurant brand to make an appearance in China – most of the book focuses on the company’s successful business strategy. According to Liu, that business strategy can be summed up in two words: rapid expansion.

There are many resources KFC needed to sustain its growth, including qualified restaurant management talent, products that met the changing desires of the target customers, and a strategic real estate development capability. Liu explains how KFC attained these resources to gain its competitive advantage in China, as well as how it localized its products to appeal to the Chinese market.

Apart from its operational excellence, Liu believes that much of KFC’s success lies in its marketing and product promotion. From discount-based promotion to well-placed advertising campaigns, the chain has enhanced its brand image in China and drawn in droves of customers. In addition, KFC has maintained good relations with China’s news media both at the national and local levels over the years of its expansion, helping to minimize negative press attention at times of adversity.

There is much to be learned from KFC’s business strategy, from government relations to public relations, product design and crisis management. In this way, this book becomes a valuable read not only for those in the restaurant industry, but for anybody who is seeking to understand what it takes for a company to be successful in China.

China Entrepreneur:Voices of Experience from 40 Business Pioneers

By Juan Antonio Fernandez and Laurie Underwood (Wiley 2009) There are countless perspectives on how to best launch a new venture in China, from targeting the right customers to hiring the right employees. In China Entrepreneur, Professor Juan Antonio Fernandez and journalist Laurie Underwood weave together and interpret in-depth interviews of 40 successful China-based entrepreneurs from 25 countries and provinces around the world in order to capture a diverse viewpoint on China’s business environment.

These entrepreneurs share their personal business experiences from China and give advice about how to run a successful business in the world’s fastest-growing economy. The main target audience of China Entrepreneur is businesspeople from around the world who are thinking of launching a start-up business in China. A large portion of the book is therefore devoted to the core issues of getting started: gaining government approval where needed, obtaining a business license and choosing the right Chinese business partner.

But the book also extracts from the interviews some of the management strategies necessary to successfully run a company once it is established.

Each section focuses on a different issue: targeting the right customers, human resource challenges, ethics and corruption, and business negotiation. Throughout the book, interviewees share personal anecdotes to explain how their own strategy worked or did not work.

Each section also ends with a summary of the main tips that were established by the writers and by the interviewees, providing a quick reference guide to the keys of success for China-based business.

China Entrepreneur is unlike most other books because the advice, stories and opinions that form its framework are diverse and streettested, making it an important resource for anyone that is looking to launch a start-up business, expand operations, or simply improve their business in China.

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MARKET PROFILE

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here is good news in the wind for environmentalists. Wind turbine capacity has been increasing and the unit cost of power generated by wind energy is expected to drop, thanks in large part to China’s efforts. The World Wind Energy Association forecasts that by 2020, total installed wind turbine capacity will reach an estimated 1.5 million megawatts worldwide, accounting for 20 percent of global electricity consumption, compared to just 1.5 percent of global electricity consumption in 2008.

While environmental pollution is an issue of concern in China, it is China that is set to take the lead in a global wind energy revolution, ahead of the United Kingdom and the United States, who have long been its strongest advocates.

“There is a paradox in the West where proponents of the green movement protest against the very infrastructure that is needed to drive sustainable energy practices. There is a ‘not in my back yard’ mentality. This paradox is not seen in China – not yet anyway,” says Kim Khoo, manager of intelligence services at Global Intelligence Alliance. “In fact, we predict that China will not only become a global leader in wind energy, but may be an important supplier to fast growing emerging Asian economies, such as Vietnam, Thailand and Indonesia, who themselves have limited development in the wind energy technology sector.”

A firm commitment The Chinese government regards the development of wind energy as a key priority. At the end of 2008, China overtook India in having the highest installed capacity of wind energy in Asia with a

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China to Lead Global Wind Energy Development

total of 12.2 gigawatts (GW) of total installed capacity, compared to India’s 9.6 GW. The Chinese wind power equipment manufacturing industry has been attracting investment from around the world. With market capacity of wind power equipment forecast to reach US$32 billion by 2010, investing in China is important for many foreign enterprises that wish to take advantage of the substantial and rapid buildup of wind energy in China.

In addition, overseas turbine companies have made substantial investments in China, in order to comply with an earlier government stipulation requiring at least 70 percent of components to be sourced domestically for use in Chinese wind energy projects. In order to meet the demands of a growing market, domestic production and technology of wind turbines and components also had to step up. With this accelerated development of manufacturing, China is gearing up to meet its domestic demands as well as preparing to supply components to the international market.

China is in position to secure a leading role in the manufacture of wind turbine technology and equipment.

Key trends Supply shortage for wind turbines and associated components predicted – The demand for wind turbines and related components in many countries is increasing. Together, the United States, the European Union and China are aiming to install about 400 to 500 GW of wind capacity by 2020.

However, only a number of specialized suppliers are able to produce key parts for higher capacity wind turbines, and demand may overwhelm some suppliers, especially for those specializing in gearboxes and bearings. In addition,

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Market Profile provided by

For more information, please visit: www.globalintelligence.com

“

If current trends persist, China will become an important global supplier for the wind energy market, especially in key wind turbine components and services.”

other industries also use similar wind turbine components for their equipment and machinery.

As an emerging technology, wind turbine designs are still evolving. Currently, parts being made are mostly customized and non-interchangeable, making replacement suppliers hard to find.

Moreover, the advanced technology required to enter the industry is a barrier for new entrants.

Currently, most Chinese wind turbines and components for higher-megawatt products are licensed or jointly developed with overseas players, while local manufacturers still lack the independent capacity to build higher wattage turbines. With fewer suppliers of higher-megawatt products, there are bottlenecks affecting the supply for wind turbine-related equipment, particularly influenced by the government’s emphasis on higher wattage turbines.

Price volatility for raw materials, notably steel, copper and carbon, is a critical factor in some wind turbine parts. Steel is used in towers, gearboxes and rotors; copper is used in generators and carbon in rotor blades. Any price volatility can result in bottlenecks in the supply chain.

More partnerships among wind turbine industry players – In order for foreign players to ease market entry and secure consistent supplies and services, partnerships in the form of mutual agreements, joint ventures or acquisitions between market players, such as between wind farm developers, operators, manufacturers or component manufacturers, will continue. Through such ventures, local players will in turn get to secure proprietary technology.

Local technological advancement – Due to market regulation in China that favors locally made products, foreign players wanting to enter China need to work with local Chinese companies.

This in turn promotes technology transfer among Chinese companies and builds local expertise.

An example of this is Sinovel’s joint program with Austria Windtec. Sinovel is developing a three megawatt double feedback, variable shift and constant frequency wind turbine system, the first high-tech Chinese wind turbine system that

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will be installed in China’s first offshore wind farm, the Shanghai Donghai Bridge Wind Farm.

China as a major supply chain center within the wind energy industry – If current trends persist, China will become an important global supplier for the wind energy market, especially in key wind turbine components and services. High local demand and China’s strategic location to supply other Asian markets with parts and equipment, coupled with development of local research and development skills may encourage a future role as a global wind energy hotspot for services and equipment.

“China’s increasing ability to manufacture more affordable wind power equipment might even promote Southeast Asia’s wind energy utilization, especially for small- to medium-scale projects.

While the Chinese government is actively promoting the production of turbines with capacities of over two megawatts, Chinese suppliers are still catching up to the technology. “For now, their strength will continue to be in small- to medium-scale wind energy projects, which are a good fit for Southeast Asia markets,” says Saraswati Diah, an analyst at Global Intelligence Alliance Singapore.

China wind energy suppliers go global – Chinese suppliers’ interest in European companies may be of strategic geographical importance in the long term. Chinese market leader Goldwin has acquired a majority share of Germany’s Vensys in order to concentrate on the development of its direct drive wind turbine technology. After the acquisition of Vensys, Goldwin also bought its subsidiary companies that produced converters and variable propeller systems. For Goldwin, this ensures a local foothold in Europe with spin-off benefits both in Germany and China. The company has also absorbed cross-border talent with management experience in domestic and international markets from companies such as Huawei, Motorola, General Electric, Siemens and ABB. China has been described as the world’s factory.

This time, the global environment is poised to be the benefactor of its manufacturing prowess in wind energy.

A N A LY S I S ISTOCKPHOTO

Staying on Track

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merging market city economies are projected to rise significantly in global GDP rankings between now and 2025, says a recent PricewaterhouseCoopers study. The research provides an outlook on how the global economic landscape is set to change and which cities could provide the most compelling draw for investment and labor in the future.

The largest 100 cities in the world accounted for around 30 percent of global GDP in 2008 and some have larger economies by GDP than mediumsized countries such as Sweden and Switzerland.

PricewaterhouseCoopers published the first set of global city GDP rankings in March 2007 and recently updated the rankings to include 2008 data with projections to 2025. The rankings by GDP are intended to supplement global city data on the size of city economies, which in the past, tended to focus on ranking by population.

