Insight Magazine April 2010 by The American Chamber of Commerce in Shanghai

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

INSIGHT The Journal of the American Chamber of Commerce in Shanghai April 2010

VIP VISITOR

Economist Jeffrey Sachs EXPO FOCUS

USA Pavilion Preview LEGAL UPDATE

Environmental Liabilities

The Impact of Healthcare Reform

The ongoing reform of Chinaâ&#x20AC;&#x2122;s healthcare sector will provide many opportunities for business

INSIGHT April 2010

The Journal of the American Chamber of Commerce in Shanghai

David Turchetti DIRECTORS

BUSINESS DEVELOPMENT & MARKETING

Karen Yuen COMMITTEES

Siobhan M. Das COMMUNICATIONS & PUBLICATIONS

David Basmajian EVENTS

Jessica Wu FINANCE & ADMINISTRATION

Helen Ren

MEMBERSHIP & CVP

Linda X. Wang

INSIGHT EDITOR-IN-CHIEF

Justin Chan

ASSOCIATE EDITOR

Tiffany Yajima

COMMUNICATIONS ASSOCIATE

Weina Yang DESIGN

Alicia Beebe LAYOUT & PRINTING

Ella Shan Snap Printing, Inc.

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

Special thanks to the 2010-2011 AmCham Shanghai President’s Circle Sponsors

13 Increasing Environmental Liabilities

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

LEGAL UPDATE

JUSTIN CHAN

Brenda Foster

F E AT U R E S

BRC

PRESIDENT

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AMCHAM SHANGHAI

By Ron Cai and Ning Ding

The new Torts Law passed in December 2009 will increase the liabilities for environmental pollution. Companies need to be aware of the impact of the law before it comes into effect in July.

17 Designs for China INTERVIEW

By Justin Chan

Leading engineering, procurement and construction management (EPCM) ﬁrm SSOE Group has targeted China and Asia as its next driver of growth and expansion.

20 Welcome to America EXPO FOCUS

By Charlene Ruan

With just one month to go until opening day of Expo 2010, ﬁnal preparations are underway at the USA Pavilion for a show that will showcase the best of America to the world.

23 The Sustainable Economist VIP VISITOR

By Justin Chan

Jeffrey Sachs, leading global economist and expert on sustainable development, sits down with Insight to share his views on the U.S.-China relationship and the future of sustainable development.

28 The Impact of Healthcare Reform COVER STORY

By Andrew Chen

Healthcare reform in China will change the lives of millions of Chinese citizens, but it will also have dramatic impact on businesses operating in the healthcare sector. As the ﬁrst of a series of articles, Insight outlines the parameters of the healthcare reform plan and how it will drive the life sciences and healthcare markets.

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

3 News Briefs

44 Deal of the Month

9 Speak with Executive Presence 11 Generation Y Employees MANAGER’S NOTEBOOK

HR SPOTLIGHT

Executive coach and author Warwick John Fahy discusses the importance of presentation skills.

C.S. Tiong of Kelly Services describes the changing face of today’s workforce in China.

INSIDE AMCHAM

35 From the Chairman: Towards Focused Engagement 37 AmCham Shanghai 2010 World Expo Business Series

MARCH 2009

40 Events in Review 42 Committee Highlights

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INSIDE INSIGHT

arch was an eventful month in U.S.China relations, as the debate about currency valuation continued and Google spurred concerns about the environment for foreign businesses in China as it partially closed its operations. In this issue, we are pleased to share an exclusive interview with renowned economist Jeﬀrey Sachs, who brings his international development perspective to talk about the U.S.China relationship, what should happen with the renminbi and his concerns about China’s economic development.

JUSTIN CHAN EDITOR-IN-CHIEF

It has been one year since healthcare reform was announced in China and some guidelines on how the government plans to implement its ambitious agenda have been released. This month’s cover story introduces the reform plan and begins to take stock of some of the changes that are expected. Over a series of articles in upcoming issues, Insight will examine the eﬀects of the reform plan on China’s life sciences and healthcare markets. Another sector where reform is ongoing is the environment, where the recently announced Torts Law is expected to increase the liabilities for

environmental pollution. Taking effect in July, the Torts Law addresses civil liabilities for pollution that is governed by existing environmental laws and regulations. Turn to this month’s interview column for a discussion with the global and Asia leaders of SSOE Group, an engineering, procurement and construction management firm that is focused on delivering cost-effective and sustainable solutions for its clients in China. Finally, with just one month before opening day at the Shanghai 2010 World Expo, turn to the Expo focus for a preview of the USA Pavilion. After a long and challenging journey, it is time to focus on welcoming the millions of visitors who are eager to learn about the United States of America. Don’t forget that AmCham Shanghai is the Official Business Chamber of the USA Pavilion and will host an engaging speaker series featuring global CEOs, conferences on innovation and sustainability, and forums with provincial government leaders. For more on the AmCham Shanghai 2010 World Expo Business Series, visit expo.amcham-shanghai.org.

IMAGINECHINA

News

N NE EW WS S B BR R II E EF FS S

CHINA BUSINESS

China considers subsidizing electric cars China may soon oﬀer subsidies to consumers for the purchase of electric cars, according to China’s Ministry of Industry and Technology. Li Zhong, minister of industry and technology, reported in early March that China is considering oﬀering subsidies of up to RMB60,000 to consumers for the purchase of electric vehicles. The State-supported measure attempts to counteract the high price tag of electric cars. Last year, China increased the number of green vehicles bought for public transportation in 13 cities including Shanghai, Shenzhen and Beijing. The government expressed hope that the subsidy would put 500,000 electric cars on the streets by 2013 and has taken initiative to begin building the necessary infrastructure, such as citywide charging stations, for the electrical vehicles to operate.

Chongqing free trade zone approved China’s State Council approved on March 6 the ﬁrst free trade zone in China’s interior located in Chongqing. The 10-square-kilometer tax-free zone is expected to increase investment in Chongqing by establishing a favorable inland trade zone for manufacturing companies. China’s State Council invested RMB40 billion in the project. Construction on the Chongqing Xiyong Integrated Free Trade Zone began in late 2009 and has already attracted computer manufacturing contracts with Hewlett-Packard, Foxconn and Intel to produce more than 80 million laptops onsite. Chongqing is one of four municipalities, along with Shanghai, Beijing and Tianjin directly governed by

The currency revaluation debate At a press conference following the close of the Third Session of the 11th National People’s Congress on March 15, Chinese Premier Wen Jiabao made strong remarks in response to the U.S. government’s ongoing push for Chinese currency revaluation. “I think the renminbi is not undervalued,” said Wen in response to a question posed by foreign press regarding China’s monetary policy and whether renminbi appreciation is in line with China’s efforts to keep inﬂation down to three percent. “The renminbi will continue to be a market-based, managed ﬂoating exchange rate system. We will further reform the renminbi exchange rate formation mechanism and keep the renminbi exchange rate stabilized at reasonable levels,” he said. Two days later, a bipartisan group of U.S. senators introduced the Currency Exchange Rate Oversight Act of 2010 in response to what some legislators perceive as the U.S. government’s failure to confront China’s currency manipulation.The new legislation addresses currency disparities that negatively affect U.S. trade. U.S. Senator Charles Schumer led the effort claiming that China’s renminbi is undervalued by roughly 25 to 40% compared to the dollar and urged the U.S. government to further press China to strengthen its currency.

the central government. As a landlocked municipality, it has the least developed infrastructure of the four cities. Built to facilitate interior logistics, the Chongqing free trade zone will link to the Chongqing Jiangbei International Airport and the Chongqing harbor with the possibility of connecting with Chongqing’s rail network in the future.

China establishes consumer financing companies Chinese authorities approved on March 7 China’s first two consumer finance companies established to balance economic growth by boosting domestic demand. Both consumer financing institutions will offer loans for the purchase of durable goods including appliances, mobile phones,

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computers and furniture and will provide funding for education, weddings and travelrelated expenses. Neither ﬁrm is eligible to engage in guarantees or deposits business and may not provide loans for car purchases. The Beijing-based Beiyin Consumer Finance Co. is a wholly owned subsidiary of the Bank of Beijing and the Chengdubased Sichuan Jincheng Consumer Finance Co. is a joint venture between the Bank of Chengdu and Malaysia’s Hong Leong Bank. The China Banking Regulatory Commission also endorsed two consumer ﬁnancing companies to be located in Shanghai and Tianjin. CORPORATE NEWS

Hummer deal fails regulatory approval In the wake of the fallout between General Motors and Sichuan Tengzhong Heavy Industrial Machinery for the purchase of GM’s luxury truck brand Hummer, GM has continued production of Hummer vehicles while weighing competing purchase offers that it previously overlooked. The deal between GM and Tengzhong collapsed in late February after the deal failed to secure Chinese regulatory approval. As part of the regulatory approval process, Tengzhong’s application to acquire Hummer should have been filed with the National Development and Reform Commission and the Ministry of Commerce, along with other regulatory bodies. While Chinese officials claim the NDRC and MOFCOM did not receive the application and were therefore unable to reject the bid, sources close to the deal suspect that the Hummer brand’s notoriety for gas-guzzling engines did not sync with the government’s plan to subsidize green technologies for smaller, more fuel efficient vehicles.

China checks Boeing 737s Routine inspections on 160 Boeing aircraft in China were ordered after the Civil Aviation Administration of China issued an emergency airworthiness directive to check for potential safety hazards. The routine safety checks were ordered following a U.S. Federal

Aviation Administration directive urging immediate inspections on the elevator tab control device on tail flaps of six models of Boeing 737s. In early March, a Ryanair jet was diverted mid-flight because of severe vibrations in the aircraft’s tail flaps, which could have resulted in loss of aircraft control and structural integrity. In response to the safety concern, Boeing issued an alert service bulletin describing the problem and explaining repair procedures. There are 603 Boeing 737 planes in China belonging to Air China, China Eastern, Shanghai Airlines, China Southern, Xiamen Airlines, Hainan Airlines, Shandong Airlines and Shenzhen Airlines.

Google ends web censorship Negotiations between Chinese leaders and Google executives stalled in recent months as neither side was willing to bend on the much publicized censorship issue in China. On March 23, after weeks of speculation that Google would shut down its mainland China operations, Google oﬃcially announced it would instead end its four years of censorship on the popular China-based search engine. Google.cn now redirects visitors to Hong Kong’s uncensored search engine google.com.hk. Following Google’s announcement, Google.com.hk was reprogrammed to support searches in both traditional Chinese characters, used in Hong Kong, and simpliﬁed Chinese characters, used in mainland China. The Mountain View, California-based company plans to continue its Beijing operations for engineering and sales activity to maintain its market position in mainland China. MACROECONOMICS

China becomes world’s largest housing market China overtook the United States as the world’s largest real estate investment market in 2009, according to property consultant Cushman & Wakeﬁeld. Real estate investment in China grew by 143% over 2009, to US$156 billion, against a fall of 64% in the U.S. to US$38 billion. High levels of unpaid debt and reluctance to lend underlie the decline in U.S. real estate investment. While real estate

investors look to 2010 for unprecedented investment activity in the Chinese property market, proposed regulatory changes to transactions involving tax havens may curb foreign property investment in China.

China plans stimulus plan exit Chinese leaders are considering a gradual rollback of the US$586 billion stimulus package announced in late 2008 as the country targets 8% economic growth in 2010. At the onset of the global financial crisis, the central government implemented a proactive stimulus package to reverse the downturn in exports by spurring domestic demand. The initial boost brought by the stimulus package is already fading however, and economists doubt whether private-sector businesses can now drive China’s growth. At the annual NPC meetings in mid-March, Chinese Premier Wen Jiabao warned that the economic turnaround in 2010 should not be interpreted as a fundamental improvement in the economic situation. Wang Jun, vice minister of finance, reinforced the sentiment in a speech at the 2010 China Development Forum in Beijing, saying “China’s proactive fiscal policy was formulated according to the country’s own situation, and the withdrawal will take place step by step in accordance with the country’s conditions to ensure a stable transition.”

Huge potential for China tourism China is expected to become the world’s largest tourist destination by 2015 according to the United Nations World Tourism Organization. “China, as we predict, is going to become the world’s number one tourist destination by the year 2015,” projected UNWTO Secretary General Taleb Rifai. France attracts roughly 80 million tourists each year as the top destination for international tourists. Spain and the U.S. each host approximately 60 million tourists a year followed by China hosting 48 million tourists. In the last ten years, the number of visitors in China has risen from 8 million to 48 million. Rifai’s statement comes at a time when UNWTO oﬃcials are voicing concern over government debt

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and unemployment as major threats to the world tourism industry.

homegrown ﬁlm industry and promote the domestically produced ﬁlm Confucius.

