Insight Magazine April 2013 Issue

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 2013

the Journal of the american Chamber of Commerce in shanghai

AMChAM ShANGhAI PReSIdeNT

Brenda Foster vP oF PRoGRAMS & SeRvICeS

scott Williams

vP oF AdMINISTRATIoN & FINANCe

F e at u r e s

14 Suzhou Sweet on Mister Softee

14

reGIONaL FOCus

By Jonathan Shyu

Ice cream trucks from the U.S. win a following in Suzhou and beyond.

helen ren dIReCToRS

BUSINeSS deveLoPMeNT & MARkeTING

Patsy Li

CoMMITTeeS

David Basmajian

17 Signs of Change

17

aNaLysIs

By John Russell and Trey McArver

XINhUA

stefanie myers INSIGhT edIToR-IN-ChIeF/ CoMMUNICATIoNS & PUBLICATIoNS

An analysis from two China exper ts examines what the policy changes in Beijing mean for bilateral relations and the Chinese economy.

eveNTS

Jessica Wu GoveRNMeNT ReLATIoNS & CSR

steven Chan

MeMBeRShIP & CvP

Linda X. Wang

INSIGhT MANAGING edIToR

Bryan Virasami SeNIoR ASSoCIATe edIToR

20 City on the Move

20

INterVIeW

By David Basmajian

The outspoken mayor of Chengdu shares his views on the city, investment and post-earthquake recovery.

erika Wang

SeNIoR CoMMUNICATIoNS ASSoCIATe

ryan Balis INTeRNS

deSIGN

alicia Beebe LAyoUT

tina tian

26 Green Ambition

26

COVer stOry

By Angela Doland

China is committed to the green energy sector but overcoming its dependence on fossil fuels may be an uphill battle.

PRINTING

mickey Zhou Snap Printing, Inc.

INSIGhT SPoNSoRShIP (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.

I N s I G h t s ta N D a r D s

5 News Briefs

44

11 Movers and Shakers

mONth IN PICtures

Highlights From Our Events

50

eXeCutIVe traVeLer

What’s Your Favorite Travel App?

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

40 41 46 47

From the Chair Board of Governors meeting Government relations event highlights CoveR ILLUSTRATIoN By TIAN ChI

IMAGINeChINA

James miller michelle tong

Editor's note

T

he natural environment is a politically charged issue in the U.S. and has been so for decades. Disagreements are fundamental and tops among them is whether the U.S. government should be in the business of promoting alternative energy.

But in China the government is fully committed to spending a lot of money on sources of new energy. At last month’s National People’s Congress, a budget was approved that increased funding for environmental protection by nearly 20 percent and it’s very likely some of that will go to supporting China’s green-tech industry.

For U.S. green-tech innovators like BostonPower and LP Amina, the debate back home is not discouraging them from getting into this promising sector.

But what is driving China’s “Green Ambition”? Is it an altruistic concern over the fate of the earth? Maintaining social stability threatened by poisonous smog and toxic drinking water? Or is it to dominate a new market? This month’s cover story focuses on

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

4

insight

april 2013

the business side of the green energy sector in China, the country’s unique challenges and how U.S. companies are faring.

Ge Honglin is very bullish on Chengdu, and he is not the only one. U.S. companies are swarming to this emerging commercial hub in China’s Sichuan province. From June 6–8 they’ll be joined by dozens of global business leaders, political stars and leading NGOs for Fortune magazine’s annual Global Forum.

Chengdu beat out Shanghai, Beijing and other major cities to host the forum, and in a one-onone Insight interview, Mayor Ge tells me why he thinks that is.

Mister Softee has arrived in Suzhou and they’re selling vanilla cones by the dozen. And while the little white trucks with the catchy jingle have already been copied by domestic competitors, the future is bright for this allAmerican summertime tradition. Insight talks to CEO Turner Sparks who tells us that local counterfeiters can’t compete with the original and why he chose Suzhou, and not Shanghai, to launch Mister Softee in China.

imaginechina

News

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

CHINA BUSINESS

China Mobile banks US$7b on 4G The world’s largest telecommunications carrier, China Mobile Ltd., said it is spending nearly US$7 billion this year to build its new fourth-generation network as part of a US$30 billion capital-expenditure budget that is up almost 50% from 2012. China Mobile’s investment plans offer new support for the 4G standard it will use, known as TD-LTE, currently less used than the FDD-LTE 4G standard commonly used in the U.S. According to China Mobile, the 4G technology offers 10 times bigger bandwidth and 10 times the transmission speed than its 3G predecessor. The operator said it plans to build more than 200,000 4G base stations. When completed, the network will be the largest of its kind worldwide, covering a population of more than 500 million.

Sanya to get world’s largest duty-free shop The world’s largest duty-free shop is set to open in a commercial complex that is expected to begin trial operations in 2014 in Sanya, a resort city on south China’s tourist island province of Hainan. Construction started on the 70,000-square-meter Sanya Haitang Bay International Shopping Mall in April 2012. According to the China Duty Free Group, the operator of the project, the project will combine the dutyfree shop with hotels, restaurants and entertainment venues and other services.

The International Travel Service Limited Group Corporation will invest RMB5 billion (US$805 million) in the project.

The province currently has two duty-free shops. One is located in the provincial capital of Haikou, and the other is in the

China’s billionaires on the rise More billionaires were listed on China’s stock exchanges than U.S. exchanges this year, with 212 compared with 211, respectively, according to the latest Hurun Global Rich List 2013. Compiled by Shanghai-based wealth magazine Hurun Report, the list included 1,453 people in the world with personal wealth of at least US$1 billion as of January 17. They had a combined fortune of US$5.5 trillion – the equivalent of China’s GDP. Asia was home to the highest number of billionaires, with 608, followed by 440 from North America and 324 from Europe.

Hong Kong real estate tycoon Li Ka-shing is Asia’s richest man and the seventh wealthiest person in the world with US$32 billion. Zong Qinghou, chairman and CEO of beverage giant Hangzhou Wahaha Group, ranked the wealthiest man on the Chinese mainland with US$13 billion. The U.S. and China led the list by country, with 409 and 317 billionaires, respectively, followed by Russia (88), Germany (61) and India (53). By cities, Moscow topped the list with 76 billionaires, followed by New York (70), Hong Kong (54), Beijing (41) and London (40).

Shanghai ranked seventh with 24 billionaires, while Shenzhen and Taipei tied at 10th place with 22 billionaires. Hurun Report estimates there are 4,000 billionaires in the world.

resort city of Sanya.

MOFCOM reports drop in FDI The Ministry of Commerce (MOFCOM)

APRIL 2 0 1 3

announced a 7.3% drop in FDI in China year-on-year, while newly approved foreign-invested enterprises amounted to 1,883 – up 34.3%. The MOFCOM data show that China’s actual use of foreign

insight

5

IT’S HERE!

The new China Business Report is out.

The report compiles the results of the Chamber’s annual Business Climate Survey. First launched in 1999, it’s one of the longest running surveys of American businesses in China, and provides a detailed and focused look into the current business environment for American companies.

See what the report says about the transitioning China market and find detailed figures about how American executives in China view the business environment here today and their outlook for the coming years.

To see the full report or to purchase a copy, visit www.amcham-shanghai.org.

investment in January 2013 was US$9.3 billion, a year-on-year decline of 7.3% (excluding data of banking, securities and insurance fields). MOFCOM also noted foreign investment in China has been declining for more than eight months. Still, according to the ministry, macroeconomic growth is expected for the rest of the year and should be an incentive for increased foreign investment.

Mechanical, electronic products top exports in 2012 China increased the value of its exports of mechanical and electronic products to US$1.18 trillion in 2012, according to data by the Ministry of Commerce (MOFCOM).

Exports of mechanical and electronic products reached more than 230 countries and regions in the world, snatching up 29.1% of market share in emerging economies and accounting for 57.6% of China’s total exports. The 8.7% year-on-year growth brought the global share achieved by products from China to 16.1% in the first 11 months of last year, up 0.9% from 2011.

The combined import and export volume of the products rose 6.7% year-on-year to US$1.96 trillion. Last year marked the 18th consecutive year in which the mechanical and electronic sector topped China’s exports in trade volume.

CORPORATE NEWS

Samsung beats Apple in China Samsung Electronics claimed the top retailer spot for the first time since it began selling smartphones in China in 2009.

According to market researcher Strategy Analytics, Samsung sold 30.06 million smartphones in China last year, up from 10.9 million units a year earlier. Samsung garnered a 17.7% market share, up 5.3% from 2011. Lenovo Group Ltd. came in second with 13.2% of market share while Apple Inc., in third, snatched 11%. Nokia, which controlled 30% of the market in 2011, fell to just over 3% control. Industry consultancy IDC estimates that a total of 460 million smartphones will be sold

annually in China by 2017.

Geely plans to grow investment Chinese carmaker Zhejiang Geely, which acquired Volvo in 2010, is planning to invest US$398 million for the construction of its largest powertrain manufacturing factory in Ningbo. According to the agreement reached between Geely and the Ningbo Hangzhou Bay New Area government, the project is slated to be finished by 2015. Once completed, the factory estimates output at 700,000 units of turbocharged engines and 300,000 units of advanced high-performance transmissions per year. In addition to the powertrain manufacturing facility, Geely has plans to build a Geely-Volvo China design and test center in Ningbo.

Yum! Brands rebounds Yum! Brands Inc., the parent company of KFC, has reported a 2% rise in February sales at established restaurants in China, its top market. February’s results were boosted by the timing of the Lunar New Year, the company said. Sales at stores open at least a year fell an estimated 20% in the first quarter, which includes January and February, though the results weren’t as bad as the 25% decline the company had projected. Company sales were hit late last year after reports of chemical residue found in a small portion of its chicken supply. In response, Yum! vowed to end ties with poultry suppliers that were tough to regulate and pledged to further tighten its food safety procedures.

MACROECONOMICS

China business activity slips Business activity in China continued to expand in February, though at a slower rate than in the previous month, according to the HSBC China Composite purchasing managers’ index. The index reading came in at 51.4 in February, down on January’s two-year high of 53.5. The

HSBC China Composite PMI covers both the manufacturing and services sectors.

A reading above 50 indicates expansion.

HSBC also released its China Services business activity index for February, which showed a read of 52.1, down from 54.0 in January. HSBC said it expected modest improvement of service sector growth in the coming months thanks to healthy labor market conditions and an ongoing recovery of manufacturing growth.

RMB global use reaches new high The Standard Chartered Renmibi Globalization Index, an index measuring the global use of China’s currency, recorded a new high in January, according to the bank.

The index was up 8.2% from December’s 748, reaching 809 in January, the bank said.

The figures suggest a strong, positive tone and a more broad-based index expansion throughout 2013, added the bank. By the end of 2013, the index is expected to reach 1,200. Launched in November 2012, the index covers the top-three markets for offshore RMB business: Hong Kong, London and Singapore. RMB payments in these markets all hit record highs as well.

Inflation reaches 10-month high February saw the largest increase in inflation in 10 months at 3.2%, up from 2% in January. Food prices in February rose 6% year-on-year. But analysts argued that the price growth was driven mainly by the Lunar New Year celebrations, traditionally associated with an increase in consumer spending. China set an inflation rate target of 3.5% or below for the current year, down from an earlier goal of 4%, at the National People’s Congress in early March, while the central bank has hinted at possible monetary tightening later in the year.

House prices continue to rise New home prices rose more steeply in more Chinese cities in February, according

APRIL 2 0 1 3

insight

7

to National Bureau of Statistics (NBS) data.

Of a statistical pool of 70 major Chinese cities recorded by the NBS, 66 cities saw home prices increase within 3.1% in February month-on-month. In January, 53 cities reported growth margins with no more than 2.2%. Year-on-year, 62 cities registered rising prices with growth rates up to 8.2%, compared with 4.7% recorded in January. In a bid to maintain property market stability, China’s Ministry of Land and Resources has ordered local planning authorities to speed up their reports on this year’s plans for residential land supplies for housing, local media reported.

U.S.-CHINA

Tencent Holdings to open U.S. office Shenzhen-based Tencent Holdings, China’s largest Internet company by market value, said it plans to establish a U.S. base later this year to develop its popular instant messaging service WeChat for the North American market. The Hong Kong-listed company said the U.S. office will be in charge of research and development for the U.S. market, as well as building and expanding partnerships with U.S. corporate clients. WeChat has more than 300 million users in China, and an additional 10 million worldwide. The app’s enormous popularity has led Tencent to look elsewhere for opportunities as the WeChat market becomes increasingly saturated in China, where the total number of mobile Internet users already reached 420 million by the end of 2012. Tencent is yet to announce the office’s location and scale.

China now top smart device market China has overtaken the U.S. as the world’s top market for tablets and smartphones running Apple’s iOS or Google’s Android operating system, according to a report by Flurry Analytics. In February, the U.S. had 230 million active smartphones and tablets, compared with 246 million in China. The UK ranked third largest market at a far

8

insight

lower 43 million devices. Year-on-year, compared to January 2012, the U.S. added 55 million new devices. However, during that same period, China added a staggering 150 million new devices. The report tracked more than 2.4 billion anonymous, aggregated application sessions per day across more than 275,000 applications around the world.

Suntech to shut U.S. plant Chinese solar panel maker Suntech Power Holdings Co. is closing its Arizona facility, its only U.S. manufacturing plant, in April. The Wuxi, Jiangsu provincebased company blamed the closure on higher production costs, U.S. tariffs on Chinese-made solar cells and aluminum frames, as well as a global oversupply.