Shanghai is projected to rise from 25th to 9th place in the global rankings by 2025 and show the strongest growth rate of any current top 30 city.

Beijing is expected to rise from 38th to 17th place and Guangzhou is projected to jump from 44th to 21st position by 2025. Other cities expected to make big jumps over the next 15 years include Mumbai, Delhi and Rio de Janeiro.

“Global economic activity is concentrated

in the world’s largest cities and it is important to understand how those cities compare, especially when many developed economies are experiencing economic difficulties while countries like China and India continue to grow,” says John Hawksworth, head of macroeconomics at PricewaterhouseCoopers LLP. Examining the 2008 rankings reveals two emerging economy cities that are already in the top ten, Mexico City and Sao Paulo, which are ranked 8th and 10th; not far behind are Buenos Aires (13th) and Moscow (15th). Shanghai and Mumbai, which would not have ranked among the top 30 cities in 2005, jumped into the top 30 with strong growth between 2005 and 2008. Looking ahead to 2025, the study shows the steady rise of emerging economy cities continuing.

“If you look at the projected percentage GDP growth from 2008 to 2025 of the top emerging and the top advanced economy cities, the comparison is stark,” adds Hawksworth. “Cities such as Shanghai, Beijing and Mumbai are projected to grow at around 6-7 percent annually in real terms, whereas cities such as New York, Tokyo and London will grow only at around 2 percent per year on average.

In absolute terms, the projected rise in Shanghai’s GDP between 2008 and 2025 is greater than the combined GDP increase for London and Paris together.”

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Shanghai is projected to continue its record of strong growth.

Analysis provided by

For more information, please contact: Elsie Chen +86 (21) 2323-2681 elsie.y.chen@cn.pwc.com

Cumulative Projected GDP Growth to 2025 for Top 8 Emerging Economy / Advanced Economy Cities SOURCE: PRICEWATERHOUSECOOPERS ANALYSIS

Nonetheless, Tokyo retained the top ranking it held in 2005, remaining narrowly ahead of New York, with both having economies worth nearly US$1.5 trillion in 2008 (broadly similar to national economies such as Spain) and projected to grow to nearly US$2 trillion by 2025. Los Angeles is in clear third place with Chicago, London and Paris vying for the next three places (each of which has an

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estimated GDP significantly higher than national economies such as South Africa and Belgium).

The most notable changes in top 10 rankings since 2005 have been London edging ahead of Paris to 5th place and Sao Paulo jumping into 10th place. Aside from London and Paris, only two other European cities (Moscow and Madrid) made the top 30 in 2008. This reflects the fact that countries like Germany and Italy (which only became unified nation states in the 19th century) have several major cities that are medium-sized in global terms, rather than one dominant capital city as in the UK or France.

In 2008, the total number of emerging economy cities in the top 100 was 39 with the advanced economies providing 61. By 2025, this gap is projected to narrow with the emerging economies accounting for 48 of the top 100 cities and the advanced economies 52.

E X P O U P DAT E

BY JUSTIN CHAN

Onwards and Upwards

What is the latest status on fundraising?

Mark Germyn: We have over US$45 million in commitments and expect to achieve US$50 million by the end of November on the way to achieving our goal [of US$61 million].

What are your main priorities and responsibilities in running the USA Pavilion?

MG: Our main priorities are to ensure that we: present the people, places, culture and values of the United States of America to the millions of Expo visitors ; reaffirm U.S. commitment to a strong U.S.China partnership; provide a powerful platform for USA Pavilion sponsors; and to entertain and delight our Chinese and international guests.

We must do this in a safe, courteous, efficient and professional manner. To achieve this, we will have sound operating procedures in place, with the right volunteers, ambassadors and support staff who are thoroughly trained and create and maintain a positive working environment We must be consistent in delivering a memorable experience to each and every guest.

IMAGINECHINA

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hile in Shanghai during U.S. President Barack Obama’s visit, U.S. Secretary of State Hillary Clinton visited the 2010 Shanghai Expo Bureau and the site of the USA Pavilion. “We are grateful for your generosity and steadfast belief in the importance of the Expo, in the American role here and what this USA Pavilion can do to strengthen the cooperation and partnership between the American people and the people of China,” she said.

With just over 150 days until opening day, Insight checked in with Mark Germyn, chief operating officer of the USA Pavilion. Germyn brings over 35 years of international experience in the tourism and hospitality industries spanning five continents.

With nearly 200 countries and 50 international organizations expected to participate, how will the USA Pavilion stand out and attract visitors?

MG: We have a very impactful four-part show being developed for our audience that is expected to be 95 percent Chinese and 5 percent international.

We will welcome our Chinese and international guests in a very friendly American way to a show that is universal in appeal and exemplifies we are more alike than not.

The USA Pavilion building was topped out just 89 days after groundbreaking. When will the structure be completed?

MG: The Pavilion will be completed in time for Expo. Our exterior cladding system will continue through to February and we will begin show installation and interior fit out in January.

What role will the student ambassadors currently being recruited play in the Pavilion?

MG: The response has been excellent with applications from students all over the United States.

The student ambassadors will have opportunities in all aspects of our operations to interact with our guests. They are truly our ambassadors.

Will there be any opportunities for the American community in Shanghai to participate in the USA Pavilion?

MG: We will shortly be announcing volunteer opportunities for the American community to also support our ambassador program and be part of this incredible event Shanghai Expo 2010.

For more information on the USA Pavilion, please visit: www.usapavilion2010.com

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The USA Pavilion moves forward with preparations for opening day as fundraising continues.

I N T E RV I E W B Y DAV I D B A S M A J I A N

INTEL

The Value of CSR Making corporate social responsibility a priority has benefited Intel’s reputation and more importantly, its bottom line.

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orporate social responsibility (CSR) has long been a core part of Intel’s business strategy. The company has received global recognition for its work, including a number one spot on Corporate Responsibility Officer magazine’s 100 Best Corporate Citizens list for 2008 and AmCham Shanghai’s 2008 CSR Excellence in China Award, and continues to commit to environmental and social causes.

In 2008, Intel became the largest purchaser of green power in the U.S., according to the U.S. Environmental Protection Agency. Intel’s venture capital arm, Intel Capital, invested US$100 million to support firms that are developing solar technologies, and in the area of water management, the company managed to reduce fresh water needs by 3 billion gallons per year.

Intel partners with governments around the world to support the advancement of education programs, train teachers, and implement

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technology to address education, poverty and healthcare issues. In 2008, Intel’s 80,000 global employees donated more than 1 million hours of volunteer service to more than 5,000 schools and nonprofit organizations around the world.

In addition, the Intel Foundation, the philanthropic arm of Intel, focuses on programs that advance education in math and science, and help develop a future workforce that represents diversity around the world.

Recently, Insight sat down with Shelly Esque, vice president in the legal and corporate affairs group and director of corporate affairs for Intel.

Her global team manages Intel’s various education programs around the world and works to enhance Intel’s position as a leading technology brand in business and corporate citizenship.

What does Intel’s Corporate Affairs Group do?

Shelly Esque: Corporate Affairs is responsible for policy, government and community affairs, corporate responsibility, and programs such as our education and community programs, as well as the Intel Foundation. We have people in 33 countries and programs in 70 countries. Intel has had a CSR function since 1994, but we’ve been doing volunteer work for 40 years.

One of Intel’s biggest values is giving back to the community. This is a part of who we are.

Gordon Moore (the retired chairman, CEO and co-founder of Intel) has become one of the biggest philanthropists around conservation and healthcare issues, and he did a lot to impart his beliefs that if you’re successful, you have an obligation to make a contribution back to society beyond your business.

What kind of CSR work is Intel doing in China?

SE: Teacher training is one of our biggest programs in China, and we’ve just passed the 1.5 million teacher mark. We have a program where we train rural teachers in English and information and communication technologies (ICT) skills. We also do a lot of skills-based volunteering in China.

After last year’s Sichuan earthquake, Intel employees participated in relief efforts beyond just physical relief. We went in and started a program

to rebuild schools and equip them with ICT, and our employees continually go to those schools and do training.

Another program we have is Intel Learn, which is an after-school, informal learning program for young people to develop 21st century skills, focusing on digital literacy, critical thinking, problem solving, and collaboration. We already have 300,000 students participating in China.

We also work with higher education institutions all over China on finding internships for students, student exchanges, and bringing cutting-edge technologies to the classroom, as well as training professors on how to implement these programs.

We give out scholarships, research grants, and train vocational school students in tech skills.

In Shanghai, we have a new partnership with the district government. In light of the downturn and the difficulty recent college graduates have in finding jobs, Intel took on 100 students in our facility. Our Shanghai office also partners with youth centers around town and employees can volunteer to go and mentor kids.

How does CSR contribute to the company’s bottom line?

