Insight Magazine April 2012

Fast beats slow Effective warehouse design means short routes for goods and staff. Using containers in conjunction with intelligent conveyor systems speed up and optimise logistics operations. We show you how to become fast, flexible and efficient. Contact us, we will gladly advise you.

P: +86/21/5308 3678 路 E: shanghai@ssi-schaefer.cn 路 www.ssi-schaefer.cn

INSIGHT April 2012

The Journal of the American Chamber of Commerce in Shanghai

amcham shanghai President

Brenda Foster Directors Business Development & Marketing

Karen Yuen Committees

Stefanie Myers

F eat u res

14 Poor Man’s Business

14

MICROFINANCE

By James Wemyss

Poor rural residents mired in poverty are empowered with tiny loans from Wokai, a microfinance organization in China.

insight editor-in-chief/ Communications & Publications

David Basmajian Events

Jessica Wu Finance & Administration

Helen Ren

Membership & CVP

Linda X. Wang

THE 1,226 RICHEST PEOPLE ON THE PLANET SPECIAL ISSUE

18

18 Give or Take a Billion INTERVIEW

By Bryan Virasami

Russell Flannery of Forbes talks about China’s billionaires and how they made their money.

INSIGHT Senior Associate Editor

Esther Young

Associate Editor

Ryan Balis Design

Alicia Beebe

23 A One Stop Shop THE YRD

By Jonathan Shyu

Find out why the Yangtze River Delta region is more popular than ever among foreign companies.

Layout & Printing

26

Mickey Zhou Snap Printing, Inc.

INSIGHT Sponsorship sponsorship manager

Sophia Chen

(86-21) 6279-7119 ext. 5667 Story ideas, questions or comments on Insight: Please contact David Basmajian (86-21) 6279-7119 ext. 8066 david.basmajian@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.

ASIA’S EMPIRE BUILDER NOW HAS THE GOLDEN INTERNET TOUCH

23

managing editor

Bryan Virasami

LI KA-SHING

26 Hollywood Romances China COVER STORY

By Esther Young

As American and Chinese movie studios explore new ways to cooperate, will they produce blockbusters or find unexpected twists?

I nsigh t s tandards

5 News Briefs

12 Manager’s Notebook

11 Movers & Shakers 50 Executive Reading Room

I N S I D E A m C ham 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

40 Chair’s Letter 41 Board of Governors 42 CSR Awards Ceremony 46 Inside AmCham Shanghai Events

Cover design by Tian Chi

Editor's note

R

David Basmajian editor-in-chief/ Director Communications & Publications

ecently I had the unique experience of attending the screening of a new Hollywood film, Shanghai Calling, at the Hengshan Cinema. The movie is essentially about a Manhattan attorney who relocated to Shanghai, but at its core, it is a love story and does a fair job of capturing the expat experience complete with funny scenes in a Shanghai taxi, a local noodle shop and even features an AmCham Shanghai event where I recognized a few familiar faces! But it’s unique in another important way: it’s one of the first co-productions between U.S. and Chinese film studios and is targeted to American and Chinese audiences. As box office receipts in China continue to climb, perhaps this is a sign of things to come.

Read more about the movie business in China in this month’s cover story by Insight’s Esther Young.

It’s election season in the U.S. and if you follow American politics it’s hard not to notice that China is an ever growing target of politically charged rhetoric as politicians compete to “get tough on China.” For that reason and others, 2012 is likely to be a tough year for U.S.-China relations. But it

is U.S. Ambassador Gary Locke’s job to strike the right balance. On March 19, Locke spoke to an audience of more than 450 people at the annual Barnett-Oksenberg lecture in Shanghai where he summarized U.S. China policy: focus on actionable progress to “move past talking points” and move into a “new phase” in the bilateral relationship that benefits the American and Chinese people. And touchy subjects like human rights? He takes that on, too. Read more about his remarks on page 36.

Russell Flannery, senior editor and the Shanghai bureau chief of Forbes magazine, has been reporting on the wealthy in China for over a decade. In an interview with Insight, Flannery clues us in on Chinese billionaires – they’re not all real estate magnates, ex-government officials or Shaanxi coal bosses. Some are leading new industries in China’s ever developing economy and one or two might even be recognized in the U.S. See the Forbes 2012 China “Rich List” on page 18 plus many other interesting stories in this month’s magazine.

istockphoto

News

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

CHINA BUSINESS

China’s R&D spending increases 21.9% China’s spending in research and development (R&D) increased to RMB861 billion (US$139.7 billion), a 21.9% year-on-year increase. R&D spending accounted for 1.83% of China’s GDP in 2011, which rose 9.2% year-onyear to RMB47.16 trillion, according to China’s National Bureau of Statistics in its 2011 statistics report. According to the report, last year China spent RMB39.6 billion on basic scientific research projects as well as constructed 130 national engineering research centers and 119 national engineering laboratories. China’s 12th Five-Year Plan intends to improve the country’s scientific innovation capability by 2015. Included are measures to improve scientific infrastructure, strengthen policy support for scientific and technological innovation and promote breakthroughs within the industry.

China to boost shale-gas output China will auction off two shale-gas blocks this year to begin a massive acceleration of shale-gas production as part of a government plan to increase use of natural gas to 10% of energy consumption by 2020. Extraction of shale gas in China is expected to reach an annual output of 6.5 cubic meters by 2015, and 80 billion cubic meters by 2020. The 25.08 trillion cubic meters of recoverable deposits that the Ministry of Land and Resources claims China holds will help reduce dependency on foreign energy, as well as alleviate some pollution.

To accelerate output, the government plans to continue research in excavation and exploration of shale gas with foreign and domestic partners.

China posts largest trade deficit in 12 years China’s General Administration of Customs reported a trade deficit of US$31.38 billion this February, amid an influx of imports and wavering demand for Chinese exports.This comes after a press conference in which Commerce Minister Chen Deming reported only a 7% increase in exports and imports for the months of January and February combined.While a deficit in the wake of the Chinese New Year holiday had been expected, investors were unprepared for the number, which was grossly higher than the market consensus forecast of a US$4.9 billion deficit.

This is the largest monthly Chinese deficit recorded since 2000, coming amid news of a decrease in the country’s growth target by Premier Wen Jiabao to 7.5% in 2012. Concerns over the deficit are increased by slowing growth in the domestic auto industry, among other industries, and many acknowledge that the deficit may not be a onetime thing. Analysts, however, still predict that China will maintain a trade surplus for 2012.

Groundbreaking event celebrated by Ascendas in Guangzhou Ascendas, the leading business space solutions provider in Asia, broke ground with Sino-Singapore Guangzhou Knowledge City Investment and Development Co., Ltd. (SSGKC) at Ascendas OneHub GKC Business Park on

March 8. The area, a 217,000 square meter complex in the center of Guangzhou Knowledge City, is designed to “attract companies involved in knowledge-based industries such as software development, R&D and other high value-added activities,” according to Chong Siak Ching, president and CEO of Ascendas.

The first stage of the project is expected to be completed in three years, and is part of

april 2012

insight

5

a 10 year, 30-hectare and RMB2.3 billion development that will create residential, lifestyle and high quality office facilities for international and domestic companies.

PICC hopes to post shares in Shanghai and Hong Kong State-owned People’s Insurance Co. of China (PICC) is talking with regulators in the hopes of listing shares in Shanghai and Hong Kong later this year, according to PICC Chairman Wu Yan. PICC, one of China’s largest insurance firms and the parent company of PICC Property & Casualty Co., the largest property insurer in China, hopes to attract Asian investors along with American and European investors. Last July they began an effort to attract key investors abroad. The company, whose assets grew 48% to US$79.25 billion in the first half of last year, is expecting a double-digit growth in earnings this year.

CORPORATE NEWS

Intel joins mobile phone market Intel Corp. announced it will now be making smartphone chips, expanding its horizons to partnerships with OEMS such as France Telecom’s Orange, China’s ZTE Corp. and India’s Lava International Ltd., who all agreed to produce smartphones powered by Intel to come out within the year. ZTE also intends to release tablets after their smartphones come out in the second half of the year. The phones will be developed according to Intel’s latest Atom chip line, also known as Medfield.

Intel is also partnering with Visa, Inc. to secure a contactless payment system using Visa payWave, which will allow users to pay with a swipe of their smartphones at participating vendors.

McDonald’s expands China market McDonald’s Corp., the largest fast-food chain in the world, announced plans to open 225 to 250 new outlets this year.

Kenneth Chan, McDonald’s China CEO, said he intends to add 100 dessert kiosks,

and operate 600 McDelivery hubs with online ordering. He said around 40 percent of the new stores will be drive-through. The company also plans to increase its number of franchised stores. The majority of its stores has been self-operated since first entering the Chinese market 22 years ago.

The company seperates more than 1,400 restaurants in 26 provinces, autonomous regions and municipalities and aims to expand that number to over 2,000 by 2013.

Ford opens new factory in China Ford Motor Co. opened a US$490 million assembly plant in Chongqing, its second in the city and third in China. The factory will produce six different vehicle types and 150,000 Ford Focus cars per year, increasing Ford’s manufacturing capacity by one-third to 600,000 units annually. The plant is the product of a venture between the Michigan-based automaker and Chongqing-based Changan Automobile Group Co., CEO Alan Mulally plans to increase annual global sales by 50% to eight million vehicles by 2015 and have a third of its deliveries in Asia by 2020. As part of its expansion into the largest auto market in the world, Ford intends to bring 15 new models to China by 2015.

Record high sales at GM in February General Motors recorded a rise of 31% in passenger sales in February, the third highest monthly sales rise in GM history in China. This is due in part to more working days in the month, as the Chinese New Year fell in January this year. However, this comes amid reports of decreasing domestic auto sales, which fell 6% in January and February compared to last year, according to the China Association of Automobile Manufacturers. Despite single-digit growth rates expected by most foreign auto companies this year, GM plans to double sales in China to 5 million deliveries by 2015, according to GM China President Kevin Wale, by increasing its SUV market and luxury car brand, Cadillac.

MACROECONOMICS

Asia’s manufacturing perseveres February marks the third straight month of improvement in China’s manufacturing industry. China’s official Purchasing Managers Index (PMI) rose to 51.0 in February from 50.5 in January, the highest reading since September 2011. A reading below 50 indicates contraction in manufacturing activity from the previous month, while a reading above 50 indicates expansion. However, a separate PMI index estimate released by HSBC gave a rating of 49.6 in February and 48.8 in January, indicating slight improvement in a contracting industry.

Chinese FDI falls four months in a row February marks the fourth straight month that foreign direct investment into China has decreased, edging down 0.9% from last February to US$7.7 billion. The decrease was largely because of plunging investment from the European Union, which decreased 33.3% to US$906 million. Investment from the U.S. and Asia, however, increased. FDI from U.S. investors increased by 0.87% to US$525 million, and Asian countries including Japan and Thailand contributed an increase of 2.66% FDI is also falling at a lower rate from the European sector; the reduction in investment from the EU is down from a decrease of 42.5% in January.

Inflation drops to 20 month low Data from China’s National Bureau of Statistics show the country’s Consumer Price Index (CPI) dropped to 3.2% in February, the slowest gain in 20 months.

This is down from 4.5% recorded in January, and well within the 4% 2012 target posted by the Chinese government. The reading may largely be a result of changes made by the Chinese government last year, when controlling prices was a main priority.

Analysts predict that slowing inflation will allow more room for economic reform and growth stimulation by the government,

april 2012

insight

7

and that the government should allow some loosening of monetary policy within the country.

U.S.-CHINA

Apple’s 25 billionth app downloaded The grand prize winner of Apple’s 25 Billion Apps Countdown Promotion was announced on March 5. Chunli Fu from Qingdao will receive a US$10,000 iTunes gift card as a reward. The downloaded app was a puzzle game developed by Disney called, “Where’s My Water? Free.” “When we launched the App Store less than four years ago, we never imagined that mobile apps would become the phenomenon they have, or that developers would create such an incredible selection of apps for iOS users,” says Apple in its press release. Since its launch in 2008, Apple’s App Store has experienced continued growth, with its 1 billionth downloads landmark in April 2009.

Obama fights trade practices with task force President Barack Obama signed an executive order in an effort to combat what he considers to be unfair trade practices and protect American business interests abroad, particularly in countries such as China. The resultant Interagency Trade Enforcement Center, whose purpose is to monitor and enforce trade agreements and laws, will employ members from the Agriculture, Commerce, Homeland Security, Justice, State and Treasury departments, as well as U.S. intelligence agencies. The order “will institute a more aggressive ‘wholeof-government’ approach to getting tough on trade enforcement by monitoring and enforcing U.S. rights under international and domestic trade rules and countering unfair subsidies that tilt the global market against U.S. firms,” says the White House.

U.S. challenges China on rare earth metal The Obama administration has filed a

8

insight

complaint over Chinese restrictions on rare-earth mineral exports, inciting the Chinese government to defend its control over the vital manufacturing input used in almost all advanced industrial products.

While one U.S. company, Molycorp (MCP), will start production of the minerals this year, China holds a near monopoly in the industry, producing about 97% of the world’s rare-earth minerals. In 2009, China imposed export restrictions in a stated effort to protect the environment and stop over-mining; however, the Obama administration has said that this has contributed to “creating substantial pressure on U.S. and other non-Chinese downstream producers to move their operations, jobs and technologies to China.” The U.S., Obama says, is committed to leveling the playing field.

GOVERNMENT & POLICY

China to implement healthcare reforms China announced a number of healthcare reform targets after a State Council executive meeting presided over by Premier Wen Jiabao. The government plans to increase government subsidies for farmers and non-working urban residents to over RMB360 (US$57) per person per year, an 80% increase. Reimbursement rates for inpatient care are projected to reach 75% by 2015, which is 60% more than the current rates. Per capita public health expenditures are anticipated to reach over RMB40 by 2015 from the current RMB25. Major reform targets include expanding basic health insurance coverage, perfecting the country’s essential medicine system and improving community-level clinics and public hospitals.