In a statement, the company confirmed that all 43 employees at the Arizona plant would be laid off. Suntech has been hit hard by shrinking demand for its products since the European Union and the U.S. imposed anti-dumping and antisubsidy tariffs against it and other solarpanel makers last year. Located in the town of Goodyear, the location opened in October 2010.

GOVERNMENT & POLICY

China announces stricter property control The State Council announced on March 1 new measures to curb the housing market, including stricter implementation of an existing 20 percent capital gains tax on home sales, strengthening home-purchase restrictions and increasing loan rates for those buying a second home in cities where prices are rising too quickly. The new measures are designed to encourage renting over buying and dissuade purchasing homes as speculative investments.

However, economists have predicted a near-term spike in existing home prices, at least until local governments work out how to implement the changes. Pre-owned home sales in Beijing soared 280% yearon-year in the week of March 2–8, up 141%

april 2013

on the previous week, according to local government data.

China sets up US$167b railway company The Chinese government has approved the establishment of a national railway company with a registered capital of RMB1.04 trillion (US$167 billion). It will be a wholly state-owned enterprise supervised by the Ministry of Transport. The move comes after a decision by the top legislature to dissolve the country’s Ministry of Railways, now split into three entities, to revamp the troubled railway industry. The ministry had been facing mounting debt and allegations of corruption. At the end of the third quarter last year, total outstanding debt reached RMB2.7 trillion. Railway officials said the profits generated by the company’s operations will be used to pay off part of the debt.

Shanghai sets new license plate rules The average bid for new vehicle license plates in Shanghai hit US$13,445, prompting the local government to enact new laws and regulations concerning license plate prices.

In an effort to lower average prices and curb speculative trading, city officials set a new rule saying a second-hand Shanghai car plate will not be allowed to trade at a price higher than the new average. In addition to this new rule, officials also raised the minimum holding time before allowing resale of plates from one to three years. City revenue from license plate auctions hit just over US$1 billion in 2012.

Government to increase subsidies for green cars China will increase its subsidies in 2013 for energy-saving vehicles that run on alternative fuel sources. The subsidy policy will be fine-tuned with the introduction of a ranking system that measures the amount of energy a specific vehicle can save.

Vehicles with higher efficiency will likely

receive more subsidies, the government said. China rolled out measures to subsidize clean-energy cars for private buyers in 2010, but sales fell short of expectations due to high production costs. Sales of new-energy cars are expected to reach 500,000 units by the end of 2015. According to the China Association of Automobile Manufacturers, sales of new-energy cars last year totaled 12,791 units – almost double the number recorded in the previous year.

SHANGHAI BUSINESS

Huawei to build Shanghai center Chinese telecommunications company Huawei announced plans to build a new cloud computing center in Shanghai by the end of August. The announcement comes after IBM and Oracle revealed plans to do the same. Cloud computing allows users to access and edit data across various devices over the Internet.

Shenzhen-based Huawei plans to build

the new 6,500 square meter center in the Yangpu District, in efforts to broaden its market reach. Huawei is China’s largest telecommunications equipment maker, and last year controlled just under 10% of the smartphone market share.

Shanghai leads office worker salary rankings Shanghai has topped a white-collar worker salary list of China’s 24 largest cities, according to a report by Chinese online job advertising site Zhaopin.com. The city’s RMB7,112 monthly salary for whitecollar workers was ahead of Shenzhen’s RMB6,787 and Beijing’s RMB5,453.

The three highest paid industries in Shanghai were energy and mining (RMB9,711), automobile (RMB9,644) and petrochemicals (RMB9,218), according to the report. The highest paid industries in Shenzhen were telecommunications (RMB8,488), finance (RMB8,240) and energy and mining (RMB8,220), while

those in Beijing were telecommunications (RMB7,633), real estate (RMB7,095) and finance (RMB6,950).

Shanghai bank revenue rises to US$13b Shanghai Pudong Development Bank Co. Ltd. saw its annual revenue grow 22.14% year-on-year to RMB82.95 billion (US$13.38 billion) in 2012, according to the company’s annual report. Shareholders’ net profit increased 25.29% year-on-year to RMB34.19 billion, while the bad-loan ratio rose 0.14% to 0.58%. Bank insiders said 75% of the RMB3.1 billion in new bad loans was made to enterprises in Wenzhou, Zhejiang province, and 85% of the bad loans went to wholesale and manufacturing industries. The bank’s net profit growth rate in 2011 was 42.02%.

Bank officials said the slower growth rate was caused by several factors, including a bigger bad-loan ratio and a declining net interest margin caused by the central bank cutting interest rates.

CHINA & THE WORLD

SOUTH AMERICA ASIA-PACIFIC SIA PACIFIC

Australia: Chinese investment grows in manufacturing and retail More Chinese companies are investing in Australia’s manufacturing and retail industries, according to a recent study by HSBC. The study surveyed 250 Chinese firms in December. More than 52% of the firms that were invested in Australia had interests in manufacturing and 28% were in nonmining import/export industries, while mining took up 20%, the study showed. By comparison, mining attracted 80% of Chinese investment in Australia between 2006 and 2011, according to Australia’s Foreign Investment Review Board. China’s approved proposed investment in Australia totaled US$16.2 billion in the fiscal year ended June 2012. Australia ranks as the third highest international investment destination for mainland Chinese companies, after the U.S. and Singapore.

MIDDLE EAST

ASIA-PACIFIC SIA PACIFIC EUROPE

AFRICA

MOZAMBIQUE: Energy co. buys stake in natural gas field China National Petroleum Corp., the country’s largest state-owned energy company, has bought a 20% stake in natural gas project off the coast of southern Africa’s Mozambique for US$4.2 billion. The Area 4 prospect is Italian energy giant ENI’s largest gas discovery to date. The deal is subject to approval by authorities in Mozambique. It reduces ENI’s share of the estimated US$50 billion it will cost to develop the gas field. ENI retains 50% of the project. The other shareholders are Empresa Nacional de Hidrocarbonetos de Moçambique, which is government-controlled, Kogas of South Korea and Galp Energia of Portugal, each with a 10% stake.

MIDDLE EAST EUROPE

DENMARK: Lego to build China factory Danish toymaker Lego plans to build a factory next year in China to support its sales in Asia. In recent years, Lego has seen annual growth of more than 50% in the Asia-Pacific region and said it plans a “triple digit” investment in the factory. The world’s third largest toymaker announced plans to build the 120,000 square meter plant in Jiaxing, about 100 kilometers from Shanghai. The plant will employ more than 2,000 people and will be able to supply 80% of all Lego products sold in the region once fully operational in 2017, the company said. Previously, Lego products sold in Asia had been shipped from Europe and Mexico.

NORTH AMERICA MIDDLE EAST

AFRICA

ISRAEL: China Everbright to invest in technology sector China Everbright, the investment arm of state-owned China Everbright Group, said it plans to invest US$100 million to US$200 million in Israel’s technology sector. The company said it will pursue investments in Israeli companies in the fields of medicine, agriculture and clean-tech that have reached an advanced stage but still looking for rapid growth. It said it is close to signing its initial investment deals with two or three Israeli companies and also seeks to encourage joint ventures between both countries’ tech sectors. Hong Kong-listed China Everbright Ltd. has US$10 billion under its management, focused on finance, real estate and natural resources investments.

NORTH AMERICA

MIDDLE EAST SOUTH AMERICA AFRICA

UNITED STATES: China increases U.S. corn consumption China, the world’s second largest corn consumer after the U.S., increased import orders for U.S. corn to 600,000 tons since February. The U.S. is the world’s largest corn producer. The hike in orders comes from private animal feed mills in response to Chinese corn prices skyrocketing earlier this year. While Sinograin, the manager of China’s state corn reserves, continues to buy only domestic corn, it may increase import quotas after the domestic restocking program ends on April 30 and as Chinese corn prices continue to rise, analysts said. U.S. pre-tax corn prices were about 23% below domestic rates in the port city of Shenzhen in early March. China imported a record 5.2 million tons of corn last year.

AFRICA ASIA-PACIFIC SIA PACIFIC NORTH AMERICA

SOUTH AMERICA

NORTH SOUTHAMERICA AMERICA EUROPE

ASIA-PACIFIC SIA PACIFIC

SOUTH AMERICA ASIA-PACIFIC SIA PACIFIC

China to invest US$2b in Latin American investment fund The People’s Bank of China will invest US$2 billion to back Inter-American Development Bank (IADB) public and private sector projects in Latin America and the Caribbean, IADB announced. Up to US$500 million will be used to co-finance IADB public sector loans and up to US$1.5 billion will be used for private sector credit, available over the next three to six years. The goal of the fund is to alleviate poverty and boost competitiveness, Washington, D.C.-based IADB said in a news release.

China has invested tens of billions of dollars in the region over the last decade to acquire strategic assets or companies in sectors such as oil, minerals and food products.

10

insight

april 2013

Movers and shakers co M p i l e d b y j oyc e b i a n

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

Sichuan Swellfun james rice, who many know because of his five years' service on the Board of Governors of AmCham Shanghai, recently moved to Chengdu to become general manager of Sichuan Swellfun Co., Ltd., China’s fourth largest producer of the popular Chinese white spirit known as baijiu. Rice will be responsible for modernizing and professionalizing the company. He notes that the industry largely retains traditional Chinese culture and has had very little involvement from foreigners until recently. Rice is the only non-Chinese leader of a company listed on the Shanghai Stock Exchange.

James Rice

PRIVATE SECTOR ROCKWELL AUTOMATION Rockwell Automation appointed Tom O’Reilly president for Asia-Pacific in late February. He will be responsible for the company’s growth and performance strategy and growing market share in the Tom O'Reilly region. O’Reilly has 28 years of service with Rockwell Automation and has held senior leadership roles in Japan, Korea and China. He was most recently managing director for Greater China.

HSBC HSBC appointed Helen Wong deputy chairman of HSBC China in early March.

Wong will remain president and CEO of HSBC China. Wong has more than 25 years of commercial and investment Helen Wong banking experience in Greater China and the Asia-Pacific region. She joined HSBC in 1992 and was appointed president and CEO of HSBC China in June 2010.

MORGAN STANLEY Morgan Stanley appointed Anthony Mullineaux as head of Asia-Pacific finance late February. The appointment followed the departure of David Sutherland, former CFO for Asia-

Pacific. Mullineaux has been with Morgan Stanley in Europe and Asia for 19 years.

GOVERNMENT MINISTRY Of COMMERCE Gao Hucheng was appointed China’s new Minister of Commerce in March, replacing Chen Deming. Gao is known as a seasoned trade negotiation specialist.

He assumed the position of Vice Minister of Commerce in 2003 and was appointed Gao Hucheng as the Ministry’s international trade negotiation representative, a minister-level position, in 2010.

Xu Shaoshi

NATIONAL dEvELOpMENT ANd REfORM COMMISSION Xu Shaoshi was appointed party secretary of China’s National Development and Reform Commission in March. Xu was formerly Minister of Land and Resources and has also held positions at the State Council.

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

APRIL 2013

insight

11

M a n a g e r ’ s N ot e b o o k

Work and Stress

Managing work-related stress can improve your health David Wheeler

B y D r . D av i d W h e e l e r

S

tress Management has recently become a buzz word. And not surprisingly, more of us are succumbing to the pressures of work, work, work and more work with very little time for rest and play.

All business sectors are affected – healthcare, manufacturing, finance, insurance, media, marketing, etc. If you’re a businessperson, your stress levels have increased appreciably in the last two years, according to a recent survey (Regus.Com). And that means that your chances of contracting a debilitating illness or dying a premature death are higher than ever.

Stress has the potential to kill us because in times of stress the brain sends out signals that increase the levels of stress hormones circulating in our bodies. The biological purpose of those hormones is to give us the energy to run from (or fight) the wild beast that’s about to eat us. The problem is, apart from the time I saw a shark swimming near to me in Australia, I’ve never once felt like I was a lunchtime snack for a hungry carnivore. In other words, for the

Dr. David Wheeler is Director of Ps yc ho log y & W ell ne ss , Ca lip er Gr ea te r Ch ina . Fo r further inform ation on stress manage ment and we llb ein g pr og ram s co nt ac t him at: dwheeler@ca lipercorp. com.

12

insight

modern businessperson the flight or fight response is redundant (most of the time).

Nevertheless, if we are stressed, the stress hormones will still kick in. If the stress continues, those hormones will ultimately increase our susceptible to a variety of illnesses.

S o w h a t c a n w e d o ? We n e e d to manage our st ress . One way of managing stress is through “cognitive restructuring.” In other words, adopting the right attitude. Hans Selye, one of the founding researchers into stress said: “Adopting the right attitude can convert a negative stress into a positive one.” Let me give you an example of what Hans was talking about: For more than 20 years I worked for the Australian telecommunications corporation Telstra. I joined when I was 17 and worked my way up the corporate ladder. Along the way, I studied psychology and enrolled in a M BA pro g r am . Howe ve r, by t he m i d 9 0 s , Telst r a and ot he r g l ob a l telecommunication companies started to downsize and restructure. I realized that my career prospects with Telstra were limited. However, rather than dwell on the negative aspects of my future, I decided to do what I’d always wanted to do: study medical science. Now I’m one of the happiest workers in the world. I’m doing something I enjoy.

Several other methods of managing stress include deep breathing exercises – yoga, swimming, running, tennis – as exercise relaxes the muscles, utilizes the stress hormones and releases endorphins – the “feel happy” chemicals. If possible, stretch your muscles whenever you feel tense, and take a nap at lunchtime. If you don’t have the time for exercise or naps then utilize your commuting time – switch off your phone and if you travel by public transport close your eyes and relax.