SE: There are a number of ways. One is through risk mitigation, so by knowing what potential issues there are and being prepared to address them through having good contacts in the community, we are able to get ahead of any business-related issues that might occur. CSR enhances operational flexibility. By building strong relationships with government and community leaders, we’re able to get our work done more efficiently and successfully.

It also improves Intel’s reputation. There is a lot of data that suggests people are making buying decisions now based on how they view companies and their responsibility profile. With increased focus on having a “green” image, more people are concerned with whether or not they believe the product they’re buying is good for the environment, which wasn’t that common 10 years ago.

We feel that our 40 years of good operations have contributed to Intel’s image as a green company,

and that in turn contributes to our success in the marketplace.

Another aspect of CSR that we find to be really important to us is in employee retention. Our CSR programs serve our employees as well because it makes them proud of what Intel does and drives loyalty. They are able to go out and make a difference. They might be designing computer chips all day, but then they get to go out and work with children, and it gives them a new dimension and helps them build new skills outside of their normal jobs.

How has the concept of CSR changed in recent years?

SE: People used to feel that if they wrote a check, they’d be done. In the last 10 or 15 years, they realized that there was more value to add than simply writing a check. Money is helpful, but if you can actually be on the board of a nongovernmental organization (NGO) and help them with their strategic and financial planning, you can add so much more value than just contributing money.

It is not sustainable to just keep writing checks, you have to build capacity. So what Intel does is really focus on building capacity in the management systems of the NGOs we have a relationship with so that they can be successful even if we are not writing the check.

Jun Ge (center), managing director of Intel China, accepts AmCham Shanghai's 2008 CSR Excellence in China Award.

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Conferencing and Collaboration For the Global Enterprise

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POLICY INSIGHT

B Y R A N DY K R E I D E R

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The Road to Copenhagen

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s United Nations member countries prepare for the 15th UN Climate Change Conference beginning on December 7 in Copenhagen, Denmark, there are questions about whether the conference will produce any tangible results. Will the conference deliver an international treaty on climate change to replace the Kyoto Protocol, which expires in 2012? What will the standards be for greenhouse gas emissions?

Will both industrialized and developing nations be held responsible for reducing their carbon footprints?

In recent weeks, the likelihood of a full binding treaty being agreed upon at the conference have grown slim. When world leaders from 21 nations, including U.S. President Barack Obama and Danish Prime Minister Lars Lokke Rasmussen, who will chair Copenhagen conference, met in Singapore in November for the Asia-Pacific Economic Cooperation (APEC) forum, they agreed that the drafting of a new protocol should be delayed at least until a meeting in Bonn in the middle of 2010.

Still, many are looking for Copenhagen to produce some sort of general agreement to address climate change – perhaps one whose specific details could be hashed out later. But no matter what comes out of the conference, one thing is clear: all eyes are on the world’s two biggest polluters, the United States and China, to lead the talks and to establish a new international strategy to combat climate change.

“As the two largest consumers and producers of energy, there can be no solution to this challenge without the efforts of both China and the United

States,” said Obama said during his November visit to China.

Past Attempts The U.S. and China are two of the world’s economic powerhouses, but that also means they require more energy, produce more waste and release more pollution than their international counterparts. In fact, China and the U.S. together are responsible for 40 percent of the world’s greenhouse gas emissions, as the top two emitters.

In the past, cooperation attempts by the two countries to cut pollution have been impeded by ideological differences over where responsibility lies for reducing carbon emissions. The U.S. refused to ratify or sign the Kyoto Protocol, believing that too much weight was placed on industrialized nations while developing countries were largely exempt from emissions requirements.

China, meanwhile, has taken a stance of “common but differentiated responsibilities” in regards to international climate change cooperation. It believes that industrialized nations like the United States, which have cumulatively produced more greenhouse gases over their long histories of development, should be held primarily responsible and should also financially assist developing nations in their efforts to clean up.

With Copenhagen around the corner, a position paper recently released by the Chinese government reiterates that stance, stating that industrialized nations should be held to a strict target of reducing their greenhouse gas emissions by at least 40 percent

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The 15th UN Climate Change Conference convenes in Copenhagen to address emissions.

“

There can be no solution to this challenge without the efforts of both China and the United States.”

below their 1990 levels by 2020. Meanwhile, the paper says that China and other developing countries need only take proactive measures to “adapt to and mitigate climate change,” but does not specify a specific reduction target.

the most carbon emissions in the world and that output is only expected rise for the next twenty years, especially as the State Grid predicts an 85 percent rise in electricity demand by 2020.

What to expect

Business, not burden China has long argued that it could not cut back on its carbon emissions while sustaining positive GDP growth, which should be a priority for a developing country. But recent steps taken by the Chinese government indicate a possible change in heart about its pollution responsibilities. In 2007, it announced a National Climate Change Program that outlined objectives in addressing climate change including a reduction of energy consumption per unit of gross domestic product (GDP) by 20 percent below 2005 levels by 2010. It also called for large power companies to generate 3 percent of energy capacity from renewable sources by 2010; the target jumps to 8 percent by 2020.

China has also taken concrete measures this year, including ordering 1,000 hybrid buses for Beijing and Shanghai, launching construction on its first commercial-scale “clean coal” power plant which will be completed by 2011, and signing a deal with U.S. firm First Solar to build China’s largest solar plant in the Inner Mongolian desert. The 2,000-megawatt plant will be large enough to power approximately three million Chinese households. In total, nearly 40 percent of China’s recent RMB4 trillion stimulus package was directed toward green initiatives.

The direct economic benefits of developing and implementing alternative energy technology are becoming clear and could also give China a competitive advantage in the creation of new technology. The China Greentech Report 2009 estimated that the total addressable market size for greentech solutions in China could be as much as US$500 billion to US$1 trillion annually, or as much as 15 percent of China’s forecasted GDP, in 2013.

By combining government policy and private entrepreneurship, China’s approach toward greentech is opening the door for greater energy security, economic growth and business enterprise in the country. But China continues to produce

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UN member nations will meet in Copenhagen fully aware that the Kyoto Protocol is on the verge of expiration. Many see the conference as an opportunity to enter into a new agreement that will begin to reverse the growth in global greenhouse gas emissions. The United States and China have both stated that they seek to make progress on the issue in Copenhagen, even if a new protocol is not established. After meeting with Chinese President Hu Jintao in Beijing last month, President Obama said that the two nations “agreed to work toward a successful outcome” in Copenhagen, while also agreeing to initiatives such as the new U.S.China Clean Energy Research Center that will be supported by public and private funding of at least US$150 million per year.

But there is still some concern about the two countries’ willingness to adopt emissions limits.

China has taken steps towards promoting alternative energy research, production and implementation and is beginning to create a leading market for greentech. But some worry that its economic ambitions, bolstered by a longstanding reliance on coal energy and a steeply rising demand for energy, may trump its environmental progress.

Without China, the world’s largest polluter, signing onto a specific target for emissions reductions, some say that the United States will once again – as it did in Kyoto – refuse to put a ceiling on its own carbon dioxide production.

Still, others remain optimistic. “I’ve seen some recent reports that said that Copenhagen has failed even before it starts and I must say that those reports are simply wrong,” said Yvo de Boer, executive director of the UN Framework Convention on Climate Change (UNFCCC). “There is no doubt in my mind whatsoever that it will yield a success.”

Randy Kreider is a contributor to Insight. He can be contacted at rsk310@nyu.edu.

AmCham Shanghai

2009 China Business Report

Thank you to all the members who participated in AmCham Shanghai’s 2009 China Business Survey.

This year’s report focuses on the objectives, plans and performance of U.S. businesses in China during a challenging 2009 while also examining how AmCham Shanghai member companies are addressing top business challenges in an increasingly competitive market.

Summary results will be presented in the 2009 China Business Report, due to be released on December 9.

Visit www.amcham-shanghai.org for more details on the launch event.

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C O M PA N Y P R O F I L E

BY JUSTIN CHAN

CHARTIS INSURANCE CHINA

Charting the Course Insight talks to John J. Carey of Chartis Insurance China about the development of the insurance market and prospects for growth.

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n September 16, 2008, as the U.S. Federal Reserve Bank was preparing a US$85 billion credit facility to rescue American International Group (AIG) from its liquidity crisis in the United States, John J. Carey was settling into his first day on the job as president and chief executive officer of AIG General Insurance in China. A 29-year veteran of AIG, Carey has been stationed throughout the United States, Latin America, Africa and Europe, and prior to his current role, headed up AIG Business Consulting in Beijing, primarily working with the People’s Insurance Co. of China (PICC) as a part of an AIG equity investment in the domestic insurer.

By July of this year, AIG had received more than US$182 billion in government funds and the company’s global commercial property and casualty insurance business was rebranded as Chartis, a derivation of “map” in Greek that was

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intended to underscore its long history of guiding clients globally. Despite the English name change, Chartis China maintained its longstanding Chinese name (美亚财产保险).