U.S. - CHINA

CHINA OVERSEAS

China appoints new Ambassador to the U.S.

Rio Tinto and Chinalco sign mining deal

Chinese President Hu Jintao appointed Zhang Yesui as the ninth Chinese Ambassador to the United States, in line with a recommendation by the National People’s Congress on March 14. Zhang succeeds former Ambassador Zhou Wenzhong. Unlike Zhou, who dedicated most of his career to U.S. affairs, Zhang’s previous diplomatic experience includes representing China at international organizations and conferences. Fluent in English, Zhang graduated from the Beijing Foreign Studies University and attended the London School of Economics. Before his appointment, Zhang served as vice minister of foreign affairs from 2003-2008 and as Chinese ambassador to the UN from 20082010. In his first week as Ambassador to the U.S., Zhang met with Secretary of State Hillary Clinton who conveyed the Obama administration’s hopes for a positive, cooperative U.S.-China relationship.

Rio Tinto and Chinalco sign mining deal Rio Tinto and the Aluminum Corp. of China (Chinalco) signed a non-binding memorandum of understanding on March 19 to develop an iron ore reserve in Guinea, West Africa. Under the agreement, Chinalco will acquire 47% of the Simandou project for US$1.3 billion, which will fund project development initiatives and rail and port infrastructure. After three years, Chinalco will own 44.65% of the project while Rio Tinto will own 50.35%. The International Finance Corp, the private-sector ﬁnancing arm of the World Bank, owns the remaining 5%. The deal includes a 20% purchase option for the Guinea government which, if exercised, would proportionally reduce Rio Tinto and Chinalco’s respective shares.

Hollywood films announced China’s importer of foreign movies, the China Film Group Corp., released on March 18 a list of Hollywood films permitted to be screened in China this year. As China’s largest staterun film enterprise, CFG approved twelve Hollywood movies mostly in the adventure and action genres. Iron Man 2, Harry Potter 7, Percy Jackson & The Olympians: The Lightning Thief, Clash of the Titans, Shrek 4, Green Zone, Prince of Egypt, The A-Team, The Sorcerer’s Apprentice, Inception, The Lost City of Z and Alice in Wonderland were the films selected. “We prefer importing new Hollywood films which we can release almost simultaneously with U.S. cinemas” said Weng Li, a spokesperson for CFG. Small and medium budget films that did not perform well at the US box office were not selected. The release of Avatar in China made headlines earlier this year after CFG pulled the 2D version of the movie from theaters reportedly to reduce competition for the

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China vows cooperation with ASEAN ASEAN Secretary General Surin Pitsuwan met with Chinese Foreign Minister Yang Jiechi on March 22 in Beijing to discuss China’s support for ASEAN and its role in acting on principles set forth in the framework for a free trade zone. Yang agreed that China would maintain its support for the ASEAN community and back the association by playing a dominant role in regional cooperation in East Asia. China is ready to carry out cultural exchanges with ASEAN, intensify regional and sub-regional cooperation and work with ASEAN to promote infrastructure interconnection, Yang said. Surin, visiting China for the ﬁrst time since taking oﬃce in January 2008, said China and ASEAN should advance bilateral communication and enhance cooperation in cross-border investments, small- and medium-sized enterprises, and tourism and culture.

PetroChina teams with Shell for CSG PetroChina and Royal Dutch Shell are

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joining forces to buy Australia’s Arrow Energy for US$3.1 billion. Arrow Energy refused an earlier bid by the joint venture partners before ultimately accepting a second bid only six percent higher than what was initially oﬀered. According to the terms of the 50-50 joint venture contract, Shell and a subsidiary of PetroChina will each pay US$4.30 per share in cash to acquire Arrow Energy’s domestic power business and coal seam gas assets in Queensland. The joint venture will also own Shell’s coal seam gas assets and operating site in the same province. The deal is China’s ﬁrst major investment in Australia to tap into the country’s vast coalseam gas resources and is now awaiting regulatory and shareholder approval. GOVERNMENT & POLICY

Representative office tax rules change The State Administration of Taxation published a new circular overseeing taxation of foreign representative offices on February 20. Retroactively effective on January 1, 2010, Circular 18 eliminates the previously allowed tax-exempt category and prohibits representative offices from filing for tax exempt status outright. It also removes tax exempt status upon registration renewal from currently exempt representative offices. The provisional circular also proposes a new approach to calculating the amount of taxes a representative office should pay based on the principle that profits should be commensurate with “functions and risks.” Representative offices who cannot calculate taxes based on the new approach may still apply the old method of taxation based on a deemed profit rate. Under the provisional measure, deemed taxable income rises from 10% to between 15 and 50%.

National People’s Congress closes deliberations The Third Session of the 11th National People’s Congress closed after ten days of deliberation on March 14, after Chinese lawmakers gathered to vote on national policy issues during the annual legislative session. Lawmakers approved the work

report on economic and social development underlining the importance of labor and employment and setting China’s economic growth target at 8% for 2010. The NPC Standing Committee also endorsed central and local budgets indicating China’s plan to run a RMB1.05-trillion ﬁscal deﬁcit in 2010. During the session, the majority of China’s lawmakers also voted to approve the Electoral Law amendment granting equal representation in people’s congresses to rural and urban people. SHANGHAI BUSINESS

Hongqiao airport opens second terminal and runway Shanghai’s Hongqiao International Airport unveiled its second runway on March 16 in conjunction with the opening of the airport’s second terminal. The new runway measures 3,300 meters long and 60 meters wide, allowing it to serve the world’s largest airliners. The additional runway raises the number of runways in Shanghai to ﬁve, making Shanghai a

comprehensive transit hub with the largest number of runways in the nation. The Shanghai Airport Authority has already signed a number of operating agreements with Air China, China Southern Airlines, China Eastern Airlines and Shanghai Airlines to ﬂy from terminal two. Spring Airlines, one of China’s budget airlines, will ﬂy exclusively out of terminal one.

Visa policy relaxed during Expo Foreign visitors to the 2010 Shanghai World Expo can expect to encounter easier visa application procedures for China visas issued during Expo. According to Shanghai Expo Executive Committee Vice Director Zhou Hanmin, the policy to make visa applications easier is already in place with China’s Ministry of Foreign Affairs support of the move. The Ministry of Foreign Affairs has ordered Chinese embassies and consulates worldwide to adopt a more flexible visa policy during Expo and Shanghai Mayor Han Zheng confirmed that foreigners will not find obstacles obtaining visas to enter Shanghai

during Expo. This new visa policy is being promoted as a response to the concern that Expo visitors will encounter a restrictive visa scheme similar to what was implemented during the Olympics.

GNC enters China market General Nutrition Center, Inc. entered a memorandum of understanding with Bright Food Group’s subsidiary Shanghai Yantang Group in a strategic partnership to produce nutritional food products. Under the deal, GNC China will provide expertise and know-how to upgrade Bright Food products while promoting the GNC brand and examining retail, distribution and production opportunities in China. With recent food safety scares that plagued China throughout most of 2008 and 2009, the timely deal underscores the need for nutritional, healthy products. In early March, the State Council published a detailed plan for food safety reform in China with the aim of solving health problems and restoring public conﬁdence in locally produced food products.

Become a President’s Circle Corporate Sponsor and have your company featured at Chamber events, on the AmCham Shanghai website, and in Chamber publications. What’s more, as a President’s Circle Sponsor you will help AmCham Shanghai fulfill its mission - to support the success of American businesses in China. To learn more about the President’s Circle, please contact: Karen Yuen, Director, Business Development and Marketing Tel: (86 21) 6279-8966 Email: karen.yuen@amcham-shanghai.org 2009-2010 President’s Circle Corporate Sponsors With special thanks to the 2010-2011

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NORTH AMERICA

CHINA & THE WORLD

ASIA-PACIFIC SOUTH AMERICA

MIDDLE EAST

VIETNAM: At a meeting in Hanoi with a delegation from China’s National People’s Congress, General Secretary of the Vietnamese Communist Party Central Committee Nong Duc Manh pledged to boost strategic cooperation with China. The visit by the Chinese delegation, led by Yan Junqi, vice chairwoman of the NPC Standing Committee, coincided with the 60th anniversary of diplomatic relations and marked the China-Vietnam Year of Friendship. Yan praised the development of bilateral relations and said that the relationship is important to maintaining regional peace, stability and development.

AFRICA

CONGO: In March, China sent two deployments of soldiers to the Democratic Republic of Congo (DRC) for an eight-month United Nations peacekeeping mission. The group is the 11th peacekeeping team China has sent to the DRC, and consists of military engineers and medical staff from the Lanzhou Military Area Command in Gansu Province. They will conduct landmine detection, transportation facility maintenance as well as healthcare work. Since 1990, China has sent more than 11,000 soldiers on UN peacekeeping missions around the world.

EUROPE ASIA-PACIFIC

SOMALIA: China’s ﬁfth Gulf of Aden mission arrived in Somali waters in late March to take over the escort of merchant vessels from the fourth Gulf of Aden mission that arrived in the region last November. The Chinese Navy ships are part of a multinational coalition of warships that patrol the pirate-infested waters off the northern coast of Somalia. During its posting in the region, the Chinese warships of the fourth mission escorted more than 600 domestic and foreign vessels between the Red Sea south of Yemen and the Arabian Sea.

NORTH AMERICA

EUROPE MIDDLE EAST

RUSSIA: Chinese Vice President Xi Jinping shared the stage with Russian Prime Minister Vladimir Putin on March 23 at the Kremlin in Moscow for the opening ceremony of the “Year of Chinese Language” in Russia, where the two countries will promote cultural exchange and bilateral ties. Xi also attended the second round of the Sino-Russian inter-party strategic dialogue, where he met with senior Russian ofﬁcials to discuss deepening the relationship and increasing cooperation efforts.

MIDDLE EAST

FRANCE: China’s Ministry of Finance announced in March that it had signed an agreement with the French Development Agency (AFD) for a EUR120 million loan to fund energy efﬁciency and emissions reduction projects in China. The loans will allow three local banks, the Hua Xia Bank, the China Merchants Bank and the Shanghai Pudong Development Bank, to support small- and medium-sized companies active in environmental protection. Since 2004, the AFD has loaned EUR670 million to China to support environmentally friendly transportation, energy and infrastructure projects.

SOUTH AMERICA

AFRICA

MIDDLE EAST

AFGHANISTAN: Afghan President Hamid Karzai met with Chinese President Hu Jintao in Beijing on March 24 on the 55th anniversary of diplomatic ties between Afghanistan and China. Received by Hu in the Great Hall of the People, Karzai thanked China for its continued support during the past eight years of his presidency. The two leaders pledged to strengthen cooperation in the areas of trade, mining, infrastructure and education. Formal agreements were also reached regarding aid, tax reduction and personnel training.

NORTH AMERICA

ASIA-PACIFIC NORTH AMERICA

CANADA: In advance of the May 1 opening day of the Shanghai 2010 World Expo, a promotional photo show highlighting the Expo’s “Better City, Better Life” theme opened in Vancouver, British Columbia. The 8-day exhibition features more than 80 pictures showcasing the Expo theme, mascot, master plan and participating country pavilions. Li Qi, executive chairman of the Canada Shanghai World Expo Promotion Committee, said: “We hope the public would be encouraged to travel to Shanghai, the overseas Chinese in particular to their home country, to visit the Expo.”

AFRICA

EUROPE

SOUTH AMERICA

BRAZIL: A prominent Brazilian economist has spoken out against the United States in response to its calls for China to revalue the renminbi. China should not give in to foreign pressure to appreciate its currency and should maintain a stable exchange rate because a country’s exchange rate is a matter of sovereignty and should serve its own interests, said Darc Costa, former vice president of the Brazilian National Social and Economic Development Bank. Another popular ﬁnancial columnist noted that exchange rates are not a determinant of global trade imbalances and such pressure from the U.S. will not solve its trade deﬁcit problems.