If you can, commute by bicycle once or twice a week.

And try to reduce your caffeine intake because caffeine is a stimulant and if you have too much, the body reacts as if stressed. The point is this: the best way for you to achieve success or to remain successful is for you to reduce some of the stress in your life.

And just for the record, not all stress is bad stress. Good stress provides us with the motivation to complete various projects and activities, even though they may be difficult. Some examples of good stress are: graduating from university, giving birth and completing a successful sales campaign. Another example is the joy of giving. Therefore, on your way home this evening, buy your loved one a special gift, and you will experience some of the good stress of life. Good luck and see you in the decaffeinated café bar.

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

april 2013

INSIGHT The Journal of the American Chamber of Commerce in Shanghai

IT’S COMING! The Insight magazine iPad app is coming soon.

This brand-new app will include the same in-depth articles and news plus some special content found only on the app.

Stay tuned for more details on how you can enjoy this new service from AmCham Shanghai.

Regional focus B y J o n at h a n s h y u

Mister Softee is gaining popularity in Suzhou

Suzhou Sweet on Mister Softee Ice cream trucks from U.S. win a following in the YRD

I

f you happen to find yourself near a Mister Softee truck and suddenly become confused to see kiwi sundaes, red bean ice cream and milk tea floats on the menu, chances are you’re not in Brooklyn or on a street in downtown Philadelphia. You’re probably in Suzhou – one of the few cities in

14

insight

APRIL 2013

China to find the creamy soft ice cream that many find synonymous with hot summer days.

Thanks to two college roommates with an enterprising spirit, a growing number of Chinese are licking vanilla cones, eating sundaes and enjoying other sweet treats they buy from a truck window.

Turner Sparks, CEO of Mister Softee China, came to China in 2004 to teach English after graduating from the University of Miami. His roommate in Miami was Alex Conway, grandson of the founder of Mister Softee. The two worked together to launch a storefront shop and to bring the iconic truck to the streets of Suzhou.

Having no previous business experience, Sparks wanted to avoid the red tape that goes with launching a business in a big city so he settled for Suzhou – and the result has been sweet. “It would be easier to make mistakes in Suzhou than in Shanghai,” Sparks recalls thinking. “If our business did not initially perform well, there would be less criticism in Suzhou than in Shanghai. We started small, without a business plan to take over the world.”

Mister Softee is popular in the United States especially in the northeast where many may remember running after a white ice cream truck playing the signature jingle. The company has more than 350 franchise dealers worldwide operating more than 650 mobile vendors globally.

Sparks said they sold their first ice cream in 2007 in Suzhou.

Mister Softee has experienced five years of steady growth and after launching with just a single truck, Mister Softee in Suzhou now has 11, with more expected in 2013. On average, each truck sells more than 1,000 cones and other treats every day during the peak months in the spring – a higher number than in the U.S. Each treat goes for between RMB6 to RMB25, which Sparks says “does not price out most people, and is directed at the growing middle class in Suzhou and China in general.” Mister Softee also has one storefront on Shiquan Road in downtown Suzhou, situated right across the street from the Master of Nets Garden, a popular tourist destination.

Trucks are in operation 11 months out of the year, with sales spiking dramatically in March, April and May. “The moment the weather turns, people are eager to get outside and enjoy the

Turner Sparks, CEO, Mister Softee China

weather. Much like in the U.S., our truck and brand has become a symbol for summer time in Suzhou”, says Sparks. Sales stay consistent through October, and are always high on national holidays.

‘Blasts’ and milk tea Turner's Mister Softee ice cream trucks are made here, but they are designed and outfitted exactly the same as those in the U.S., complete with colorful images of ice cream on the sides.

Mister Softee has had to adjust its menu to include fewer American favorites to make room for more Chinese flavors such as kiwi sundaes, red bean ice cream and milk tea floats, as some 99.9 percent of customers are Chinese. In addition, Mister Softee has added “blasts” to the menu, which are similar to ice cream sundaes mixed with American favorites such as Oreo co ok ies and Snickers b ars. Howe ver, t he American classics still sell the best with the most popular product being the classic vanilla cone, with the chocolate dipped cone also selling very well.

“My opinion isn’t the most important in terms of taste. In the eyes of the customer, the product

APRIL 2013 insight

15

“

Mister Softee has had to adjust its menu to include fewer American favorites to make room for more Chinese flavors such as kiwi sundaes…”

needs to be upscale and f reshly made, dif fere nt i at i ng it s el f f rom convenience store ice cream. We don’t serve popsicles in China b e caus e t he y are to o ordinary to the consumer,” he says. “Our ice cream mix is made with imported milk.”

Mister Softee’s customers d o n o t f a l l i nt o o n e c ategor y but include school children, whitecollar businessmen and women, according to Tur ner. Their t r ucks routinely stop near factories and business parks on weekdays in order to attract the crowds of factory workers. “Our typical customer is a female under the age of 40,” says Sparks.

On weekends, tourists on weekend trips also enjoy their ice cream so they stop near popular tourist destinations such as Tiger Hill in the Suzhou New District, and sub municipalities of Suzhou including Changshu, Wujiang and Taicang.

Drivers also zigzag through neighborhoods known to have a sizeable expatriate children population mainly because of requests from American families. As always, the trucks play the popular Mister Softee jingle based on “The Whistler and his Dog,” which was originally recorded in 1960 by Les Waas.

Whether it’s a blessing or a curse, the people behind Mister Softee have learned quickly that selling ice cream here in a moving truck is no different than American Idol or the iPhone – it’s popular and quickly duplicated. There’s at least one company that sells ice cream out of moving trucks and conducts marketing nearly identical to Mister Softee with a similar menu of products.

16

insight

APRIL 2013

But Sparks says he doesn’t lose sleep over this.

“O t her t r ucks wil l replicate our logo pretty closely, which is t h e ore t i c a l l y i l l e g a l .

However, the impostor trucks have not gone as far as to copy our exact name,” says Sparks. He mentions that many of the copycat trucks have come and gone in the past year or so. “We are in the business for the long haul.”

american brand As Mister Softee is tightly tied to its American branding, it goes to great lengths to honor its brand in China by making it a point to use red, white and blue colors on trucks and in their marketing materials.

After years of steady growth, the company is searching for qualified franchisees in nearby cities such a Wuxi, Nanjing and Hangzhou, which are demographically similar to Suzhou. Sparks said he hopes to enter the Shanghai market and expects the franchise model to speed up growth, starting this year. “Using the franchise model, we can grow a lot quicker, as there are less growing pains for each franchisee.” In addition, the trucks are able to go where the demand is and still manage to return to their base within the same day.

In the end, Mister Softee may find that the China market can be a two-way street because certain items created for local customers may be tasty to the American palate. “Milk tea can do potentially well in the United States, and people in their 20s consider it fashionable,” he adds.

a n a ly s i s

By John Russell and tRey McaRveR

Signs of Change Two China experts examine the country’s recent leadership transition and what some of the decisions mean for the business world

C

hina’s annual “Two Sessions,” or lianghui, were held from March 3 to March 17. One of the key highlights of this once-in-adecade leadership transition was the appointment of new senior government officials, most notably Xi Jinping and Li Keqiang.

So far, the new administration has struck a populist tone, committed to continued gradual economic reform, displayed an increased focus on the environment and initiated a high-profile anticorruption campaign.

The National People’s Congress (NPC) is often

John Russell

criticized as a rubber stamp, but it does offer an annual opportunity to observe the government in action and take the temperature of China’s policy environment. With proper analysis, it affords companies important insights that should help guide business development and decision making.

Road signs for business The new leadership has given no indication that there will be political reform in the near term; however, there are signs that economic reform, including reform of state-owned

President Xi Jinping, right, and Premier Li Keiqang in Beijing last month

APRIL 2013 insight

17

Trey McArver

enterprises (SOE), will continue. The government has announced its intention to expand the role of market forces in the economy, while dividing SOE into “public interest” and “competitive” enterprises; the latter will increasingly be forced to fend for themselves in a more open marketplace. It will be important to monitor developments in these areas in the coming months as more detailed policies are put forth by the new administration.

More concretely, there are three clear trends resulting from the Two Sessions that will impact business: l Increasing regulatory oversight, especially with regards to environment and food safety l Increased consumption arising from urbanization l Proliferation of civil society organizations and NGOs

detailed regulations An increased focus on “ecological progress” was apparent throughout the Two Sessions and has become a political imperative. Following severe smog across eastern China this winter, both NPC delegates and the public used the Two Sessions as a platform to express their dissatisfaction. Nearly 1,000 NPC delegates voted against or abstained from nominating Zhou Shengxian to stay as Minister of Environmental Protection. When the results were announced there was a mix of booing and applause for the size of the negative vote. It has been over 20 years since such a display of opposition among the political establishment has been seen at the NPC. It would be surprising if the top leadership was blind to prevailing attitudes.

A tipping point seems to have been reached.

The challenges of remediation of “brown issues” – air, water and soil – will not be achieved by a “light touch” approach from governments. Local officials will increasingly be evaluated on measures of environmental stewardship, and business can expect more detailed, burdensome regulations coupled with stricter enforcement.

Increased energy costs are also a likely outcome.

For comp anies, an incre as e d fo c us by

18

insight

APRIL 2013

government and the public will translate to higher compliance costs and accelerated capital expenditures for equipment upgrades. Existing plants and facilities in coastal provinces and firsttier cities could have their continued license to operate (LTO) questioned. This is particularly relevant for Shanghai, where traditional industries are already under pressure. At the same time, environmental impact assessments for new facilities or expansions will become more onerous than in the past.

Food safety Prompted by a series of scandals in recent years, the NPC has authorized the creation of a new, ministerial-level body to oversee food a n d d r u g s a f e t y. T h e C h i n a F o o d a n d Drug Administration (CFDA) will affect the administration and regulatory oversight of the entire food chain from upstream agricultural sectors through production, logistics, packaging and specialty chemicals sectors all the way to hospitality industries and retailers. In addition to phar ma ceut ic a ls , t he CF DA w i l l have oversight over a range of other industries, such as cosmetics. Once the CFDA has worked out the details of restructuring, a steady drum-beat of policies and regulations can be expected.

urbanization and consumption Urbanization is at the heart of the country’s efforts to increase domestic consumption. With an estimated additional 380 million people moving into cities by 2030, urbanization will create a larger consumer base and increased consumer demand. Migration will be directed away from first-tier cities, with the government driving growth toward small- and medium-sized cities, particularly in central and western China.

High growth rates can be expected in these regions, and the relocation of certain industries and establishment of infrastructure in central and western China provide opportunities. For companies, this will impact the location of future production facilities and/or the adjustment of distribution channels.

social management This year’s work reports mentioned “social management” for the first time. The emergence of a vibrant civil society is seen as a key pillar of political reform, especially for curtailing corruption. Following a series of pilot programs in various provinces and cities, government reforms announced at the NPC will eas e registrations for civil society organizations (CSOs). Notably, international CSOs and those related to religious affairs and human rights will not be included in the reforms. While media coverage concentrated on the promotion of charities and CSOs that provide public services, this is only one dimension of the change. CSOs will be promoted across a variety of areas to promote social cohesion.

A proliferation of CSOs has the potential to have profound effects on business operations in China. This is especially so with respect to environmental oversight, consumer affairs and community relations for plants and facilities.

Aided by social media, business can expect heightened scrutiny from the public and CSOs and a concomitant rise of consumer activism.

The Two Sessions indicated policy priorities and directions for the coming year and beyond.

Urbanization and the growth of consumption will create opportunities, though companies will need to adopt their own “Go West” strategy if they are to obtain the optimal benefits. More detailed regulations that will increase government oversight and compliance costs, especially for environmental remediation and food safety, are anticipated. And the proliferation of local CSOs will potentially have a large impact on business operations. Businesses should take note of these important road signs and chart their course for business development accordingly.

John Russell is Managing Director and Trey McArver is Senior Consultant at North Head, a public affairs and strategic communications consultancy based in China that supports multinationals in the China market and Chinese companies expanding overseas.

2013 'TWO SESSIONS' IN SUMMARy the annual sessions of china’s legislature, the national People’s congress (nPc) and its top political advisory body, the chinese People’s Political consultative congress, (cPPcc) take place every March and are colloquially referred to as the “two sessions,” or lianghui. the lianghui is china’s most important political event of the year. at the sessions, the government: l sets economic priorities for the year, including targets for GDP growth, inflation, trade and Fdi growth. targets for 2013 are: l 7.5% GDP growth l 3.5% CPI growth l 8% growth in international trade l 1.7% growth in FDI l 15% growth in ODI l approves the central budget for the coming year l Total government spending (both central and local) will increase by 10% in 2013. Of central government expenditures, those for healthcare (+27%) and environmental protection (+19%) will grow the fastest. l Passes major legislation and sets the legislative agenda for the coming year l Major legislation planned for the coming year includes amendments to the Environmental Protection Law and Land Administration Law. Every five years, the lianghui takes on special significance, as the chinese government undertakes government and administrative reforms and elects top state officials. The 2013 meetings confirmed the

transition of the 5th generation leadership, including: l the election of top state leaders, including president, vice president and head of the nPc. l President: Xi Jinping l Vice president: Li Yuanchao l NPC chairman: Zhang Dejiang l election of china’s state council, including premier and vice premiers l Premier: Li Keqiang l Vice premiers: Zhang Gaoli, Liu Yandong,Wang Yang and Ma Kai l Appointment of officials at the ministerial level. in 2013, 10 of china’s 25 ministries and commissions received new heads. notable new appointees are: l Chairman of the National Development and Reform Commission: Xu Shaoshi l Minister of Finance: Lou Jiwei l Minister of Commerce: Gao Hucheng l announcement of a government reform plan that will reduce administrative procedures l administrative reforms that reduced china’s ministries and commissions from 27 to 25. notable changes are: l The Ministry of Railways was dissolved. Its regulatory functions will be taken over by the Ministry of Transport, while the newly created China Rail Corporation will take over operations. l Creation of the ministerial-level China Food and Drug Administration to oversee food and drug safety l Merger of the Ministry of Health and the National Population and Family Planning Commission

APRIL 2013 insight

19

inteRvieW B y d av i d B a s M a J i a n

City on the Move Ge Honglin, mayor of Chengdu, discusses his city’s vibrant economy and his relationship with foreign companies

David Basmajian, director of communications and publications at AmCham Shanghai, interviews Chengdu Mayor Ge Hongling

F

ortune magazine’s 2013 Global Forum will be held June 6-8 in Chengdu, the capital of western China’s fast growing Sichuan province. The exclusive, invitation-only event will attract luminaries from all over the world. Some of these include Jeffrey Immelt, CEO of GE, JP Morgan Chase’s Jamie Dimon, Coca-Cola’s CEO Mukhtar Kent, the Chairman of China’s Baosteel Xu Lejiang and Broad Air’s Zhang Yue, all of whom are competing for business in China’s growing market.