“We’re still the largest foreign insurer in China and that’s a positive thing,” says Carey. “We’re not defensive about where we came from and the company that we are.”

AIG’s roots trace back 90 years to Shanghai, when an American entrepreneur named C.V. Starr founded the company’s earliest predecessor in 1919 as a personal insurance business that operated until 1949 before relocating to New York. In 1992, AIG returned to Shanghai as the first foreign insurance company in China. The company’s life insurance subsidiary, AIA, introduced the concept of professional insurance agents to the China market and continues to be one of the most well known names in the industry. Chartis China, which handles everything from property and marine insurance to casualty and health coverage, now operates four wholly owned subsidiary branches in Shanghai, Guangzhou, Shenzhen and Beijing.

Although a steep uphill climb awaits AIG as it tries to return to prominence, new global CEO Robert Benmosche has vigorously defended the company’s employees and its businesses.

Speculation over the sale or initial public offerings of profitable assets has died down as Benmosche takes stock of the company’s assets. Since Benmosche took control in August, the company’s shares have more than doubled on the New York Stock Exchange.

China remains a priority for both the global parent and Chartis China. AIG is committed to developing its presence in China, and Benmosche visited Shanghai to attend Mayor Han Zheng’s International Business Leader Advisory Council (IBLAC) meeting last month. Alongside the central government’s goal of developing Shanghai as a global financial hub, Chartis recently relocated its China headquarters to the Lujiazui Finance and Trade Zone in Pudong in order to be at the heart of Shanghai’s financial activity.

Carey is eager to move forward and start building the Chartis name in China. “Somehow AIG became the poster child for the economic

crisis, but a key point that was lost in a lot of the media was the fact that a lot of the problems were created by the financial products division,” says Carey. “The insurance entity has always been a solid business globally.”

He believes that the AIG crisis in fact served to galvanize the company’s staff in China and create a sense of community and team. Despite some defections in the fallout of the global situation, “the people who stayed really wanted to stay here, are loyal to the company and want to fight the good fight,” says Carey.

Perhaps AIG’s status as a leading global insurer and the longest standing foreign insurance brand in China had begun to obstruct the company’s viewpoint. “We were somewhat blind as AIG and the financial crisis forced us to reevaluate the way we do business,” he says. “We had to become humble, customer centric and easier to do business with.”

Weathering the storm All things considered, with the AIG crisis last September and the onset of the global financial crisis, Chartis performed relatively well in China this year. Business was slightly below budget but remained close to flat on a year-on-year basis. As a result, Carey is optimistic about prospects for 2010.

“I think what we’ll see next year are customers who may have thought about moving their business or did move their business taking another look at us, because they see that we survived the storm and we’re a good, viable company,” he says.

In fact, Chartis was able to expand its China footprint earlier this year, despite the negative shadow cast by its parent in New York. In March, the company opened its fourth branch in Beijing, giving it a presence in all four of China’s first-tier cities. Approval was first granted by the China Insurance Regulatory Commission (CIRC) in July 2008, and Carey appreciates the fact that the Beijing branch was permitted to open as planned.

“It would have been very easy for the regulators to stay ‘Stop, don’t open your office until we do further study,’” he says. Instead, the office opening served as a morale boost for the Chartis team

in China, and an indication that company was moving forward.

“Any market that we enter, we help improve that market. We bring in technical expertise, sound business practices and we’re a compliant company,” says Carey. Prior to opening the Beijing branch, native Beijing staff who had been working for Chartis in Shanghai, Guangzhou and Shenzhen were recruited to lead business lines in their hometown, and junior staff were recruited and trained from the local market.

“No matter where we go, that’s our philosophy – to build the company, build the market and be a contributor to the overall insurance industry,” Carey adds.

Room to grow Still, the insurance industry in China is heavily regulated by the CIRC and new licenses required for geographical expansion are extremely difficult to come by. In October, Carey attended 10-year anniversary festivities for the Chartis branch in Shenzhen, which was the company’s last branch to gain regulatory approval.

“I have to believe 10 years is a bit too long for geographical expansion,” says Carey. However, he understands the developing nature of the commercial insurance business in China, not just for the companies involved, but for regulators, who must align policies with the ramifications of the global financial crisis. At the same time, Carey remains hopeful at Chartis’ prospects for continued geographical expansion. The company has established a market leadership position among foreign insurers in most of its active business categories, whether in financial lines or products liability and marine cargo, and hopes to continue that success in new markets.

Chartis maintains regular contact with CIRC officials in Shanghai’s neighboring provinces of Jiangsu and Zhejiang, although Carey also has his eye on rapidly growing cities such as Dalian and Tianjin. “I think the market is evolving and things are changing quickly. I really don’t believe it will take another 10 years to open another branch,” he says.

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“

We were somewhat blind as AIG and the financial crisis forced us to reevaluate the way we do business.We had to become humble, customer centric and easier to do business with.”

CHARTIS INSURANCE CHINA

“In China, the buyer’s choice isn’t between buying from a local company or an international company. The buyer’s choice is between buying insurance and not buying insurance,” says Carey.

A lot of the company’s time and effort is therefore spent educating consumers and developing the market for products and value-added services. “An educated consumer is our best ally,” he adds. “An educated consumer may be looking for benefits as well as a fair price, but they are looking at what they’re buying for their money rather than just as a cost element.”

Eye on Shanghai

In addition to its strengths in areas such as marine cargo liability, accident and health coverage, and export products liability, Chartis has plans next year to introduce new aviation coverage that spans aircraft liability, haul, facilities and parts manufacturers as well as expand its coverage of financial lines and small- and medium-sized businesses.

Carey calls these areas “niche markets” where Chartis doesn’t necessarily have to compete on price. But competition from other foreign insurers and domestic heavyweights such as PICC, Ping An and China Pacific Insurance Co. (CPIC) is fierce.

Carey notes that the competitive advantage his company offers is not simply a long presence and experience in China, but rather a global network of claims and support services, with extensive expertise anywhere a company may be doing business.

Automobile insurance, a product that foreign companies are restricted from offering, accounts for 70 percent of the non-life insurance market, leaving 30 percent in Carey’s so-called niche markets that is “still a pretty big piece of business.”

At the same time, Carey believes that the China market is still very much in development, and sometimes it is about building markets and not so much competing with other companies.

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At the new Chartis China headquarters on the fifth floor of the Chamtime International Financial Center, just across from the giant sundial sculpture on Century Avenue, the entire Shanghai staff of 350 is now situated in a trading floor-style setup.

“We used to be in three or four different offices around Shanghai, but now I can walk out of my office and talk to anybody,” says Carey.

The primary motivation for relocating Chartis to Pudong was to be in the designated financial center of China, where the company can contribute to the insurance market most effectively, says Carey. “Whether it is with products or people development, these are the things that can help Shanghai as a financial center,” he says. The company will draw on its global operations and assess which products should be introduced to the China market, especially on the financial lines side as it aims to support growth of the industry.

As to reports that the flexibility and creativity permitted on new products is often limited in Shanghai, Carey notes that Chartis has not had many problems in obtaining approval. Although there may be some minor changes after filing an application, there are never any real material changes that affect the intent of the product, he says.

However, a core challenge for Chartis, as is for many companies in China, is talent development.

Carey believes that for Shanghai to compete on a global basis, additional incentives such as tax breaks are required to draw leading financial

services companies and their senior talent to the city. Only then can the city create an atmosphere to develop talent and build a solid talent base for growth of the financial industry.

On the development of local talent, Chartis faces stiff competition for its best and brightest employees. But for 2009, Carey estimates turnover to be below the industry average, and lower than in 2007 and 2008. Chartis attempts to limit its turnover by focusing heavily on training. “One thing you’ll notice among our staff is that they have a thirst for knowledge,” says Carey. “They want to learn, so it is very important for us to train them well.”

Carey believes so strongly in talent development that one of his three overall measures of success for Chartis is for it to become an exporter of local Chinese talent. He hopes to develop local Chinese employees to the point that they could effectively fill global openings in New York, London or

Singapore. For Carey to consider his tenure at Chartis China a success, he will also have to double the size of the company and successfully continue geographical expansion.

To achieve his goals, Carey is steering Chartis with his three guiding principles: grow the business profitably, provide outstanding customer service, and work as a team with respect. “No matter what segment of the business you’re in and what the decision-making process is, if those three principles are followed, as an organization, we can’t go wrong,” he says.

Carey has thoroughly enjoyed his first year in Shanghai at the helm of Chartis and calls the city “the next chapter” of his life. As for Chartis, “we’ve been here 90 years,” he says. “We’re now looking at the next 90 years.”

Justin Chan is Editor-in-Chief of Insight. He can be contacted at justin.chan@amcham-shanghai.org.

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“

We've been here 90 years.

We're now looking at the next 90 years.”

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C OV E R S TO RY

BY LAUREN HILGERS

Shanghai’s

Financial Future The State Council has put its full support behind Shanghai’s bid to become a global financial center by the 2020.