China sets target for energy conservation China has set targets for energy-intensive industries, such as machinery and textiles, to increase energy-use efficiency and meet emissions goals. High-emissions industries such as steel, non-ferrous metals and electronic components producers

april 2012

are required to reduce their energy consumption by about 20% by 2015, says the Ministry of Industry and Information.

The regulations are to be calculated in terms of energy intensity, which is the amount of energy used to produce each unit of GDP. The government also intends to reduce pollutant emissions by 1.5% compared to last year. The ministry declared that it would be shutting down companies for reasons of overcapacity, high energy consumption and pollution.

China increases defense spending At the opening of the National People’s Congress, Li Zhaoxing, a spokesman, announced the government will increase defense spending this year by 11.2% to US$106.4 billion. This marks a US$10.7 billion increase from 2011. “The Chinese government follows the principle of coordinating defense development with economic development. It sets the country’s defense spending according to the requirement of national defense and the level of economic development,” says Li. Li also mentioned that, as a percentage of GDP, the increase was relatively low, especially compared with other countries such as the U.S. and Britain. Li says the budget will cover R&D and new weapons systems as well as personnel costs.

China import tax cuts likely China is likely to cut its import tax on luxury goods this year, according to former Deputy Commerce Minister Wei Jianguo. The official said “there will be at least two rounds of reductions this year on a large range of goods.” Wei believes that reducing the tax will promote domestic consumption, as current taxes have driven Chinese consumers to spend abroad; US$7.2 billion was spent by Chinese consumers outside of China during the Chinese New Year, according to the World Luxury Association. The Ministry of Finance, however, has been slow to move forward. While affirming a reduction will come, it maintains a lower tax would

promote social inequality and increase competition for domestic brands.

SHANGHAI BUSINESS

Shanghai raises minimum wage The minimum monthly salary in Shanghai will be raised to RMB1,450 (US$230), in April marking a 13.3% increase from the previous year. Hourly rates will also be adjusted, from RMB11 to RMB12.5.

The change will mark the 19th time the city government has raised rates since establishing its minimum wage system in 1993. In the face of a shrinking labor surplus, the efforts are expected to increase consumption, battle inflation and feed domestic demand. According to the 12th Five-Year Plan, China intends to raise the minimum wage by an average of at least 13% annually from 2011 to 2015.

Aircraft company HQ in Shanghai Expo site Construction has begun for the Commercial Aircraft Corporation of

China (COMAC) headquarters situated at the former location of the 2010 Shanghai World Expo in Pudong New District. The completed project in 2014 will mark the first occasion for a stateowned enterprise (SOE) to have its headquarters in the former Expo site.

The Expo’s former Zone B, consisting of 18.72 hectares, will be home to a total of 13 SOEs, including Bao Steel and State Grid. The country’s first hotel cluster, with 1,200 rooms, is to be built in front of the Expo Center primarily for the staff and officials of the SOEs.

Cars in Shanghai increase to over 2.5 million The number of registered vehicles in Shanghai has exceeded 2.51 million, a nearly 10% increase from last year, according to the Shanghai traffic police. The increase in motor vehicles has contributed to air pollution and environmental degradation.

According to Shanghai environmental authorities, the largest contribution to the city’s PM2.5 (fine particulate matter

less than 2.5 micrometers in diameter) emissions comes from motor vehicles.

The city government plans to increase the number of parking spaces in the downtown area within the next five years.

Many of the cars have out-of-town license plates. Shanghai’s policy of bidding for car plates increases the price of registration to discourage car ownership.

Major roads built in Shanghai Shanghai will complete 20 new major roads this year from suburban areas into downtown Shanghai in a government program to ease traffic conditions and improve safety for vehicles and cyclists.

The program will open 30 major roads by 2015, costing billions of dollars; an estimated RMB9 billion (US$1.42 billion) will be spent on roads in Pudong alone. 20 roads in the initiative have already been opened over the past few years, including the 42 meter wide Taopu Road. The new road will facilitate travel to urban Shanghai for millions of people who live in suburban areas.

CHINA & THE WORLD

SOUTH AMERICA ASIA-PACIFIC SIA PACIFIC

JAPAN: Approval to buy Chinese government bonds Japan’s Finance Minister Jun Azumi announced Tokyo has received approval from Beijing to buy RMB65 billion (US$10.3 billion) worth of Chinese government bonds as part of a larger package of financial agreements to strengthen financial ties between China and Japan. Investment is projected to begin slowly. Azumi says it may take several months for the purchase to go through, following analysis of market developments and determining the proper timing of purchases. China does not allow investors to freely purchase its sovereign debt; they first require permission from the People’s Bank of China (PBoC), China’s central bank. China has also been actively investing in the yen to diversify its foreign exchange reserves.

MIDDLE EAST

ASIA-PACIFIC SIA PACIFIC EUROPE

EGYPT: Geely and GB Auto partner to assemble cars Chinese automaker Zhejiang Geely Holdings Group Co. announced it will assemble cars in Egypt with local partner GB Auto SAE beginning in 2012. The move is expected to help Hangzhou-based Geely expand overseas amid decreasing demand for autos in China. The facility will be capable of producing 30,000 vehicles per year initially, increasing to 50,000, and will be distributed for sale in North Africa. Geely exports vehicles to 40 developing markets across Eastern Europe, Latin America, the Middle East, Africa and Southeast Asia, as well as operates assembly plants in Russia and Indonesia, among others. Geely acquired Sweden-based Volvo in 2010 from Ford Motor Co. for US$1.5 billion.

AFRICA

SWEDEN: Volvo forms joint venture with Geely Volvo Car Corp., the Swedish-based automaker, will form a 50-50 joint venture with majority shareholder Zhejiang Geely Holding Group Co. to expand into the Chinese automobile market.

Although Volvo was sold to a Chinese consortium in August 2010, including Zhejiang Geely, it is still considered a foreign carmaker and requires a local partner before manufacturing domestically.

According to Michael Ning, a Beijing-based spokesman for Volvo, the company is awaiting approval from China’s National Development and Reform Commission (NDRC) for a proposed plant in the city of Chengdu. In accordance with the requirements for the joint venture, Volvo will introduce a new China-only brand and more fuel efficient vehicles.

NORTH AMERICA MIDDLE EAST

EUROPE MIDDLE EAST

AFRICA

UAE: China looks to internationalize RMB The Dubai International Financial Centre (DIFC), the financial hub in the United Arab Emirates (UAE), may become a new hub for offshore renminbi trading. If approved by the UAE later this year, the move will help China continue to internationalize its currency, the yuan or renminbi (RMB), in the oil-rich Middle East. To further internationalize the yuan, China has signed bilateral currency swap agreements with the UAE in addition to 15 other countries. The amount of offshore yuan shrank for the second consecutive month in January to RMB576 billion.

NORTH AMERICA

SOUTH AMERICA MIDDLE EAST AFRICA

UNITED STATES: P&G building new Guangzhou plant U.S. consumer product giant Proctor & Gamble Co. (P&G) began construction on a new manufacturing facility in Guangzhou as part of the company’s US$1 billion investment in China through 2015.

Financial terms of the construction were not released. The first of three construction phases on the Luogang Plant is scheduled to become operational in the second half of 2013, producing such goods as Pampers diapers. “The new plant once again demonstrates P&G’s confidence in the China market and its commitment to Chinese consumers,” Shannan Stevenson, P&G’s president for Greater China, is quoted as saying. China is the Cincinnati, OH-based company’s second largest market worldwide.

ASIA-PACIFIC SIA PACIFIC AFRICA NORTH AMERICA

SOUTH AMERICA

Citi establishes Latin America-Asia trade desk Citigroup, Inc. announced its Global Transaction Services division established a Latin America trade desk in Shanghai as the U.S. bank looks to link its Latin American clients to Asia. Citi’s Global Transaction Services provides various trade and financial services in a network across more than 95 countries. The new Latin America Trade Desk will tailor services to the needs of importers and exporters to help facilitate trade. Citi expects the new desk to help “optimize cross-border trade settlement processes, reduce operational costs, and mitigate the risks associated with trade transactions,” according to a press statement. Citi’s Global Transaction Services holds US$12.5 trillion in assets under custody as of Q4 2011, according to the bank.

ASIA-PACIFIC SIA PACIFIC

10

insight

SOUTH AMERICA NORTH AMERICA EUROPE

april 2012

SOUTH ASIA-PACIFIC SIA AMERICA PACIFIC

M ov e r s a n d S h a k e r s c o m p i l e d by j oy c e b i a n

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

EDELMAN Edelman appointed Thomas G. Mattia, former head of global communications of Coca-Cola Company, chair of Edelman China in February. In addition, Mattia has served as the senior communications officer of two Fortune 100 companies, directly counseled four CEOs and managed reputational issues for four major global brands: Coca-Cola, Ford, IBM and EDS. Thomas G. Mattia

PRIVATE SECTOR EDELMAN Edelman appointed Cindy Tian regional vice chairman, Asia-Pacific, in March. Tian led Burson-Marstellar China since 2006. Under her leadership, B-M China experienced record levels of business growth and became a highly respected brand in China’s public relations industry.

INTEL Intel appointed Gregory Bryant vice president and general manager of Intel Asia-Pacific region in March. Bryant has been with Intel since 1992. Prior to his current position, which he took up in March, he handled all aspects of Intel’s relationship with Lenovo and led the Intel vPro technology project across desktops and mobile PCs. Gregory Bryant

HP HP appointed Feng Guohua vice president of Global Sales for China HP in March. Feng was former president of Kingdee International Software Group. Prior to Kingdee, he spent nine years at IBM, from where he was promoted from director of consulting at PricewaterhouseCoopers to managing partner of IBM GBS GCG. MICROSOFT Microsoft appointed Shen Yuanqing chief operating officer for Microsoft Asia-Pacific Research and Development Group in March. The company intends to increase its cloud computing investment in China as well as attract more cutting-edge talent, establish ecological systems for the local R&D team and promote innovation and responsibility.

Feng Guohua

Government BANK OF CHINA Wang Yongli, former vice president of Bank of China Limited, was appointed executive director and deputy head of the bank in February.

He obtained his Master’s degree from Renmin University in 1987 and his Ph.D. from Xiamen University in 2005. He first joined Bank of China (Hong Kong) Limited in 1989 and has served as acting deputy general manager, general manager of the Fujian branch and general manager of the Hebei branch.

SUZHOU Zhu Lifan was appointed director general of the Suzhou Commerce Bureau. Sun He was appointed director general of Suzhou Auditing Bureau.

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

april 2012

insight

11

M a n a g e r ’ s N ot e b o o k

A Case for Strategic Action B y Pat r i c k M o r e to n Patrick Morton

C

hina is big, and China is changing rapidly. In many of my conversations with managers in China, these are the two topics that come up most frequently in conversations. These two things m a k e s e t t i n g s t r at e g y i n C h i n a a unique experience particularly for human resource professionals, who are responsible for putting in place the people and processes to support strategic action in this competitive environment.

To understand why, let’s think about them in the context of the strateg y setting process.

Strategic decisions are investments in human, physical and financial assets that fuel changes in your business model – the way your company makes money. I’m using the word “investment” because I want to make it clear that these decisions involve commitments that have consequences that extend beyond the immediate time frame and need to be justified by adequate returns.

The need for China-specific strategic investments is substantial. Markets and political/legal institutions in China are a work in progress. Moreover, incomes have been doubling every six to seven years in China as compared to every 20 to 25 years in developed markets. Of specific concern for HR managers, clerical and professional workers are more educated now and tend to have more exposure to international business practices. All three factors make it essential that you modify your business model to ensure long term success in China The good news is that a market like China presents an opportunity that can justify significant and costly modifications to your business model.

Think about how you would view a radical modification of your products or processes in Taiwan, with 22 million Chinese people, compared to 1.3 billion mainland Chinese consumers.

Given that the forecasted increase in GDP in China over the next five years is larger in absolute size than the combined growth of the U.S., EU and Japan, you

realize that companies setting strategy in China should be considering much larger strategic investments than their previous market entry situations.

In sum, there is a strong case to b e made for de veloping Chinas p e c i f i c s o lut i on s t a i l ore d t o t h e u n i qu e d y n a m i c s of t h e m a r k e t s and HR managers should be pushing headquarters for greater flexibility to develop innovative solutions to match the needs of their business partners.

This, of course, is easy to say and hard to do. But that vexing reality doesn’t change the value proposition of the idea, so the most successful companies will be those that make significant investments to develop the novel and innovative organizational processes and capabilities they need to deal effectively with China’s large size and rapid change.

Give n t h e s i z e of t h e p ote nt i a l returns, I believe the payoffs from these organizational innovations can justify significant experimentation, and I am certain that the bold and ambitious will find a way to solve this problem.

Patrick More ton is as so cia te de an & ma na gin g dir ec to r, W US TL -F ud an EMBA Program

Got an article idea for “Manager’s Notebook”? Contact Insight Editor-in-Chief David Basmajian at david.basmajian@amcham-shanghai.org.

12

insight

april 2012

april 2012

insight

13

MICROFINANCE B y J a m e s W e m ys s

Poor Man’s Business

M James Wemyss

Microfinance program helps Chinese in poverty become entrepreneurs

icrofinance, or financial services to low income rural residents, offers a proven and effective solution to tackling poverty, decreasing inequality and addressing China’s social problems.

Microfinance differs from traditional anti-poverty methods because it empowers beneficiaries to help themselves.