Forum attendees will discuss pressing issues such as the importance of sustainable development, how to drive innovation and technology, and China’s global role in the 21st century. But the spotlight will also shine on the city of Chengdu itself and Ge Honglin, mayor of Chengdu since 2003, who will be there to tell the story. Chengdu is top among second tier cities in terms of GDP growth, industrial production and import-export volumes. But it’s not all about the raw numbers, according to Ge.

20

insight

APRIL 2013

Chengdu has made real attempts to address the yawning gap between its rural and urban citizens, improved government services used by the general public and streamlined the investment approval processes for companies. The Mayor himself solicits feedback from foreign investors on a regular basis and the city has made efforts to build up the city’s selection of international schools, hotels and restaurants.

The following is an excerpt from Insight’s interview with Mayor Ge who tells us more about his work and what makes Chengdu a special place to live and work.

Insight: In June, Chengdu will host the 2013 Fortune Global Forum. There were other Chinese cities considered, why do you think Chengdu was chosen?

Mayor Ge Honglin: “I think people want to see the result of 10 years of China’s Go West Campaign. A lot of multinational corporations and entrepreneurs believe in the future of China’s

economic development and that western China will play a very important role moving forward.

They also want to come to see the reconstruction after the Wenchuan earthquake and how, after the earthquake and the global financial crisis, the development of the city has not slowed down.

They also want to come to Chengdu to see how the city is addressing an issue that many other developing countries are facing – the relationship between the countryside and the downtown. This includes some of the advanced or well-developed cities in China. Even if they are quite advanced, for many the gap between the city and rural areas is quite large.

“The Fortune Global Forum in 2013 (a yearly, invite-only business conference held by Fortune magazine) will be held in Chengdu and this will give global leaders an opportunity to witness the accomplishments of the Chinese government’s Western Region Development Plan implemented over the past 10 years. They will also witness the important progress of China’s ongoing efforts to integrate and balance the development of urban and rural areas, and to witness the results of a Chinese interior city that has weathered the global financial crisis and accelerated the transformation of economic development. All these highlight the promising future of Chengdu.”

Insight: How has Chengdu addressed this challenge?

Ge: “We have developed a system to synchronize services provided to these two parts (city and rural), including education and medical care. So for example, if you take any point on the Chengdu map, I can assure you that the clinic service and also the schools there have not been left behind.

And even you walk on Chengdu’s streets, it is very difficult for you to find or see any beggars. Even if you find any or see any, they are surely not Chengdu people. This is the level we are at now.”

Insight: The Wenchuan earthquake happened in 2008. How has the reconstruction after the earthquake progressed?

Ge: The (post-earthquake) reconstruction has been finished completely. The infrastructure in the disaster area is all new. If we compare the infrastructure to Beijing and Shanghai, it is much better in the disaster area. You can travel deep into the counties (surrounding Chengdu) and you will find that the county roads, the water treatment plants and also the cultural facilities are quite

advanced. All the earthquake victims are now in apartments. Last year when (U.S.) Vice President Biden came to Chengdu, he was quite surprised by the progress.

“There are advantages to our socialistic society.

It is easier for the country to coordinate resources.

The provinces and cities can help each other like brothers and sisters. For example, the city of S h ang h ai s p e nt ab out R M B 1 0 bi l l i on t o reconstr uct Dujiang yan city. The central government paid for part of the reconstruction as well.”

Insight: AmCham Shanghai’s most recent business climate survey ranks Chengdu as the top secondtier city destination for investment. In fact, it’s been No. 1 for the past several years. Why is Chengdu so attractive to U.S. companies?

G e : “C he ngdu h a s a lw ay s b e e n a c it y of extraordinary innovation and vibrancy. Over the past few years, Chengdu has become more prominent in terms of its overall competitiveness and reputation. As of now, Chengdu has attracted 233 Fortune 500 companies, including Intel, Dell, Texas Instruments, Cisco and Volkswagen, and it has become the most competitive and influential region in midwest China.

“In recent years, Chengdu has effectively responded to events such as the 2008 Wenchuan earthquake and the global financial crisis by focusing on sustained social and economic development. At the end of 2012, the GDP of Chengdu ranked third in a list of 15 sub-provincial cities in China, only behind Guangzhou and Shenzhen. Chengdu ranked first among these cities in key economic indicators including GDP growth, the growth of large scale industrial production and the growth of import-export volume. Chengdu has been the No. 1 city in absorbing foreign direct investment and attracting fortune 500 companies.

“Under China’s Western Region Development Plan the growth of the western region has exceeded that of the eastern region for five consecutive years. Chengdu, as a mega city of the western region and a key engine of the Western Region Development Plan, will enjoy more favorable policies than cities in the eastern region for at least the next 10 years.

“In recent years, we have dedicated ourselves to fostering a business services environment that meets international standards. We’ve improved infrastructure in areas such as logistics, industrial

APRIL 2013 insight

21

“

Chengdu has always been a city of extraordinary innovation and vibrancy.”

– chengdu Mayor ge honglin

shutterstock

A view of Chengdu at night

parks, energy and financial services. We are also improving our hotels, international schools and international restaurants. Chengdu offers internationally leading government service.

Chengdu is one of the top cities of similar scale in (investment) approval simplification, approval efficiency and IPR (intellectual property rights) protection. We organize a quarterly meeting with foreign-invested companies to help them solve problems and difficulties in their day-to-day work.

We have had 52 meetings thus far. In this way, our government has established a supportive and winning relationship with the foreign business community here based on mutual trust.”

Insight: You introduced Chengdu’s smart city concept in an interview with Insight in 2010. How is it going and how is it helping to address issues faced by Chengdu?

Ge: “Following a post-quake (2008 Wenchuan earthquake) relief project we jointly carried out with Cisco Systems, Cisco and Chengdu started projects to build an intelligent and interconne c te d cit y and cloud system in Chengdu. The projects provided a small-scale model for an intelligent and interconnected city and enabled video conferencing within governments at the municipal, district and

22

insight

APRIL 2013

county level and enhanced our ability to provide public services. This year, we will expand our video cloud project from the government services sector to healthcare, education and industrial parks.

“Chengdu is the front runner in China in recognizing the importance of building smart cities. We were the first to introduce a pork product safety tracing system utilizing the Internet of Things. Currently, we are making plans for the development of the Internet of Things in C hengdu a long wit h guidelines t hat wi l l encourage cloud computing projects in our city.”

Insight: What else should the world know about Chengdu and its people other than its popularity as an investment destination?

Ge: “Chengdu is also known for its historical heritage, thousands of years of history and a city spirit of harmony and tolerance, pragmatism and innovation. It has abundant natural resources such as the pandas, the Dujiangyan project that’s accredited as a (UNESCO) World Heritage Site, the Xiling Snow Mountain known as the ‘Alps of the East,’ the Sichuan opera, spicy food, hot pot, tea and more. Chengdu’s leisurely lifestyle, ethnic culture mingled with modern civilization, makes the city a uniquely charming place.”

China business b y r ya n b a l i s

Opportunities in a Transitioning Market

C

hina remained a bright spot for U.S. companies in 2012, according to results from AmCham Shang hai’s 2012–2013 China Business Report.

In 2012, U.S. companies in China continued to report strong financial performance and rank China as a top global investment destination. But for the second year in a row American businesses experienced a dip in year-on-year performance indicators.

To begin with, 73 percent of companies surveyed said their China operations were profitable, declining from 78 percent the year before. Approximately 8 percent of companies reported “very profitable” performance in 2012, down 5 percent from 2011.

Similarly, the number of companies that reported they achieved some revenue growth over the previous year dropped nine percentage points to 71 percent; 16 percent of companies said their

revenue decreased from the previous year – double the number from 2011. Finally, those companies achieving operating margin growth over 2011 levels fell to 48 percent, edging down from 51 percent a year ago.

AmCham Shanghai released the report on Februar y 28 at the Four Seasons Hotel in Shanghai during a luncheon event where 200 people attended. The program included a presentation and panel discussion followed by a media roundtable with more than two dozen foreign and Chinese reporters.

A leveling off in performance reflects stubborn business challenges and a Chinese economy slowed by its ongoing transition from export- and investment-led expansion to one sustained by consumption and services.

“We should no longer expect China’s economy to grow at the same double-digit rates of years past,” said Brenda Foster, president of AmCham Shanghai. “Yet, as the Chinese economy continues

april 2013

insight

23

AmCham Shanghai’s China Business Report says U.S. companies optimistic despite a slowing China economy

Survey: YRD Faces Similar Challenges U.S. companies continue to expand aggressively outside Shanghai into the Yangtze River Delta (YRD) to tap business opportunities but they often run up against certain challenges, said a panel of industry experts AmCham Shanghai convened to discuss findings in the 2012 China Business Climate Survey.

Kent Kedl, managing director, Greater China and North Asia at Control Risks, presented the YRD-specific findings that were published in the 2012–2013 China Business Report. He said U.S. companies in the YRD reported a rise in profit, revenue and operating margins in 2012.

Moreover, 78 percent with a YRD presence said they are optimistic about their future business prospects.

Michael Hicks, managing director, Cintas Corporation, and a panelist at the event, attributed U.S. companies’ positive gains in the YRD and optimism “to the workers and the progressive thinking that exists here.”

Despite rising profits and an optimistic business environment, the top challenges U.S. companies in the YRD face are HR constraints and an unclear regulatory environment. According to the survey, 47 percent of U.S. companies in the YDR cited HR constraints as the top challenge, and 24 percent ranked an unclear regulatory environment as the top regulatory challenge.

Pablo Venegas, an admissions advisor for the Executive MBA Program at Hult International Business School, attended the event and offered a way for companies to combat growing HR constraints and “secure talent for several years” by “using extra incentives like corporate training or sponsoring post-graduate studies as retention tools to reward and generate loyalty among talented people who think out of the box.”

Increasing competition from local Chinese companies is presenting new challenges and opportunities for companies in the YRD, according to the panelists. While increasing competition is driving up operational costs and causing firms to eye lower cost regions, companies based in the YRD are finding ways to succeed despite the challenges. They said they are viewing the challenges as a cost of doing business and weighing them against the opportunities. “Because of the market here, we’re staying,” noted Kedl.

– James Miller

its transition to what we expect to be a healthier and more sustainable growth rate focused on consumption and services, the China market offers American businesses tremendous opportunity.”

This year’s Business Climate Survey was conducted online in November 2012 and was sent to AmCham Shanghai corporate members, all of whom are U.S.-based companies with operations in China. A total of 420 companies participated, a survey record.

Challenges continue U.S. companies face numerous, well-publicized challenges in the China market, including

24

insight

april 2013

business challenges and those related to policy and regulatory constraints.

For the second consecutive year, rising costs were the top business challenge that U.S. companies are grappling with in China. Nearly 92 percent of companies surveyed said rising costs were a challenge, and 60 percent of those surveyed think the issue of increasing costs as a challenge is getting worse.

Companies ranked HR constraints their second greatest challenge (89 percent), continuing what has been identified as a persistent issue over the past 10 years of the survey. While 54 percent of companies think HR issues have not changed, more than 24 percent think the problem is getting worse.

The leading regulatory challenges in 2012 remained unchanged from those in 2011, with bureaucracy (81 percent), an unclear regulatory environment (75 percent) and tax administration (73 percent) leading the list of hindrances. Similar to last year, the vast majority of companies felt each of these issues had not improved over the previous year.

“China is a tough place to do business, it always has been, and this year’s survey results quantify that,” said Kent Kedl, managing director, Greater China and North Asia, at Control Risks which produced the report in partnership with AmCham Shanghai. “While challenges like rising costs, talent shortages and increasing domestic competition are manageable, regulatory and policy challenges that may unfairly impact the competitive environment in China have the potential to make continued investment and organic expansion a more significant challenge for U.S. companies to overcome,” he said.

China market China remained a global strategic priority for U.S. companies in 2012. Survey results indicate that U.S. companies are adjusting to China’s transitioning market, having largely moved away from the low-cost export model that once drove U.S. business strategies in China.