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ASIA-PACIFIC

SOUTH AMERICA

M A N A G E R ’ S N OT E B O O K

Speak with Exutive Prence

xecutive presence is essential to standing out in your organization. It frames your other credentials. If you had a beautiful painting, it would be a shame to use a cheap frame, detracting from the wonderful artwork. Executive presence is like the frame because it can enhance or diminish. When an executive with presence speaks, others listen. Every time you are in front of your senior management, they judge whether you have what it takes to step up to the next level, not only your technical ability but also the very important aspect of projecting yourself conﬁdently.

Paint stories from your data One very common mistake seen in presentations is the data-dump. Executives, especially from ﬁnance or technical backgrounds, often cram charts and number-packed tables into their PowerPoint presentations. While there is no doubt that data is important, a key question is, “How relevant is it to the audience you are facing?” Senior management are usually pushed for time and want to get to the point, make a decision and move on. Instead of reciting this quarter’s ﬁnancial data slide-by-slide in great depth, step back and ask yourself, “What is the story behind these numbers?” By all means, show charts and tables on a slide or handout, but while you are in front of senior management, elaborate on them. Use the questions to turn data into an anecdote: What are the implications of the numbers? What does this mean for the business in the next quarter or year ahead? What actions need to be taken? By answering those questions, you will move toward what the numbers mean for the Got an article idea for “Manager’s Notebook”? Contact Insight Editor-in-Chief Justin Chan at justin.chan@amcham-shanghai.org.

For many executives, the step up to the next level requires better presentation skills.

business. Help senior management see the trends, the big picture and the emerging direction. They will appreciate the extra clarity of your presentation.

Bring your message to the audience One common complaint about business presentations is that they are dull. Many executives have a tendency to deliver contentfocused presentations rather than audiencefocused ones. Content-focused means a heavy emphasis on the material and is often accompanied by the presenter reading oﬀ the slides. Being audience-focused requires the presenter to bridge the gap between content and the audience’s motivations. Invest time to learn more about the audience’s needs, drives and trigger topics. Does one person always focus on ﬁnancial returns and another on resource deployment? Perhaps another always challenges you? You can use connecting phrases to address these motivations. Examples include: “Last quarter you expressed concern about our raw material costs. Here is the new picture.” Another technique is to use connecting questions like, “Why is this important?” This rhetorical question allows you to then move onto the answer. “This is important to our business unit because...” This technique helps connect more with the audience by focusing your message on their motivations.

Memorize your content with taglines Obama’s speechwriters often use phrases that could be set to song. Aside from the obvious, “Yes we can,” parallel constructions are used;

for example, “It’s not because of this, it’s not because of that.” Executive speakers should adapt this approach for two reasons. First, it helps the presenter memorize the content. Second, it also allows the audience to quickly digest key messages without having to think too much – an important factor in short presentations. This is known as “taglining” your message. Go through your presentations section by section and sum up each part with a short sentence of no more than seven words. Try to make it catchy, like a billboard slogan. This process helps you go even deeper into your message and makes it appealing to your audience. Executive presence is enhanced through face-to-face presenting to senior management. Ensure your next presentation builds your credentials in their eyes with these three tips: paint stories from your data-heavy content, bring your message closer to the audience through connecting phrases, and tagline every section in your presentation so that your message comes out crystal clear. A ﬁnal test of whether you are ready to face your senior management is when you can stand up, without a slidedeck, and deliver a punchy impactful presentation.

hy Warwick John Fa ive ut is an exec d speech coach an e On e Th of or th au r. te Minute Presen Contact him at johnfahy.com warwick@warwick utive presence. ec to build your ex

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H R S P OT L I G H T

BY C.S. TIONG

he face of today’s workforce is constantly changing. As the “Baby Boom” generation – those born between 1946 and 1964 – approaches retirement, the need for newly skilled and experienced talent in the workplace inevitably arises. Increasingly, employers ﬁnd themselves turning to the next generation, commonly known as the Generation Y or “Gen Y”, to ﬁll this demand. With Gen Y employees poised to become our future managers and leaders, employers and HR practitioners need to have a better understanding of how to work with and manage them. It is also important to develop effective strategies to attract, retain and motivate Gen Y employees from the start. The recent improvement of the economic climate in China is reviving the competition for talent that seemed to subside due the global recession, leading many to expect the return of rampant job-hopping and poaching. The ageing population, declining birth rates and growing investments in China have all contributed to a tighter labor market and multinational companies that have invested heavily in employee training are prime targets for recruiters. Finding the right mix between compensation, career development and job satisfaction are vital to developing more sustainable long-term attraction and retention strategies.

About Gen Y One of the key traits of Gen Y employees is their preference for meaningful work that is both challenging and fulﬁlling. They place signiﬁcant value on what they do only if it is worthwhile and makes an impact on their workplace and society. A technologically savvy group, Gen Y is plugged in 24/7 to virtual communication channels such as instant messaging, mobile phones and email, thus enabling them to multitask, work effectively and achieve a better work-life balance. As a result, Gen Y

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Today’s Changing Workforce employees are eager to pursue short-term gratification such as almost instant recognition for a job well done, immediate reviews and frequent feedback. As lifestyle-centered individuals, Gen Y employees treasure their personal and family time and therefore look for jobs that accommodate their personal lives. They also view relationships with employers as transactional. For instance, Gen Y employees are more likely to accept their employers’ stated missions, policies and decisions, and will follow specific guidelines and instructions when employers promise a specific “quid pro quo” such as greater mobility in their career development and prospects.

Attracting Gen Y talent Organizations need to develop new strategies to attract Gen Y employees with the right skill sets to gain a competitive advantage. Gen Y candidates are more likely to seek employment opportunities if they have a positive experience interacting with its management and staff, such as during the interview phase. It is critical that an organization articulate its employment value proposition, such as the availability of a ﬂexible working environment, an open and inclusive ofﬁce culture, as well as training and entrepreneurship opportunities. As Gen Y employees value their connections with their peers, organizations may consider implementing employee referral programs where existing employees can play a part in recruiting contacts within their social network. Through this ‘word of mouth’ approach, they act as ambassadors for the organization and help attract more young talented individuals.

Retaining Gen Y employees Career development is a major concern among

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How organizations can achieve success with a new generation of employees.

“

Gen Y employees can be one of the greatest assets in an organization if employers and HR practitioners are prepared and are willing to invest in them.”

Gen Y employees in China. They want opportunities that provide a clearer career path, on-the-job or company-subsidized training programs, job rotation options and challenging project assignments. Many employers find retaining Gen Y employees a challenge, as they see more of them exiting the company instead of moving up. To engage them, organizations need to create a sense of belonging and ownership. This can be achieved through comprehensive orientation programs that make employees feel valued from the start. With greater expectations for short-term rewards, employers may offer a flexible compensation and benefits program based on performance objectives and measures. Many organizations are employing a broader salary and short-term rewards structure according to their employees’ accomplishments. Gen Y employees also appreciate open and regular communication with their colleagues, coworkers and management. As they are highly appreciative of employers who help develop their career aspirations, it is important that they

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communicate regularly and openly, and provide feedback on their performance.

Preparing Gen Y for the future Gen Y employees can be one of the greatest assets in an organization if employers and HR practitioners are prepared and are willing to invest in them. Attracting and retaining this generation of talent is critical to ensuring long-term business success and sustainability. As an organization’s corporate culture evolves with each generation of the workforce, employers need to remain ﬂexible and open to change to successfully attract and retain the talent they need. Those who do are more likely to ﬁnd a balance between an environment that leverages the strengths of their Gen Y employees and supports the development of a multi-generational workforce. C.S. Tiong is General Manager, Greater China of Kelly Services. He can be contacted at cs_tiong@kellyservices.cn.

L E G A L U P DAT E

BY RON CAI AND NING DING

ISTOCKPHOTO

Increasing Environmental Liabilities

ollution and ecological deterioration, as by-products of China’s rapid economic growth, present a growing number of signiﬁcant challenges. In 2007 and 2008, Chinese courts heard as many as 1,200 and 1,400 torts claims, respectively, against businesses causing environmental pollution. In 2009, a manganese processing plant in Hunan Province was closed and two factory oﬃcials were detained after 1,300 children in the area were found to have excessive levels of lead in their blood. In response to these accidents and to demonstrate its determination to redress pollution, China’s environmental protection authority has begun imposing more stringent environmental requirements. On December 26, 2009, the Standing Committee of the National People’s Congress approved a new Torts Law that will increase the liabilities for environmental pollution. This is an important step forward in China’s environmental protection movement, and American companies or business operators should understand the potential liabilities as they conduct business in China. This article summarizes the environmental torts liabilities introduced by the Torts Law and the major environmental laws and regulations that may affect the establishment and daily operation of businesses

in China. Implementation of this Torts Law will be vital to resolving China’s environmental claims, punishing polluters, protecting the environment and ensuring social stability.

Environmental tort liabilities under the Torts Law Effective this coming July, the 92-article Torts Law covers liabilities for a range of events including damage caused by defective products, trafﬁc and medical accidents, work-related injuries and environmental pollution. One chapter is devoted entirely to establishing general guidelines for environmental torts liabilities. General principle Article 65 of the Torts Law sets forth the general principle of environmental liability that a polluter will be held liable for the damage that its pollution causes. If a company’s discharges or emissions are proven to cause loss or damage to another company or individual, the polluter will be liable, regardless of fault, even if the discharge falls within allowable limits. No liability or reduced liabilities The polluter bears no liability if the pollution is

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INSIGHT

With the new torts law, understanding existing environmental laws and regulations is crucial.

China’s major environmental laws and regulations While the Torts Law addresses civil liabilities for pollution, most liabilities are based on existing environmental laws and regulations. The regulatory system that directly affects a company or facility operating in China consists of the following laws, regulations, ministerial rules, local regulations and rules, and national and local standards. PRC Constitution: Provides the general principle that the government should protect and improve the environment and prevent and control pollution and other public hazards. The Environmental Protection Law: As the foundation of all of China’s other environmental laws and regulations, the law is enforceable primarily as implemented by other major environmental laws. The Water Pollution Prevention and Treatment Law: Requires companies to obtain a discharge permit for sites that discharge wastewater to surface water or wastewater treatment plants. It requires compliance with state and local discharge standards and requires facilities that discharge pollutants directly or indirectly into water to report and register with the local Environmental Protection Bureau (EPB). Air Pollution Prevention and Treatment Law: Requires companies that discharge pollutants into the air to report to and register with the local EPB on the categories, quantities and concentrations of pollutants discharged and provide technical information concerning the prevention and control of air pollution. Law on the Prevention and Control of Environmental Pollution by Solid Wastes: Requires sites generating hazardous waste listed in the Hazardous Waste Catalogue to use licensed vendors to transport and dispose of the waste. It makes it clear that polluters are responsible for the pollution they emit. Ministerial rules on land contamination – SEPA notice and MEP opinion: Currently, no Chinese law exists regarding land contamination or soil pollution prevention and treatment. However, general principles relating to prevention and control of land contamination are prescribed in various laws, regulations and standards. The State Environmental Protection Administration (SEPA), the predecessor of the Ministry of Environmental Protection (MEP), published a notice addressing the issue of land contaminated by industrial companies. Polluters will be held liable for the treatment of land pollution and the restoration of contaminated land. Entities that generate hazardous wastes must have their land tested and analyzed by environmental monitoring authorities before they terminate operations and change the land use purpose. The MEP also issued an Opinion on Enhancing the Protection and Treatment of Soil Pollution Protection and Treatment which requires the local EPB to ensure that the responsible party conducts a soil risk assessment on abandoned sites. The original operator is responsible for the treatment and restoration of contaminated land and polluted groundwater. The Environmental Impact Assessment Law: Requires new, expansion or modiﬁcation projects to submit an environmental impact report, an environmental impact analysis form or an environmental impact assessment registration form to the local or central government environmental authority for approval prior to commencing a construction project. Local environmental regulations: Applicable jurisdictionally, local environmental regulations may place additional requirements on companies. Local environmental standards may apply more stringent limits on pollutant emissions.