Implementing the ambitious action plan will require the participation of both domestic and foreign financial services companies, as well as the rapid development of regulation and industry oversight.

B ILLUSTRATION BY JASON PYM

y many measures, Shanghai has long been an international city. Its skyline is hard to beat; its population is huge and the city’s enterprises do brisk business.

But despite all the trappings of a world-class metropolis, Shanghai has lagged, alongside the rest of China, in developing a world-class finance industry. Now, on instructions from Beijing, the city is looking to make up for lost time.

According to a plan released by China’s State Council earlier this year, Shanghai is to become a global financial center by the year 2020 – a hub to rival Hong Kong or even New York. “Shanghai is the most qualified metropolitan city on the Chinese mainland to pursue the ambition of building international financial and shipping centers,” says Liu Tienan, vice minister of the National Development and Reform Commission, in an announcement that put the full weight of Beijing behind the plan.

Shanghai has approximately 11 years to execute a plan of action that includes developing the city’s equities and derivates markets, building an insurance and re-insurance industry, reforming the court system and promoting Shanghai’s status as a shipping center. As it develops, there are sure to be opportunities for domestic and foreign businesses in the financial industry. At the same time, many of the regulatory changes required to make Shanghai truly international will resonate on a national scale. But even with Beijing’s support, global status by 2020 may be a tall order.

In the wake of the financial crisis, the Shanghai plan goes hand in hand with efforts

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IMAGINECHINA

STOCK SURGE: Shanghai’s path to becoming a global financial center will require further development of equities and derivative markets.

to reform China’s economic system as a whole, moving emphasis away from basic manufacturing and export into more value-added industries and increased domestic consumption. After years of high savings rates and impressive trade surpluses, the country is looking for smart ways to use its money.

“China needs a financial sector to improve the use of savings,” says Xiao Geng, director of the Brookings-Tsinghua Center for Public Policy in Beijing. “This is not just important for domestic economic development but also for global balance.”

China has been served well by its formula of cheap labor and high savings. In the past few years, net exports rose to over 10 percent of the country’s GDP. What the number doesn’t express, however, is how that extra money is spent. With few financial products and limited access to markets outside of China, there are few outlets for households and businesses to invest, so much of the excess money goes into expansion, which often results in overcapacity.

“The financial sector is not able to channel savings in China into productive investment,” says Geng. “This is the big picture – China has difficulties taking labor capital and putting it into value-added investment.”

The undeveloped financial sector also makes it difficult for local governments and corporations

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to fundraise, particularly in light of the lack of government and corporate bonds. Many local governments use land sales to supplement money, offering land for manufacturing at rock-bottom prices while driving up the cost for residential and property development. Companies looking to raise funds often have to venture outside of China, due to the difficulty of listing on the Shanghai stock market and similar limitations on corporate bonds.

These are all problems a functioning financial system is capable of resolving, Geng explains.

“This is what the financial sector is supposed to do – take savings from people and put them to use,” he says.

While there were other cities rumored to be in the running, Shanghai was the obvious choice to lead financial reform. In addition to being the location of the country’s largest stock exchange and its only gold exchange, Shanghai has extensive “soft infrastructure” – the kind of support provided by the numerous financial consultancies, law firms, private equity funds and other financial services companies that have already made their home in the city.

“There’s a network effect,” says Tom Orlik, China analyst at Stone & McCarthy Research Associates. “The benefits of an additional firm locating in Shanghai are quite high because [that firm] gets to be part of the club.”

The reform program

Ties to the RMB

Being part of the club, if all goes well, is about to become much more interesting. China’s State Council released its blueprint for establishing Shanghai as a financial and shipping center in April. By its definition, an international financial center must have “a multifunctional and highly internationalized financial market system, a pool of internationally competitive financial institutions, a pool of financial professionals [and] a compatible system of taxation, credit, regulation and law.”

Authorities plan to increase the amount of financial products, derivatives and futures trading over the next few years. Their plan includes the development of corporate bonds and asset backed securities as well as derivative products based on stock indices, foreign exchange, interest rates, stocks and even bank loans. In addition, the city hopes to build its profile as a shipping hub and develop its insurance and re-insurance industries. The stock market is also set to be reformed through expanding the coverage and scale of listed companies. “[The city] has got a lot of things it can engineer through policy,” says Orlik. “It can push major Chinese companies to list in Shanghai, or if they’ve already listed elsewhere, to joint-list.”

Many of these reforms will require collaboration between Shanghai and Hong Kong. According to Geng, many Chinese companies are now going to New York or Hong Kong when they can’t get listed at home. “When they are listed outside of mainland China, domestic investors can’t buy the stocks,” Geng says. “Only foreign investors can buy.”

To solve the problem, one of the programs being considered by Shanghai would be opening an “international board” where foreign-owned companies could joint-list, giving mainland investors a chance to buy stock.

“The key role of the stock market is to get good projects financed,” Geng says. “For the past decade, primarily state-owned enterprises have been getting financed.”

Geng also predicts the government will reform the city’s tax regime to help attract businesses to the area. Under the State Council plan, the development of investment banks, fund and asset management companies are emphasized, alongside leasing and financing companies. “Individual income tax is quite high,” he says. Some bankers and businessmen have chosen to stay out of Shanghai for that reason, making frequent trips to take care of their China businesses.

In addition to these programs, the plan to open Shanghai to the world is closely tied to China’s plans for the RMB. The government’s stated target even mentions the connection: to “[establish] Shanghai, by 2020, as an international financial center compatible with the country’s economic strength and the RMB’s international status.”

This is perhaps the biggest hurdle that Shanghai will face on the way towards becoming a financial center by 2020, and likely the most anticipated.

“One of the main problems is that the Chinese capital account is closed and the yuan is not a convertible currency,” says Orlik. “You can’t be an international financial center if people can’t bring money freely into the country or take it out of the country.”

Opening the capital accounts, however, will mean the value of the RMB will have to float on the open market, a move the central government seems at once eager and loathe to make. Since July 2008, China has pegged the value of its currency at 6.83 to the U.S. dollar, a move that has helped the country avoid some of the strongest currents of the economic crisis.

“Some of the measures that were necessary to support the stimulus package may exacerbate imbalances in the economy and make it more difficult for the government to open the capital account down the road,” Orlik says. Controlling the exchange rate has helped support the country’s exporters and even as international demand has slackened, China has been able to grasp a larger piece of the shrinking market.

At the same time, the country has taken small steps toward internationalizing its currency. In late March, Zhou Xiaochuan, the governor of China’s central bank, the People’s Bank of China, wrote an opinion piece calling for a new international currency. In the following months, he has continued to advocate moving away from a system solely reliant on the dollar. “The outbreak of the crisis and its spillover to the entire world reflect the inherent vulnerabilities and systemic risks in the existing international monetary system,” Zhou wrote.

China has already made some moves to expand the scope of the yuan. Over the summer, the government launched a pilot program to allow selected companies from five cities to settle crossborder trades in RMB. In 2007, the country started approving RMB

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“

You can’t be an international financial center if people can’t bring money freely into the country or take it out of the country.”

“

Tax policies are going to be a major challenge, and these policies are determined by Beijing.”

bond offerings on an experimental basis. In September, the government allowed the first RMB bonds to be issued by HSBC in Hong Kong.

“While HSBC China is extremely liquid and strongly capitalized, through this bond issue we seek to support the development of Hong Kong’s RMB market and to help establish a representative pricing benchmark,” said Vincent Cheng, Chairman of HSBC China in a statement.

Citibank has also entered into the RMB bond market, announcing in August that the bank had received regulatory permission to act as an interbank bond market maker in China, opening up access to a number of RMB fixed-asset products.

“What the government wants to do is to have the benefits of the RMB as an international trade currency, but to prevent financial markets to be able to move very large amounts of RMB around to impact the value of the currency,” says Orlik. In many cases, China has the clout to do this. Many companies are willing to do business in RMB in expectation of the currency’s future appreciation, he adds.

So far, the RMB bond market has done well.

Banks with branches in mainland China have issued bonds worth a total of US$5.6 billion.

Cross-border trades, however, have lagged with just US$6.3 million settled in RMB during the first month of the pilot program. The slow growth can be attributed to limits placed on the program, but may also be indicative of trade partners reluctant to do business in a currency that is not easily converted.

Insurance and re-insurance Hand-in-hand with finance, Shanghai has pledged to reform its shipping and re-insurance industries.

“I think they realize the role that insurance plays in developing an economy,” says Eric Zheng, general manager of Chartis Insurance’s Shanghai Branch. “But the bottom line is that insurance is a very young industry in China.”

Chartis serves as the property and casualty insurance arm of AIG, a company that got its start in Shanghai in 1919. In 1992, AIG returned to Shanghai and became the first foreign insurance company allowed operate in the country.

Zheng feels that the roots of the company are still in the city, but Chartis, alongside other foreign insurers, is still limited in what it can do.