For example, a RMB2,000 loan enables a person to launch a small business, increase their income or pay for a child’s education and healthcare.

Some use it to expand their business and some successfully manage to lift their entire family out of poverty. This creates a positive cycle of change as loans are recycled year after year to support new recipients.

In China, although microfinance officially began in the 1990s, it was just in the past few years that it has taken off. By December 2011, there were 4,282 microfinance institutions (MFI’s) in China, a 64 percent increase from a year ago. Chinese MFI’s had an outstanding loan portfolio of RMB369.4 billion by the end of November 2011, an 11.2 percent growth from the year before. According to the Globalization and Economic Policy Center (GEP), however, one third of China’s population lack access to financial services.

How can that be? China’s lending in 2011 reached RMB7.47 billion, indicating that microfinance is just a fraction of all loans in China. Most bank loans go to large state-owned enterprises and well collateralized large and medium private enterprises. For this reason, micro, small and medium sized enterprises (MSMEs), which account for over 90 percent of all businesses in China, find it very difficult to get loans from official channels.

Microfinance and other non-banking financial intermediaries are changing this, but the demand

14

insight

april 2012

still outweighs the supply. To increase the capital for microfinance in China, there are two ways: building the business from retained earnings or additional capital injection. Since microfinance companies often charge low interest rates (because of government regulated caps and policy reasons), the annual capital base often stays at the same level.

In addition, any defaults on microfinance loans results in a loss to the capital base. Thus, many microfinance companies must rely on new capital injection from donors or investors to continue expanding.

The Wokai story In 2006, Casey Wilson, a recent American college graduate, went to Beijing to improve her Chinese and search for career options. Upon arriving, she enrolled in a Chinese program at Tsinghua University where she met a fellow student, Courtney McColgan, who was studying both microfinance and the informal lending sector in Zhejiang province. Through Courtney, Casey learned that China had the second largest population in the world living under the poverty line. She explained that a huge amount had to be done in order to reduce the gap between economic development and alleviating poverty in China.

A year later, Casey and Courtney discovered both a problem and an opportunity: microfinance in China is 20 years behind countries like India, Bangladesh and those in Latin America.

Microfinance institutions that already existed in China really didn’t have the capital to expand to new clients and increase their impact. So the two young women built a company to solve the problem.

In 2008, the two decided to introduce the first ever person-to-person online model that connects individual donors around the world directly with individual farmers and micro-entrepreneurs in

rural China in need of small loans. They named the organization, “Wo Kai,” which means “I Start” in Chinese. At Wokai, which now has eight full time staff that performs functions such as risk management, marketing and website management, they believe that building a worldwide community of small givers can have an incredible impact on increasing opportunities for low income citizens, which Wokai defines as those living in China for under US$2 a day.

Since launching its website in November 2008, Wokai has raised close to RMB3.5 million in loan capital and powered over 900 loans to start small businesses. The organization has launched two programs in Inner Mongolia and rural Sichuan and received media attention overseas. In the summer of 2011, Wokai partnered with the China Population Welfare Foundation (CPWF) to be able to fundraise domestically in China.

Today, Chinese can use either an international

Qiu Yukun left his job in Beijing to help his father on the family rabbit farm in Sichuan province after they received a microloan to expand the business

april 2012

insight

15

credit card or a local credit card using Alipay to contribute towards mircro loans for rural entrepreneurs.

As each loan is paid back, you can then reuse the money to help another entrepreneur, thus empowering multiple people while still using the same dollar or yuan. This differs from charities where donations can only be used one time to achieve their result.

A model When one goes to the Wokai website, you can browse profiles of rural entrepreneurs and learn about why they need a loan. Typical Wokai recipients are female rural inhabitants, living on less than RMB8 per day. They use loans to start dairy businesses in rural grasslands to managing food stands in city centers. With the income from

their businesses, they are able to repay their loans over time, build their businesses and earn income to lift themselves and their families out of poverty.

The model dates back to Dr. Muhammed Yunus, who received the 2006 Nobel Peace Prize for his work in microfinance in Bangledesh. Yunus, who started the Grameen Bank, made his first loan for US$27 in 1974. Today the Grameen Bank has dispersed over US$11 billion to 8.35 million recipients, 96 percent of whom are women.

Wokai ensures that each dollar gets to the end recipient and back. Wokai’s due-diligence team has developed a comprehensive onsite evaluation system for potential recipients as well as rigorous monitoring systems for existing partners to ensure that all Wokai funds are getting to the chosen recipients and back.

Wokai’s due-diligence team visits partners in the

This woman started this food stand with help from a microloan field partner in Yilong County, Sichuan

field to compile a comprehensive report on its governance, information and accounting systems, risk-assessment policies, loan portfolio and lending activities, performance and efficiency. At minimum, all trips include 45-minute interviews with a member of the potential partners, board of directors, CEO, chief accountant, branch director and accountant (if applicable) and two loan officers of the partner.

Why should your company work with Wokai?

You and your company have many choices when it comes to working with non-profit organizations for your CSR programs. Microfinance in China received strong support from multinational companies in China, including contributions from BNP Paribas and the IFC. Wokai is still relatively

small compared to other non-profits, but they have one differentiator that should mean a lot to you: transparency regardless of the amount contributed.

Wokai expects to expand its global footprint, both in terms of online contributors, especially in Asia as well as the people and areas that they impact. Over the next year, they hope to raise RMB9.6 million in loan capital to fund over 3,000 loans. Looking into the next 10 years, and with the help from organizations, Wokai aims to help over 100,000 people in rural China to lift themselves out of poverty.

James Wemyss is an investment manager at Pacific Millennium and president of Wokai’s Shanghai chapter.

april 2012

insight

17

INT E RV I E W B y B rya n V i r a s a m i

Give or Take a Billion Russell Flanner of Forbes offers insights into China’s top billionaires

E

very year, Forbes magazine compiles several lists of the richest people in the world and they often feature billionaires such as Bill Gates, Carlos Slim and Warren Buffett. A separate list of the richest billionaires in the Chinese mainland features a new No. 1 this year: Robin Li, 43, the founder and CEO of search engine giant Baidu.com. Others include the chairman of Suning and four executives from the heavy equipment manufacturer Sany Group.

Li Ka-shing, 83, a property developer and high school dropout, earned the title as China’s richest

THE 1,226 RICHEST PEOPLE ON THE PLANET SPECIAL ISSUE

LI KA-SHING ASIA’S EMPIRE BUILDER NOW HAS THE GOLDEN INTERNET TOUCH

18

insight

April 2012

person and the No. 9 in the world with a net worth of US$25.5 billion this year. He is also the richest man in all of Asia.

The Forbes Billionaires List features 95 mainland Chinese, a drop from 2011 when 115 appeared on the list. This year, China has the third highest number of billionaires on the list, just after the U.S. and Russia, according to Forbes.

Russell Flannery, a senior editor and the Shanghai bureau chief of Forbes magazine, is in charge of the Forbes China Rich List. He presented the list during an AmCham Shanghai membership event at the Portman Ritz-Carlton.

He sat down with Insight’s Managing Editor Bryan Virasami to answer some questions about China’s billionaires. Here is the transcript, edited for space.

Insight: Tell us briefly how you develop the list each year.

Russell Flannery: “The China list grew out of the U.S. list and this year we’re marking the 25th anniversary of the list. The global billionaire’s list was launched in 1987 and it had about 140 names on it in that year and it has 1,226 this year. When that list started out, not only was it small compared to what we’re doing today, it was very U.S.-focused. In 1987, China’s economic reforms were just getting off the ground and there was nobody from the mainland on the list at that time. “ S o f a s t f o r w a r d t o t h i s y e a r, w e’r e coordinating the Greater China research for this list in our office here in Shanghai and we do it in Shanghai because we also compile the list for the mainland, Hong Kong and Taiwan. Over the course of the year, we have individual country lists for all the big important countries in AsiaPacific, so Taiwan will be coming out in the

imaginechina

Baidu’s founder and CEO Robin Li meets with Microsoft Chairman Bill Gates in China

middle of the year, China will be coming out in the fall and in the very beginning of the year, we do Hong Kong.”

Insight: Is there a common thread among Chinese billionaires? Were they educated abroad or share any other personality trait?

RF: “Well, one thing that people have said for a long time is that all of China’s billionaire’s are real estate speculators and lawless former government officials and things like that, and when you really look at the details, you can see that’s a gross generalization. Our number one from the list of China is Robin Li. And Robin is a model for Chinese entrepreneurs and he’s got a graduate degree. He came back to China after he went and studied in the States, he zeroed in on new

technology and new services that have really improved the lives of people in China, letting people use the Internet in a new way.

“What he represents personally in terms of his individual character, in terms of the business that he started just has nothing to do with that kind of generalization. And then if you look further down the list you see other types of really interesting people.”

Insight: Do Chinese billionaires make their money the same way American billionaires do or are there any differences?

RF: “There is, even today, a relatively large number of people that do come from real estate in China compared the U.S. There is a large number of people that come from manufacturing and

April 2012

insight

19

“

In 1987, China’s economic reforms were just getting off the ground and there was nobody from the mainland on the list at that time.”

imaginechina

important part of the American fabric. In China, it was only 40 years ago that there was a lot of social disruption happening in connection with the Cultural Revolution and a lot of the money that has been made is still with the first generation of wealth holders. And many of them, although from the outside looking very well for themselves, may be a lot less confident about the staying power of China’s economic reforms and the economy than others. I think there’s a period of time over which people feel more comfortable with their own wealth and how long they’re going to have it. As that wealth lasts longer, people will think more about giving.”

Wu Yajun, chairwoman of Beijing-based Longfor Properties, is the richest woman in China with a family net worth of US$5.2 billion

retailing and on the other hand, in the U.S., we have a relatively larger number of people in investments in part because the accumulation of capital in the U.S. has gone on longer than in China.

Insight: Bill Gates and Warren Buffett have called on wealthy Chinese to be more charitable.

Do you see any indication that’s improving?

RF: “I think so. When you look at the U.S., we have really clear cut tax incentives for people to be generous. The backdrop to the U.S. also is that the U.S. historically has been a very religious country where giving has been an important part of t he e t h i c and we’re a l s o a c ou nt r y of immigrants where history, people helped out each other and on the whole philanthropy is a very

20

insight

April 2012

Insight: I’ve read many rich Chinese are immig rating to the U.S. or other western countries either to safeguard their money or for other reasons. What can you tell us about that?

RF: “I see the data that is published about EB-5 applications [a program that grants U.S. green cards to immigrant investors]. You can have someone in your family get a green card for the U.S. [with a US$500,000 investment] and from a diversification point of view, that may not be a bad thing. Another reason why people are thinking about that now is because they’re interested in quality of life issues, after you’ve had a certain amount of money, why do you want to live in a country where the air quality is what it is in Beijing. Or, food safety is an issue all the time. And I think that is just part of the wealth accumulation process that countries, during their early phases of vast economic growth when they’re relatively developed, will focus on raising living standards and focus on raising quality of life issues – pollution these kinds of things and over time make adjustments that will reflect the consensus of the majority of people.”

Insight: Is there such a thing as a celebrity billionaire in China?

RF: “Some people would say they’re all celebrities now and many of them are very happy running their businesses and they enjoy what they’re doing

but they don’t necessarily enjoy being out in the media with all that celebrity status. Robin Li, Jack Ma, are they celebrities or not? Jack Ma has his big conference out in Hangzhou every fall and invites people like Arnold Schwarzenegger and other celebrities. I’ve been there and he speaks to a very large number of people. And I would say Jack Ma is certainly a celebrity in China.”

China’s Billionaires Name

Net Worth

Global Rank

1

Robin Li

$10.2b

86

2

Liang Wengen

8.1

113

3

Zong Qinghou

6.5

146

4

He Xiangjian

6.2

161

5

Hui Ka Yan

5.8

173

6

Liu Yongxing

5.8

173

7

Wu Yajun & family

5.7

178

8

Ma Huateng

4.7

223

9

Yang Huiyan

4.7

223

10

Zhang Jindong

4.5

232

April 2012

insight

21

D E A L O F t h e M O NTH B y E s t h e r Yo u n g

Youku and Tudou Merge Youku CEO Victor Koo

“

It will also allow the companies to build the infrastructure necessary to allow for faster video streaming.”

Y

ouku Inc. and Tudou Holdings Ltd., China’s two largest Internet video companies that have been likened to America’s YouTube, have signed an agreement to consolidate into a single company, Youku Tudou Inc. The deal, a 100 percent stock-for-stock transaction worth an estimated US$1 billion, has already been approved by both companies’ boards and is expected to close in the third quarter of 2012. Youku’s shareholders will hold 71.5 percent of the combined company, Tudou shareholders 28.5 percent.

The two companies, which had been struggling with net losses in the last few years because of the costs of content and distribution, are expected to together take the majority share of the market, accounting for 35.5 percent of online video advertisement market by revenues. Youku and Tudou account for 14.5 percent and 25.3 percent of ad revenue, respectively.

The deal will provide the needed burst of capital to boost stock value and cut copyright

22

insight

April 2012

and management costs. It will also allow the companies to build the infrastructure necessary to allow for faster video streaming. In the wake of the announced deal, Tudou’s stock jumped 155 percent, with Youku’s up by 28 percent. “ Yo u k u Tu d o u I n c . w i l l r e p r e s e n t a differentiated leader in the online video market in China with the largest user base, most comprehensive content library, most advanced b a n d w i dt h i n f r a s t r u c tu re a n d s t ron g e s t monetization capability within the sector,” said Victor Koo, founder, chairman and CEO of Youku.