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caused by acts of force majeure or if the polluter took reasonable measures to avoid polluting. The polluter’s liabilities may be mitigated if the victim is at fault. If the pollution is caused by the victim’s willful conduct, the polluter bears no liability. If the pollution is caused by a third party, the victim may claim damages against either the polluter or the third party. If the polluter pays for the damages, it can seek indemnity from the third party. Burden of proof The Torts Law favors the victim of environmental pollution by shifting the burden of proof to the polluter. According to the Torts Law, the polluter must prove that its emissions or discharges did not cause damage or show conditions under which it bears no liability or lessened liability. Torts liabilities Major civil liabilities the polluter may incur include eliminating the hazard and compensating victims for damages. If more than two polluters contribute to the pollution, all polluters, other than those who can prove no fault, are liable. Each polluter’s liability is determined according to the type, quantity and other characteristics of the discharged pollutants. Civil compensation for mental distress Monetary compensation is available for property loss and damage, risk to life or health and lifethreatening mental distress. This includes cases in which victims eventually die, or become disabled, resulting in serious psychological trauma. Given the complexity of mental distress cases, the Torts Law stipulates no uniform compensation standard, leaving compensation awards to the discretion of the judge. Priority of civil liability In addition to torts liabilities, a polluter may be subject to administrative or criminal liabilities. However, if a polluter must simultaneously pay civil compensations, administrative penalties and criminal ﬁnes for a single violation, but has insuﬃcient resources to pay in full, civil compensations take priority.

Environmental liabilities Under Chinese environmental laws, an environmental polluter will be held liable for its pollution and may incur administrative, civil and criminal environmental liabilities. Administrative liability Administrative environmental liability is most commonly imposed by the MEP or the local EPB against corporate violators of environmental laws and regulations. By severity from low to high, administrative environmental liability results in warnings, fines, confiscation of illegal gains, orders to stop operation or use, revocations of license or permit and orders to shut down and terminate operations. For example, if a company violates the Water Pollution Law, the EPB may order the company to treat or eliminate pollutants within a specified period or designate a qualified company to carry out treatment or remediation work at the polluter’s expense. The EPB may also impose fines on the polluter of 20 percent of the direct losses caused by the pollution. If there is a serious water pollution hazard, subject to approval by the government, the EPB may order the polluter to shut down, impose fines on the polluter of 30 percent of the direct losses caused by the pollution hazard, and impose fines on individuals directly responsible for the pollution hazard of up to 50 percent of the responsible party’s income. Adopted by MEP on December 30, 2009, the new Measures on Environment Administrative Penalties took effect on March 1, 2010. This new procedural law set forth specific procedures that the relevant environmental administrative authorities must follow to impose administrative penalties on polluters. Civil liability Major civil liabilities the polluter may incur include elimination of the pollution hazard and compensation for damages. For instance, the Water Pollution Law provides that an entity or individual damaged by water pollution is entitled to have the hazard eliminated and may claim compensation for damages.

Criminal liability Criminal liability is set forth in China’s Criminal Code as amended in 1997. Nine articles in the Code criminalize pollution acts, such as dumping hazardous waste, that severely damage the environment. Based on the consequence of the crime, a violator could be jailed for up to 15 years and ﬁned. If a company is found guilty of creating serious pollution hazards or causing damage, the company will be ﬁned, and persons directly responsible for the offense will be punished in accordance with the relevant provisions.

Conclusion Before the Torts Law goes into effect, business operators in China need to have a basic understanding of the new and existing rules as they affect daily operations and the establishment of new businesses. If an environmental pollution event occurs during the operation of business, the business operator should initiate treatment measures immediately, inform the entities or individuals that may be affected, and report the pollution to the local EPB for investigation. A business operator may be held liable unless the operator can prove it is not the polluter or that the damage is not caused by the pollution. It is therefore essential that the operator collect evidence to help establish whether it caused the pollution or if any other party is responsible. If the pollution is the fault of a third party, a polluter may seek indemniﬁcation against the third party if the operator pays the victim’s damages. If a polluter is held liable for a pollution event, it may bear administrative and civil liabilities under China’s environmental protection laws and regulations. If serious pollution accidents or damages occur, the operator or its responsible personnel may face criminal liability.

Ron Cai is partner-in-charge and chief representative of Davis Wright Tremaine LLP, Shanghai. Ning Ding is an associate at Davis Wright Tremaine LLP, Shanghai.

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Practice Pointer: Beware of hidden pollution risks before taking possession of a site. To limit your future risk, conduct a baseline study or pre-occupancy assessment before occupying the site. Look for hidden pollution risks and make attempts to identify the original polluter. Plan for proper indemniﬁcation and include warranty provisions in the acquisition or occupancy agreement before taking possession of an operating site.

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For more information: www.ssoe.com or contact Rob Benedetti: rbenedetti@ssoe.com.cn 16

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I N T E RV I E W

BY JUSTIN CHAN

ISTOCKPHOTO

Designs for China

ased in Toledo, Ohio, SSOE Group is an international engineering, procurement and construction management (EPCM) firm that has set its sights on the China market. Typically acting as an owner’s representative in executing construction projects in China, SSOE facilitates design, procurement and construction processes, offering its clients a one-stop solution. Upon its arrival in China in 2005, SSOE developed its experience and foothold by focusing on the construction management portion of projects. Last June, SSOE was awarded a coveted Chinese design license, allowing the company to directly perform architectural and engineering design services directly for its clients in China, and bypass the mandatory step of local design institutes. SSOE’s Shanghai office is now the firm’s second largest office out of 19 locations worldwide and the base of its Asian operations, where revenue has grown by 800 percent in the last five years. The company has completed projects in more than 30 countries around the world and maintains a core list of multinational clients in the automotive, healthcare and science and technology markets. More recently, SSOE has focused on delivering sustainable and renewable solutions, beginning with the company’s president and chief executive officer, Tony Damon, who pushed for Leadership in Energy and Environmental Design (LEED) accreditation across the company last year by becoming an accredited professional himself. “I think we have a professional responsibility to design the most energy efficient, environmentally friendly facilities we can,” said Damon. “We needed to get

LEED ingrained in the company culture so I thought it was important that I do it as well.” For an inside look at SSOE’s China operations, Insight recently sat down with Tony Damon, who was joined by Andrew Kwok, general manager of Asian operations. On the differences between the U.S. and China markets… Tony Damon: In the last year, we had an actual recession in the United States. Here in China, the pace of growth slowed, but it is still very good overall. The real heart of the business, the design and construction management process, is very similar. Good design, engineering and management of a construction project are really very similar anywhere in the world. What’s different are the local codes, regulations and construction practices – the means and methods of getting a project done. That is where a good EPCM firm can help. We can act as the bridge between a client’s home country and doing business in China. We can give them comfort and peace of mind here, where the culture and laws are a little different, and help them get through the process much more cleanly than they might otherwise. That’s the real value we bring. On the importance of the China market… TD: China is very important to the future growth and success of SSOE. Although we’ve been through a recession in the United States and some manufacturing has moved offshore, there is still activity and a significant amount of investment in

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As it expands its China operations, SSOE is focusing on delivering sustainable and renewable solutions.

“

We have a professional responsibility to design the most energy-efﬁcient, environmentally friendly facilities we can.”

the U.S. But we recognize that the real opportunity for growth with our clients, which are usually multinational companies, is going to be in Asia going forward and in particular China and India. We think this is the place to be and lot of our growth in the future is going to come from this part of the world. To already have an established presence here is very important. My long-term vision is that a large part of our growth in the future will come from other parts of the world besides the U.S. I expect that by 2020, 50 percent of our business will be outside the United States, where today it is about 10 percent. On sustainability in China… Andrew Kwok: Within China, the central government is strongly encouraging the concept of sustainable building and domestic companies are slowly coming to terms with the idea. We primarily serve Fortune 500 companies and most of these companies want to be seen as responsible global players. When we talk to companies about our services, more and more are asking if we have LEED experience because they want their plants to be designed to LEED standards. TD: It is also being driven by the market because multinationals want to be responsible global players regardless of where they are. As a result, we see a continually growing interest in LEED certification. If you’re truly going after a LEED-certified building, whether it is gold or platinum, you will typically have to be willing to put up with longer paybacks. When looking at these longer paybacks, a company must have a deep commitment to sustainability to really see the longer term value, which some do. If you are looking for a one to two year payback, it is not possible at the gold or platinum level. We have found that the initial certification levels are pretty easily achieved with standard building practices and some of the new things that are being done. You really don’t have to add a significant cost to the project but instead just be really smart about how you’re putting a facility together. On the key challenges in China… AK: Although at a slower pace than before, China is still growing and there is still a lot of investment

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coming in. There is more competition from all over the world that sees China and Asia as the area of growth for the future. The challenge for us is that although there is a lot of opportunity, everybody is fighting for the limited pool of talent. How to recruit them and how to retain them is a major challenge. TD: In this very competitive environment, it is challenging to find the really good managementlevel talent that can help you run the business and grow it into the future. It is very important to be able to get the right people to respond more quickly to the marketplace opportunities, so that can be a limiting factor. On managing worksite safety in China… AK: First of all, our senior management believes safety is always number one. From the CEO all the way down, we all live by this principle. In China, we have a very good safety program and our customers also have their own safety programs, so we try to devise a combined program that will take the best safety features from each company. We will then make sure that this program is being implemented with every contractor on the project. There are definitely some difficulties with this in China. Contractors are still in the growing phase and many of them want to get work done quickly at the lowest possible cost so that they can maximize profit. Therefore, getting local contractors to comply with the safety requirements and programs that we have is always a challenge. Fortune 500 customers who are used to high standards outside of China will have certain expectations so we must get them to understand that you cannot make such direct comparisons. Ultimately, we all believe that safety cannot be compromised, so we have to work very hard to get it done. TD: It is one thing to have a great safety program in place but it really comes down to the monitoring out on the site. If you’re not there to supervise, the contractors could go off and do their own thing. On the outlook for business in China… TD: Even with the slow global economy in 2009, our China operation actually continued to grow and had a successful year – probably the best year that

we’ve had in over ﬁve years. We have a strong backlog of orders going into 2010 so we’re pretty optimistic. Our client base at this point is all multinational companies. Over time, we will start to work with some domestic clients. But in starting out, it was best to stick with what we knew best and multinationals are familiar with who we are and where we came from. We’re not here to compete on cost so we had to ﬁnd other ways to bring value to our clients. AK: The domestic companies will come to realize that their product cannot always be cheap, cheap, cheap to win market share. Consumers are starting to think about quality and in order to manufacture quality products, you need quality raw materials, equipment and services. At the same time, economic growth is now concentrated in China and other parts of Asia and a lot of other engineering companies are coming

to fight for a piece of the work. Local companies are also coming up to compete with low prices so there is a lot of competition in this area. We are proud to have our own design license and we are one of the few foreign companies to have one. This allows us to keep the design process in-house and maintain constant oversight of a project. TD: Why does the design license matter? It is particularly significant for a multinational coming into China to protect its intellectual property rights. Even if you have a relationship with a design institute and you manage the process, you don’t always know what is going on there. There is not quite the same comfort level. Overall, there are a lot of opportunities. We recently opened our second China office in Beijing and we are planning to set up another operation within this year in the north. By next year we want to have another operation either in the south or in the west.

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“

Consumers are starting to think about quality and in order to manufacture quality products, you need quality raw materials, equipment and services.”.”

EXPO FOCUS

B Y C H A R L E N E RUA N

BRC

Welcome to America

With one month to go until opening day, Insight offers a preview of the USA Pavilion.

he stage has been set. The storyline meticulously thought out and perfected. On May 1st, the curtains will rise on the Shanghai 2010 World Expo and the USA Pavilion will begin welcoming the first of up to 6 million guests throughout the six-month duration of the Expo. The majority of visitors will be Chinese Nationals, who are eager to learn more about the tale of America and its people. “What was really thought about [when creating the Pavilion] were the distinctly American qualities and the ability to showcase those to our guests,” said Mark Germyn, chief operating officer of the USA Pavilion where he oversees all budget, design and operational aspects of the project. Up until the early part of last year, the mere existence of a USA Pavilion was gravely questioned. The organizing team, headed by Ellen Eliasoph and Nick Winslow, faced difficulties raising the US$61 million budgeted to fund the construction and operation of the pavilion from commencement to tear down. Due to a 1994 law that prohibits public funding, 100 percent of funds for the USA Pavilion had to come from the private sector. With the help of over 30 sponsors including companies such as Pepsico International, General Electric, Chevron

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and Johnson & Johnson, fundraising eﬀorts are nearly complete. Construction of the pavilion is nearly complete and organizers are now turning their focus to preparations inside the building. “This Expo rewrites the book on these events, it’s going to be the largest of its kind,” says Greg Lombardo, director of brand development at BRC Imagination Arts. “The USA Pavilion will be one of the most anticipated pavilions aside from the host pavilion.” BRC, headquartered in Burbank, California, was commissioned to design and produce the program for the USA Pavilion. With that responsibility, came the task of deﬁning America through the Pavilion’s four intrinsic themes: innovation, optimism, collaboration and diversity in addition to the underlying theme of “Rising to the Challenge.” “We really wanted to showcase a side of America that [visitors] might not be familiar with,” says Lombardo. “The show space that people will come into is an environment that will immediately promote the geographical, cultural and ethnic diversity of America.” The “show” will be divided into three acts, with each interval revealing a new theme. Together they will weave together a storyline that walks guests through a snapshot of the United States of America.