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China’s compulsory automobile insurance, for example, is exclusively the domain of domestic companies.

“Automobile insurance is about 70 percent of the total [property and casualty insurance] business in China,” Zheng says. “So we deal in that other 30 percent.”

The playing field in re-insurance, in the past, has also tilted in favor of domestic companies.

Re-insurers provide extra capacity and security for insurance companies writing large policies.

When insuring a large infrastructure project, for example, an insurance company will look to reinsurance to make sure it has enough capacity to cover large risks.

Before China joined the WTO, insurance companies were required to cede reinsurance business to the domestic China Reinsurance Company, Zheng explains. While such compulsory cession of reinsurance has been phased out since the WTO, other measures were implemented to favor reinsurance companies registered in China.

China has already made a decisive move toward encouraging the development of the insurance and shipping industries in Shanghai by eliminating the business tax on marine cargo insurance provided by companies based in Shanghai, demonstrating the government’s dedication to building the shipping and insurance industries hand in hand.

While this will be a boon for insurance companies and potentially attract more companies to Shanghai, tax rates may continue to be a barrier to developing financial services industries. With individual income tax rates that are very high compared with other countries in the region, China may have trouble convincing financial service professionals to change their location.

“Tax policies are going to be a major challenge, and these policies are determined by Beijing,” says Zheng.

Individual tax rates in Hong Kong, for example, are set around 16 percent. In contrast, tax rates in China can go as high as 45 percent.

Taking a step back Zheng points to difficulties in expanding operations beyond Shanghai. Headquarters in the city will not be able to serve their purpose if foreign insurance companies are limited to working within the city’s boundaries.

“They should build a financial center in

IMAGINECHINA

Shanghai for at least the entire country, not just a center for Shanghai,” he says.

Once the city has attracted an insurance company and convinced it to build its headquarters in Shanghai, the company will be looking to expand its operations. In Zheng’s experience, expansion can be limited by regulations and policies that are there to protect domestic industry. This, Zheng believes, is the wrong approach.

“In order to be competitive, you have to open up,” he says. “In order for Shanghai to become an international financial center, you have to open up and provide a level playing field for everyone.”

The issue highlights another problem for Shanghai as it continues to develop – there is only so much the city can do without policy changes from Beijing. In the past, it has been difficult for the central government to consistently take a step back and let competition happen. Allowing foreign companies to spread their influence past Shanghai may challenge Beijing’s ability to remain uninvolved in the financial market.

“At the moment I think it would be fair to say the government has a fairly hands on view of how the market should be regulated,” says Orlik.

Currently, if the market is too hot, the government might instruct brokerages not to sell any shares.

They might instruct banks only to issue certain kinds of loans. “To build an international financial center you have to give investors the confidence they need to bring money into the country” Orlik says. “Market participants need assurance that government policy will stay consistent.”

Regardless of whether Shanghai is able to become truly international in the next 11 years, some companies are already expecting opportunities to arise as more reforms are rolled out. “Any company can only be as good as the market it can operate in,” says Andrew Au, chief executive officer of Citibank China. “We want to see Shanghai continue on its current path, and as it does so, there will be new opportunities for international companies like Citi to grow and invest.”

Au says Citi is ready to assist in the process of turning Shanghai into a financial center. “We can make contributions like technology transfer, exchanging views, international best practices and leadership skills,” he says.

Au expects development on multiple fronts, benefitting even companies not directly involved in financial services. Supplying adequate talent to support the financial industry, for example, will

require further investments in education in and around the city.

“You need to take a broad view in terms of development,” Au says. “The financial industry couldn’t exist without the necessary supporting infrastructure, including accounting, legal and educational services.”

Citibank is not the only company anticipating positive changes. Recently, Blackstone Group announced it had signed a joint venture with the Shanghai Municipal Government, creating the company’s first RMB-denominated private equity fund. The group is leading a wave of private equity funds setting up in the country, looking to take advantage of a change in regulations loosening requirements for pre-IPO funding.

The arrival of these funds shows that many are confident of the government’s commitment to reform and suggests an appetite for taking advantage of China’s domestic wealth. “There are certainly challenges, but I wouldn’t doubt China’s ability to meet this goal,” says Zheng. “Logistically, Shanghai is strategically placed – the city is backed by a vast interior.”

Zheng lists transparency, rule of law, a convertible currency and a trained workforce as the main challenges that will face Shanghai over the next 11 years. “They have set the goal very high,” he says. “But in China, if there’s a will, there’s a way to do it.”

Lauren Hilgers is a Shanghai-based freelance journalist. She can be contacted at lauren.hilgers@gmail.com.

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HAND IN HAND: As Shanghai moves to become an international finance hub, it is also aiming to become an international shipping center.

INSIDE AMCHAM FROM THE CHAIRMAN

Representing American Business

W

ith 2010 just around the corner, let me take this opportunity to thank you, the AmCham Shanghai members, for all of the time and knowledge you have devoted to the Chamber. As a membership organization, we rely on the commitment of our members who are willing to share their business experience in order to speak as the Voice of American Business in China. I have been proud to serve as Chairman of an organization with such an active, diverse and experienced membership. As I prepare to step down after two years as Chairman of AmCham Shanghai, it is a good time to look back at some of the accomplishments of the Chamber over the past two years.

J. Norwell Coquillard Chairman AmCham Shanghai

With the economic turmoil that began in late 2008, this year has been very challenging. However, in many ways, AmCham Shanghai has been able to turn a crisis into an opportunity. The economic crisis spurred the Chamber into building some new innovations in member services and we have advanced, very rapidly in some cases, in developing some of our key initiatives.

A farewell from J. Norwell Coquillard, who will step down after two years as Chairman of AmCham Shanghai.

I spoke at the recent Annual General Meeting about four key metrics that I believe accurately measure the Chamber’s successes and development. They are: • First and foremost, membership satisfaction • Second, leadership on important issues facing the membership • Third, recognition from key stakeholders in the U.S.-China commercial relationship • And finally, the size of the membership To measure membership satisfaction, we collaborated with McKinsey & Company to survey our membership and also held a series of focus groups to gain feedback on our conferences and other member services. This year, the McKinsey survey revealed that 92 percent of members are satisfied or somewhat satisfied overall with their AmCham Shanghai membership. This is also reflected in the 33 percent increase in events attendance from last year, as we have tried to tailor events and services to target the needs of our diverse membership. The satisfaction rating at events also jumped approximately 10 percent. We have also taken steps this year to build on our suite of corporate publications, by launching the China Greentech Report and the Viewpoint series to better communicate business information and resources to our members.

To establish the Chamber as a thought leader on key U.S.-China commercial issues, AmCham Shanghai has continued to develop strong relationships with senior government officials who are critical to advancing the interests of our members on both sides of the Pacific. This year’s Washington, D.C. Doorknock was among the most productive ever and we continue to increase engagement with Chinese government officials not just in Shanghai, but around the country. One message we have focused on particularly, under the leadership of the AmCham Shanghai Environmental Committee, is the importance of the green technology market. We perceive the greentech area as a win-win for AmCham Shanghai and the membership. Our Greentech: A Call to

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INSIDE AMCHAM

Action conference drew more than 450 attendees and speakers from the U.S., China and Europe and AmCham Shanghai now stands at the forefront of accelerating the market in China.

AmCham Shanghai also continues to play a leadership role in advancing the ideals of corporate social responsibility throughout China. From engaging the business community to make contributions to worthwhile causes in Shanghai and other rural communities to sharing best practices and engaging the government, CSR continues to be just one of the major initiatives where AmCham Shanghai is receiving recognition on a national and international level.

The Chamber has also developed partnerships and collaborations with leading organizations in the U.S. and China that reflect our efforts to address key issues facing the American business community in China, such as with the Asia Society and the China Greentech Initiative. U.S. and Chinese government officials regularly request an audience with AmCham Shanghai reflecting the position and importance of the membership and the Chamber has seen increased mention in both global and Chinese media over the past two years, with more than 300 articles, reports and statements covering our activities in 2009 alone.

All of these factors contribute to why AmCham Shanghai remains the largest and most active American Chamber in the Asia-Pacific region. Our membership currently stands at 3,478, which is a slight decline from our peak of 4,000 a year ago, but I am confident that we will resume our steady membership growth as the global economy begins to recover. I am very pleased that despite the difficult times over the past year, so many of our members continue to see value in AmCham Shanghai and have participated in Chamber activities more than ever before.

With the Shanghai 2010 World Expo just five months away, I only expect to see and hear more from AmCham Shanghai as the city of Shanghai takes its turn in the global spotlight.

Finally, I would like to congratulate incoming 2010 Chairman Robert Roche and the 2010 Board of Governors. I would also like to thank the 2008 and 2009 Governors for their collective leadership and dedication to AmCham Shanghai; President Brenda Foster and the office staff; the Committee leaders; and most importantly, all the members for making the past two years such a memorable and rewarding experience for me personally. I’m confident that 2010 will be another banner year for AmCham Shanghai.