The struggles with cost and the Youku-Tudou merger are indicative of the maturing Internet video industry in China. The historically fractured and competitive market is likely to see more of these mergers, which allows the companies to explore new areas of expansion and adjust for slower growth. Youku had been previously negotiating a merger with iQiyi, another Internet video platform connected with Chinese search engine giant, Baidu Inc. Though growth is slowing, the online video market in China is still a booming market, posting US$234 million in revenue in the fourth quarter last year. Before the merger, Youku and Tudou sparred over market share, with Youku even filing a lawsuit against Tudou alleging that the company had misused copyrighted material.

The two also accused each other of stealing videos from the others’ sites.

Both Tudou and Youku intend to keep separate platform and brand identities. “One company, two brands, two websites, two sales systems… achieving a win-win situation and realizing a shared dream,” wrote Youku CEO Victor Koo on his microblog regarding the deal.

Additional reporting by Ally Chiu

Re g i o n a l foc u s B y J o n at h a n S h Y u

A One-Stop Shop

F

or multinationals, the Yangtze River Delta regionhas consistently been one of the most attractive places in China to do business, but not necessarily an ideal place for those in a hurry to move around.

Shanghai has a reputation as being good for s e r v i c e s an d mu lt i n at i on a l s , Ji ang su for m anu f a c tu r i ng an d Z h e j i ang for pr iv ate enterprise. In 2010, the opening of a high speed rail made it possible to traverse the three destinations in just an hour.

“The high speed rail is a game changer,” says Qiang Li, a partner at O’Melveny and Myers, a multinational law firm. “We now increasingly see an integrated region in which businesses can integrate their regional sales, manufacturing functions, data processing and even R&D into the region.”

Another bonus for business travelers: the three hour commute to Nanjing, another fast developing area, is down to just over an hour, thanks to HSR. The future of the region, also known as the YRD, is an integrated area that’s now something of a one-stop shop where companies can set up a site to innovate and design, finance, manufacture, market and sell products for the domestic market, s ays Aaron L o, par tner and management consultant at KPMG. Stepping closer to this vision, many AmCham Shanghai members are looking long term, moving towards high-end manufacturing and importing high-end manufacturing equipment to the delta.

For example, two-thirds of those surveyed in AmCham Shanghai’s 2011-2012 China Business Report said they import parts or finished goods from the U.S. into China to support their operations in China, an increase from 2010. Over 200 member companies in the region (outside of Shanghai), produce products ranging from hearing aids, auto emissions equipment, medical

equipment and tractors to precision machinery.

Further, there is a paradigm shift from the YRD as a region reputed as a manufacturing hub into a high-value added, integrated region with services such as logistics and outsourcing in research & development, hi-tech companies and retail including familiar American brands such as FedEx, IBM, Harley-Davidson, as well as the Big 4 accounting firms with a presence outside of Shanghai.

Changing region Business in the YRD has grown exponentially since China’s World Trade Organization accession, and domestic economic benchmarks such as gross domestic product per capita have outpaced central government timelines in the YRD. As a result, the State Council in 2010 formally called for the YRD region to be a “well off ” society as a whole by 2015, and a “modernized” society by 2020.

The directive is based on Deng Xiaoping’s original goal for China to take three steps to modernization: provide all citizens with “adequate food and clothing,” followed by a “well off ” society and finally “modernization” by 2050. By Deng’s measure, the YRD is 30 years ahead of schedule.

In particular, Jiangsu province has 30 targets before it could achieve modernization. Of the 30 targets, nine were economic, seven were for individual citizens, eight were societal and six were environmental.

As the government looks to attract companies that fit within this modernization goal, Li feels that “the government needs to become more of a service provider” for incoming business, reduce bureaucracy and eliminate unclear regulations.

Zones such as the Suzhou Industrial Park have started to create mechanisms such as a small-and medium-sized enterprise center and dedicated

April 2012

insight

23

The Yangtze River Delta region is now considered an attractive place to live and do business by many

Aaron Lo

Qiang Li

“

[D]omestic economic benchmarks such as gross domestic product per capita have outpaced central government timelines in the YRD.” Brenda Foster, AmCham Shanghai’s president, talks to a guest at a Suzhou event

research facilities such as a nanotechnology hub to facilitate business development.

The U.S. Consulate General in Shanghai actively facilitates business in the YRD by engaging local and provincial governments and the business communities in an effort to support American business in the region. The Consulate’s Provincial Outreach Unit coordinates activities in Anhui, Jiangsu and Zhejiang and frequently arranges outreach trips by Consulate officials to YRD cities.

The Outreach Unit works closely with the C onsulate’s Foreign C ommercial S er vice, Agricultural Trade Office, Political/Economic and Consular sections to advance conditions for American business with local government officials, promote American exports to China, encourage bilateral trade and investment, and facilitate business and leisure travel to the United States.

The U.S. Department of Commerce’s Foreign Commercial Service (FCS) also assists American companies with advocacy, market intelligence and business matchmaking, such as its Gold Key ser vice. Outside China’s major cities, the

24

insight

April 2012

Commercial Service partners with the China Council for the Promotion of International Trade (CCPIT) and has established American Trade Centers in 14 second-tier cities throughout the countr y, including Ningbo, Hangzhou and Nanjing in eastern China.

In addition, the USDA’s Agricultural Trade Office in Shanghai supports American business through the resolution of market access issues and through market development programs including reporting, product promotion, trade show participation and the hosting of U.S. delegations visiting the region.

Chamber involvement As an increasing numb er of American companies look beyond Shanghai to the YRD and focus on servicing existing clients outside of Shanghai, AmCham Shanghai is tailoring its services to meet the needs of the the more than 350 members outside Shanghai in the YRD. The Chamber is working to build a Yangtze

River Delta Center to serve as the central platform for service, manufacturing and retail companies.

The YRD Center is expected to offer pertinent programs, such as events, mixers and industry and job function specific networking.

In addition, the Chamber is launching the SME (Small and Medium Enterprise) Center in 2012, which will help small businesses, both those currently in China and those considering market entry, succeed in China through access to best-inclass resources and referrals to member experts.

Although the YRD is known as a manufacturing region, it has built a strong reputation as a quality place to do business and live among expats.

Top talents, especially those in technical fields, will come to the region knowing that it is the “Silicon Valley� of China, in which they will be able to work in a livable and dynamic region conducive to creativity with other like minded

individuals, according to Lo. The area is the headquarters for Apple, Hewlett Packard and Wells Fargo, among others. Workers with a background in engineering, finance and research and development are being enticed to the region.

Li says multinationals need to show some intangible benefits to the region such as helping to build a sustainable ecosystem, using local management as partners. Indeed, AmCham Shanghai wants to play a role in working with American businesses there to increase their value in the region and accelerate the path towards YRD modernization by 2020.

Jonathan Shyu is the Program Manager of the Yangtze River Delta Center. For more information about AmCham Shanghai’s services and programming in Jiangsu and Zhejiang, contact Jonathan at jonathan.shyu@amcham-shanghai.org.

Meryl Streep and Chinese actor Ge You at the U.S.-China Forum on the Arts and Culture in Beijing in November 2011

Hollywood Romances China American and Chinese film studios are working together in new ways to make movies and overcome obstacles

By Esther Young

A

young American lawyer moves to Shanghai for work, meets a beautiful girl, falls in love and struggles with the quirks and complexities of a foreign culture and a strange language, in no particular order. Sound familiar? It’s the underlying plot of a new film that’s part romantic comedy, part drama about expat life in the city and with enough jokes and cultural misunderstandings to please everyone. But there’s one thing missing in this cross-cultural movie: the title doesn’t include the words kung fu, tiger, panda or dragon.

The film, Shanghai Calling, is expected to open soon and

26

insight

april 2012

what is also unique is how it came about. It’s a co-production between Hollywood and a Chinese film studio. Artistically, it’s neither an American or Chinese film by choice and it’s made with the audiences of both countries in mind.

Audiences and film critics have yet to give their verdict on the movie, but in some ways, Shanghai Calling typifies how far the relationship between Hollywood and China has come – more than 15 years since modern American movies made their way onto Chinese movie screens.

In 1992, as Chinese consumers tasted their first McDonald’s hamburgers in Beijing, when bicycles still ruled the

c ov eR s to ry

roads and before any Chinese got to slurp on a Starbucks mocha, Wu Mengchen, then president of a state-run distributor, quietly met with Chinese censors and convinced them to allow in another American product: Hollywood movies.

A few years later, the State Administration of Radio, Film & Television, also known as SARFT, agreed with Wu, thus paving the way for people in China to enjoy Hollywood movies in theaters for the first time in some 45 years. Under the deal, The Fugitive, starring Harrison Ford as a doctor suspected of murdering his wife, hit the silver screens in Beijing and other cities. The next year, six films including True Lies, starring Arnold Schwarzenegger and Disney’s The Lion King, came to China. The overall box office receipts in the first half of 1995 increased by 50 percent year-on-year.

“I can’t think of any other market that has as much potential and as much growth as China’s,” says David U. Lee, president production company Leeding Media which produced The Forbidden Kingdom and the recent The Karate Kid remake. “The growth figures over the past five years underscore the opportunities throughout the industry.”

China’s box office should pass Japan’s and India’s – the

second and third largest film markets – by the end of this year. Although China’s film market is a far cry from America’s US$11 billion annual box office revenue and its 40,000 screens, the rapid expansion is enough to fuel rabid optimism about the market, with potential windfalls for film studios, distributors and even theater equipment providers.

Even as box office and DVD sales are slowing worldwide, and attendance at U.S. multiplexes is at a 16 year low, China appears to be the sleeping giant – or panda – of the film industry.

But how and when the giant wakes up is another story.

In the years after The Fugitive was shown here, the shaky relationship between the two countries advanced on several fronts with a variety of collaborations between American and Chinese artists, actors and directors. But even after more recent blockbusters such as Avatar and Transformers raked in tens of millions at the box here, American film studios are still trying to overcome the same challenges that U.S. manufacturers, banks and pharmaceutical companies face – a highly protected market designed to protect the domestic industry against foreign competition.

imaginechina

Kids watch a Kungfu Panda 2 poster in China

april 2012

insight

27

imaginechina

ers, they’re hooked and they want more. In 2011 alone, the Chinese spent US$2 billion on tickets.

China Film Group’s current head, Han Sanping, predicts the market will grow to US$3 billion this year. If it’s any indication of China’s growing appetite for movies, an additional 1,500 screens opened across the country in 2011 for a total of 6,000. Forbes estimates that China adds four or more screens each day.

Producer Jon Landau and director James Cameron talk about Avatar in 2009 in Beijing

The relationship

After the initial deal in 1992, for example, China has maintained a quota on foreign films allowed in China.

Just 20 regular foreign films are allowed on Chinese movie screens each year.

As Hollywood makes new inroads into the China market, there’s no certainty whether China will ever make it much easier for American film studios. One thing is clear, however: Chinese audiences have tasted Hollywood blockbust-

Inspiring Bill Paxton “One morning, Bill went with me to an AmCham breakfast meeting which he found fabulous.”

James Rice’s day job is CEO of Dutch food company CSM nv. He’s been in China for 25 years.

And he has many extracurriculars: he is on AmCham Shanghai’s Board of Governors and rides a Harvey Davidson Motorcycle.

His latest adventure?

A behind the scenes role in Shanghai Calling, a new movie about a young expat lawyer sent to Shanghai for work. Rice was approached 28

insight

april 2012

In China, home to the world’s fastest-growing economy, young people enjoy access to things that their parents or grandparents only dreamt of, but they have just a limited choice in the movies they can watch on a Saturday night date mainly because the choices are made at the highest levels of government. It will take unusual interaction and tact to break down barriers.

It’s perhaps one reason why Hollywood icons are engaging personally with the film industry here. For example, Oscar winner Meryl Streep and director Joel Coen last November joined U.S. Ambassador to China Gary Locke at the U.S.China Forum on the Arts and Culture in Beijing, ostensibly to advance cultural understanding between the two countries while “forging new opportunities for American artists to collaborate and converse with their Chinese peers.” Streep

first as a consultant to the film. “APR Marketplace’s Scott Tong told me that I had to talk to Jim Rice,” says writer and director Daniel Hsia.

“Jim was very welcoming and warm. He introduced me to a couple more expats in Shanghai. Each of them was a wild fan of Jim.” Rice eventually inspired the character in the film played by Bill Paxton, who shadowed the businessman while he was in Shanghai to film. Rice answered some questions from Insight about his brush with fame. Here is the interview edited for space.

Insight: How did you get involved in this film?

James Rice: “The writer of the movie [Hsia] met me two years ago and interviewed me about my life and work in Shanghai. He was interested in the experience of expats like me compared to new arrivals in the expat world. He spent a day with me learning the work and life of an old China hand. That's how there is one character based on me: an old China hand who speaks fluent Chinese, serves on the Board of Governors of AmCham Shanghai, is the president of a chicken company (I worked for Tyson at the time) and rides a Harley-Davidson. Only later did I find out Bill Paxton took the role that was inspired by my life in China and I thought that was great. I have seen Bill in movies all my life since

“The market is growing very fast, and there is so much potential that is untapped…”

-- Janet Yang, independent producer

screened her latest film, The Iron Lady, during her visit.

Foreign films are among China’s top grossing films. In 2010, all foreign films accounted for about 45 percent of the box office total, or US$420 million, according to reports.

By contrast, 588 domestic films released in 2011 earned US$1.11 billion at the box office, earning about 53.6 percent of total ticket sales.

In the past few months, there have been numerous reports about how Hollywood studios make inroads into China, and well-known studios and directors have been part of the wave of interests in China. Among them, Legendary Pictures and DreamWorks Animation have made serious commitments to do co-productions and open offices in China.

The market However, the relationship has played out at times like a tumultuous Hollywood marriage, with high stakes and seemingly irreconcilable differences.