Nearly two-thirds of companies surveyed said they are in China to compete in the growing

domestic market which is driven by steadily increasing household income, which grew by n e a r l y 1 0 p e r c e nt i n 2 0 1 2 , a n d s p i k i n g consumption projected by McKinsey & Co. to triple within the next 20 years.

China ranks as the top investment destination for more than one-fifth of companies in this year’s survey, and 54 percent rate it a top three investment priority. A near majority state they plan to make additional global investment inside China. A record 91 percent report an “optimistic” or “slightly optimistic” outlook for their five-year business prospects in China, a number that has scarcely dropped over the past several years.

Companies are implementing a number of strategies to access the growing China market while addressing key business challenges, such as

rising costs, talent shortages and an intensifying competitive environment.

“To be in China for China you need to be able to make decisions globally, you need to be able to create products and solutions sold globally and you need to do that here,” said Russell Scoular, regional director, Governmental Affairs, Asia Pacific and Africa, Ford Motor Company, who sat on the AmCham Shanghai panel.

Jenny Wang, the China president at TE Connectivity who also sat on panel, said that although there are challenges, the China market offers opportunities looking ahead. “This is the place we need to continue to invest, continue to look for opportunities where we can really raise our shareholder’s value and their anticipation costs,” she said.

To download a PDF of the 2012–2013 China Business Report and a report infographic, go to www.amcham-shanghai.org/publications.

april 2013

insight

25

GREEN AMBITION China is committed to its green energy sector – and Western investors and innovators are eyeing the market – although it’s often difficult to see through the smog The Donghai Bridge Wind Farm in the outskirts of Shanghai

BY AngelA DolAnD

D

riving from central Shanghai to the city’s southeastern coast in Pudong, the skyscrapers give way to dilapidated wooden houses with vegetable plots out back. Along the road, a golf course appears, followed by a pristine-looking forest, and then an even more surprising sight: a scattering of wind turbines, rising out of swampland and stretching into the East China Sea. The offshore farm, with 34 existing turbines and 26 more on the way, was China’s first when it began operation in 2010. Since then the country has built a second offshore site. Presently, the Campaign photos

26

insight

APRIL 2013

U.S. has no offshore wind farms.

It’s a clear image of how much effort China and its government are putting on green technology – and yet, on too many days, air pollution fills the vista, and the turbines fade into smog.

China’s energy problems often seem insurmountable, and as the world’s second largest economy, everything here seems to be done on a grand scale. Today, China is the world’s largest energy consumer and biggest polluter, and last December it overtook the U.S. to become the biggest importer of oil. China has relied largely on cheap and abundant coal – accounting for 70 percent of the energy mix – to fuel its economic boom. Though car ownership

imagineChina

c o v e R s to R Y

imagineChina

world’s investment in clean energy dropped 11 percent in 2012 compared to the year earlier, China was a bright spot, with investment up 20 percent to a record US$67.7 billion, according to Bloomberg New Energy Finance. More and more Western clean-tech innovators are looking to China for opportunity, despite the challenges of competing with local firms.

Practical view

imagineChina

“As long as countries like China keep going all-in on clean energy, so must we,” President Obama said during his State of the Union address, pledging to fight climate change with or without Congress support.

China’s green energy landscape differs from the U.S. in many ways: Foremost is that in China, there’s no movement denying

imagineChina

Beijing’s poor air quality has forced many to take special measures.

in China is still in its infancy, some 240 million cars are on the road today, and the number is expected to continue soaring with the rise of the middle class.

Since energy consumption is rising fast as China powers ever more factories, gains in renewable energy are likely to be drowned out by a need to draw on fossil fuels to meet demand.

The costs of China’s quick rise became painfully clear in January in Beijing, when levels of small, particularly damaging air pollution particles topped 700 micrograms per cubic meter – a level 28 times what is considered safe by the World Health Organization. A recent Bloomberg news article put the problem in perspective: Living in Beijing is like living in an airport smoking lounge, it said, quoting a 2012 U.S. Centers for Disease Control and Prevention study.

Despite the size of the challenge, the government is moving ahead with plans to go greener, with trillions of RMB of projects planned for the Five-Year Plan that ends in 2015. While the

A jogger wears a mask

APRIL 2013 insight

27

“

China has been successful at getting its technologies to international markets – so successful that the situation has provoked massive trade tensions with the United States…”

climate change.

Peggy Liu, co-founder of Joint U.S.-China Collaboration on Clean Energy (JUCCCE), a non-profit promoting the greening of China, says environmental issues are less abstract to people in China, since they’re used to seeing smoggy skies and water in odd colors streaming from the tap.

“The way that China views it is much more practical (than in

the U.S.) – they don’t couch it in terms of climate change or polar bears,” says Liu, a former venture capitalist whose group trains mayors on ways to build sustainable cities.

The Chinese method of attacking the problem is orderly and practical, Liu says.

China has set numerical targets for reducing pollution levels as part of its 12th Five-Year Plan from 2011–2015. For example, China says it will reduce its carbon emissions per GDP unit by 17 percent over that period and cut general energy consumption per

Sinovel Wind group Co. has been accused of stealing technology from a u.S. company.

FeDex: SAving Fuel To SAve The environmenT 2010 in shanghai, the Chinese metropolis of the future, and landed in memphis, tennessee where Fedex is headquartered. it was great symbolism, but not only that.

Before then, the old mD-11 models had always stopped along the route in anchorage, alaska, to refuel, adding two hours to the journey and burning fuel on an extra takeoff and landing.

Jimmy Chen, regional vice president for domestic service, Fedex China

When FedEx started replacing its older fleet of cargo planes with bigger, more fuel-efficient models, Shanghai had a starring role in the inaugural flight. the transporter’s new Boeing 777 freighter took off in January

28

insight

APRIL 2013

“it really has been a triple-win solution for us: for our customers, and the environment, and also for the company financially,” said Jimmy Chen, the company’s regional vice president for domestic service in China, in an interview in his office overlooking Shanghai’s former French Concession. The 777s are 18 percent more fuel efficient than their predecessors, while also boasting a larger payload, he said.

Fedex’s environmental decisions make a bigger impact than most. the company is one of the world’s largest express

c o v e R s to R Y

GDP unit by 16 percent. The U.S., by contrast, doesn’t have declared numerical targets.

China has pilot cities for electric vehicles, smart grids and LED street lamps, and their numbers are constantly being expanded, Liu says. The government’s previous fiveyear plan focused on cutting Peggy liu energy use at the top 1,000 state-owned enterprises; this time, the focus has shifted onto the next 1,000. The Xi Jinping era should not differ much from the previous path.

Liu, while acknowledging China’s vast problems of water, soil and air pollution, said the government’s targets show “leadership and vision.”

“And even if they’re slightly off, I think they still get huge kudos for setting numerical targets for the country as a whole,” Liu said in an interview in her office off Nanjing Road in Shanghai.

Of course, the government’s efforts are not only improving the environment, as China is likely to become a global leader in the

transportation companies, delivering more than 9 million packages a day and serving more than 220 countries and territories. it’s exceeding its own green goals. in 2008, it set a target to cut its carbon emissions intensity and improve fuel efficiency by 20 percent by 2020 compared to 2005 levels. Fedex found it was nearing its goal way ahead of schedule, so in 2012 it pushed its emissions target even further to 30 percent. the company has 364 hybrid vehicles and 118 electric ones around the world. none of them are in China. Chen says the company is still evaluating potential partners for such programs. in the meantime, Fedex drivers in China and many other countries are learning fuel-saving basics through a program called eco-Drive.

industry. Chinese manufacturing has benefitted in the process.

Jim Mahoney, an adviser for Western clean-tech firms in China for six years, says that the U.S., by contrast, “has not kept pace and has had conflicting signals over the years as to when and how clean-tech areas will be supported.

“There is a healthy debate as to what extent state-sponsored investment should be used,” says Mahoney, director of clean tech investments at Lund Advisors Chengdu. “The U.S. has had some embarrassing failures to many clean tech firms they backed, while many projects in China are questioned as to whether they are indeed fostering and developing clean tech or simply creating more capacity and jobs.”

tech tensions China has been successful at getting its technologies to international markets – so successful that the situation has provoked massive trade tensions with the United States and the European Union. In the United States, solar panel makers including taxpayer-supported Solyndra went bankrupt amid competition from Chinese companies that offered cheaper products.

“

it really has been a triple-win solution for us: for our customers, and the environment, and also for the company financially,” – Jimmy chen, Fedex regional vice president for domestic service, china

“it’s a simple set of tips – don’t leave your engine on if you’re not moving, when you start always start slow, don’t press on the gas pedal as if you were racing,” said Chen, who has tried it. the program typically saves between 10 to 15 percent of fuel consumption, Chen said, “and that’s quite a lot considering that we have over 2,000 vehicles operating in China.”

APRIL 2013 insight

29

that it was moving an equipment plant from Europe to China, where costs are lower and the industry’s future looks more positive.

A bright spot Even companies not primarily associated with clean tech have found opportunities in China.

A subsidiary of Caterpillar Inc., the maker of heavy construction vehicles and mining equipment, found a way to take heavily polluting coke-oven gas – a byA Boston-Power battery. The company makes various types of product of steel production – by cleaning batteries for electric cars. it, and converting it into electricity and steam, said Brian X. Sun, director of Caterpillar’s Product Development & The United States put anti-dumping and anti-subsidy Global Technology Division. tariffs on such products last year, and the European Union also “Since we can use it to generate electricity, it’s win-win, and launched an anti-dumping case. Now, Chinese solar panels are it’s become a very good business,” Sun said in an interview in piling up unused, and the local industry is bracing for many his office at an eco-friendly R&D center in Wuxi. The building companies to go out of business or get bought up. In March, the was certified under the exacting environmental building main subsidiary of China’s Suntech Power, a major solar panel standard called LEED Gold. More than 60 percent of the materials manufacturer, declared bankruptcy. used in the building are recycled, sunshine provides much of Amid all the international competition, the Chinese and the light, and rainwater is used in the sanitation system and to U.S. clean-tech industries have developed different strengths. water the grass.

As in many industries, the Chinese tend to do better in aspects Caterpillar has another profitable eco-friendly business in of supply chain, assembly and mass production of components China: remanufacturing old engines. One model, a track-type and finished goods, said Mahoney, while the U.S. firms are more tractor, can be remanufactured three times over several decades successful at innovation and R&D. and still work like new, Sun says.

Despite China’s strength in the field, there are still areas where Of course, there are caveats for companies working in Western technologies have a role to play in the Chinese maret – China – notably, intellectual property issues, as witnessed by a and U.S. companies are seizing the opportunity. legal struggle surrounding American Superconductor Corp.’s For example, a Massachusetts company, Boston-Power, Inc. is accusations that China’s Sinovel Wind Group Co. stole its constructing a factory near Shanghai to make batteries for electric technology. The U.S. company has pursued four separate lawsuits cars. One of its customers is the electric vehicle arm of Chinese against Sinovel, once its largest customer. car manufacturer B.A.I.C. In 2011, Boston-Power announced it Mahoney, the China-based clean-tech adviser, says U.S. had won US$125 million in funding from a mix of private equity providers looking to compete in China also need to have solid investment and government support from China. relationships in the country’s supply chains, local distribution Silicon Valley’s Applied Materials, Inc. in 2009 opened a channels and decision-maker circles.

US$250 million center in Xi’an that it billed as the world’s largest “Even then, hurdles remain, such as the subsidy, land and tax non-governmental solar energy research facility. Hit by the more incentives for local Chinese firms,” said Mahoney, who wrote recent troubles in the solar industry, the company said last year a report for the Kachan & Co. clean-tech research firm about

30

insight

APRIL 2013

c o v e R s to R Y

Brian x. Sun, director of Caterpillar’s Product Development & global Technology Division.

cooperation in China.

Sometimes the Chinese government has stepped in to reconfigure the playing field. Amid the push for more state-run wind farms in China, for example, China changed the bidding requirements, stipulating that more turbine components had to be made locally.

Of course, Chinese companies in the United States face some obstacles as well. In September, citing issues of national security, President Obama blocked a deal that would have seen a Chinese company, Ralls Corp., take ownership of wind farms near a Navy base in Oregon. Also because of security concerns, China’s Wanxiang Group had to clear a U.S. federal review before it could buy the assets of A123 Systems, Inc., the bankrupt electric-car battery maker that had been assisted with government funds.

the coal reality Despite all China’s alternative energy progress, and despite the government’s real commitment on the issue, coal remains the main energy story in China with few signs it will fade.

The country now burns almost as much coal as the rest of the world combined, according to data from the U.S. Energy Information Agency. Today, coal accounts for 70 percent of China’s energy mix.

“I believe for the next 20 years, coal will still be the primary source of energy including power,” said Junda Lin, senior research analyst with the China Greentech Initiative, a community of Chinese and international companies working toward solutions for China’s energy, water and environmental needs. “For Chinese government strategy, they still need to rely on coal for national energy security.”

As the government promotes non-fossil energy – which it hopes to boost from 8.3 percent of consumption in 2010 to 11.4 percent in 2015 – it is also planning a tax on carbon dioxide emissions, according to the state-owned Xinhua news agency, though details on how big it would be and how it would work have not been announced.

Another question mark: China is believed to have vast reserves of shale gas, which has been a game-changer in the U.S. and which some believe is cleaner than coal. But given various

APRIL 2013 insight

31

environmental and commercial challenges, Lin forecasts that there will be no meaningful production in the next decade.