Thank You to the AmCham Shanghai 2009 Board of Governors: 2009 Chairman

J. Norwell Coquillard President Cargill Investments (China), Ltd.

2009 Vice Chairman

2009 Governors Eddy Chan

Ted Hornbein

James Rice

Head of China and Senior Vice President FedEx Express

Managing Director for Asia Richco, Inc.

Vice President & Country Manager Tyson Foods, Inc.

Matthew J.Targett

Pierre E. Cohade President, Asia-Pacific Region The Goodyear Tire & Rubber Co.

Murray King Managing Director Shanghai APCO Worldwide

Honorary Governors: David Gossack, U.S. Commercial Service Chris Wurzel, U.S. Consulate

Minda Ho John Grobowski Managing Partner Faegre & Benson LLP Shanghai

Executive Vice President Praxair (China) Investment Co., Ltd.

Head of Innovation Management Bayer Technology and Engineering

Diane Long N O V E MDirector BER 2009

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ALC Advisors

Other Governors serving in 2009: 33 Chris Beede, U.S. Consulate Warren Wisnewski

INSIDE AMCHAM B O A R D O F G OV E R N O R S B R I E F I N G

Highlights from the November 2009 Board of Governors Meeting

Membership The Board approved 41 new member applications.

Finance Report

Helen Ren, Director of Finance & Administration, reviewed the Chamber’s finances for the first seven months of the fiscal year, noting that financial performance remained on target with budget projections.

Automotive Committee

The Board approved the application for a new Automotive Committee, which will focus on both on-road and off-road vehicles and include suppliers, with the overall goal of bringing the entire automotive industry together and share best practices.

Annual Government Appreciation Dinner

The President gave an update on preparations for the Ninth Annual Government Appreciation Dinner. Sponsorship positions were being filled quickly and feedback from the Shanghai Municipal Government indicated a strong interest from local officials in attending the event to welcome new U.S. Ambassador to China Jon M. Huntsman, Jr.

IN ATTENDANCE Governors: Eddy Chan (by phone), J. Norwell Coquillard (Chairman), David Gossack, John Grobowski, Minda Ho, Ted Hornbein, Murray King and Chris Wurzel.

Attendees: David Basmajian, Justin Chan, Siobhan Das, Brenda Foster (President), John Leary, Helen Ren, David Turchetti and Linda X. Wang.

APOLOGIES Pierre Cohade, Diane Long, James Rice and Matthew Targett.

AmCham Shanghai 2010 Board of Governors 2010 Chairman Robert Roche Director Acorn International

AmCham Shanghai 2009 Annual General Meeting At the AmCham Shanghai 2009 Annual General Meeting, Chairman J. Norwell Coquillard reviewed the Chamber’s achievements and highlights for the year by reviewing his four measures of success: membership satisfaction, leadership on important issues facing the membership, recognition from key stakeholders in the U.S.-China commercial relationship, and the overall size of the membership. Although the past year was a difficult year for many businesses due to the global economic situation, AmCham Shanghai was able to turn a crisis into an opportunity, he said. (For more on the Chairman’s Year in Review, please see page 34.)

Coquillard also reviewed the Chamber’s financial report, noting AmCham Shanghai’s satisfactory financial performance over the past year.

President Brenda Foster then recognized the AmCham Shanghai 2009 Sponsors of the Year: American Airlines, Baker & McKenzie, Best Buy, Eagle Ottawa China, Greenberg Traurig LLP, Manpower China, MOL (China), Shanghai Racquet Club & Apartments, Shanghai SIP Engineering Consulting, and the Washington University-Fudan University Executive MBA Program.

The meeting concluded with a keynote speech by Andrew Browne, China Editor of The Wall Street Journal and Dow Jones Newswires, who addressed “China’s Next Revolution.” He reviewed the impact of the global financial crisis on China’s export markets and the beginning of economic recovery as the central government implemented a RMB4 trillion stimulus package. However, he noted the difficulty in accessing funding that many non state-owned enterprises continue to encounter and the resulting uneven distribution of economic growth. Browne also noted the ample room for reform of the education, healthcare and social welfare systems. He lauded the great progress that has been made in China but remarked that rebalancing the economy will be a long process.

AmCham Shanghai 2009 Nominations & Elections Committee (NEC) Chair Angie Eagan then announced the results of the 2010 Board of Governors election (see sidebar). She also thanked NEC members Shirley Brown, Beth Bunnell, Patrick Cranley and Jay Hoenig. (Nov 5)

2010 Vice Chairman John V. Grobowski Managing Partner Faegre & Benson LLP 2010 Governors Andrew Au Chairman and Chief Executive Officer Citibank China Eddy Chan Head of China and Senior Vice President FedEx Express Pierre E. Cohade President, Asia-Pacific Region The Goodyear Tire & Rubber Co. Murray King Managing Director – Shanghai APCO Worldwide Diane Long Director ALC Advisors Eric S. Musser Chief Executive Officer, Greater China Corning James M. Rice Vice President and Country Manager, Greater China Tyson Foods, Inc. Matthew J. Targett Head of Innovation Management Bayer Technology and Engineering (Shanghai) Co., Ltd. Kevin E. Wale President and Managing Director General Motors China Group

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CONGRATULATIONS TO THE WINNERS OF

THE 2009 AMCHAM SHANGHAI CORPORATE SOCIAL RESPONSIBILITY AWARDS AmCham Shanghai CSR Award Coca-Cola (China) Beverages, Ltd. Finalists: 3M China, Ltd. Bayer (China), Ltd. Dow Corning (Shanghai) Management Co., Ltd. General Motors (China) Investment Co., Ltd. KPMG China Mary Kay (China) Cosmetics Co., Ltd. PepsiCo Investment (China), Ltd.

AmCham Shanghai Partnership Award Honeywell (China) Co., Ltd. & Safe Kids China

AmCham Shanghai CSR Award for Small Business Arc8x Design

AmCham Shanghai CSR Practitioner Award Diana Tsui, CSR Director, KPMG China

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J U LY / A U G U S T 2 0 0 9

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2009

YEAR END

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Event Highlights

INSIDE AMCHAM

RECENT AMCHAM HAPPENINGS AMCHAM SHANGHAI

U.S. Consul General in Shanghai Beatrice Camp (center) delivers the November briefing.

AmCham Shanghai Applauds Focus On Trade, Clean Energy During President Obama's First Visit To China AmCham Shanghai welcomed President Obama’s focus on open markets, clean energy initiatives, reviving global economic growth and high-level bilateral engagement between the United States and China during this week’s visit to Shanghai and Beijing.

November U.S. Consulate Briefing U.S. Consul General in Shanghai Beatrice Camp opened the November briefing by summarizing a series of recent high level visits. U.S. Ambassador to China Jon M. Huntsman, Jr. made his first trip to Shanghai as ambassador on October 14 to participate in the topping off ceremony for the USA Pavilion and to meet with sponsors. Agriculture Secretary Tom Vilsack was briefed on Expo while in Shanghai after the JCCT and announced a letter of support for the Pavilion effort. The head of the Consumer Products Safety Commission led a delegation of 13 U.S. government officials and 20 stakeholders from industry for meetings in Wuxi and Shanghai. The Acting Deputy Administrator of the Environmental Protection Agency was in Shanghai October 22-23 for meetings with legal scholars and prosecutors on the subject of environmental law. The State Department’s Special Envoy for Climate Change Todd Stern visited October 27 for the ministerial-level meeting of the Asia-Pacific Partnership on Clean Development and Climate.

Foreign Commercial Service Principal Commercial Officer David Gossack then reviewed the highlights of the October 29 meeting of the U.S.-China Joint Committee on Commerce and Trade held in Hangzhou.The JCCT is the annual trade summit meeting between the leaders of the U.S. and Chinese governments. At this year’s meeting, the U.S. delegation was co-chaired by Secretary of Commerce Gary Locke and U.S. Trade Representative Ambassador Ron Kirk, and joined by Secretary of Agriculture Vilsack. Gossack reviewed the key market access outcomes announced at the JCCT including: 1) China’s commitment to eliminate domestic content requirements for wind power projects; 2) China’s commitment to treat Foreign Invested Enterprises the same as Chinese domestic suppliers in bids on national government procurement tenders; 3) on IPR, China gave assurances that it will impose maximum administrative penalties on Internet infringement; and announced a public notice conveying to state-run libraries the importance of strengthening protection of copyrighted academic and medical journals; 4) China’s announcement of a number of new measures to eliminate redundant regulation of medical devices and 5) China’s announcement to expand from 9 to 21 the number of provinces covered by the Travel and Tourism MOU. Agricultural Trade Officer Alan Hallman noted that Secretary of Agriculture Vilsack received assurances from Minister of Agriculture Sun Zhengcai that China would reopen the its pork market to U.S. producers. U.S. pork exports to China reached US$269 million in 2008, but the market has been closed since the discovery of H1N1 flu last spring despite the lack of a sciencebased reason to restrict trade. (Nov 3)

“Commitments made by presidents Obama and Hu to fight protectionism on both sides of the Pacific and to advance open trade and investment are strongly supported by the American business community in China,” said J. Norwell Coquillard, chairman of AmCham Shanghai. “We were also pleased the president included Shanghai on his first visit to China as president. Shanghai is emerging as the Asia-Pacific region’s commercial hub and his visit reflects the growing importance of Shanghai and the Yangtze River Delta to the U.S.-China commercial relationship.”