“Studios are wary,” says Robert Cain, a partner at Pacific Bridge Pictures. “Many will tell you that they’ve been frustrated with their experiences in China.”

Simple economics is behind the strict policy. As The Fugitive was being released, local distributers protested heavily, fearing that bringing in Hollywood films would crush the Chinese film industry. And given the foreign film market share of 45 percent, they may have had a point.

In addition, China is particularly sensitive about ideological content, and this impacts all media – from books to Internet content to films, domestic and foreign. The restrictions go beyond the film quota.

Government-backed Chinese patriotic films like the Founding of the Republic, about the end of the Chinese civil war and The Beginning of the Great Revival, about the foundation of the Communist party, get the best treatment at movie theaters with priority dates and times, usually at the expense of foreign films. Both Transformers: Dark of the Moon and the last Harry Potter films were delayed two months to ensure that The Beginning of the Great Revival got little or no competition.

his first film Weird Science came out while I was in high school. I thought he was the perfect person to play me!”

Insight: What was the extent of your involvement in this film?

JR: “I helped to provide inspiration for a character in the story but when they started to film, I used my AmCham Shanghai network to get the crew hotel rooms, some locations to shoot, and also helped borrow a Buick from GM and a motorcycle from Harley-Davidson for use in the movie. I also met the actors and crew and got to know them very well as they were in Shanghai for five weeks filming. Bill Paxton played me, but the director was kind enough to give me one line in the movie playing another AmCham Shanghai member. So I'm in the movie too! But don't blink your eyes or you will miss my important line!”

Insight: What was it like having a Hollywood star follow you around? Did you modify your behavior at all when Bill Paxton was around And what did you show him in Shanghai/China?

JR: “This was Bill's first time to China, and we spent a lot of

time together when he wasn't working on the film. I tried to show him the non-tourist Shanghai, and we ate at local restaurants and drank in the glamorous bars in Shanghai. Our city is a great place to host visitors since we have so much diversity and color here, plus great restaurants. A couple of times, I took Bill outside Shanghai to see another perspective of China. In fact, one time he rode on the back of my motorcycle and we went to Zhouzhuang for lunch.

“No, I didn't change my behavior. Bill is a regular guy and was always good company. He loved China and would really like to come back again. One pleasure for Bill was being anonymous while here, as the Chinese don't recognize him. That made life easy for him while he was staying in China. One morning, Bill went with me to an AmCham breakfast meeting which he found fabulous. He loved the intellectual content of our meeting and loved meeting some of our members.”

Insight: What message from this film do you want people to come away with?

JR: “They are going to see the fun and challenges of living and working in China. I hope audiences will get a feel for the excitement and energy of Shanghai.” april 2012

insight

29

“I think in China there is a tension between the overarching drive to make money, to build up the economy and the ongoing conversation on political ideology,” says Janet Yang, an independent producer who has helped produce films from Empire of the Sun and the Chinese version of High School Musical.

Depending on the deal, some studios may only earn a paltry one-time fee. As a case-in-point, The Expendables, starring Sylvester Stallone, Bruce Willis and many other 1980s action stars made US$32.1 million at the Chinese box office, making it the 10th highest grossing film in China in 2010. However, its financing company – Nu Image – saw less than US$1 million of that revenue, according to published reports, as it was shut out of a shared-revenue deal.

From the time of The Fugitive over 15 years ago, not only have the number of films been limited, but the ways that film studios could get revenue have been restricted. The profit sharing agreement that accompanies the quota meant that foreign companies would get only 13 percent of ticket revenues. In the U.S., film studios get 55 percent.

The Fugitive with Harrison Ford was the first foreign film distributed under the shared-revenue deal

30

insight

april 2012

Foreign studios got a small victory in 2009 when the World Trade Organization ruled that China must end its quota system and open up its film market, with a compliance deadline of March 19, 2011. Two months ago, Vice President Xi Jinping signed a deal to allow an additional 14 “enhancedformat” films into China – increasing the quota to 34 films total – and that U.S. film companies would get 25 percent of ticket revenues.

Given the strong box office revenues for foreign films and some US$800 million in new revenues from premier format films (IMAX or 3-D), based on one industry insider’s estimate, there is little incentive for Beijing to scrap the quota altogether in the near future. But the Motion Picture Association of America (MPAA) and American film studios considered the agreement a victory. Chris Dodd, the current chairman of the MPAA called it "a very big deal."

Jumping the fence Some film companies are not waiting for the next government-endorsed deal to tap the Chinese market.

For many, the loophole lies with coproduction deals with local film producers who are exempt from any quota. “Because the quotas are in place and seem to be staying in place, the industry has evolved to cope and adapt to the quota system,” says Michael Berry, professor of Chinese film at the University of California, Santa Barbara and author of Speaking in Images, a book that features interviews with Asian filmmakers such as Zhang Yimou. “What we have here is an industry that has transformed to fill the space not filled by the quota.”

Recent films such as Snow Flower, The Secret Fan and The Forbidden Kingdom are deemed co-productions, as they involved both Chinese and American film production.

There are caveats, of course. Striking a coproduction deal means navigating treacherous territory. Foreign producers and directors sometimes bend over backwards not only to please Chinese audiences but censors who can easily say no to a film. The upcoming sci-fi film Looper, for example, starring Bruce Willis and Joseph Gordon-Levitt, partnered with Beijing-based DMG Entertainment. The film production moved from France to China and a role was created for a Chinese actress after they signed a deal with a Chinese company to co-produce the movie.

Daniel Hsia, the director of Shanghai Calling, feels that being sensitive to the tastes of a global audience isn’t a bad thing. “The films that Hollywood wants to make may not be of any interest to Chinese audiences. The Karate Kid, for example, was a huge success in the U.S., but not in China.”

However, some find such deals to be positive for all.

Shanghai Calling, which features a character loosely based on Jim Rice, a businessman who sits on AmCham Shanghai’s

imaginechina

board of governors, is being used in some ways to test the Chinese market. “I wanted this film to be a pioneering effort,” says Yang, producer of the film. “The market is growing very fast, and there is so much potential that is untapped. I think Chinese audiences will be curious about it. I’d like to think that it fulfills different things to different people.”

Hsia said in an interview with Insight that China offers a great opportunity for good stories. “I wanted to show off Shanghai,” he said. “Many audiences don’t know what Shanghai is like. The Chinese films that do make it in the U.S. – martial arts movies, something that takes place in Shanghai in the 1920s and the 1930s – don’t really show off the modern side of the city.”

Tom Cruise at a promotion event for Mission Impossible III near the Shanghai skyline

Commitment Some studios are moving more aggressively to cement their place in China. Legendary Pictures and Huayi Brothers Internationals last year agreed to make English language films using Chinese history and culture as the foundation.

The films produced by Legendary East, the new company, will incidentally not be subject to the film quota. Its first film is already in development: an epic, directed by The Last Samurai’s Edward Zwick, about the Great Wall of China.

In addition, DreamWorks Animation, which produced the Shrek and Kung Fu Panda series, recently partnered with China Media Capital to form a “China-focused family entertainment company” and target local and international markets. It is building a production studio in Shanghai and it already has a logo: a panda fishing from a red crescent moon, a variation of its American logo.

“Together with our partners in China, we look forward to building a first-of-its-kind enterprise to locally conceive, produce and distribute high-quality creative content and family entertainment experiences,” said DreamWorks CEO Jeffrey Katzenberg in a statement.

Considering that DreamWorks’ revenues slid 21 percent

Janet Yang

in the last quarter and its profitability dropped 70 percent in the U.S., its new venture comes at a good time.

Even if film studios do not open an office in Shanghai, many if not most are factoring China into their global marketing plans.

Sometimes it means revisiting projects. MGM’s long-gestating remake of Red Dawn (the original 1984 film depicted the Soviet Union as the enemy), was supposed to be about an invading Chinese army. Last year, in post-production, MGM reportedly spent another US$1 million to reshoot parts of the film so that the Chinese soldiers – and all references to the invading force – become North Korean soldiers invading America.

“We were initially very reluctant to make any changes,” Tripp Vinson, one of the producers, told the Los Angeles Times. “But after careful consideration we constructed a way to make a scarier, smarter and more dangerous Red Dawn that we believe improves the movie.” MGM’s newest James Bond film, Skyfall, recently shot scenes in Shanghai.

Given the downturn in ticket sales elsewhere, more productions are factoring in the tastes of Chinese audiences and few are complaining.

“Every studio wants to preserve the opportunity to import their films into China,” says Robert Cain, a partner in Pacific Bridge Pictures. “To the extent they can make their films to be more attractive to Chinese audience, without impacting their films, they will do it. They are not changing the creative elements or the way to change the story. Most studios do draw the line.”

Lee of Leeding Media agrees.

“All film releases in China need to be appropriate for the market – regardless of whether it is a domestic, co-production or foreign production,” Lee says. “That includes its con-

april 2012

insight

31

Prof. Michael Berry

David U. Lee

“Given the downturn in ticket sales elsewhere, more productions are factoring in the tastes of Chinese audiences and few are complaining.” tent. Some may consider it a challenge – but it is a matter of understanding the rules like everywhere else. For example, if you’re making a film with Hollywood, you need to film something that works for Hollywood studios. It’s very similar in China. There is simply content that’s more appropriate for this market place and thus easier to push through.”

A tricky evolution Though film studios are taking an all-hands approach to the Chinese market, Chinese film audiences are also evolving. While blockbusters like Transformers and Avatar are sure bets, a diversity of interests have flourished. Love is Not Blind, a US$1.6 million Chinese romantic comedy directed by young up-and-comer Teng Huatao, took in an impressive US$43 million. Tong Gang, head of SARFT, called it a “box office miracle.”

32

insight

april 2012

“The rise of small- and medium-budget films is challenging the dominance of blockbusters in the Chinese film market,” Tong Gang said. “A group of young filmmakers has stood out as a strong power and contributing to the industry.”

But is it time to drop the quota?

“Let’s say they drop the quota, and open it up, and Hollywood can import their product into China without restrictions. Will they continue to foster local talent?” said Berry, the professor in California. “I’ve talked with several producers who have done co-productions, and a theme that I see is that they are not easy. Many studios are probably going to bother less with co-productions. I don’t think it is going to stop completely. There is always the possibility that Hollywood's open access to the Chinese market and the increased interaction that it brings will foster even deeper collaborations and bonds, but it’s very hard to say.”

The diversification of film interests may be a boon to some domestic production, but Chinese audiences are increasingly frustrated at the choices.

“Chinese audiences do like watching movies like Transformers, but many smaller foreign films that they might be interested in do not get screened at all,” said Nicole Hu, who writes for Screen World, a Chinese film website. “I’d like to see something like [Martin Scorsese’s] Hugo, for example. I don’t think many Chinese audiences are fully satisfied with the variety.”

As Seen in the Movies Product placement in Hollywood movies is gaining popularity among Chinese brands

By Jill Petzinger

W

hat do laptop computers and milk have in common with fighting alien robots? It may not seem like a match made in heaven but marketing strategists responsible for inserting several Chinese products in the most recent Transformers movie have been hailed as trendsetters.

Action-packed blockbusters such as Transformers 3, which can incorporate a wide range of product placements and resonate with a global audience, are relatively scarce. But after Yili Shu Hua milk, Lenovo, Metersbonwe and TCL appeared in the movie, Chinese companies have discovered what product integration specialists can do for them.

“Before Transformers 3, there were almost no Chinese brands in Hollywood pictures,” says Didi Zhang, entertainment director at Ogilvy & Mather in Beijing, who worked with Lenovo on Transformers 3. “After that movie came out, Chinese brands discovered something new they could do in terms of marketing, and many of our clients asked about possible movie placement opportunities for their brands, but the opportunities are limited.”

Zhang says that movie product placement is not necessarily better than traditional advertising, but it does have the advantages of being targeted and having a captive audience. It’s a marketing

technique with a long history in the United States.

In 1927, a bar of Hershey’s chocolate appeared in the Oscar winning film Wings, a silent movie about World War I. Decades later, a young boy famously used Hershey’s Reece’s Pieces to lure E.T. from a hiding place, a US$1 million investment that helped triple sales of the candy in the weeks following the movie’s release.

Product placement has been more common in movies since the 1980s, often turning products into iconic must-haves, like the Ray-Ban Wayfarer sunglasses worn by Tom Cruise in Risky Business in 1983. When Cruise’s character, Maverick, wore Ray-Ban Aviators in Top Gun, sales of Aviator sunglasses rose by 40 percent, according to a CNBC report.

Does that mean Cruise is a fan of the glasses

An actor in Transformers 3 sips a container of Yili milk

april 2012

insight

33

C

M

Y

CM

MY

CY

CMY

K

PT Black

and wants his fans to think of the scene as an endorsement?

“A placement does not imply that a star endorses a particular product,” says Zhang. “But if it is memorable, it can really build an emotional bond with the brand through the story.”

Transformers 3, with leading man Shia LaBeouf in the role of Sam Witwicky, brought the Autobots and the evil Decepticons together in yet another battle for the universe. In August 2011, Paramount said that the film grossed US$1 billion worldwide.

In China, it was the top grossing film of the year, and second-highest ever, after Avatar, taking in US$170m million at the box office, according to Artisan Gateway, a Shanghai-based industry consultancy.

Sirena Liu, president of Filmworks China Entertainment Marketing Ltd., the official agency for DreamWorks Animation SKG and other companies, negotiated product placement with Paramount Pictures for Yili Milk and Metersbonwe, the clothing manufacturer. The media attention that followed the placements raised expectations among Chinese brands, Liu said.

“Transformers as a movie is one of a kind, and second only to Avatar in terms of global box office records. With Transformers 3 we raised the bar so high, that it can be difficult to meet clients’ demands, as opportunities of this magnitude do not come along every day,” says Liu.