The Overture The scene opens with USA Pavilion Commissioner General Jose Villarreal alongside individual Americans welcoming guests to the USA Pavilion in a visually moving production meant to wow guests and demonstrate the cultural, ethnic and geographical diversity of the country. “Every pavilion [at the Expo] will have culture and technology,” says Shirley Young, a founding member of the Committee of 100, a pavilion sponsor. “But nobody can make a statement about diversity like America can.” The Committee of 100 was founded in 1990 by a group of Chinese Americans who sought to bridge a gap in the relationship between the U.S. and China. The sole goal of the Committee is to display the pride of Chinese Americans and to build a bond between their heritages. The organization will host an exhibit in the ﬁnal act called “The Chinese in America” which will feature a TV wall ﬂashing pictures and names of Chinese Americans, allowing local Chinese visitors to link their last names with their American counterparts thereby creating a relationship between the two parallel lives.

ACT I – The Spirit of America

About the USA Pavilion Expected attendance: 5-6 million

ACT II – The Garden As guests are ushered in to the next auditorium they will be presented with a theater housing five “urban towers.” These “towers” are large screens standing over 30 feet tall that will tell the story of a young girl with a vision and determination to change her world for the better. Set as an urban fairy tale, the screens are shaped like buildings and will project images and graphic patterns while the audience is immersed in 4-D effects – such as vibrating seats, mists and lighting. “The metaphor is not just one of an American community coming together but one of the community of nations coming together,” says Lombardo. The movie is purposefully told without dialogue to create a message that will transcend different cultures and languages. It is intended to tell a message about the celebration of creativity and imagination, and the power of community and collaboration. “The Garden,” sponsored by Pepsico, is an example of how corporate partners are using the Pavilion as a chance to promote their brand to the 35,000 expected visitors at the USA Pavilion each day.

Pavilion size: 6,000 sq. m. Budgeted cost: US$61million (raised through the private sector) Ofﬁcial organizers: Shanghai Expo 2010, Inc., co-chaired by Ellen Eliasoph and Nick Winslow Ofﬁcial theme: Rising to the Challenge, which tells the story of the American spirit of perseverance, innovation, and community-building. For more information on the USA Pavilion, please visit: http://www. usapavilion2010.com

IMAGINECHINA

Known as the Spirit of America, Act I is the starting ground for diving into the messages of innovation and collaboration with a deeply rooted sense of optimism. Introduced by U.S. Secretary of State Hillary Clinton, the Spirit of America explores some of the problems that the U.S. and the rest of the world jointly face. “It doesn’t pretend to gloss over the fact that we all face big challenges, but shows that we can work together as a world community to solve them,” says Lombardo. Industry leaders from the science, education and technology fields offer insights of what the future could hold with a collaborative world effort. To define the Spirit of America with youth, children will be used as a framework to highlight the optimism for the future. U.S. President Barack Obama gives the closing statement. Bob Rogers, founder and chief creative officer

of BRC, says that “the Pavilion asks not what the USA can do for China or what China can do for the USA. Instead it suggests that by working together we can improve the world.”

The USA Pavilion on March 25 2010.

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“

Every pavilion at the Expo will have culture and technology, but nobody can make a statement about diversity like America can.”

“The 2010 expo is going to rank as one of the great events of the 21st century – a once in a lifetime opportunity for advancing brands, business connections and opportunities for collaboration between China and the USA,” says Rogers. For companies currently operating in or considering China, the Pavilion lends a unique opportunity to speak to up to 6 million consumers directly.

The Final Act Bringing the presentation of America to a close, Act III will assemble together over 35 sponsors divided across 5 themed areas to demonstrate what Americans are doing to help their communities become healthier, more sustainable and culturally vibrant places. “[BRC’s goal was] to create an experience that will be really memorable. Something that is authentically American but also an incredibly universal message

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that [guests] can all get behind,” Lombardo says. Attendees will be able to walk through each of the areas at their leisure and absorb each of the stories being told. The Sustainability section will allow companies to present what they are doing to advance sustainable practices and technologies while Lifestyle will reveal the leaders that set the trends the rest of the world quickly follows. Health and Nutrition and High Tech areas will feature the latest and greatest developments in their ﬁelds and Discover America will highlight the geographical and cultural diversity of the nation. “It’s a great American story and this is our country,” says Young. It’s the chance to reveal a side of America that people may not be familiar with and to share an aspect of the culture many are so proud of. So get in line, it’s showtime.

Charlene Ruan is a Shanghai-based freelance writer. She can be contacted at charleneruan@gmail.com.

V I P V I S I TO R

BY JUSTIN CHAN

JUSTIN CHAN

The Sustainable Economist

n Beijing and Washington, D.C., tensions are flaring over the U.S.-China relationship, whether over arms sales to Taiwan or currency valuation. Last month, a bipartisan group of 130 U.S. congressmen sent a letter to U.S. Treasury Secretary Timothy Geithner and U.S. Commerce Secretary Gary Locke demanding that a duty be imposed on Chinese exports and China be labeled as a currency manipulator. This was followed by the introduction of legislation by U.S. Senators Charles Schumer (D-NY) and Lindsey Graham (R-SC) aiming to pressure China into revaluing the renminbi. Such moves are very dangerous and inappropriate, says economist Jeffrey Sachs, director of the Earth Institute at Columbia University in New York, where he is also Quetelet Professor of Sustainable Development. As a trained macroeconomist who serves as special advisor to United Nations SecretaryGeneral Ban Ki-Moon, Sachs is widely considered one of the world’s leading experts on sustainable development. Although Sachs says that “the U.S.China relationship is absolutely without question the most important bilateral economic relationship in the world,” he believes that the relationship is in need of serious change. Insight sat down for an exclusive interview with Jeffrey Sachs for an in-depth look at his views on the U.S.-China relationship, valuation of the renminbi and the future of sustainable development.

On the state of the U.S.-China relationship… Jeffrey Sachs: We’re living in interesting times. There’s a lot of froth in the discussion on exchange rates right now and a lot of posturing, which unfortunately can be dangerous because it can get out of control. But I don’t think the United States should or could force China to act on its currency and I really don’t think that the name calling and finger pointing is very clever or accurate. This should be a time of rich and active cooperation between the two countries. There needs to be a lot more dialogue than there is right now. It is not helpful for the U.S. government to make accusations about the currency in public against China. It would be far more beneficial for the two sides to have very regular professional contacts and view each other as partners in

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Insight sits down with leading economist and sustainable development expert Jeffrey Sachs.

“

The U.S.-China relationship is absolutely without question the most important bilateral economic relationship in the world.”

problem solving for issues like climate change, the world economy or poverty in Africa. If China and the United States were really working handin-hand, these problems would be solved quite quickly. On calls for China to revalue the renminbi… JS: The fact of the matter is quite simple: China is not a currency manipulator and it is not in any way behaving outside the normal boundaries of macroeconomic policy. That is not to say that one cannot disagree with some of the specific choices that are being made in China. My own view is that it would be good for China and good for the world for the renminbi to appreciate gradually because the Chinese economy is quite strong and its trade surplus is quite large. Inflation is rising and there’s possibly even some development of a bubble. Therefore, cooling off economic growth a bit through a currency appreciation could be the right approach right now. But that is a very different matter from the accusations that somehow this is a mass manipulation of policy in a way that violates international standards or would make China subject to some type of countervailing duty under U.S. trade law. Taking any of those claims seriously would be very dangerous. Declaring China as a currency manipulator would be a big mistake and China becomes less likely to move the exchange rate for a while. Most importantly, it is factually inaccurate for such a declaration to be made. I was amused that a recent editorial in the New York Times said that China had appreciated the renminbi since 2005 and then slammed on the brakes to protect exports as the recession hit. It said that the stabilization was a textbook case of devaluation. Of course, no textbook writer including myself would call that event a devaluation, much less a beggar thy neighbor devaluation. China has not devalued its currency. It is perfectly within its rights to do what it has done and if China were to continue the policy it has right now, it should not be accused of improper exchange rate policy. There are more than 60 countries in the world that

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peg to the U.S. dollar and China happens to be one of them. On the impact of renminbi appreciation in the United States… JS: There is a truth to the fact that manufacturing has shifted from the United States to Asia and that is a reflection of the basic processes of globalization. But exchange rate movements in a realistic range are not going to have any decisive reversal of that fact. If the United States is going to compete in highly open trade and open capital markets with China, it is going to have to compete on the basis of technology and services. It is not going to compete on the basis of cost. This is going to be true even if the renminbi has a modest appreciation. The wage gap is very large and basically the only way to justify it is if there is a significant technology advantage. Otherwise, there is going to be a gradual shift in the location of industry as has been happening. That is how globalization works. On how the United States can improve its competitiveness… JS: The United States has work to do in several areas in order to boost competitiveness. First, it must improve the skills of its labor force to keep a competitive edge. We have a lot of undertrained labor and we’re in the middle of a higher education crisis as lots of students drop out of college because they can’t afford tuition. Solving the education crisis is definitely one part. A second part is increased public investments in technology development. This is in line with President Obama’s strategy and the original stimulus package, where there were several billion dollars earmarked for advanced technologies. Third, the United States must decide that it is going to take leadership of green technologies. The future is really in sustainable technologies and China is already surging ahead. The United States has some deep technological capacity in this area but it has not been commercialized adequately. Greening the industrial mix in the U.S. should also be part of a proper industrial and export strategy.

JUSTIN CHAN

VISIONARY LEADERS: AmCham Shanghai President Brenda Foster, Jeffrey Sachs, AmCham Shanghai Chairman Robert Roche and AmCham Shanghai Environmental Committee Chair Charles McElwee.

On the current state of global development… JS: Looking long term, there is no question that the strategy of economic growth must change. We simply cannot go on the way we’re growing. China can’t and the world can’t. Climate science is real and it is serious. The trend will continue to worsen unless we have a decisive change in behavior. China is the world’s leading emitter of greenhouse gasses and will be for decades to come. China is a big coal burning country and even with all the wonderful things happening here in alternative energy, it is going to be burning a lot more coal in the future unless there are strong policy decisions taken to change direction. Alternative energy by itself will not stop a rapidly increasing trajectory of greenhouse gas emissions, especially from coal for what is essentially a coaldependent economy. We need a very diﬀerent growth framework that is not just a list of good things to do, but a quantitatively adequate list that decisively changes the trajectory of greenhouse gases. Presumably

the world economy will grow and emissions will continue to grow quite significantly so the key to emissions control is clearly through technology. There are savings that can be achieved through greater efficiencies, regulations and awareness, but the decisive transformations that are needed to make the quantitative difference for the world involve new energy systems, new transport systems, new kinds of urban settlement and new agriculture. What we haven’t been able to do is get organized in an operational way to invest properly in these new technologies through the right kinds of market incentives and regulation. In other words, we have a problem of cooperation and policy design more than a problem of climate change mitigation cost. This is an area where calm, expert and reasoned deliberation between China and the United States, where business, academia, scientists and leading engineers are around the table jointly designing strategies, is the right approach. We have our work cut out for us.

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INSIGHT

With the exception of India, the world will never again experience the scale of urbanization that China is experiencing.”g..”