In the meantime, there are efforts to make coal-fired plants

FACTS AT A glAnCe

755

– Level of air pollution reached on the Air Quality Index (AQI) in Beijing on January 12

“

301

– AQI level considered hazardous by the U.S. Environmental Protection Agency

The country now burns almost as much coal as the rest of the world combined…”

50 240 million

– maximum AQI level considered “good”

– total number of automobiles on the road in China, according to the Ministry of Public Security

cleaner. The government has been shutting down smaller, outdated coal plants as it builds larger, more efficient ones. In December, China’s state-owned Huaneng Group launched an innovative clean coal plant in Tianjin that converts coal into gas before it burns, cutting down on pollution. The goal down the line is to capture and sequester its carbon dioxide emissions.

Working to improve coal-fired plants may not be the most glamorous clean tech opportunity in China, but it’s a priority for China’s government, and there’s a huge need that Western firms are helping fill.

American Will Latta founded LP Amina, which provides Chinese coal-fired power plants with technology to cut emissions of harmful nitrogen oxide gas. Now, the Charlotte, North Carolina-based company has completed 15 projects in China, and it’s working on at least 15 more. Its engineers also pioneered a new, less costly and more efficient technique for sorting coal particles before they are burned.

After installing the new coal-classifying technique at two plants in China, the company is discussing opportunities with utilities in the U.S., South Korea and Colombia, said Jamyan Dudka, the company’s marketing manager.

“Things get done in China much more quickly,” said Dudka, “and the cost of trying things here is much cheaper.”

32

insight

APRIL 2013

– number of new cars

47 percent

– China’s share of global coal consumption, according to the U.S. Energy Information Administration

8.4 percent

– Share of Chinese primary energy use produced by non-fossil fuels in 2010

11.4 percent

– China’s goal for non-fossil fuels’ share of energy use by the close of 2015

shutterstoCk

Angela Doland is a freelance writer based in Shanghai.

15.1 million

on the road in 2012

c o v e R s to R Y

Whose Job is it?

Confusion and lack of education lead to spotty recycling in offices across Shanghai

BY MeReDith RoDRiguez

M

ost people tend to believe recycling is good for the environment but in Shanghai, there seems to be more questions than answers about how to properly recycle.

Even among multinationals, a wellmeaning recycling policy can easily get thrown out the door once recyclable items are handed over to cleaning workers.

Those in the know say that implementing recycling strategies at multinational companies in China requires a proactive strategy and organization at all levels of management. They also say that those serious about recycling must enlist the services of for-profit companies instead of government-run recycling channels. And a strong education campaign doesn’t hurt.

Only in China, for example, do the color-coded recycling bags sent into schools intended to educate and inspire the country’s young to sort their trash, mysteriously disappear. School ayis have been known to keep them for their personal use, according to coordinators at the nonprofit organization Roots and Shoots.

“They feel this is their job. That it’s of course their money,” said Megan Li, operations director at Shanghai Roots and Shoots. “In their mind, this is part of their salary.

The general public and the average office worker in China also tend to think that recycling is the ayi’s job or, the job of the elderly or the poor commonly seen rummaging through trash bins to make a few extra pennies.

APRIL 2013 insight

istoCkphoto

33

But appearance can be deceiving.

“There is actually a huge amount of recycling that happens.

You don’t see it,” said Alan Seigrist of The Executive Centre, Asia’s largest office service provider. “It’s sorted by private companies or individuals automatically. A lot of it is just automatic recycling, somewhere between 30 and 40 percent.”

overwhelming task Many in China do not trust the government-run recycling system, Li said, a system that is overloaded by the growing amount of trash in the city. Recycling systems in bigger cities like Shanghai and Beijing are more sophisticated than in other parts of China. Still, trash that may have been separated by conscientious citizens and then collected in separate bins by municipal waste trucks is often squeezed back together at a collection hub to save space and logistics costs, Li explains.

“It’s like WALL-E,” said Wei Yang of Shanghai Roots and Shoots, referring to the computer-animated robot in the 2008 Pixar film who crushes garbage into cubes on an abandoned Earth overrun by garbage. “We worked so much, but in the end it all goes to one bag.”

Multinational companies often automatically transfer their corporate recycling policies to China. Many, for example, automatically recycle ink cartridges or send them back to the manufacturer, according to Seigrist, who services offices across Asia and mainland China.

However, some otherwise conscientious companies ignore separating and recycling waste here. The Executive Centre employs sustainable practices beyond those of the average multinational, yet it still leaves waste separating to the government and those who sort through trash.

“Recyclable separation, I would argue, would not work very well in a country like China. It would require too much education,” Seigrist said. “Separating waste and the education behind it, is really best handled by the government. Otherwise I am just fighting an uphill battle trying to do it myself.”

Companies that do want to be more proactive about recycling must find and contract largely unregulated, private companies or individuals who recycle for a profit. As in many developing countries, recycling in China is implemented for the sake of income, with little weight given to the altruistic environmental benefits.

“You need to work with different organizations to receive

34

insight

APRIL 2013

these items,” said Grace Wan, business planning manager at Standard Chartered in Shanghai.

Standard Chartered has been able to implement a robust system, which integrates practice and education. They not only recycle and focus on Alan Seigrist of The executive Centre reduction of paper use and energy in their office but also encourage their staff to volunteer at local NGOs and educate their staff in small but effective sustainability practices, such as changing their laptop sleep settings.

The company also sends their retired, five-year-old laptops to impoverished children in rural areas across China.

Standard Chartered tracks how much paper each of their departments is ordering in order to discourage excessive printing and print double-sided, like most multinationals. By switching to electronic rather than paper statement deliveries, the company saved 6.8 million sheets of paper in 2012, which is equivalent to 814 trees, Wan said. They have even written a white paper detailing how corporate staff can reduce paper consumption in the office.

The bank took up this initiative through an environmental committee established in their Shanghai offices in 2010. However, even the environmental committee at Standard Chartered concluded that their energies are best spent on developing a culture of sustainability among their staff, rather than actual recycling. That includes recruiting staff to volunteer to teach children how to use their retired computers at IT labs or asking staff to turn off their lights and laptops for an hour as a reminder to take small steps toward sustainability.

“To be honest, the actual actions we take on recycling and energy saving are limited compared to educating a better culture difference,” Wan said. “We call it, ‘social responsibility.’ It covers a lot more other than recycling.”

The Executive Centre has also looked beyond daily sorting and recycling to target and fix a problem that is common in China – decorating and furnishing offices with cheap furniture or electronic products that must be thrown out every two years.

“Buying cheaply from an environmental perspective isn’t the greatest thing,” Seigrist said. “You have to think about the life cycle of the product. The longer that life cycle, the better it is for

c o v e R s to R Y

the environment.”

The Executive Centre does not look for the cheapest carpets they can find in China, for instance, but rather invests more money to buy 100 percent recyclable U.S. carpets.

Jones Lang LaSalle, a global real estate services firm, also spends its energy on reducing rather than recycling, but it focuses more on the systems within its offices.

“We typically target energy first. It’s your primary driver for greenhouse gases,” said Parker White, head of sustainability services at Jones Lang LaSalle. “Lights, electricity, elevators, air conditioning systems and even computers in the office building.”

The company often convinces its clients to turn down their air conditioners or make sure escalators run only when people are on them. It can usually convince them to implement these strategies by telling them how much money they might save and in how short a time.

“Most clients are happy to move forward with strategies which have payback periods of less than two years,” White said. “And there are many things you can do to a building that has payback periods of less than two years.”

Wan of Standard Chartered said that by altering the air conditioners of their offices in China by 2.5 degrees Celsius, they saved US$77,000 a year.

For sustainable practices that won’t help the bottom line, companies in China can become motivated by marketing, White said. By implementing recycling or water conservation initiatives, for example, a company can potentially become LEED certified, which might tip a client in its favor.

“People pursue certification because it’s a competitive market here,” White said. “Then everybody has to do it because you can’t be the only person who doesn’t. In China, people are very conscientious of competitive advantage.”

changing habits

Parker White is head of sustainability services at Jones lang laSalle

Even with the right initiatives, the challenge is to followthrough from beginning to end, leaders said.

“Most people stop after they’ve put the bins in place and contacted the recycling company,” White said. “They forget about how to inspire

megan li is operations director at Shanghai roots and Shoots

change within their organization. That’s a much trickier problem.

It’s education. It’s routine.”

For Standard Chartered, that means managers carefully overseeing that the office cleaners are sending the recycled items to the correct recycling agent and not just throwing recyclables into the nearest trash bin.

Roots and Shoots, which has programs to help offices and schools create more sustainable practices, depends more on private companies than government-run recycling system.

It has noticed that it is a challenge to convince employees at the companies that it works with to attend even a one-hour workshop. “A few companies receive our suggestions,” Li said.

“But if the boss doesn’t help us to promote that, usually there is no big change.”

APRIL 2013 insight

35

small business

By Chris Wingo

Teaming Up Chris Wingo

An experienced China hand offers practical advice to U.S. SMEs on finding the ideal business partner in China

C

hina’s huge potential market is drawing the attention of American small and medium enterprises (SMEs), some of whom see it as a quick way to expand their businesses. But China is hardly “quick,” and unlike the better resourced multinational companies (MNCs) who came before them, SMEs cannot afford to put the same time, money and people on starting a business in China. Consequently, smarter SMEs are choosing to toss aside do-it-alone cowboy tendencies, accept that China really is different and seek one of the best forms of leverage available: the right China partner.

Whether individuals or companies, Chinese or American, the right China partner can help an SME capture opportunities, resolve issues and complete a company’s strategic plan. But for a new SME, finding the right partner and knowing what they have can be a daunting task. How should you,

istockphoto

A woman works on a shoe in a factory

36

insight

April 2013

a new-to-China SME, go about identifying, vetting and enlisting a good China partner?

In reality, the process is easier than might be expected assuming you employ diligent business practices and incorporate the following concepts into your effort: • Your attitude supports an effective partner search • A trusted coach can help navigate unknowns in China • Clear intentions help profile a potential partner • Know your options to choose the right type of partner

Attitude matters American companies, especially SMEs, often have expectations for business in China that are inconsistent with reality. We believe this stems from the relatively straightforward nature of doing business in the U.S., where communications are direct and relationships are based on professionalism. It is critical you accept China is different and you will have to think differently to succeed here. This is particularly true when searching for a partner. Carefully contemplate the following points before beginning your search for a China partner.

• C h ina is not a remote f ire-and- forget proposition – Starting out in China, regardless of approach taken, is not something you can initiate remotely and then let run on its own.

When searching for a partner, you must be “onsite” and fully engage in the process, lest it run astray. This requires time and resources to man the effort. A partner search in China is a new experience for a new-to-China SME, one that will fail without sufficient attention and focus.

• It’s not as it seems in China – When first starting in China, it is easy to believe that all is possible and everyone is a loyal friend. Too often, this is not the case. Prepare your own well-thought agenda to use as your guide.

Always look for another angle and avoid taking ever ything at face value. Beware of the seemingly perfect partner who claims to have all the answers you need.

• It takes time to do it right in China – Chinese business people take a long view, and you should, too. Avoid unrealistic timelines that only create pressure during discussions, negotiations and other processes you engage in.

Rather, tell yourself to be patient like never before and accept any inefficiency you encounter. Although they are simple enough, these points are easy to overlook. Carefully contemplating them will help save you and your company much pain and money.

• Professional service providers – Americanowned consultancies, law firms, accountancies, etc. are another good source for coaching. Talk with several but avoid locking onto any one too quickly. Ask for each one’s experience and references relevant to your business. If they cannot help, they may know someone who can.

The American and international business communities in China are well-established and reliable networks to tap into.

• Individuals – Individuals with specific expertise can be a godsend for helping you in China.

Ensure whoever you work with, both foreign and Chinese, has accomplished what you are attempting and confirm their credentials (remember: don’t take everything at face value).

Key point: Accept that there are critical things you do not understand about China. Rather than make blind assumptions, find a coach who can help you understand reality.

Unknowns

Clear intentions

An overconfident Lone Ranger approach is not well-suited to doing business in China. China is different and filled with things that can quickly lead newcomers into trouble. For this reason, a trustworthy coach is key to helping you navigate your first steps in China. A coach can be an individual or organization and is best found by talking with others who have gone before you. Here are some ideas to help you find yours: • Organizations – Contact the American Chamber of Commerce in Shanghai, or other AmChams located in Beijing, Chengdu and Guanzhou, and the U.S. Commercial Service to explain your situation and ask for assistance.

They are well-networked and will provide reliable contacts and information. They directly advise on market opportunities, help with regulatory requirements and set up meetings with Chinese officials as required. The U.S. Commercial Service helps find distribution partners through their Gold Key Search program.

Define exactly what you intend to accomplish

April 2013

insight

37

“

It is critical you accept China is different and you will have to think differently to succeed here.”

“

China offers good opportunities for American SMEs, but success is not guaranteed.”

in China. Far too many SMEs haphazardly go to, or are pulled to, China by key customers demanding they “be there,” wannabe partners, prospective buyers or maybe hospitable government officials in search of investment. Pursuing China should not be a spontaneous endeavor, so carefully evaluate your game plan and carefully define your intentions, preferably with the support of a coach.

Here are a few questions to help crystallize your intentions for doing business in China.

• Are you after a one-shot sales opportunity or entering China to build a long-term presence?

• Do you plan to sell to or source from China?

• Do you need an entity or “presence” in China, or is selling through Chinese distributors your goal?

• Do you need to manufacture in China, and will you set up your own plant?

The AMERICAN CHAMBER of COMMERCE in SHANGHAI

Orientation China

Guidebook

Leading You to Business Success

Know your options There are several types of partners in China, some obvious, others not so. Choosing the right one depends on knowing your options, and the following is a list of several potential types.