34

insight

april 2012

Risky business The road to successful product placement includes calculated risks, reasonable expectations and the right film. The creative process can be a challenging one, as brands naturally want to see their product on screen a lot, and this could be detrimental to the film.

With a quota of just 20 foreign movies screened in China each year, brands need to choose films that are likely to be screened here.

“Movies like Transformers are safer for clients,” says Liu. “It was an action movie, so it could incorporate technology, fashion and beverage brands, and it was a sequel, so we knew it was guaranteed to make the quota.”

Hollywood rules Working with Hollywood can be an eye-opener

C

M

Y

MC

YM

YC

YMC

K

Sirena Liu

of backorders. Even when a film is not a great hit, like The Italian Job, it can still work for the brand.

Bloomberg Businessweek reported that after the film’s release in 2003, BMW MINI experienced a 22 percent sales increase over the previous year.

The Chinese audience

for Chinese companies that are used to calling the shots in domestic film product placements.

“Hollywood has perfected the art of product placement over many years, and its producers and filmmakers really know what they want, there’s no compromise on the integrity of the film,” says Liu. Brands tend to be tight-lipped about income from product placement but it can range from completely free, such as when a company donates a product to a film, to tens of millions of dollars.

According to a report in The Australian, product placement in the next Bond film will total US$45 million.

Liu at Filmworks cites the BMW product placement in the 007 series as one of the most successful. BMW used GoldenEye to launch the BMW Z3 in 1996, as part of a three-movie deal with the Bond franchise. According to Brandchannel.com, the car sold out immediately, with years’ worth

In China, product placement often accounts for a large part of the film budget, and, as a result clients have much more control over how their products appear on screen. Clumsy placements can cause consternation amongst the audience, as was the case in the 2010 Chinese post-earthquake drama Aftershock.

Chinese audiences voiced their displeasure in online forums about the movie’s heavy-handed product placement, with the Jiannachun liquor brand getting the most criticism for its excessive amount of screen time.

“To have a liquor brand jammed into a movie about a sad event like an earthquake is an unwelcome intrusion,” says PT Black, senior creative director at Thoughtful Media in Shanghai.

Smart integrators Big Hollywood names, like Creative Artists Agency and Norm Marshall & Associates have already set up product placement offices in China,

april 2012

insight

35

and domestic agencies are hot on their heels.

One such domestic expert is actress and businesswoman Ai Wan, of Aiwan Entertainment in Beijing. In 2012, the company, which has been operating for just over a year, will place brands such as Lenovo, Camus Cognac and Volvo cars in “Special Status”, a RMB200 million movie starring Donnie Yen. They will also handle Chinese and international brand integration in Keanu Reeves’s directorial debut, an international coproduction, titled “Men of Tai Chi” set to be released in 2013.

“We call ourselves the ‘smart integrators’ because we help the brand to blend into the film and ensure that the brand message, what they want to communicate to the audience, is clear,” says Wan. She stresses the importance of being able to bridge Chinese corporate brand culture and the film world. In addition, she negotiates how the product will appear on screen and advises on the marketing campaign.

Making magic Hitching your product to a hit movie is just the first step, and product placement specialists say that Chinese clients, while keen to jump on the Hollywood bandwagon, need to take time to learn.

“Chinese brands are open to trying new things in their marketing skills but they are quite careful as well, as it is new to them,” says Zhang. According to Liu at Filmworks, any media campaign must bring together social media, merchandising and

36

insight

april 2012

“Chinese brands are open to trying new things in their marketing skills but they are quite careful as well, as it is new to them,” -- Didi Zhang, Ogilvy & Mather

advertising into one impactful campaign.

“The ideal types of products that Chinese companies could promote through product placement are mainly consumer products, like fashion, home appliances, beverages, food, computer, cell phones, and cars etc. Brands with an international presence and high market value will find it easier to place their products,” says Liu. When it works, the rewards can be dramatic.

According to Yili, after Transformers 3, sales of their ShuHua milk line increased by 12 percent compared with the same period the previous year, with a 4.8 percent increase in ShuHua brand popularity. The Metersbonwe T-shirt worn by Shia LaBeouf in the film sold out in stores the day after the movie’s release.

Jill Petzinger is a freelance writer based in Shanghai.

B i l at e r a l R e l at i o n s B y Dav i d B a s m a j i a n

Results, Not Rhetoric, Says Locke

Amb. Gary Locke addresses the crowd of more than 450 people in Shanghai

T

h e U. S . - C h i n a c o m m e r c i a l relationship is as complex and challenging as it is vital to the global strategies of U.S. companies. That’s not news to AmCham Shanghai members but as China prepares to undergo a major leadership transition and as the U.S. presidential election heats up, this could turn out to be a year of new developments.

The bottom line is that China is the biggest U.S. export market outside of North America, supporting more than 800,000 American jobs.

Inbound Chinese investment into the U.S. is an increasingly important source of economic

growth, job creation and productivity. Chinese companies are aggressively courted by investment-starved American states and cities.

But at the same time, calls to “get tough on China” echo throughout Washington as evidenced by the administration’s new Interagency Trade Enforcement Center formed to pursue unfair trade practices wherever they may be found but seemingly with China in its crosshairs. China is already a popular target of trade actions by the U.S. gover nment. Most re cent ly t he U.S. Commerce Department found that China is illegally dumping steel wheels into the U.S. market and subsidizing its domestic solar panel industry.

april 2012

insight

37

Amb. Gary Locke delivers remarks on Sino-American relations at the BarnettOksenberg Lecture

“

But Locke’s speech was not to be a laundry list of complaints.”

Most agree that these and other actions will likely result in increasing trade friction between the U.S. and China.

Striking the right balance between these two competing realities falls to the U.S. Ambassador to China, Gary Locke. As ambassador and former U.S. commerce secretary, AmCham Shanghai members are used to seeing Gary Locke strike this balance adeptly. His remarks at the 7th Annual Barnett-Oksenberg Lecture on March 19 in Shanghai was no exception.

The next phase In front of a packed house of more than 450 U.S. and Chinese academics, business and government leaders and the media, Locke kicked off his speech by restating a familiar, yet imp or t ant mess age. R efer r ing to C hina’s transition to an economic power during the past 40 years Locke said, “I would like to state unequivocally that the United States welcomes this transformation. China’s economic ascent is good for the people of China, it’s good for the people of the United States, it’s good for the global economy, and it’s critical to creating jobs in America.”

After ticking off statistics that highlighted the exponential growth in annual U.S. exports to China and hinting at future potential, Locke went on to summarize the different stages of the U.S.China relationship over the past 40 years marking the 1970s and 1980s as “defined by balancing a common foe...the Soviet Union” then highlighting ef for ts to “fully integrate China into the community of nations” that began with the former USSR’s fall to present day.

The speech marked the 40th anniversary of the Shanghai Communique, an historic agreement between the U.S. and China to restart their relationship. It was signed by President Richard Nixon and Premier Zhou Enlai on Feb. 28, 1972.

What’s next? Locke called for a new chapter in U.S-China relations built upon the work and progress of past decades. “From where I stand, I believe our bilateral relationship is entering a new

38

insight

april 2012

phase,” he predicted. “Our shared endeavors in these arenas have benefited both of our countries, and they have propelled the relationship forward.

To deepen the relationship over the next 40 years, though, I believe we need to turn our focus toward strengthening bilateral collaboration – at all levels – to produce tangible benefits for the people in both our countries – jobs, prosperity, and security.”

Action Locke is well known within the U.S. business community for taking a straight ahead approach to the commercial relationship and for his focus on c re at i ng opp or tu n it i e s for A m e r i c an companies that drive economic growth in the U.S. True to form, Locke moved quickly from high ideals to the nuts and bolts of developing a more balanced relationship focused on benefiting the people of both nations.

“Rhetoric alone will not sustain growth in this relationship,” he said. “Only shared actions that deliver results for the benefit of our people will.”

First stop on a list of actions was an economic partnership between the two countries, one that will require fairness in both policy and practice.

“By fairness, I mean guaranteeing a level playing field for healthy competition between U.S. and Chinese firms. Fairness also means ending discrimination against U.S. companies; ending unfair trade preferences for domestic firms; ending what we see as unfair, distorting currency practices; improving protections of intellectual prop e r t y ; an d e s t abl i s h i ng a m ore op e n investment climate.”

But Locke’s speech was not to be a laundry list of complaints. He quickly moved to address concerns expressed by China about American economic practices.

The ambassador hit on an issue regularly raised by Chinese officials – the challenges of investing in the United States for Chinese companies.

Locke engaged in a bit of myth-busting to address Chinese claims that their companies are

reluctant to invest in the U.S. because of fears that their investments will be blocked by the U.S. government. Locke pointed out that not all C h i ne s e i nve st me nt i n t he U. S . re qu i re s government approval and in fact, of the thousands of foreign invested projects in the U.S. last year, only approximately 300 were reviewed and of those only a small portion were Chinese.

But, as he went on to say, “perception is reality and so the U.S. government is moving beyond just saying that the U.S. is open to Chinese investment to active promotion.” Locke spent some time detailing SelectUSA, a new U.S. government-wide initiative to promote foreign investment in the U.S., including from China.

Locke also called attention to progress on two other often cited issues – restrictions and the export of U.S. high-technology goods and long wait times for Chinese nationals applying for U.S. visas. Steps forward in these areas, he said, “shows the U.S. is focused on tangible results in the U.S.China relationship.”

A thorny issue The issue of human rights in China, and the U.S. position on it, challenges even the most capable American diplomat to find a path that b ot h re s p e c t s C h i n a’s s ove re i g nt y w h i l e honoring values fundamental to what it means to be America.

Ambassador Locke took the issue head on by urging China to “protect freedoms enshrined in its own constitution and uphold universal values in accord with its international obligations” in order to “meet the aspirations of its people.”

While recognizing historic progress in lifting millions of Chinese citizens out of poverty, Locke pointed out that “human rights encompass more than improving living standards. They include the right to due process of law, to be able to speak freely, to associate openly, to practice one’s religious beliefs, and to enjoy the benefits of a free press.

Citizens should have the right to speak openly about their convictions, even if they disagree with the government or hold a minority opinion.”

An audience member poses a question to the ambassador

Locke then tied progress in human rights to China’s publically stated goals of creating an innovation based economy. “We also know that diversity of opinion and the free flow of ideas have never been more crucial to a country’s success than today – the information age, the age of the Internet – a time suited for creativity and innovation.”

Looking ahead Locke challenged the audience to “actively help build the U.S.-China relationship from the bottom up, rather than waiting for it to be constructed from the top down,” circling back to the theme of collaboration.

And not forgetting that 2012 is an election year in the U.S. and the beginning of a leadership transition in China, Locke also urged attendees to focus on the opportunities and shared interests and “not allow inevitable differences in either country to push the relationship off course.

Neither conflict nor cooperation between us is preordained. It is a choice we make through our actions.”

Locke’s speech was followed by a question and answer session during which he took several questions from the audience including one about his family roots in China.

april 2012

insight

39

inside amcham from the chair

Our Members Serve on the Front Lines

A

mbassador Gary Locke was in Shanghai March 19 to present the 7th Annual Barnett-Oksenberg lecture on U.S.-China relations. AmCham Shanghai was proud to serve as a supporting organization for this prestigious event named in honor of two American scholars and distinguished policymakers – A. Doak Barnett and Michel Oksenberg.

Speaking to a packed audience of 450 people, Ambassador Locke submitted that U.S.China relations are entering into a new phase, one when it is more important than ever before to demonstrate that the bilateral relationship offers tangible benefits to the citizens of both nations. He welcomed China’s economic ascent and dwelt at length on how the economic partnership between the United States and China, particularly when conducted on a level playing field, can foster greater trade, investment and prosperity.

The Ambassador challenged the audience to help build U.S.-China relations from the bottom up, rather than wait for it to be constructed from the top down. AmCham Shanghai is well positioned to take up this challenge. Indeed, that is precisely what our members are already doing on a daily basis. On factory floors, in company offices, in local neighborhoods and even when sitting across the negotiating table, AmCham Shanghai members serve as citizen ambassadors, projecting American values and ideals and contributing to the mutual understanding that serves as the essential foundation for constructive U.S.-China relations.

We are not negotiators at the Six Party Talks. Nor are we busy lobbying the Chinese government to support U.S. foreign policy objectives in hot spots around the world. That is the work of our government representatives. But as Chinese citizens form opinions about U.S. government decisions and actions, it is often our members who represent the first, and perhaps only, American our Chinese friends know at the personal level. Thus, in terms of people-to-people diplomacy, there is no question that our members serve on the front lines and can make a difference.

I was reminded just what kind of difference our members can make during the March 7 Corporate Social Responsibility Awards ceremony. Each year, the judges find it more difficult to select the winners. The number of submissions continues to grow and their quality only gets better. This is a wonderful trend. There is perhaps no finer example of American values than the commitment of American companies to give back to the community where they operate. My congratulations to the winners of this year’s awards and to every member company with an active CSR program in China. Whether those programs are big or small, they play a vital role in the bottom up process emphasized by Ambassador Locke.

In closing, let me highlight the upcoming Charity Gala, which takes place April 21. This is AmCham Shanghai’s premier charity event for the year and we appreciate your support.

Proceeds from the charity will benefit the Soong Ching Ling Foundation’s Mother and Infant Care Program and the Heifer Foundation’s Community Rehabilitation Program. We have an exciting evening planned and encourage all to come out for a fun evening that helps the local community at the same time. What could be better!