Announcements advancing U.S.-China cooperation on clean energy were also warmly welcomed by AmCham Shanghai and its membership. “The launch of the U.S.-China Energy Efficiency Action Plan, the Electric Vehicle Initiative and a joint US$150 million commitment to the U.S.-China Clean Energy Research Center are all steps in the right direction on this important issue,” stated Brenda Foster, president of AmCham Shanghai. “Working with China to advance clean energy and green technologies is a win/ win for the U.S. that will contribute to a more sustainable global environment and create American jobs and opportunities for American companies.”

AmCham Shanghai will act as a platform for companies, governments, NGOs and technical experts as the U.S. and China continue to work together to accelerate the greentech market, projected to be a US$1.5 trillion market in China alone within the next four years. Underpinning these important initiatives is a commitment by the U.S. and China to regular exchanges between the leaders of the two countries. AmCham Shanghai supports engagement with China as the best way to ensure long term, steady growth of the U.S.-China relationship and applauds Tuesday’s commitments by presidents Obama and Hu to high-level engagement on a broad range of issues. (Nov 18)

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Committee Highlights

INSIDE AMCHAM

NEW IN COMMITTEES

AMCHAM SHANGHAI

Healthcare Committee

The U.S. Healthcare Debate – The Latest From Washington, D.C. The Healthcare Committee hosted a breakfast event to discuss the ongoing U.S. healthcare reform debate at the AmCham Shanghai office. Ken Sperling, global health manager for Hewitt Associates, discussed the U.S.’ current healthcare situation, what policy reform would entail, and provided a glimpse at what the outcome of this much-debated topic will mean for U.S. taxpayers.

Sperling, who has been heavily involved in the healthcare discussion for the past year, noted that America’s hybrid public-private healthcare system Ken Sperling, Hewitt Associates accounts for approximately 16 percent of the country’s GDP, and private spending on healthcare per capita amounts to about US$3,500 (in comparison, the same figure in Canada is US$988, US$351 in the U.K., and US$368 in Mexico). Some of the major cost drivers for healthcare in the U.S. include inflation, improving mortality rates, an increase in chronic diseases, tort laws (doctor malpractice suits) and the third-party payment system. By 2019, employers will pay a projected US$28,530 for healthcare coverage per employee which would have a clear negative impact on U.S. global competitiveness.

The healthcare bill continues to spark controversy and stakeholders including the insurance industry are lobbying heavily to see their interests included in the final bill. U.S. President Barack Obama has called for healthcare reform to pass through Congress before the end of 2009; whether or not that will happen remains to be seen, said Sperling. However, with 2010 midterm elections approaching, there is consensus that the U.S. will have a new version of healthcare coverage by no later than early next year. (Nov 13)

STARTING DECEMBER 14, 2009 2009/10 AmCham Shanghai Annual Membership Satisfaction Survey Please help the Chamber better understand how you feel about your AmCham Shanghai membership by taking this year’s member satisfaction survey. The results will be of great value for the Chamber to better tailor future development. Please take the survey at www.amcham-shanghai.org/2009survey. A customized survey link will also be sent to you by email.

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For more information, please contact Sandra Sun at (86 21) 6279-7119 ext. 5670 or sandra.sun@amcham-shanghai.org.

INSIDE AMCHAM

AMCHAM SHANGHAI

Logistics & Transportation Committee

China’s Stimulus Plan – The Economist Six-Month Report Card AmCham Shanghai’s Logistics and Transportation (L&T) Committee hosted a luncheon event at the Four Seasons Hotel covering the recent Economist Intelligence Unit’s six-month report card on China’s stimulus package. Pilar Dieter, Director at Alaris Consulting and Chair of the L&T Committee, described the stimulus package and some of the primary concerns surrounding it, including the question of the actual value of the stimulus, whether it will create overcapacity, and the need for a greater emphasis on boosting domestic demand. Wu Chen, author of the Economist Intelligence Unit’s six-month report card on China’s stimulus package, examined the three main areas addressed by the stimulus package: industrial restructuring, support for science and technology, and improvements to the social safety net. He noted that China’s central government only provides a fraction of the stimulus package funds, while the rest is supplied Wu Chen, Economist Intelligence Unit by local governments and banks. As such, he deemed the “winners” in the stimulus package story to be state-owned enterprises and the infrastructure sector, while the private sector and banking industries would receive fewer benefits from the package. Ultimately, while the Chinese government’s stimulus package has kept the country’s GDP at its target 8 percent growth rate, major concerns – including government meddling in the banking sector, so-called “white elephant” projects such as the high-speed railway from Beijing to Shanghai, and property value bubble-boosting – still exist, said Wu. (Nov 4)

Marketing Committee

Sir Martin Sorrell: New Markets, New Media and Consumer Insight AMCHAM SHANGHAI

Sir Martin Sorrell, WPP

On October 30, AmCham Shanghai’s Marketing Committee was pleased to host Sir Martin Sorrell, founder and CEO of WPP, the world’s largest marketing group, at a breakfast event at the Portman Ritz Carlton Hotel. Sorrell discussed his views on the major developments and trends shaping the global marketing industry, and how the recent economic downturn has accelerated these trends.

Sorrell emphasized the importance in recognizing that global power is shifting from Western Europe and North America to the developing “BRIC” countries of Brazil, Russia, India and China, as well as to regions including Latin America and Southeast Asia. At the same time, companies around the world are becoming more global, but are also balancing that shift with the recognition that they need to grow their operations in local markets and develop local talent. Companies can distinguish themselves by focusing on attracting, developing and incentivizing their people, said Sorrell. The war for talent “will be critical” in the future, he explained. Sorrell also touched upon the growth of new media and the impact that has had on traditional media.

Businesses like Google, Amazon and social network companies are revolutionizing the way people think about and use media forms.

Event and Committee Highlights are reported by Kate Ryge, Brian Seifert and Elaine Wu. DECEMBER 2009

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DEAL OF THE MONTH IMAGINECHINA

Shanghai Splendor After years of discussion, Disney will bring its magic to Shanghai.

A

fter several years of negotiations, China’s National Development and Reform Commission recently gave the official nod to build a Disney amusement park in the eastern Pudong District of Shanghai. With an anticipated cost of US$3.6 billion, the theme park endeavor promises to deliver both job and tourism growth for Shanghai. The park’s success could extend the economic boom expected during the 2010 World Expo, but before that can happen, the city needs to further develop the capacity and quality of its services industry.

“Like the World Expo, the Disney Park will also present a golden chance for the city to develop its services industry. It could drive investment in the short term and boost consumption in the long term,” said Tu Jun of the Shanghai Securities Co. Following the announcement, land prices

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around the park’s future location rocketed to highs that exceeded industry expectations. With planned infrastructure and service investments, metro expansion and the establishment of leisure and entertainment franchises in the area, land values and residential property development will likely continue to grow in the future. Analysts predict that the park will draw an increasing number of domestic and foreign tourists who will contribute to other retail businesses in the city.

Tourism spending already accounts for 25 percent of Shanghai’s current retail sales.

The official approval marks an important milestone for foreign entertainment firms attempting to access China’s large market potential. Disney characters are popular with Chinese audiences, but the Disney brand has faced significant challenges entering the Chinese market successfully. The Disney theme park in Hong Kong has endured financial losses since its opening in 2005, due to lower-thanexpected attendance and complaints of high admission prices. Its local rival, Ocean Park, has seen gains in customers and has fielded requests for franchise theme parks elsewhere in Asia, including Shanghai, and the Middle East. Ocean Park attributes its success to cultural awareness and an adherence to its Asian identity.

Taking lessons from Hong Kong, Disney’s Shanghai project will not start small and gradually expand over the years, but will instead open at a grand size of 1,000 acres. Located near the Pudong International Airport, the park will also have “characteristics tailored to the Shanghai region.” Such efforts to tailor the Disney brand to local preferences have been successfully implemented in other ventures. The company cooperated on animated films in India, released its first Chinese language film, “The Secret of the Magic Gourd,” in 2007, and recently enjoyed two top-earning weekends for “The Book of Masters” – a Russian fairy tale movie produced by an allRussian team. Striving to ensure the success of its ventures, Disney will continue to adapt to the new global environment.

– Chantal Grinderslev

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