• General manager – Many SMEs start in China by hiring an English speaking Chinese person as their general manager. It could be a “returning Chinese” back from working overseas or a local Chinese national who has worked in another international company.

• Local agents – Companies with products best sold through agents and distributors will encounter many who want to represent them.

Most talk of their sales prowess and ability and demand to cover all of China. A good choice will help grow your sales for little cost.

• A joint venture partner – Joint ventures come and go in popularity because of trending success and failure stories. For some industries, foreign companies are required to have a Chinese joint venture partner, one that holds a majority stake.

As with the general manager and distributor options, the right joint venture partner can help

38

insight

April 2013

bring fast success.

• International company – Other foreign companies operating in China can make great partners assuming your businesses are complementary. The biggest advantages tend to be mutual (cultural) understanding and a better chance of business transparency. A foreign partner is particularly good when it can manufacture your product locally and possibly help with distribution.

• Outsourcing – An outsourcing company provides all the experience and resources needed to conduct your business (sales personnel, management, support, factory space and equipment) on an outsourced basis. All you have to do is sign a service contract. This minimizes your risk, cost and time.

• Others – There are many other potential types of partners in China. Ask around to learn about other options suitable for your business such as g ov e r n m e nt i n s t i t u t e s , s c h o l a r s , c i t y governments, venture capital funds and so on.

China offers good opportunities for American SMEs, but success is not guaranteed. SMEs must pursue China in a smarter, more effective way than larger, well-resourced corporations that have come before them. Leveraging the right China partner is one good way SMEs can increase their speed and improve results in China. But to find the right partner, an SME must ensure its “China att itude” is cor re c t, s e ek go o d co aching, understand both its short- and long-term intentions for China and know its partner options.

The SME must methodically ask questions,

gather information and evaluate everything, being careful not to assume too much. In particular, SMEs new to China must accept that China is different in its way of thinking and doing. By taking it step-by-step, through digging and then digging some more, an SME can chart a successful course in China.

Chris Wingo is the managing director of China Sage Consultants, a full-service sales outsourcing program that helps SMEs strategically build sales in China.

This article is a shortened version of a story that will appear in AmCham Shanghai’s new Orientation China Guidebook that will be available soon. Look for details at www.AmChamShanghai.org

April 2013

insight

39

inside amcham from the chair

Leadership and Solutions

Robert Theleen Chair of the Board of Governors

I

n this issue of Insight, you will see a link between the cover story, “Green Ambition,” the interview with Chengdu Mayor Ge Honglin and John Russell’s excellent analysis of the NPC meetings held in Beijing last week. China has no choice but to move ahead with both clean technology and energy security. In contrast to the United States, China must find a way to reduce dependency on high polluting coal-fired power plants and to mitigate the growing risks of ever-increasing oil imports. China’s investments in American tar sands have both a strategic and technological component. Therefore, it is no surprise that the AmCham Shanghai membership is increasingly populated with companies, large and small, that offer products, services and solutions to these problems.

At the Chamber we are seeing an increasing number of mayors and governors, such as Mayor Ge, who are interested in having our member companies invest in their growing markets. After reading the interview with Chengdu’s mayor, it struck me as significant that China is becoming more of a “horizontal power” than a “vertical” one. With the growing mobility of China’s vast middle class, combined with a fast developing infrastructure that links roads, air and train systems across a continental land mass, more and more opportunities for American companies lie inland than on the coast line.

40

insight

April 2013

Prospects for business success now lie not only with the leadership in Beijing but with relations built with provincial and municipal leaders in these fast growing regions. A message that Brenda Foster and our delegation will deliver to U.S. policy makers on a trip to Washington, D.C., in May will focus on American corporate success in China. Part of that success is due to the abilities of Chamber members to develop logistical networks across China’s expanding urban landscape. With more than 50 percent of the country living in urban communities, the sophistication and branding strategies of American firms are leading to success.

A question being discussed by the AmCham Shanghai Board is the appropriate role of the Chamber in facilitating Chinese investment into the U.S. Our half-day conference at the end of last year on chinese foreign direct investment to the U.S. was well-attended. We will have another one later this year. The Chamber intends to be a leader in linking Chinese organizations, both corporate and financial, to investment opportunities in the U.S. This will create opportunities for our members. In fact, in the months ahead, you will be hearing from Scott Williams, AmCham Shanghai’s VP of programs and services, about a dynamic website for our SME Center which will target service sources for U.S. small- and mediumsized companies interested in the China market. Also under consideration is a space for qualified U.S. organizations who wish to connect with Chinese investors. From my perspective, AmCham Shanghai’s ability to serve this market helps to break down protectionist barriers which some U.S. companies face here. Greater interdependence between the U.S. and China have served to reduce or remove many of these barriers over the past three decades.

Finally, I would like to thank David Basmajian and his talented team in the communications and publication department, along with Kent Kedl of Control Risks, for their efforts to produce this year’s China Business Report which is larger and more insightful than ever before. I would encourage all of you to get a copy and read through some of the interesting insights regarding business trends, particularly the challenges that our members face in the transitional economy of China in 2013.

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

Highlights from the March 2013 Board of Governors Meeting Approval of fiscal year 2013-2014 budget Brenda Foster, president of AmCham Shanghai and Helen Ren, vice president of finance and administration, provided a highlevel review of the proposed 2013-2014 fiscal year (FY ’13-’14) budget that was presented to the Board at the February 5 Board meeting. The Board voted unanimously to approve the FY ’13’14 budget as presented.

SME Center Virtual Website Scott Williams, vice president of programs and services, provided an overview of the SME virtual center, functionality of the site and proposed service levels. Scott also provided an executive summary of financial targets of the center through FY ’16-’17.

Board members discussed the need to ensure the SME Center was properly resourced to support what is expected to be great interest in services offered.

A number of potential partners in the U.S. were also discussed as were ideas around marketing the SME virtual center and services offered.

President search Bob Theleen, 2013 Chair of the AmCham Shanghai Board of Governors, provided a status report on the search for a new AmCham Shanghai president and informed Board members that the search is moving forward as planned. While specifics on applicants were not provided, the Chair provided a general overview of the backgrounds of applicants and said that he would come back to the Board with a more detailed description as the search progressed.

In Attendance Governors: Andrew Au, William Brekke, Jimmy Chen, Keith Cole, Kenneth Jarrett, Lienjing Chen, Jim Mullinax, Peter Sykes, Robert Theleen (Chair) Apologies: Curtis Hutchins, Marie Kissel, Sherman Chu Attendees: David Basmajian, Steven Chan, Brenda Foster (President), Kirt Greenburg, Patsy Li, Stefanie Myers, Helen Ren, Jonathan Shyu, Scott Williams, Jessica Wu

The AmCham Shanghai 2013 Board of Governors Governors

Chair

Andrew Au Citibank China

Jimmy Chen FedEx Express

Sherman Chu Cisco Systems

Keith N. Cole General Motors

Kenneth Jarrett APCO Worldwide

Marie Kissel Baxter Asia-Pacific

Chen Lienjing Pratt & Whitney

Peter Sykes Dow Chemical

Eric Zheng AIG Insurance

Robert Theleen ChinaVest

Vice Chair

Curtis Hutchins Eaton (China) Investments

April 2013

insight

41

AmCham Shanghai New Members U.S. Corporate Membership Cold Spring Harbor Asia (SIP) Ltd. CHI Maoyen IHS (Beijing) Trading Co., Ltd., Shanghai Branch CHAO James MasterCard Shanghai Business Consulting Ltd. CHANG Qing SERVA Software (Shanghai) Ltd. XIAO Zhonghua St. Jude Medical (Shanghai) Co., Ltd. WELSH Mary

Spire Reseaerch and Consulting TAN Beng Young State of Indiana IEDC China Office WANG Tai-Jen

Associate Membership Akzo Nobel (Asia) Co., Ltd. MOONEN Jean Paul DaVita Hospital Management Consulting (Shanghai) Co., Ltd. LO-SIDA Jean Z.G. Dezan Shira & Associates Shanghai Branch DIMAGGIO Rosario

U.S. Associated Corporate Membership ECI (Huizhou) Co., Ltd. MALLAK Holli Allergan Information Consulting ELS American Education Center (Shanghai) Co., Ltd. XIA Ming ZHAO Shirley YING Tee Lek ECI (Huizhou) Co., Ltd. Euroscript (Suzhou) Language Technology Service WURGLER Greg Co., Ltd. Emerson Process Management Power & Water ZHANG Lijuan Solutions (Shanghai) Co., Ltd. Gap (Shanghai) Commercial Co., Ltd. LEE Swee Chee ZHONG Janet Leggett & Platt (Taizhou) Co., Ltd. General Motors (China) Investment Company SHA Jianbo Limited Volvo Construction Equipment Investment ZUMBRUNNEN Daniel (China) Co., Ltd. GoIndustry DoveBid (Shanghai) Co., Ltd. ZHAN Xu YU Hao Corporate Int’l Affiliate Membership Pacific Geopro Shanghai Ltd. MASSEY George Warren SEPAM Engineering & Consulting (Shanghai) Co., Ltd KEANE Gerard John Shanghai Rui Ming Real Property Co., Ltd. Rui Ming Hotel Management Branch GONG Lei The Eton Hotel Shanghai BOLLEN Luc Transperfect Translations LYU Mike Wellington College International Shanghai QIN Joan

Non-Resident Corporate Membership Weidner Holdings, LLC DURKIN Tom

Small Business Membership LMCA (Shanghai) Brand Licensing & Consulting Co., Ltd WILLIAMS George

Hitachi Consulting (China) Co., Ltd. MACHAN Ronald Raymond HLD Event Services ZHAO Huiling Honeywell Automotive Parts Services (Shanghai) Co., Ltd. LUO Wesley IHS (Beijing) Trading Co., Ltd., Shanghai Branch ZHOU Quan LMI China (Shanghai) Inc. LIU Jian Mattel Asia Pacific Sourcing Limited WANG Jeff MKS Instruments (Shanghai), Ltd. LU Fei Philips Healthcare (Suzhou) Co., Ltd. JIANG Josephine PricewaterhouseCoopers GRAHAM William NOLING Zach Prologis China KWAN Kenneth

Stryker (Beijing) Healthcare Products Co., Ltd., Shanghai Branch ZHAO Penny The Bank of New York Mellon, Shanghai Branch SEE Jenny Troutman Sanders LLP, Shanghai Rep. Office, US WANG Wendy UL- CCIC Co., Ltd. SHI Bingqiang UL- CCIC Co., Ltd. WANG Steven Volvo Construction Equipment Investment (China) Co., Ltd. HAN Xiaoyi

Individual U.S. Citizen Membership Chandler Far East Manufacturing Co., Ltd..

PENKE Slade Disney English GLEESON Jessica Fields China SHEN Stephen HKU Space Global College Suzhou CHANG Yvonne HVS Hospitality Services JAW Jonathan IPC Technology Consulting (Shanghai) Co., Ltd. CARMICHAEL Philip Scott N/A CHENG Jade MEERTENS Michelle Qin Xin Media ROSENTHAL Michael Joseph

Individual Int’l Affiliate Membership HFG IP APORTI Nicola HFG Law Firm & IP Practice GIACOPELLO Fabio JadeLink Hotel Shanghai TANG Kwing Yeung N/A LI Stephanie Shanghai SECOM Security Co., Ltd. TOYOMAKI Mikiko Taxback Group DOLAN Mark TONGJI-SEM IEDP Center (Executive Education) SCHIRMAN Chalom

Schawk Imaging (Shanghai) Co., Ltd. ONG Jen E-Hong

Do you want to share more information about your company? Contact Patsy Li at (86 21) 6279-7119 ext. 8966 or patsy.li@amcham-shanghai.org for a “Standout Listing” opportunity in the New Members Section.

d ea l o f t h e m o n t h B y E ri k a wan g

ENN Group to boost natural gas stations in U.S. imaginechina

E

NN Group Co., Ltd., China’s largest non-state owned gas distributor, said it plans to increase the number of its natural gas refueling stations in the United States to about 50 this year, local media reported. The stations, to be build along highways across the United States, are dedicated to supplying heavy-duty trucks. The company already operates two natural gas refueling facilities in Salt Lake City, Utah, via its joint venture with Utah-based CH4 Energy Corp. – Transfuels LLC – which operates as Blu LNG. ENN is the first Chinese company to invest in the U.S. natural gas distribution business, the company told local media. Although ENN has not released official figures, the stations are estimated to cost upwards of US$1 million each to build.

ENN said both the U.S. federal and state governments have welcomed its plans. The company added that it is in talks with U.S. natural gas suppliers to ensure supplies for the stations.

Energy and transportation companies have been looking at ways in which to use gas – particularly liquefied natural gas (LNG) – in commercial transport, not only to cut down on pollution but also to save costs. In the United States, the shale gas phenomenon has plunged prices to 10-year lows.

Nearly half of the garbage trucks sold in the United States last year run on natural gas, though t he s e are rest r ic te d to ref ueling at t heir headquarters. A network of natural gas stations along highways could change that, and moreover convince the far larger market for long-haul trucking to run on natural gas.

According to the U.S. Department of Energy, there are some 28 public LNG refueling points in the United States. Research company MarketLine

Gas tanks of ENN Group in Huaian city, Jiangsu province

estimates that the natural gas industry in the United States will grow at a projected annual rate of 7 percent between 2011 and 2016, driving total industry value to US$156 billion through 2016.