Kenneth Jarrett Chair of the Board of Governors

40

insight

april 2012

inside amcham B OARD o f g ov e r n o r s b r i e f i n g

Highlights from the March 2012 Board of Governors Meeting Financial Report Helen Ren, Finance & Administration Director, presented the financial report for the first 11 months of the fiscal year. The presentation tracked year to month performance on expenses, net revenue, cash balance and P&L comparing what has been budgeted to actual performance. Overall, AmCham Shanghai finished FY 2011/12 in good financial health. The Chamber will achieve its revenue target, new member target and member renewal targets.

Costs were kept in control over the past 12 months.

Fiscal Year (FY) 2012/13 Budget Presentation Brenda Foster, AmCham Shanghai President, reviewed the executive summary of the FY 2012/13 budget. The proposed budget reflected an increase in operating expenses with a corresponding increase in projected revenue. The budget projects an increase in total membership with a target to recruit 300 new corporate members.

Also included in the presentation were several of the Chamber’s strategic objectives that are primary drivers of an increase in expenses for FY 2012/12. These include the establishment of the Chamber’s SME Center, an enhanced presence in the Yangtze River Delta to better serve existing members, the Chamber’s IT platform upgrade, which includes a new Customer Relations Management (CRM) system and new programs to enhance member engagement programs.

Global conference Brenda Foster also reported on the U.S. State Department’s Global Business Conference held on February 21, 2012 in Washington, D.C. which she attended on behalf of AmCham Shanghai.

The goal of the conference was to strengthen the relationship between diplomacy and economics or, as Secretary of State Hillary Clinton has called it, “economic statecraft.”

President Foster reported that the conference was productive and that she attended several meetings attended by Vice President Biden and Secretary Clinton. Working groups were organized to get feedback from the AmChams and business leaders in attendance on what the U.S. government can do to better support U.S. business and how the government and business can work better together.

In Attendance Governors: Andrew Au, William Brekke, Eddy Chan, Ted Hornbein, Kenneth Jarrett (Chair), Dan Krassenstein, Jim Mullinax, Jim Rice, Peter Sykes, Robert Theleen, Eric Zheng Apologies: Lienjian Chen, Marie Kissel Attendees: David Basmajian, Brenda Foster (President), Kirt Greenberg, Helen Ren, Linda Wang Xia, Karen Yuen and Jessica Wu

The AmCham Shanghai 2012 Board of Governors Chair

Governors

Andrew Au Citibank China

Eddy Chan FedEx Express

Chen Lienjing Pratt & Whitney

Ted Hornbein Richco

Marie Kissel Baxter Asia-Pacific

Daniel M. Krassenstein Procon Pacific

James Rice CSM nv China

Peter Sykes Dow Chemical

Eric Zheng Chartis Insurance

Kenneth Jarrett APCO Worldwide

Vice Chair

Robert Theleen ChinaVest

april 2012

insight

41

C S R Awar d s C e r e m o n y

Dow Among CSR Winners The winners pose with judges and other guests at the CSR Awards Ceremony

D

ow Chemical, Intel and KPMG were among several leading companies that were recently recognized for advancing social responsibility in the workplace through programs that benefit non-profit organizations in China.

Representatives of five companies were presented with certificates during AmCham Shanghai Seventh Annual Corporate Social Responsibility Awards Ceremony held at the Portman Ritz-Carlton Shanghai in front of a crowd of about 100 people. Another 20 finalists walked away with certificates plus one NGO. After a panel of judges used a rigorous method to sort through a list of five dozen nominees, they gave the top honor, the CSR Leadership Award, to

42

insight

april 2012

Dow Chemical.

“We are very proud to receive this prestigious award and we sincerely thank AmCham Shanghai for its recognition of Dow,” said Peter Sykes, president of Dow Greater China. “We highly value the opportunity to do business in China, and seek to give back in ways that are meaningful, longlasting, and in line with our company values. All of this embodies our desire to be a good corporate citizen.”

After the ceremony, Sykes and several other recipients took part in a news conference with Chinese reporters and talked about their efforts to encourage their workers to understand and appreciate the values of practicing CSR. Sykes said CSR is “embedded in our corporate strategy” and explained how workers take part in CSR-related

programs using team spirit.

This year, the Chamber introduced two new award categories: the CSR Innovation Award, which recognizes the company that best addresses complex social and environmental issues in new and unique ways, and the Corporate Community Involvement Award, which recognizes outstanding corporate volunteer programs.

At the ceremony, the Partnership Award went to Atlas Copco and Plan China; the Corporate Community Involvement Award went to KPMG China; the CSR Innovation Award Winner was given to Intel China, while the CSR Practitioner Award went to Lydia Hua of Johnson & Johnson Medical China.

Eric Fiedler, chair of the judging panel, President of BDC China Holdings and a former AmCham Shanghai chair, also chaired a judges’ roundtable at the award ceremony and offered his thoughts on the awards process.

“It was difficult to pick the winners,” said Fiedler. “ There are many, many programs providing tangible benefits to Chinese society and real business value to the companies.”

AmCham Shanghai Chair Kenneth Jarrett provided opening remarks and Xu Weiwan,

Deputy Secretary of the China Communist Youth League’s Shanghai Committee, spoke on the importance of responsible business programs and the relationship between public organizations and business.

“By recognizing these outstanding programs and individuals, AmCham Shanghai aims to not only acknowledge their efforts but also to provide models for other organizations as they plan their own CSR programs,” Jarrett said in a statement. “We hope these award-winning programs honored today will inspire other companies to find innovative ways to carry out CSR activities and increase awareness of the power of CSR partnership and community involvement.”

AmCham Shanghai has hosted the CSR Awards annually since 2005. The awards honor businesses that have made notable contributions to corporate citizenship in China. AmCham Shanghai CSR Award winners display excellence in diverse aspects of corporate responsibility, including philanthropy, community outreach, volunteer programs, employee safety programs, clean supply chain initiatives, environmental educational efforts and corporate governance.

Peter Sykes, president of Dow Greater China, accepted the CSR Leadership Award

april 2012

insight

43

“

We highly value the opportunity to do business in China, and seek to give back in ways that are meaningful…”

AmCham Shanghai New Members: February 2012 U.S. Corporate Membership

Shanghai Jipin Consulting LEI Sean

American Lumber Liquidators Leasing LLC, Shanghai Rep. Office CHAU Lapyan

Associate Membership

Morgan Stanley Investment Consultancy (Shanghai) Ltd. CLAVEL Alex

A.T. Kearney (Shanghai) Management Consulting Co., Ltd. ABE Howard

Roosevelt Commerce (Shanghai) Co., Ltd. TSE Tim T.L.

Armstrong (China) Investment Co., Ltd. BINGHAM BOYD Douglas

Ropes & Gray LLP, Shanghai Rep. Office MOK Arthur

Avery Dennison China Co., Ltd., Shanghai Branch DAFFNER Martin

Vast China Co., Ltd. GONG Yadi

BorgWarner (China) Investment Co., Ltd. CUI Jie

Otis Elevator Management (Shanghai) Co., Ltd. VELAUTHAPILLAI Suthaharan PPG Management (Shanghai) Co., Ltd. WENN Horace PricewaterhouseCoopers WANG Lillian Ropes & Gray LLP, Shanghai Rep. Office LIN Geoffrey Sealed Air Packaging (Shanghai) Co., Ltd. GENG Max Shanghai iaction Construction Decoration Design Engineering Co., Ltd. PARENT Sheldon

SUN Shuqiang

Tyson (Shanghai) Enterprise Management Consulting Co., Ltd. LEE Yi-Ming

WU Guolin

PANDE Sunil

YU Hongying

SADIQ Malik

Dana Management (Shanghai) Co., Ltd. LEMBKE Michael

Chartis Insurance Co. China Ltd. GOULDING Kevin

Ubidyne, Shanghai Rep. Office WANG Martin

Lenovo (Shanghai) Electronics & Technology Co., Ltd. ZHAO Bob

Dana Management ( Shanghai) Co., Ltd. YANG Yunjian

Wanvog Furniture (Kunshan) Co., Ltd. FORSYTHE Laura

DHR International Shanghai Ltd. CHEN Kay

Weight Watchers Danone (China) Weight Loss Consultation Co., Ltd. RENEE Lia

GIERSE Matthias U.S. Associated Corporate Membership Caterpillar R&D Center (China) Co., Ltd., Wuxi Branch SUN Branden

Richardson RFPD Electronics Trading (Shanghai) Co., Ltd. CUI Wei

CHU Beryl

Ricoh China Co., Ltd. YANG Andy

Dura Automotive Systems, Inc., Shanghai Rep. Office HU Joyce

Taylor Foodservice Equipment Distribution (Shanghai) Co., Ltd. HE Richard Liang

Ecolab (China) Investment Co., Ltd. MURPHY Michael

Non-Resident Individual Membership Rijichai Corp.

OKAWARA Merle Aiko

Corporate Int’l Affiliate Membership

Fleishman-Hillard International Communications Consulting (Beijing), Ltd. CAI Miranda Fluor (China) Engineering & Construction Co., Ltd. HENDRICKS Thomas LANDRY Mark Grote (Shanghai) Vehicle Lighting Systems Co., Ltd. HONG Xia

Asia Jet (Shanghai) Co., Ltd. FANG Yan Intrabond Capital Hong Kong Ltd. HAMLIN Donna Management Development Services Ltd. HEIDENFELD Chen

Individual Int’l Affiliate Membership Directions Management Consulting Co., Ltd. NG C. J. KFStone Design International, Inc. FU Peter

44

insight

Honeywell Automotive Parts Services (Shanghai) Co., Ltd. YUAN Jack Johnson & Johnson (Medical) Suzhou Ltd. ZHANG John Jones Day, Shanghai Rep. Office VELLA Michael LG Sourcing, Inc., Shanghai Rep. Office LU Yuanyuan

april 2012

Wyeth Nutritional (China) Co., Ltd. CHEUNG John

Individual U.S. Citizen Membership BARTON James FLANNERY Russell HOLTHAUS Timothy JIANG Xiangyuan Mellmo, Inc. LUANGRATH Sean MCMAHON Brian THOMPSON Tom Nanjing IDS Marketing Co., Ltd., Shanghai Branch Office SO Herman Prima (Shanghai) Co., Ltd. HUANG Gary Shanghai Chung Hao Paper Co., Ltd. CHANG James The North Face UHLAND Jacob Wilfred Investment Consulting HORIE Wilfred

Do you want to share more information about your company? Contact Sophia Chen at (86 21) 6279-7119 ext. 5667 or sophia.chen@amcham-shanghai.org for a “Standout Listing” opportunity in the New Members Section.

GoverNment Relations AmCham Shanghai Comments on Draft Catalog on PRC Auto Purchases AmCham Shanghai has submitted written comments in request to the Ministry of Industry and Information Technology (MIIT) request for comments on the Draft Catalog of Vehicles for Government Purchase. The Draft Catalog lists 412 types of vehicles from 25 manufacturers, all under domestic brands that purchases of “Government vehicles/official cars” should be made from.

The catalog was developed based on criteria outlined in the Administration Rules of the Selection of Government Vehicles of Public Entities released in November 2011. The Draft Catalogue was released on February 24, 2012, for comment until March 9, 2012.

AmCham Shanghai’s submitted comments were developed by the leadership of the Automotive Committee and the AmCham Shanghai Advocacy Policy Committee and reflect input resulting Automotive Committee discussions. AmCham Shanghai’s submission noted that while the government vehicles sector is a relatively small part of the overall automobile market in China, if the Draft Catalog is passed, there will be a financial impact on U.S. automobile manufacturers. The submission also raised concerns with the direction of the draft policy, and the possibility that the Intellectual Property (IP) ownership tests newly applied in the Administration Rules and Draft Catalog could become standard in other areas of government procurement.

Interested members are encouraged to participate in the Committee on this and future issues.You can contact the Committee at comm. auto@amcham-shanghai.org

AmCham Shanghai Presents China Business Report to SDRC Members of AmCham Shanghai met with members of the Shanghai Development and Reform Commission (SDRC) to discuss the Chamber’s recently published 2011–2012 China Business Report. Per Shanghai’s goal of transforming from a manufacturing intensive center to an information-centered economy, based on increased services, innovation and research, SDRC has been eager to hear from foreign invested businesses as a reference point for future policy design.

AmCham Shanghai highlighted issues of interest published in the China Business Report, including legal/regulatory challenges for U.S. companies and survey results among key industries for both the U.S. and China, like healthcare, auto and retail. (Feb. 16)

SIP Official Discusses Trade Unions in Suzhou Industrial Park AmCham Shanghai’s Suzhou Committee on March 13 hosted Suzhou Industrial Park (SIP) Labor Supervision Group Leader and Vice Chair of the SIP Federation of Trade Unions Wang Feng to speak on the state of trade unions within SIP. Also in attendance were representatives from Samsung Electronics (Suzhou) and packaging material company SIG Combibloc Group, who spoke on their respective trade unions. This year marks the first year many companies in SIP have implemented labor policies. (Mar. 13)

AmCham Shanghai Hosts Heilongjiang Deputy Secretary Du Jiahao Former Party Secretary of Pudong New District and current Deputy Party Secretary of Heilongjiang province Du Jiahao led a delegation from Heilongjiang province to meet with AmCham Shanghai members and discuss investment collaboration in northeast China. In the Heilongjiang delegation were also members of the Heilongjiang Department of Commerce, Heilongjiang Development and Reform Commission, the provincial Department of Finance, Bureau of Foreign Affairs and Heilongjiang media representatives. On hand were U.S. Consul General in Shenyang Sean Stein and U.S. Consul General in Shanghai Robert Griffiths.