On urbanization in China… JS: With the exception of India, the world will never again experience the scale of urbanization

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JUSTIN CHAN

“

On opportunities for U.S.-China cooperation in green technology… JS: There are certain areas where the United States and China should be cooperating, such as clean coal technology. The United States has more than 20 states that are coal producers and China is a coal economy. In both cases, the political pressures against proper reduction of greenhouse gas emissions are very large, so if we could find ways to use coal safely and cleanly, such as by capturing and storing carbon dioxide, it would be a huge advantage moving forward. This so-called carbon capture and storage (CCS) technology remains unproved, too expensive and unverified, which is a huge mistake because we don’t really know whether this technology can deliver. There are very different views about it but without trying, we’ll never know. It would be fair to say that China is polluting because this is its industrial stage, but I don’t think you can say that. The atmosphere doesn’t care whether it’s China’s turn or not. The atmosphere only cares about how much carbon dioxide there is and we have already reached limits that are rather dangerous. This may be unfair to China in some sense, but it is a reality. Although China would be within its rights to say, “You did the most of this, now why should we suffer?” what I suggest at this point is that China and the United States focus not on blaming each other, but rather to say, “What do we do now and what strategies can get us to a low carbon economy?” China has taken on a sustainable economy as a concept; it has launched some very important efforts in scaling up wind power, solar power, and battery technology for electric vehicles and public transport. All of that is good, but China has built a lot of coal-fired power plants and continues to do so. Rather than simply a pat on the back or criticizing, we ought to carefully do the arithmetic together. What will it take to accomplish certain goals? Once we find that out, then we can examine who should contribute.

that China is experiencing. This is a one-time historical process that is happening very fast. But there are many problems with how Chinese cities are developing right now. There is too much sprawl and too little attention is being paid to sustainability and the quality of life. China has a real possibility of 100 or more cities where you would have to get in a car and commute one hour to each destination. We tried that in the United States and it is not a development model that anyone wants to follow. It is a real challenge for China to make livable cities, not just to put up big huge boxes that have no walking areas between them and that don’t have the kind of quality of life that people need, want or deserve. In Shanghai, I’m a little concerned about Pudong, which I have been visiting since 1992 when it was just beginning to go up. On one hand, it is a development miracle because it was pretty much empty space and now it is a major metropolitan area. But on the other hand, it is a car-based development that has big buildings with large spaces between them that is not friendly for

walking. There are few mixed-use neighborhoods or dense settlements so it is the kind of development that is based on heavy automobile use. That type of development is going to be really disadvantageous over the longer term. If you design the urban layout right, you naturally can reduce the dependency on automobiles. China has made a huge historic effort to get beyond bicycles to cars and to be told go back to bicycles doesn’t seem very credible. But we need to think about how different kinds of urban design would facilitate different and healthier kinds of transport. On the future outlook for China… JS: China’s development since 1978 is the most remarkable economic development experience in human history. Never has such a rapid growth rate occurred for so long. In this sense, one can only stand back in amazement. But it doesn’t mean that

it is impervious to improvement and my general belief is that China, like it or not, has to take on these environmental concerns out of the simple arithmetic of its weight on its own environment and on the world environment. In my opinion, these environmental considerations are the first rate challenges. Politicians love geopolitics and they love to talk about big strategy so they may regard the environment as a second or third rate issue, but it really has become a first rate issue. That said, I’m optimistic because this is a society filled with a problem-solving spirit right now, with good leadership and a sense of direction. I think that bodes very well for the future.

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

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China, like it or not, has to take on these environmental concerns out of the simple arithmetic of its weight on its own environment and on the world environment.”.”

The Impact of After several years of discussion, China has embarked on a major healthcare reform program, aiming to establish the basic framework for a universal healthcare system by 2010, and to provide basic healthcare for the national population by 2020. With a total investment of US$125 billion, the reform plan stands to not only beneďŹ t the people of China, but also a wide range of healthcare related businesses. This is the ďŹ rst in a series of articles that will review the life sciences and healthcare industries in China. 28

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APRIL 2010

C OV E R S TO RY

BY ANDREW CHEN

Healthcare Reform

or a populous country like China that has experienced diﬀerent levels of growth and economic development in diﬀerent regions, the government plays a critical role in providing essential medical care to the people to sustain the country’s long-term stability and prosperity. While the reform plan introduced in 2009 has great potential to overhaul the healthcare system and provide much needed coverage and services to an underserved segment of the population, companies positioned in the consumer healthcare

sector, in particular pharmaceutical and medical devices companies, stand to beneﬁt as well. The healthcare reform plan addresses ﬁve key aspects of the country’s healthcare system. First, the expansion of basic urban medical insurance programs and a new rural cooperative medical system, so that all urban and rural residents across the country can enjoy a coverage rate over 90 percent. This includes improving the administration of medical security funds while also advancing the service quality and management of basic medical security.

APRIL 2010

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IMAGINECHINA

RURAL REACH: One of the core initiatives of the healthcare reform agenda is improving services for rural residents.

Second, the establishment of a national essential drug system with essential drug selection, production and supply mechanisms that also result in creating a reserve system of essential medicines and strengthens supervision of drug quality. The vast majority of essential drugs should be distributed directly to primary care institutions and retail price guidelines for essential medicines will be set. Third, the building of a competent primary medical care service infrastructure at the grassroots level composed of rural township centers, village clinics and urban community healthcare centers. This includes the construction of healthcare institutions in rural areas and a strong campaign to signiﬁcantly increase the number of healthcare practitioners and workers. The operation system, service model and funding mechanisms of primary healthcare institutions will also be reformed so that the basic medical expenditure of patients will be reduced and the ability to visit primary care institutions will be increased sharply. Fourth, the continued equalization of access to basic public health services for both urban and rural residents. Public health campaigns and programs will continue for major issues such as disease prevention, immunization and hospitalized baby delivery for women in rural areas. Funding for these campaigns will be secured and priority will placed on enhancing the capacity of specialized public health institutions. Finally, a strong push will be made for

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APRIL 2010

continuing public hospital reform experiments. The management system and operating mechanism of public hospitals should be streamlined and the existing model of public hospital funding through drug sales will be reformed. Through increased government investments and strengthened regulation of drug income and expenditures, the share of drug sales and diagnostic fees in the total hospital income should fall significantly. Various government agencies and stakeholders continue to position and debate over issues such as the national essential drug system and hospital financial mechanisms. Obtaining consensus among the large number of interested stakeholders has been a long process. While there is general agreement that government financing needs to be increased and that health insurance should play a role, the priority areas for funding and the type of insurance system have been sticking points. Development of primary care will be a priority area for government funding, with the reform program building on changes that have already been initiated. In a number of cities, pilot schemes are already underway to introduce a gatekeeper role for urban community health centers. In developing a primary care sector, the government will take on greater responsibility for financing community health centers. Ultimately, one of the key issues that will affect the future direction of healthcare reform is the allocation of financial resources. Despite the declared principle of providing universal access to healthcare facilities

and insurance, patients will remain the main payers of healthcare and the extent of subsidization by local governments will depend on local economies. Eventually, it is expected that the government will subsidize both patients and providers, which is similar in practice to the healthcare models of some European countries.

Rise of medical insurance The expansion of health insurance schemes to cover wider segments of the population is fundamental to healthcare reforms which aim to bring every Chinese citizen within the health insurance framework by 2010. It is expected that a “multi-level medical insurance system” will be developed and the government intends to close the gap of urban and rural schemes step by step. Various medical insurance schemes in urban China currently cover approximately 40 percent of the population, while over within the rural population, some 80 percent is covered by the rural cooperative medical system. However, benefits and funding provided by the schemes vary greatly: the average per capita medical insurance fee for urban residents is RMB1,100 whereas the rural premium is just RMB100 per year. While the government intends to significantly increase its contribution per head for the rural scheme over time, there is a long way to go to close the gap. How these different schemes are developed and implemented will greatly impact the potential markets for foreign businesses, particularly those in consumer healthcare-related sectors. Urban Employee Basic Medical Insurance Scheme Enrollment in the urban employee basic medical insurance (BMI) scheme continues. Initiated in 1998, the number of employees and retirees enrolled in the BMI scheme neared 220 million in 2008, up from 157 million in 2006, when over 40 percent of urban employees and 82 percent of retirees were covered by the locally managed scheme. The majority of people covered by the BMI are current workers, although retirees account for around a third of healthcare expenditure. BMI is funded by premiums paid by employers and employees. Typically employers contribute 6 percent of the total wage while employees pay 2 percent of their salary, although the amount paid by employers varies according to region. Retirees are exempt from premiums. Individual premiums and 30 percent of the employers’ contribution go

into personal medical savings accounts, with the remaining 70 percent of employer premiums going into the social pool funds. Benefit payments for outpatient treatments are covered by the personal medical savings account, while more expensive hospital costs are paid from the social pool fund, although patients are generally expected to make a co-payment. Minimum payments from the social fund are around 10 percent of the average annual salary of local employees, while the maximum payment is about four times the average wage. Although guidance on benefits covered by the BMI is provided by the Ministry of Labor and Social Security (MOLSS), provincial and municipal governments have latitude in coverage determinations, contributing to variations across regions. Total funding for the BMI amounted to RMB174.7 billion in 2006, a 24.3 percent rise over 2005, while spending grew 18.3 percent to RMB127.7 billion. Urban Resident Basic Medical Insurance Scheme The MOLSS initiated a basic medical insurance scheme to cover major illnesses for urban residents not covered by the BMI program. Comparable to the rural cooperative medical scheme, pilots of the new urban resident health insurance program began in August 2007 in 79 cities to cover nonworkers, the unemployed, children and the elderly who have no employment history. Administered by municipal governments, funding is through family contributions, ranging from RMB100 to 350, and government subsidies of 40 RMB per person. Higher government subsidies are provided to certain disabled groups and those covered by public welfare assistance programs. Similar to the rural cooperative medical scheme, the scheme will focus on covering the costs of serious diseases and at least half the healthcare cost of the insured is expected to be covered by the scheme. The government plans to implement the scheme nationally this year, bringing some 240 million urban residents within the health insurance network. Accounting for around 18 percent of the national population, the non-working urban residents are the last remaining sector without access to medical insurance. Although nearly 90 percent of China’s counties have established urban healthcare benefit schemes to provide medical assistance to low income people, more schemes are being introduced at local levels to address the problem of the uninsured urban

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Eventually, it is expected that the government will subsidize both patients and providers, which is similar in practice to the healthcare models of some European countries.”

“

The healthcare reform process is expected to improve the service coverage and standardize service offerings, creating new demands on the pharmaceutical industry.”

population. Community health services provide low cost care, which is subsidized by funding from central and local governments. More and more urban Chinese residents continue to receive benefits under such schemes and coverage has not only been extended from hospitalization to common illness assistance, but more people have become entitled to receive benefits as the income threshold has been lowered. The China-UK Urban Health and Poverty Project, established in 2000 between China and the UK to pilot medical training for general practitioners in cities including Chengdu, Shenyang and Xining, has been instrumental in contributing to the development of such schemes based on community health services. Rural Cooperative Medical Scheme The rural cooperative medical scheme was initiated in 2003 to provide farmers with basic health insurance. Administered by the local governments, the scheme covered 830 million rural residents in 2,729 counties at the end of 2008, accounting for 91.5 percent of the rural population. The coverage base continues to expand and the government aims to achieve the goal of complete coverage of the rural population by the end of 2010. It has also pledged to double the annual funding per scheme member to RMB100 by the end of this year, with RMB80 contributed by the central and local governments, and RMB20 by the insured. However, benefits provided by the rural scheme are limited, covering only treatment for serious illnesses, or about 30 percent of healthcare expenses, leaving a large share of total healthcare costs to be funded by individuals. With the emphasis of the rural cooperative medical scheme on covering serious diseases and hospital costs, greater efforts are expected to be made to develop disease control and prevention with a view to reduce the burden of hospitalization. Private Medical Insurance Around 40 million people, or 6 to 7 percent of the urban population, have private health insurance. Current tax laws discourage employers from purchasing supplemental insurance or basic coverage for people who do not qualify for the public scheme since contribution costs are not taxexempt. As a result, only a few companies provide private insurance benefits to their employees. The changes taking place with public medical insurance programs could also deter development of the commercial insurance sector, especially if

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APRIL 2010

social insurance becomes mandatory. Still, some companies are implementing new initiatives in China. Chindex International, an independent American provider that operates the United Family Hospital (UFH) network of private healthcare facilities in Beijing and Shanghai, introduced a Preferred Provider Organization (PPO) health insurance plan – the ﬁrst of its kind in China – targeted at providing the local Chinese market with access to healthcare at the UFH network of primary care hospitals and ambulatory clinics.