Chinese companies have been vying for a share in the North American shale gas boom. ENN already signed a deal in February with Canadian Westport Innovations Inc., a developer of natural gas-powered engines for trucks, to promote the use of natural gas in North America as fuel for the local logistics industry. That same month, Sinopec Group offered to pay US$1 billion for oil and gas properties in Mississippi from U.S. group Chesapeake Energy Corp.

According to New York-based Rhodium Group, Chinese investment in the United States during 2012 reached a record US$6.5 billion, mostly in oil and gas extraction, advanced manufacturing operations, and assets that allow investors to store value and gain stable returns such as utilities, real estate or hospitality. Chinese investment in the United States this year will likely continue to build on this momentum, with some US$5 billion worth of new deals already in the pipeline.

April 2013

insi g h t

43

AmCham Shanghai

Speakers and attendees at the 2012–2013 China Business Report launch event in Shanghai

Ben Cornish, center, president of Prologis, receives a new iPad as the winner of the 2012 China Business Climate Survey lucky draw

Panelists share insights at AmCham Shanghai’s first regional leadership retreat in Suzhou “NGO Meets Enterprise” event at AmCham Shanghai Conference Center 42

insight

NOVEMBER 2012

Month in Pictures

2012–2013 China Business Report launch event in Suzhou

AmCham Shanghai hosts delegation from the U.S. Air War College

Here is a selection of snapshots captured in the past month.

Eric Rongley, CEO of Bleum

Guest speakers at an event on selling in China’s online marketplace

NOVEMBER 2012

insight

43

Government Relations U.S. Delegation from the Air War College Visits Shanghai AmCham Shanghai hosted a briefing on March 11 for a delegation from the U.S. Air War College. During the briefing, AmCham Shanghai President Brenda Foster highlighted key business and commercial issues facing U.S. companies in Shanghai. Director of Communications and Publications David Basmajian presented the Chamber’s recently launched China Business Report followed by a panel discussion of issues related to China’s financial, legal, manufacturing Delegates from the U.S. Air War College attend a briefing at and services sectors.

AmCham Shanghai Panel members included Ben Kinnas, senior vice president and general manager of Wells Fargo; Phil Branham, president and CEO of B&L Group; and Larry Foster, professor and former dean of University of Hawaii’s law school. The briefing was part of the Air War College’s study tour of China to gain a better understanding of China’s political, economic and social development.

“NGO Meets Enterprise” Workshop Features Social Enterprises AmCham Shanghai’s Business Council for Sustainability and Responsibility (BCSR) hosted the year’s first “NGO Meets Enterprise” series on February 27. The event attracted more than 80 participants from corporate, nonprofit and non-government organizations looking for partnership opportunities in CSR programs and activities. For the first time, the workshop featured social enterprises, which are gaining ground in the China’s CSR field. According to one of the social enterprises in attendance, Netspring, a “social enterprise” is a business with a social aim. Other presenters included Social Venture Group, Habitat For Humanity, Safe Kids China and Shanghai Enrichment Community Service Center.

Heifer China Recognizes AmCham Shanghai CSR Efforts

Steven Chan, third from left, receives an award from Heifer China for AmCham Shanghai’s CSR efforts

46

insi g h t

April 2013

On March 23, Heifer China recognized AmCham Shanghai for its strong support of Heifer China’s ethnic community development programs in Xinjiang through proceeds raised at AmCham Shanghai charity galas.

Steven Chan, Government Relations and CSR Director, received the award on behalf of the Chamber at Heifer’s annual forum and fundraising gala event in Beijing. The award was in recognition of AmCham Shanghai’s support in Heifer China’s “Ethnic Group Community Holistic Development Project” in Kashi, Xinjiang. The project’s aims included: creating ownership for participating villagers and establishing a democratic self-governance structure, providing technology, improving infrastructure and teaching environment education for the rational utilization of natural resources.

Event highlights

insi d e amc h am

AmCham Shanghai Holds First Regional Leadership Retreat in Suzhou AmCham Shanghai hosted its first Regional Leadership Retreat in Suzhou on February 26 at the Renaissance Suzhou Hotel. More than 120 people attended the event, which provided opportunities to learn, connect with leaders and network.

The event aimed to bring together business leaders to discuss how to identify, grow and cultivate leaders, what the next generation of leaders is seeking from their employers and how to build a leadership team to address these challenges.

Panelists share insights on leadership during AmCham Shanghai’s first regional leadership retreat in Suzhou

Keynote speaker Rebecca Liu, China general manager for Cook Medical, emphasized that corporate culture plays a key role in management. Liu shared her experience as a leader and company best practices for identifying and fostering leadership. Topicfocused panels featured participants from AMD Technologies, PDI Ninth House, Reya Group, Maximum Employer Branding, FedEx, Ecolab and PricewaterhouseCoopers, among others.

More U.S. Small Businesses Investing in China: AmCham Chair Robert Theleen While U.S. investment in China in years past would primarily come from multinational companies, today a growing number of small businesses and entrepreneurs are investing in China, said Robert Theleen, AmCham Shanghai Chair and Chairman and CEO of ChinaVest, during the Chamber’s Monthly Member Briefing on March 5. Theleen noted that 2013 will offer vast opportunities for small businesses and entrepreneurs thanks to expanding sources of capital, easing infrastructure and a growing services sector in China.

AmCham Shanghai Chair Robert Theleen discusses U.S.China investment trends and opportunities

He said that the U.S.-China relationship is more of a partnership than anything else, and U.S. companies in China have benefited from a strong bilateral commercial relationship with China. In 2012, the U.S. was the only major industrialized nation to increase investment in China, while China invested US$6 billion in the U.S. Without the availability of the Chinese market, many U.S. firms likely would not have grown as quickly, he said. For their part, U.S. companies have also made a positive impact on China’s economy by applying a “horizontal thinking” business method that focuses first on supply chain management, logistics and distribution before developing a product, Theleen added.

April 2013

insi g h t

47

Committee highlights

insi d e amc h am

Tax Committee Transfer Pricing Event in Suzhou

Julian Hong, partner at Ernst & Young Transfer Pricing Group, gives an overview of common tax issues

AmCham Shanghai's Tax Committee hosted Julian Hong, partner at Ernst & Young Transfer Pricing Group, and Bill Ye, tax partner at Deloitte Shanghai, at an event on transfer pricing updates held in Suzhou on March 6. Hong gave an overview of the latest developments in China’s anti-tax avoidance efforts and an analysis of common tax issues involved in cross-border payments. He discussed the Annual Report on the Arrangement for Advance Pricing (2011) issued by the State Administration of Taxation. He also talked about the Organisation for Economic Co-operation and Development (OECD)’s reports: Transfer Pricing Manual for Developing Countries and Addressing Base Erosion and Profit Shifting.

Ye discussed 15 cases of general transfer pricing concerns, tackling such issues as the increasing risk of transfer pricing, adjustment means and amounts, strategies to cope with customs and tax authorities, transfer pricing self adjustment and how to deal with tax inspection and contradiction.

During the Q&A session, Hong and Ye shared practical experiences and advice for handling tax officials’ inquiries and audits, discussed relevant strategies and remedies for transfer pricing controversies and advised on how to work with the tax authorities to resolve transfer pricing disputes. Both speakers emphasized the importance of communication in resolving transfer pricing issues.

Manufacturers’ Business Council The Atlantic’s James Fallows on U.S.-China Relations As China moves from a low- to a high-end manufacturing base, it faces three significant sociological challenges: environmental issues, the changing demographics of the Chinese workforce and Internet censorship, said James Fallows, author and correspondent at The Atlantic magazine, during a roundtable hosted by AmCham Shanghai’s Manufacturers’ Business Council on March 11. The discussion focused on U.S.-China relations, the manufacturing climate in China and implications and challenges that both foreign and Chinese companies face in the current political and economic climate.

Fallows noted that many industrialized countries have dealt with similar environmental challenges but were more developed than China is today and were given more time to address these issues. He added that restrictions and tight controls placed on the spread of information have held innovation back, while the Chinese worker has changed. A higher ratio of male workers adapting to city life and plugging into social media creates a workforce that is more difficult to control, continued Fallows.

Fallows asserted that manufacturers in China play a complementary role, not a competitive one, in helping foreign companies produce goods and products, while the new market for U.S. goods created by Chinese consumers’ increased buying power helps to support American jobs and exports.

For more information on AmCham Shanghai’s 22 industry-specific committees, please email committees@amcham-shanghai.org.

48

insi g h t

April 2013

Committee highlights

insi d e amc h am

Small Business Committee SME Roundtable on Chinese Employment Law Updates AmCham Shanghai’s Small Business Committee held a roundtable on February 21 to discuss recent developments in the Chinese employment law for dispatch workers, post-employee termination and data privacy, and how this might impact small business. Lesli Ligorner, partner at Simmons & Simmons, and Ying Li, associate at Simmons & Simmons, led the discussion.

The three main updates to Chinese employment law concern dispatch workers, non-compete restrictions following employee termination and restrictions to employers’ use of employee personal data. Prior to the updates to the labor dispatch regime, which will come into effect July 1, different types of employees – including temporary, dispatch, auxiliary and substitute workers – were not defined in law.

Participants attend a roundtable on employment law updates

These positions are now defined and measures are in place that will protect dispatch workers. Non-compete restriction guidelines are expected to become law, and the new interpretation concerns mostly administrative and procedural details about non-compete clauses and compensation. Personal data laws define “sensitive” personal data and general personal data, and provide clear guidelines about how and when companies can use, share and discard these data.

Education and Training Committee Realtime Online Instruction: A Disruptive Force in Corporate Training AmCham Shanghai’s Education and Training Committee held an event on real time online instruction in corporate training on March 11.

Robert Abbanat, CEO and co-founder of Ivy League English, presented on the effectiveness and implementation of real-time online instruction as an innovative tool that creates new applications and markets.

While in-house training offers the advantage of a live instructor to keep trainees engaged, it does not allow flexibility for customizing and scaling training to suit corporate needs or individual learning, nor does it offer repetition for practicing new skills or follow-up to assess effectiveness, Abbanat noted. Traditional online training, such as webinars and self-study courses, offer scalability and customization of courses and a built-in assessment system, but the lack of live instruction means low engagement.

In real-time online courses, on the other hand, students and teachers engage in live, online instruction, offering engaging, personal instruction with maximum flexibility and convenience. The virtual classroom and integrated learning management system can also collect a wide range of data such as the exact times students sign in, whether or not assigned digital readings were opened prior to classes and other factors to closely monitor student activity for a thorough progress assessment.

Unlike traditional online courses, Abbanat stressed that real-time online instruction should utilize two-way voice and video, allowing teachers to see students, to keep students more accountable and on task. Additionally, small class sizes and the comfort of being at home offered by the online format encourage students to be more involved and participatory in class, which in turn keeps students engaged with the program longer.

April 2013

insi g h t

49

EXECUtiVE tRAVELER We asked executives what travel apps they prefer to use when they're on the road.

Here are their top recommendations.

George Zhao, Director, Kurt Salmon

Greg Paull, Principal, R3

Apps: tripAdvisor and Ctrip

App: Luxe shanghai

Remarks: “I use TripAdvisor, which is an international one. I use it for the following purposes: search for hotels for my holiday and, most importantly, comments from other guests.

This function is very useful as it will help me decide which hotel to pick. Another app I use is the Ctrip one, which I use extensively for hotel and airline booking. It’s quite convenient and I have used it for many years.”

Remarks: “This is not the best guide to Shanghai, but it is t he one t hat makes me smile the most when I use it. The writing is first class. The map integration and updates work well. And who else, w h e n re v i e w i n g Je a n Georges, would say: ‘Oh honey! Professional sensualists love this baby!’”

Paul Weise, Managing Director, Hallmark Asia Pacific Procurement App: skyscanner

Natellie Sun, Director, Michael Page App: Flighttrack Remarks: “Great app to understand flight details including estimation of delays, gate number, flight duration etc.”

Tina Yao, General Manager, Aviareps Marketing Garden Shanghai Apps: tripAdvisor and Ctrip Remarks: “Best app I have used to compare flights routes and prices across multiple sites/platforms, also very easy to use.”

Dr. Victoria Elegant, Vice President, Medical & Regulatory Affairs, Asia-Pacific, Baxter Healthcare Apps: skyscanner, Kayak and tripAdvisor Remarks: “I like Skyscanner and Kayak, it allows me to look at flights globally, find competitive prices, and manage travel effectively. I also like TripAdvisor to look at hotels and compare prices and also see other people’s opinions.”

50

insight

APRIL 2013

Remarks: Good information source and experience shared by other travelers. Autonavi – very handy tool if you drive! iMoney – a must if you love shopping everywhere.”

2013 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-flat 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 24 hours after reservations.

From Beijing/ Shanghai to *

2 round-trip tickets for one traveler

3 round-trip tickets for one traveler

Vancouver

RMB 41200

RMB 55600

Calgary/ Edmonton/ Winnipeg/ Saskatoon

RMB 47500

RMB 64000

Toronto/ Ottawa/ Montreal

RMB 61700

RMB 82700

Halifax/ Charlottetown

RMB 67700

RMB 90600

From Beijing/ Shanghai to

2 round-trip tickets for one traveler

3 round-trip tickets for one traveler

Vancouver

RMB 8590

RMB 11940

Calgary/ Edmonton/ Winnipeg/ Saskatoon

RMB 9000

RMB 12500

Toronto/ Ottawa/ Montreal

RMB 10060

RMB 14145

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. * Not applicable to itineraries containing AC88/ 87.

First Travel period: January 1, 2013 to December 31, 2013. Book today and save for your next trip!

Air Canada China Call Center

400 811 2001