In 2011, bilateral trade between Heilongjiang and the U.S. reached US$4.43 billion, an increase of 52.8 percent, thus making the U.S. Heilongjiang’s second major trading partner. The investment environment of Heilongjiang should be of particular interest to agricultural firms. With more than 18 million hectares of black soil (similar to the Mississippi river delta in Alabama), Heilongjiang is the most important grain producing province in China, dubbed the “Granary of China” by Premier Wen Jiabao. april 2012 A

insight

45

Committee highlights

inside amcham

Market & Media Committee Chair Bryce Whitwam with David Sable

Marketing & Media Committee Marketing to the ‘Millenials’ Event with Young & Rubicam’s Global CEO David Sable, global CEO of Young & Rubicam, spoke to members of AmCham Shanghai’s Marketing and Media Committee about marketing to "Generation World." This unique demographic manifests itself in all age groups, races, genders and geographical locations. While technology is what unites this generation, it is not simply the technology itself, but its mobility. With smartphones, tablets and the like, it is becoming easier to have the world at your fingertips anywhere you are and to share your world with people in every corner of the globe.

We are in the infancy of a new age of marketing, according to Sable. With technology that allows people to disseminate, and conversely, acquire information in the blink of an eye, the ability to anticipate the needs and desires of consumers is becoming a reality.

Sable equates this to the days when television came onto the world stage. Producers had no idea at first what the machine was capable of, what power this new technology could have. Programs consisted of one man in front of the camera with a microphone looking stiff. Today, we have reality TV, live sports and feature films that people can watch in high definition and three-dimensions – the possibilities are still endless.

The same holds true for today’s technology. Marketers are only just becoming aware of all the possibilities today’s technology holds for reaching an audience. Today we can track the ‘who’ and the ‘what.’ Tomorrow we will be able to understand and, more importantly, anticipate the ‘why.’ (Feb. 22)

Manufacturer’s Business Council (MBC) An Inside View Of Southco Manufacture and Technology and Eagle Ottawa Leather

MBC members toured Southco Manufacture’s and Eagle Ottawa’s factories

AmCham Shanghai's Manufacturers Businesses Council (MBC) hosted a factory tour in which MBC members had the opportunity to tour two factories in Shanghai, Southco Manufacture and Technology and Eagle Ottawa Leather.

The first stop was Southco Manufacture and Technology, a global manufacturing company that for over 100 years has engineered small "touch points," such as locks and latches, for a variety of industries. Following an introduction by Southco's Engineering Director of Asia-Pacific LeeAnn Ji, members were guided on a tour through the grounds. The tour showed members the manufacturing capabilities needed to make these diverse products, as well as the Southco Global R&D system that designs for manufacture on average more than one new Southco product per day.

Next, members moved to Eagle Ottawa China, where President Cary Bean and Vice President of Operations, Martina Zhang, presented an introduction to the largest premium automotive leather supplier in the world. They were shown the goals and history of the company, as well as an overview of the steps in the leather making process conducted in the facility. After the presentation, members grabbed their goggles for a preview of the factory, during which they were able to witness firsthand some of the more than 4,000 employees worldwide who produce high quality leather that is shipped to automotive brands such as Toyota, Mercedes-Benz, Audi and Ford.

MBC members ended the night with dinner and a roundtable discussion following a presentation by Jay Hoenig of Hill and Associates, a risk management and business intelligence firm. Hoenig was invited to speak about proactively managing labor activism in China, a pertinent topic in which was discussed current demographic, political and social changes in China and how this can affect the business community. (Mar. 8)

46

insight

april 2012

committee highlights

inside amcham

Jha: Europe Doesn’t Matter for Asia in 2012 In a presentation to members of AmCham Shanghai’s Financial Services Committee, Sailesh K. Jha of SEB Asset Management provided a positive outlook on the current global financial situation. In his role as Head of Asia Market Strategy for the Swedish firm, he has an eye and an ear on policymakers across the globe, enabling him to give a behind-the-scenes assessment of global financial trends.

Sailesh Jha speaks on the Eurozone crisis

“The U.S. is still the world’s economic engine,” Jha said. His prediction of stabilizing European fiscal policy by the summer of this year and pending International Monetary Fund (IMF) injections of cash into the European Central Bank (ECB) suggests the financial situation in Europe will turn out to be more of a mild recession, rather than a full blown crisis, according to Jha. “Policymakers have to maintain their lifestyles,” Jha explains, feeling confident that the ECB will do what it takes to avoid massive defaults across Europe. Further, with exports from the U.S., Japan and Asia showing trends of growth, it doesn’t really matter what happens in Europe, said Jha. In the end, professionals just need to “remain positive, remain a bull and look through the noise,” recommended Jha. (Feb. 17)

Universities are Going Global, Says NYU President AmCham Shanghai hosted New York University President John Sexton at the Renaissance Hotel Zhongshan Park, where he spoke on higher education and its context in an increasingly globalized world. The world, said Sexton, is evolving beyond sovereign states and cities, and modern centers of creativity are no longer contained in a single geographic location. The world is also miniaturizing, as travel becomes easier and societies become irreversibly interconnected.

NYU President John Sexton

Many universities, said Sexton, have responded positively to these trends and can play a key role in shaping the global experience and building global thinkers. NYU itself has recently developed a New York University Shanghai and New York University Abu Dhabi. Each is conceived as one of a network of research universities, populated by the brightest thinkers and dynamically responding to the world’s needs. Students can circulate among the three campuses (New York, Abu Dhabi or Shanghai) or one of the 16 NYU centers, said Sexton, ostensibly getting a taste of what it is like to operate in a globalized world and get exposed to a truly global set of thinkers. (Feb. 21)

april 2012

insight

47

committee highlights

inside amcham

AmCham Shanghai Hosts Deputy Chief of Mission Bob Wang Deputy Chief of Mission (DCM) Bob Wang of the U.S. Embassy in Beijing visited AmCham Shanghai’s office on February 24 for a roundtable with AmCham Shanghai members. Wang provided a recap of Vice President Xi Jinping’s visit to the United States as well as an overview of the U.S. Embassy’s upcoming activities and priorities.

Wang noted that Xi received a very positive reception in the U.S. In Washington, Xi met with leaders at the White House, Pentagon and the U.S. Chamber of Commerce. “Xi had a very successful visit to the U.S.,” Wang noted. “These meetings are developing the relationship for both sides and will help us communicate in the future.”

He said the U.S. Embassy and consulates continue to work closely with American businesses to increase investment in the U.S., promote American exports to China and facilitate business for American companies in China. Visa interview requirements have been streamlined for some qualified nonimmigrant applicants who have previously received a U.S. visa, leading to an influx of Chinese citizens visiting the U.S. Ambassador Locke is scheduled to bring five U.S. trade delegations to China in 2012, and the Embassy seeks input on the business climate. “We’re looking to the business community to tell us what the issues are and what we need to raise with our counterparts,” DCM Wang emphasized. (Feb. 24)

AmCham Shanghai members pose with Bob Wang, Deputy Chief of Mission to the U.S. Embassy in Beijing

48

insight

april 2012

committee highlights

inside amcham

Assistant Secretary for Policy David Heyman Addresses Members U.S. Department of Homeland Security (DHS) Assistant Secretary for Policy David Heyman spoke with AmCham Shanghai members about the department’s efforts to promote a more stable, resilient global supply chain. Assistant Secretary Heyman outlined the department’s plans and its recently released National Strategy for Global Supply Chain Security. AmCham Shanghai members also provided feedback to DHS on recent supply chain and cyber security issues.

U.S. Assistant Secretary for Policy David Heyman

“We have two goals with this strategy: promote the efficient and secure movement of goods, and foster a resilient supply chain,” noted Heyman. “We’re trying to promote rapid trade recovery after disruptions.” DHS is expanding cooperation with foreign customs and border protection agencies including China’s, Heyman added.

AmCham Shanghai members offered feedback on business-related supply chain, customs and immigration issues. Members applauded recent changes which streamline visa interview requirements for some qualified nonimmigrant applicants who have previously received a U.S. visa. Members also urged DHS to continue working with its counterparts in Chinese customs and immigration agencies. (Feb. 29)

U.S. Consul General Griffiths Speaks on Xi Jinping’s U.S. Tour, Upcoming Events AmCham Shanghai hosted U.S. Consul General in Shanghai Robert Griffiths at the March Monthly Member Briefing. Griffiths provided an overview of upcoming U.S. government visits to Shanghai including U.S. Ambassador Gary Locke. The Ambassador will spoke at March 19 Barnett-Oksenberg lecture on Sino-American Relations. Deputy Secretary of Transportation John Porcari was also scheduled to visit in March was USDA Undersecretary Michael Scuse who was expected to lead an agriculture trade mission that is expected to include Chief Agriculture Negotiator Islam Siddiqui, the Governor of South Dakota, the Lieutenant Governor of North Dakota and more than 40 U.S. companies.

Griffiths also offered comments on China’s Vice President Xi Jinping’s recent visit to the U.S. Xi visited Iowa, attended a Lakers game in California and a Chinese language class at a local L.A. school. The care and attention paid on both sides to ensure a smooth visit is a good indication of the importance both countries place on the China-U.S. relationship, according to Griffiths.

Griffiths also introduced the leadership of different consular departments as a way to better inform the membership of their services.

Present at the briefing were Principal Commercial Officer William Brekke, who spoke about upcoming trade delegations, Political and Economic Section Chief Jim Mullinax and Dale Largent, Public Affairs Section Chief.

Consular Section Chief Kristin Hagerstrom highlighted a 40 percent increase in the number of visas processed by the consulate this year.

Agricultural Trade Office Director Keith Schneller and Bill Gannon, Regional Security Officer, also both provided an overview of the latest activities of their respective departments. Carola McGiffert, Senior Advisor to Assistant Secretary of State for East Asia & the Pacific, spoke on the State department’s 100,000 Strong Initiative and outlined the opportunities for U.S. companies to participate in the program. The 100,000 Strong Initiative, initiated by President Obama in 2009, seeks to give the next generation of American leaders a deeper understanding of China by supporting study abroad programs in China for 100,000 American students by 2014. (Mar. 6) Reporting by Caitlin Elling, Christine Francois, Matthew Garner, Susan Lawrence and Esther Young

april 2012

insight

49

executive reading room In this issue, in addition to sharing with you what executives are reading, we are revealing what members of our staff are enjoying.

Lorna Davis, SVP, Global Biscuits Category, Kraft Foods Book: Mandela’s Way: Fifteen

by Richard Stengel

Lessons on Life, Love, and Courage

Remarks: “Not very deep, but worth a flick through, and am just about to start “Bomb, Book and Compass” by Simon Winchester, about the great ‘secrets of China’.”

Matthew Garner, Government Relations Associate, AmCham Shanghai Book: Future

Shock trilogy by Alvin Toffler

Remarks: “If you want to know what’s going on in the heads of China’s National Development and Reform Commission then read “The Third Wave” [second book]. I just finished “Powershift.”

It was okay but I would say the “Third Wave” is the standout of the trilogy.

Also recommends, We: Understanding

the Psychology of Romantic Love by Robert Johnson

Remarks: “It attempts to unravel the modern misconception of romantic love through the story of Tristan and Iseult from the Middle Ages with Jungian psychology. The idea of romantic love is a Western construct that has taken on religious aspects so the emphasis now is not on loving someone but being ‘in love’ with someone a-la Jungian projection.”

Kirt Greenburg, Small- and Medium-Sized Enterprise (SME) Center Associate Book:

Let the Great World Spin by Colum McCann

Remarks: “The book takes one particular day in New York City – the day in 1974 that Philippe Petit walked a tightrope between the Twin Towers of the World Trade Center – and weaves a tale of several different individuals (a judge, a priest, a prostitute among others) whose lives intertwine in the most unusual of ways. Each of the characters seems truly authentic, and McCann, with his words, paints an artful picture of humanity.”

Esther Young, Senior Associate Editor, Insight Book: Genghis

Khan by John Man

Remarks: “Man writes about the ascension and life of arguably the most famous Mongolian of all, interspacing it with his real life trek to visit the places Khan frequented. He has a lyrical and compelling way of writing about history, and his passion for his subject shines though. As a reader, I’m delighted. As a writer, I’m jealous.”

50

insight

april 2012

2012 Bundle Tickets on Sale!

We're keeping the feel-good vibe going!

Our Executive First Suites are designed to provide you with your own personal space. Ideal for a good night’s sleep, each Suite features a lie-at bed that fully reclines at the touch of a button while you remain seated. Together with a comfy pillow and duvet.

Choose two or three round-trip tickets in Executive First Class or Economy Class and travel to your favorite Canadian destinations.

Executive First Class Ticketing must be completed within 72 hours after reservations are made or at least 8 days before departure, whichever is earlier.

From Beijing/ Shanghai to

2 round-trip tickets for one traveler

3 round-trip tickets for one traveler

Vancouver

RMB 40000

RMB 54000

Calgary/ Edmonton/ Winnipeg/ Saskatoon

RMB 44000

RMB 59300

Toronto/ Ottawa/ Montreal

RMB 58800

RMB 78800

Halifax/ Charlottetown

RMB 61600

RMB 82400

From Beijing/ Shanghai to

2 round-trip tickets for one traveler

3 round-trip tickets for one traveler

Vancouver

RMB 8200

RMB 11400

Calgary/ Edmonton/ Winnipeg/ Saskatoon

RMB 9000

RMB 12500

Toronto/ Ottawa/ Montreal

RMB 9600

RMB 13500

Halifax/ Charlottetown

RMB 10600

RMB 14800

Economy Class Ticketing must be completed within 24 hours after reservations.

The special fares exclude applicable tax and airport fees. Terms and restrictions apply. Air Canada reserves the right of interpretation of this promotional message.

First Travel period: March 27, 2012 to December 31, 2012. Book today and save for your next trip!

Air Canada China Call Center 400 811 2001 www.aircanada.com/cn