Making drugs affordable The Chinese population structure is transforming as a result of aging and economic development has increased disposable income and awareness of personal health, resulting in increased prescription drug consumption. The healthcare reform process is expected to improve the service coverage and standardize service offerings, creating new demands on the pharmaceutical industry. At the same time, the government intends to improve drug availability and affordability by implementing a number of policies and regulations designed to make drugs more affordable to the mass population. An essential drug list comprising of approximately 300 products is now utilized in urban community health centers and the prices of the essential drugs are regulated. The drugs cover 80 percent of the most prescribed medicines and are intended to be purchased directly from manufacturers at zero mark-up. The list of community care drugs is likely to be used as a basis for reimbursement under the rural cooperative medical scheme. Domestic pharmaceutical consumption has increased rapidly in China, with the pharmaceutical sector growing by 26 percent in 2008, according to IMS Health. By 2020, China is expected to drastically expand its pharmaceutical market volume to US$220 billion and become the second largest market in the world after the United States. As a result, foreign pharmaceutical companies continue to enter the China market and build the necessary capacity to serve the demand. China’s population is over 1.3 billion, with a yearly rate of natural increase of 0.6 percent. In addition to natural population increase, the aging of the population also drives the demand for healthcare services. As of 2000, close to 127 million people (about 11 percent of the population) were

IMAGINECHINA

over 60 years old, and another 104 million people were over 65 (about 8 percent). By 2015, the number of Chinese citizens over 65 years of age is expected to exceed 200 million. These growing elderly segments currently account for half of drug consumption in China, a share that is expected to rise and drive the domestic drug consumption in the future. Today, all of the world’s leading 20 pharmaceutical companies have established presences in China, accounting for around 30 percent of total pharmaceutical businesses. The path of major pharmaceutical companies in China has changed greatly since the entry of Japan’s Otsuka Pharmaceutical in 1980 as the first foreign participant. Over the years, foreign firms have acquired a better understanding of the Chinese market and built up marketing and manufacturing capabilities as well as developed national marketing, sales and distribution networks in major cities. More recently, as the market has continued to mature and grow, many multinational companies have established fully-owned subsidiaries, taken over full control of their local JVs, and expanded manufacturing scale to fulfill rising demands. The final phase of development for the foreign pharmaceutical firms is diversification, which means taking advantage of new opportunities created by the healthcare reform and continued government investment in healthcare. New opportunities exist in areas such as lower tier and community healthcare markets, generic products, vaccines, over-thecounter drugs and healthcare supplements. The Chinese government has shown a strong initiative to shift the focus of its pharmaceutical sector from imitation of unpatented or generic drugs to building an innovation-oriented country. The government provides a number of incentive programs to support and foster the development of the domestic healthcare industry. In particular, a specific new drug creation and development program commits RMB14 billion to pharmaceutical research and development with a specific focus on selected major diseases. Increasing collaboration between multinational pharmaceutical companies and local institutions are also helping to advance research and development activities in China. Foreign companies have continued to increase their presence in China to conduct research and development as a result of China's attractive market and resources. Both major companies and startup firms in the pharmaceuticals field continue to pursue all avenues of entry to China, ranging from

setting up subsidiaries or establishing strategic partnerships with local partners. As a result of the increased investment and ongoing development in the pharmaceutical industry, the availability of advanced medicines will continue to increase while the cost structure for consumers should decline. At the same time, China’s GDP growth continues relatively strongly and per capita income has maintained a high level of growth. The standard of living in China has improved significantly in recent years and both rural and urban citizens are more and more aware of the importance of personal health. This new capability to afford additional healthcare services to improve personal well-being, coupled with the ongoing healthcare reform will continue to drive growth of the Chinese consumer healthcare industry for the foreseeable future. The healthcare reform plan has been earmarked to spend US$125 billion over the 2009-2012 period. According to the World Health Organization, China spends just US$216 per capita on healthcare, for a total of just 4.6 percent of GDP. By comparison, the United States spends nearly US$7,000 per person for a total of 15.3 percent of GDP. As the implementation of the healthcare reform plan continues, not only pharmaceutical firms, but a broad range of companies from medical device makers to healthcare providers, stand to benefit enormously. Andrew Chen is a manager with Deloitte Consulting in Shanghai. He can be contacted at andrechen@deloitte.com.cn. Watch for more articles in the coming issues of Insight for more on the development of the healthcare industry in China and the impact of the government’s reform plan.

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INSIGHT

IMPORTANT ISSUE: Chinese citizens are more and more aware of the importance of personal health and increasingly able to afford advanced medical care and services.

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APRIL 2010

INSIDE AMCHAM FROM THE CHAIRMAN

Towards Focused Engagement

t last month’s National People’s Congress, Chinese ofﬁcials declared that U.S. calls for the RMB to appreciate in the face of a depreciating dollar amounted to American protectionism. Back in Washington, with unemployment hovering around 10 percent, 130 American congressmen were busy signing a letter urging President Obama to brand China a “currency manipulator.” Politicians on both sides of the Paciﬁc seem to be more focused on making statements that generate support among their political base and less about driving economic growth and advancing the U.S.China commercial relationship. Comments like these only encourage the growing chorus of pundits who raise questions about the future of the business climate for American companies in China. In last month’s column, I talked about the importance of enhancing U.S. competitiveness in China. A primary focus for AmCham Shanghai in 2010 will be to make sure our political leaders understand that by supporting American exporters and American companies here in China, they will contribute to economic growth at home that will create American jobs. It is clear that we have some work to do. On March 16, a group of Senators led by Sen. Charles Schumer (D-NY) and Sen. Lindsay Graham (R-SC) introduced the Currency Exchange Rate Oversight Reform Act of 2010 meant to provide “oversight” of currency exchange rates.

Robert Roche Chairman AmCham Shanghai

While AmCham Shanghai supports encouraging China to move toward a market-based currency, it is the Chamber’s position that the value of the RMB is not a major cause of the U.S. trade deﬁcit with China, and the U.S. should not expect legislation targeting the appreciation of the RMB to resolve its trade imbalance with China.

What is needed is well thought out, considered action from our elected leadership concentrated on measureable actions.

There are issues facing American companies in China that call for Washington’s focused engagement. The indigenous innovation directive that threatens to exclude American companies from China’s government procurement market is certainly one of them. But this bill is counterproductive and will do very little to improve U.S. competitiveness, grow the American economy or create jobs. What is needed is well thought out, considered action from our elected leadership concentrated on measureable actions addressing issues that we can do something about. Which is why, in the coming months, AmCham Shanghai will be reaching out to you to learn more about what you think Washington can do to make your company more competitive in China. We’ll take your ideas to meetings with elected leaders and policymakers in Washington. We’ll target legislators on Capitol Hill from your company’s home state or district and make a direct connection between your company’s success in China and the creation of local jobs for the voters they represent. And, if you or your company is represented by any of the Senators sponsoring the latest attempt to address RMB appreciation, I encourage you to let them know your position on this issue. I look forward to working with you on this project! Finally, AmCham Shanghai and the American Women’s Club will co-host the 2010 Charity Gala on April 10 at the Pudong Shangri-La. This year’s theme is “Hollywood Lights” (but don’t worry, the “lights” won’t be too bright, I always look better when the lights are a little bit low!). We’re looking forward to the annual Gala which over the years has raised hundreds of thousands of RMB for worthwhile causes throughout China. I hope you’ll join us at the Gala and throughout 2010 as AmCham Shanghai and Chamber members lead the way in the development of Corporate Social Responsibility in China.

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INSIGHT

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 March 2010 Board of Governors Meeting 2010-2011 Budget The Board approved the budget for the 2010-2011 ﬁscal year which focuses on supporting membership retention and engagement, strengthening the government relations and advocacy program, and leveraging the 2010 Shanghai World Expo to enhance AmCham Shanghai’s position as the leading business organization in China.

Expo 2010 David Turchetti, Vice President, Programs, reviewed the Chamber’s programming plans for the Expo, including the AmCham Shanghai 2010 World Expo Business Series, which will feature a CEO and distinguished speaker series, conferences and provincial government forums. A dedicated website will be launched at expo.amcham-shanghai.org.

IN ATTENDANCE Governors: Andrew Au, Pierre Cohade, David Gossack, John Grobowski, Murray King, Diane Long, Eric Musser, James Rice, Robert Roche (Chairman), Matthew Targett, Kevin Wale and Chris Wurzel. Attendees: David Basmajian, Justin Chan, Siobhan Das, Brenda Foster (President), Helen Ren, David Turchetti, Linda X. Wang, Jessica Wu and Karen Yuen. REGRETS Eddy Chan

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AMCHAM SHANGHAI: WHERE BUSINESS HAPPENS AT

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AmCham Shanghai is pleased to announce The AmCham Shanghai 2010 World Expo Business Series, bringing Expo business opportunities to our members while facilitating the entry of new businesses to China. The AmCham Shanghai 2010 World Expo Business Series is supported by the U.S. Foreign Commercial Service, the China Council for the Promotion of International Trade and the Shanghai Foreign Investment Development Board. Speaker Series • CEO Speaker Series: a forum for top CEOs from around the world to address the Shanghai business community in China • Distinguished Speaker Series: a platform for government leaders, best-selling authors and other notable individuals • Urban Planning Series: workshops that bring together industry experts and showcase companies which highlight the Expo theme “Better City, Better Life” Conferences • Innovation Conference: highlighting how leading companies use innovation to stay ahead of the competition • Sustainability Conference: discussing how to accelerate green business opportunities in China and the United States • China Trends Conference: bringing together top China experts to identify future trends that will shape the China market beyond Expo Provincial Government Forums Meet face-to-face with leaders of Chinese provincial governments and gain valuable insights on opportunities that help you make smart expansion decisions

Visit the AmCham Shanghai Expo site at http://expo.amcham-shanghai.org for more information on: Exclusive Opportunites for AmCham Shanghai Members

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• Provide brieﬁngs to Expo business visitors and delegations

• Request an Orientation China Brieﬁng to learn about the China market

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Renew now & stay a part of the largest and most active AmCham in the Asia-Pacific Region: AmCham Shanghai! How to renew: Simply log onto www.amcham-shanghai.org/renew and enter your details in the online renewal form. It takes less than 5 minutes to complete and you will be INSTANTLY notified if you have won one of the terrific lucky draw prizes on offer. Renew your AmCham Shanghai Membership now and have chance to win one of the below prizes. Round-trip air ticket from Shanghai to the U.S. provided by United Airlines RMB 500 gift voucher provided by American-Sino OB/Gyn/Pediatric Services RMB 1560 Body check voucher provided by Essential Healthcare Network RMB 800 Dental care card provided by Kowa Dental One-night accommodation in a studio at Pudi Boutique Hotel RMB 500 SPA voucher provided by QUAN SPA Half a case of Santa Digna Merlot wine provided by Santa Fe Relocation Services One-night weekend stay in a Deluxe Room at the St. Regis Shanghai One-night stay in a one bedroom apartment at Union Square, Shanghai Pudong Marriott Executive Apartments * Three-month free subscription of the Wall Street Journal newspaper (PDF) * * * * * * * * *

For further information, please contact the AmCham Shanghai membership department: Tel: (86 21) 6279-7119 ext. 5676, 5659, 5677, or 7124 Fax: (86 21) 6279-7643 Email: renew@amcham-shanghai.org Special thanks to the prize sponsors

INSIGHT

APRIL 2010

2010 Manufacturers’ Business Council Conference:

Retooling for China

On March 18, AmCham Shanghai’s Manufacturers’ Business Council hosted the 2010 AmCham Shanghai Manufacturers’ Business Council Conference: Retooling for China. Held at the Portman Ritz-Carlton, Retooling for China analyzed the rapidly changing landscape facing manufacturers in 2010, offered innovative approaches to solve immediate challenges and provided a glimpse of what is in store for the future of manufacturing in China. China’s top executives and manufacturing professionals presented on topics including on how multinational companies are retooling for China, the global recession, global trade friction, China’s “Go West” policy, innovative capital cost management, China’s logistics infrastructure, and how to manage talent. To conclude, AmCham Shanghai and Booz & Company shared the initial ﬁndings from the China Manufacturing Competitiveness 2009-2010 Study. Over 120 AmCham members and guests participated in the day-long event.

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INSIDE AMCHAM

RECENT AMCHAM HAPPENINGS

The Changing Media Landscape Former CNN Asia correspondent Mike Chinoy recently discussed the impact of the 24-hour news cycle, the rise of the Internet, and the profusion of social media on the mainstream media. According to Chinoy, one of the problems with the rise of the Internet is that citizen journalism has become the new standard. Web journalists, bloggers,Youtubers and Twitterers all contribute to the vast amount of information on the Internet and often dictate what mainstream media ultimately reports on. While increased access to information is unquestionably positive, Chinoy believes veracity and accuracy will continue to be at issue as citizen journalists lack traditional ethics and standards training and may be unable to provide balanced views of the issues. Mike Chinoy

In this complex media landscape, interviewees must learn how to connect with the media by trying to understand the journalist’s world, said Chinoy. Use short, pithy quotes and practice talking points with punchy lines, he advised. Chinoy recommended studying Barack Obama’s interviews in which he speaks in catchy, memorable sentences that underline the point he is trying to make. “Reporters come to you because of your expertise, especially in China,” emphasized Chinoy, “and because you inform the reporter, you shape their perspective and shape how they report on the issues.” (Mar 16)

Fifth Annual Barnett-Oksenberg Lecture: U.S.-China Dialogue and Open Markets AmCham Shanghai was pleased to coordinate the ﬁfth annual 2010 BarnettOksenberg Lecture on Sino-American Relations in Shanghai on March 2 at the Jin Jiang Auditorium. The Honorable Carla A. Hills, chair of Hills and Company, chair of the National Committee on U.S.-China Relations, former U.S. Trade Representative and Secretary of Housing and Urban Development, delivered the lecture near the anniversary of the signing of the historic 1972 Shanghai Communiqué. Ambassador Hills’s lecture presented the challenges and opportunities confronting U.S.-China relations and engaged in a frank dialogue on the issues and national interests of both countries. Expressing concern about the rise of bilateral trade disputes over the past six months, Ambassador Hills emphasized the importance of free trade and continued dialogue between government leaders. “Keeping our bilateral markets open, while working to further open global markets, is a challenge which if addressed seriously would enhance the growth of our domestic economies while contributing to the expansion and stability of the global economy,” said Hills. Professor Zhang Youwen, director of the Institute of World Economy at the Shanghai Academy of Social Sciences (SASS) and chairman of the Shanghai Society of World Economy praised Ambassador Hills’s lecture and engaged in an open dialogue with Ambassador Hills and audience members on a range of issues related to President Obama’s unofﬁcial meeting with the Dalai Lama and U.S. arms sales to Taiwan. Professor Zhang then kick-started a lively debate that challenged U.S. trade policies as not holding up to President Barack Obama’s statements strongly supporting free trade. (Mar 2)

Carla A. Hills

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China’s 2010 Economic Outlook UBS Senior Global Emerging Economist Jonathan Anderson recently presented his perspectives on China’s 2010 economic outlook to AmCham Shanghai members and guests. Anderson addressed the shrinking role of exports, expanding domestic demand, currency valuation and inﬂation while focusing on the property market as a fundamental driver of the economy. According to Anderson, domestic demand is a key driver of China’s economy which allows China to limit the rippling effects in its economy from the downturn in exports. However, Anderson sees the property market as the fundamental driving force for China’s economic recovery. A stable and even growing domestic demand for housing has bolstered overall economic recovery and refocused much production capacity to meeting China’s own

housing market needs. He pointed out that property demand is increasing through redevelopment, and not urbanization. For example, despite a 46 percent urbanization rate and increasing rural-to-urban migration, new metropolitan residents account for merely 7-8 percent of housing demand. Most demand comes from urban inhabitants changing housing from older structures to (government-encouraged) modern residences. From that, Anderson concludes that property demand has been driven by commercial and residential property market recovery. Addressing other key topics in the China economic debate, Anderson suggested that gradual ﬂexibility and revaluation of the RMB will likely occur. Despite political pressure worldwide, China’s shrinking trade surplus will discourage any grand-scale currency appreciation, and while a natural uptick in inﬂation might occur, Anderson predicted it will be minimal. Anderson concluded that as exports fade from the macroeconomic picture, property and commodity prices may become somewhat volatile but will continue to grow, along with China’s GDP, in the medium term.

China’s Billionaire Boom: Opportunities for Foreign Businesses AmCham Shanghai and Forbes Magazine’s Shanghai Bureau Chief Russell Flannery recently unveiled the annual Forbes Billionaire List. Flannery interpreted the fresh-off-the-press results in a presentation titled: “China’s Billionaire Boom: Opportunities for Foreign Businesses.” With 1,011 billionaires in the world, the U.S. came in first with 403 billionaires followed by Europe, Asia Pacific, the Middle East and Africa. For the first time in 16 years, a nonAmerican topped the list as Bill Gates dropped to second and Warren Buffett came in third. Zong Qinghou, Chairman and CEO of Wahaha Group, landed on the Forbes list as China’s richest person, as beverage companies continue to perform well, explained Flannery. Liu Yongxing of East Hope Group is China’s second wealthiest billionaire followed by Suning Appliance’s Zhang Jindong. China’s wealth is rising, said Flannery, because of stock markets and improved access to them, increased IPOs making billionaires out of China’s already-wealthy entrepreneurs, the macro/global economic environment, and long-term trends aiding the private sector. The presentation was followed by a panel discussion among leading Chinese entrepreneurs Zhu Min, Chairman of Cybernaut China, Bryan Huang, Chairman of VeryNEX Capital, and Ding Guoqi, Executive Director and CFO of Fosun Group, about the prospects for future business cooperation between fast-growing private sector companies in China and foreign businesses. (Mar 11)

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Education & Training Committee

Learning Through Expo: Reinventing Our Cities

AmCham Shanghai’s Education & Training Committee recently hosted Lynn King, founder and managing director of SageVision, who spoke to members at the ELS American Education Center about ways that Shanghai 2010 World Expo visitors can harness learning experiences focused on sustainable development and apply them to their communities around the world. King reviewed pavilion designs and discussed “ecopolis” innovations to be showcased at Expo, noting that this will be the first ever Expo with a “city” focus. Expo’s theme of “Better City, Better Life” means that many participating countries and organizations are developing pavilions that showcase the latest in environmental design and green technology. According to King, some of the innovations on display include the China pavilion’s massive solar-power system, smog-eating paint at the Japan pavilion, as well as Zero Fossil Energy Development’s emission-free pavilion, situated in Expo’s urban practices area. Expo visitors will leave having seen the best and most innovative green technologies first-hand and experienced how conceptual ideas on sustainable living can benefit real people. “We can use Expo as a platform to look at all the different programs and develop an integrated system in order to build a true eco-city,” said King. (Mar 8)

Information & Technology Committee

The Evolving Landscape of Cloud Computing in China

AmCham Shanghai’s Information and Technology Committee hosted a presentation by Steve Mushero, co-founder and CEO of ChinaNetCloud, on the evolving landscape of cloud computing in China. Cloud computing consists of four clouds: software as a service (SaaS), platform as a service (PaaS), infrastructure as a service (IaaS) and grids, explained Mushero. Discussing each of the main cloud components as they exist today, Mushero predicted that the future of cloud computing lies in China. SaaS providers in China will face a Steve Mushero number of challenges raising capital, engineering new products and attracting a large customer base to achieve proﬁtability but will ultimately accelerate, explained Mushero. PaaS will likewise encounter engineering and capital obstacles but may lag. On the other hand, Mushero is optimistic about the growth of IaaS in China and sees a huge future in server and storage clouds especially for the online gaming industry. Panelists Bill Zuo, CEO of CloudEx, Inc., Enwei Xie, general manager of Developer Platform Evangelism, and Andy Lai from HewlettPackard, then joined in Q&A discussion on cloud computing trends, economic drivers and inhibitors, and technology and market opportunities in China. (Mar 4)

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Real Estate Committee

China’s 2010 Real Estate Market Outlook

China’s real estate market continues to be a mixed story in 2010, according to panelists at the AmCham Shanghai Real Estate Committee’s 2010 Market Forecast. Retail and investment sales continue to show impressive growth levels while the office leasing market is significantly down from 2008 highs. Michael Stacy, senior director of tenant representation, offices services, at CB Richard Ellis, explained that the Shanghai office market has stabilized and forecasted rental rates to increase approximately 2 percent this year. He highlighted the divide between many international occupiers in Shanghai and their overseas headquarters as China operations grow significantly compared to stagnant home-office business amidst the economic downturn. Stacy pointed out that large domestic companies are driving demand, particularly in the financial services sector, as they look to upgrade their offices and relocate to higher grade buildings. Eugene Tan, national director and head of retail at Jones Lang LaSalle, discussed the continued strength of Shanghai’s retail market as China’s domestic consumption continues to outperform the rest of the economy. “Shanghai has been a little underdeveloped in terms of retail over the past five years,” Tan said. He pointed out that a number of new projects this year would help address market demand. Jim Yip, director of investment sales at DTZ, pointed out that the continued strength in the investment sales market was driven by domestic investors. Whereas in 2008 international investors purchased majority of Shanghai’s real estate, 90 percent of buyers last year were domestic entities. Yip explained this is a sign of a maturing market, as a foreign-dominated market is not sustainable. According to Yip, a major challenge in the Shanghai market right now is balancing the tremendous amount of capital available with a serious shortage of investment-grade stock. (Mar 24) Event and Committee Highlights are reported by Chantal Grinderslev, Patrick McNally, Tiffany Yajima and Weina Yang.

Tax Committee

Chinese and U.S. Individual Income Tax AmCham Shanghai’s Tax Committee hosted a seminar co-presented by KPMG senior manager Wayne Soontiraratn and Deloitte tax partner Joyce Xu to discuss U.S. and Chinese individual income tax. Soontiraratn discussed the U.S. individual income tax system in preparation of the upcoming April 15 individual income tax filing and payment deadline and gave a broad overview of tax considerations for American expatriate workers such as tax exemptions, tax withholding issues, U.S. tax rate brackets, capital gains rates and filing extensions. He explained foreign earned income exclusions and discussed U.S. tax law updates such as the homebuyer’s tax credit, economic recovery payment, and the making work pay program. Xu discussed PRC individual income tax laws and the social security system. The Shanghai government recently launched a pilot scheme extending social security benefits to certain expatriate employees in Shanghai. To serve the growing number of locally hired expatriate workers, the new tax circular extends basic pension, medical insurance and work-related injury insurance to expatriate employees with more than 15 years of cumulative employment in Shanghai. Xu also discussed supplementary pension schemes such as enterprise annuities and the recently-promulgated Circular 694, restricting tax exemptions for enterprise annuity contributions solely to employers. “With multiple tax law circulars, the Chinese individual income tax law and the social security system is a rapidly changing landscape,” said Xu. (Mar 9)

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DEAL OF THE MONTH ISTOCKPHOTO

Online Video Offering

Providence Equity Partners connects with Baidu to create China's ﬁrst adsupported streaming video website.

mid rising tension between U.S. companies and Chinese authorities over access to Internet content in China, one U.S. investor is teaming up with China’s top search engine to penetrate the country’s lucrative online video market. Two months after China’s top search engine Baidu announced a new China-based online video website, U.S. private equity ﬁrm Providence Equity Partners announced a US$50million investment to partner with Baidu on the project. The joint venture partners have already registered the domain name qiyi.com where they intend to launch China’s ﬁrst professional, high-quality and fully licensed web-based video content website. According to the agreement, Baidu will maintain majority ownership in Qiyi while Providence Equity Partners will provide expertise and know-how on developing an advertisingsupported free video viewing platform. Similar to Hulu.com, a U.S.-based website that allows users to stream TV shows for free over the Internet, Qiyi will generate revenue from advertisers in exchange for high quality and diversified licensed video content. With Baidu’s US$10 million investment and Providence Equity Partners’ injection of US$50 million, Qiyi plans to purchase licensed content for the website. Yu Gong, former COO of China Mobile’s 12580 division, will head the company. This is not Providence Equity Partners’ first foray into the online video business. The private

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equity firm specializes in media, entertainment, communications and information investments and holds a 10 percent stake in Hulu, along with partners NBC, ABC, Fox and Hulu employees. Operating a top online video website in China is estimated to cost approximately RMB30 to 40 million each month. But with China’s online advertising market worth roughly RMB20.6 billion last year and what is already the world’s largest Internet population expected to exceed 518 million users this year, the potential for growth is exponential. The popular Youku.com, China’s version of Google’s inaccessiblefrom-China YouTube, expects to reach profitability within the next three years. Youku, however, runs afoul of international copyright protection laws by hosting online streaming videos without permission of the distributor. Baidu has stressed that it will work with government regulators to ensure the lawful distribution of professionally produced media and entertainment content via the Internet while also abiding by all relevant regulations. Qiyi plans to procure all content purely through legitimate channels and to adopt “a series of measures to protect the legal rights of content providers.” The deal underscores the importance of joint venture projects that tailor business strategies to fit China’s larger political and cultural demands while maintaining long-term profitability and corporate codes of conduct in China. – Tiﬀany Yajima

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