Insight Magazine December 2011 by The American Chamber of Commerce in Shanghai

INSIGHT December 2011

The Journal of the American Chamber of Commerce in Shanghai

amcham shanghai President

Brenda Foster Directors Business Development & Marketing

Karen Yuen

F eat u res

12 Saving Face in China

Committees

David Basmajian Events

Jessica Wu Finance & Administration

By Anne-Laure Monfret

French author dispenses advice on how not to offend your Chinese colleagues in the office and during dinner.

Siobhan M. Das insight editor-in-chief/ Communications & Publications

CULTURE

18 The Next Growth Engine

INTERVIEW

By Esther Young

A candid interview with Kris Gopalakrishnan and Rangarajan Vellamore of Infosys.

Helen Ren

Membership & CVP

Linda X. Wang

Senior Associate Editor

Esther Young

20 Social Insurance Update

LEGAL MATTERS

By Bryan Virasami

U.S. companies and other foreign firms wait to see how Shanghai will implement measures expected to raise costs for businesses in the city.

Associate Editor

Ryan Balis Design

Alicia Beebe Layout & Printing

Mickey Zhou Snap Printing, Inc.

INSIGHT Sponsorship sponsorship manager

26 The Year at a Glance COVER STORY

Executives from several top U.S. companies in Shanghai reflect on significant events of 2011. Also check out our exclusive Top Ten quotes about China and top business stories about China and Shanghai that you may have missed.

Sophia Chen

(86-21) 6279-7119 ext. 5667 Story ideas, questions or comments on Insight: Please contact David Basmajian (86-21) 6279-7119 ext. 8066 david.basmajian@amcham-shanghai.org Insight is a free monthly publication for the members of The American Chamber of Commerce in Shanghai. Editorial content and sponsors' announcements are independent and do not necessarily reflect the views of the governors, officers, members or staff of the Chamber. No part of this publication may be reproduced without written consent of the copyright holder.

I nsigh t s tandards

5 News Briefs

11 Executive Shopper

election

AmCham Shanghai has a new chair.

special report

Highlights from the AmCham Shanghai Customs Report.

I N S I D E A m C ham Shanghai Centre, Suite 568 1376 Nanjing West Road Shanghai, 200040 China tel: (86-21) 6279-7119 fax: (86-21) 6279-7643 www.amcham-shanghai.org

24 Inside AmCham Shanghai â&#x20AC;&#x201C; A Year in Pictures 44 CSR Conference in Review 46 Government Relations 48 Inside AmCham Shanghai Events

Cover photo by AmCham Shanghai

Special thanks to the 2010-2011 AmCham Shanghai Presidentâ&#x20AC;&#x2122;s Circle Sponsors

istockphoto

INSIGHT managing editor

Bryan Virasami

Editor's note

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

t’s been an eventful year for U.S. companies in China and perhaps a sign of things to come in 2012. During what most observers have called a successful Asia-Pacific tour in November, U.S. President Barack Obama pledged a renewed U.S. focus on the fast growing region. At the same time, statements made by the president during his nine-day visit, as well as others emanating from Washington, indicate a U.S. China policy leaning away from the more patient, incremental approach of years past to a more insistent one where U.S. leaders are increasingly calling for China to “play by the rules” of the global game. In 2011, China’s economy, more than ever before, has been viewed as key to the global economic recovery. And who could have predicted that China, rather than the U.S., would be actively courted by the E.U. to bail Europe out of a crippling debt crisis. But these were but a few of the big sweeping stories of 2011 that will impact U.S.-China relations in the years to come. As 2011 comes to a close, Insight takes a moment to reflect on some of the stories that are impacting U.S. companies here and now. To get a perspective from the front lines, we first asked American business leaders in China for their personal take on 2011. What were the opportunities that emerged in China’s booming agriculture market?

What’s next for China’s Internet? Where is China in the greentech race and in its never ending search for energy and resources? We asked about regulatory challenges and perhaps most importantly, we asked what our members see moving forward. We also review some of the stories that you may have missed during 2011 and we highlight noteworthy events that happened right here in our adopted hometown of Shanghai. One story that most American companies did not miss is China’s new social insurance law and measures applied to foreign workers. In this issue, Managing Editor Bryan Virasami takes a look at the law and talks to experts about how it is being implemented in Shanghai and their advice to companies grappling with its potential impact. Closer to home, Chamber members elected their 2012 AmCham Shanghai Board of Governors on November 17. Insight would like to congratulate the incoming Board and thank the 2011 AmCham Shanghai Board of Governors for their dedicated service. See who will lead the Chamber in 2012 on page 14. And finally, from the team at Insight magazine, we wish you a happy holiday season and thank you for spending part of your 2011 with us.

News

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

CHINA BUSINESS

Sina Weibo hits 250 million users Sina Weibo, the Chinese microblog, has registered more than 250 million users, announced Sina Corp. President and CEO Charles Chao. Sina released the fourth version of its popular platform in September, aiming to add features to continue its rapid increase in users since launching in August 2009. Sina has an especially strong following among students and in large cities. The service has 450,000 users in the U.S., including San Francisco Mayor Ed Lee, Bill Gates and movie star Tom Cruise. Sina reported third quarter revenue of US$130.3 million, up 20% year-on-year, with losses of US$336.3 million. China has more than 500 million Internet users as of the end of September 2011, according to government officials.

China No. 1 smartphone market China became the world’s leading smartphone market by volume thanks in part to growing retail availability of smartphones, subsidies on expensive models and low-cost Google, Inc. Android-operated phones, according to Boston, MA.-based Strategy Analytics in a new report. Some 23.9 million smartphones, a record, shipped to China during the third quarter, up 58% from the previous quarter. By comparison, 23.3 million units shipped to the U.S. over the same period, down 7%, though the U.S. maintains the No. 1 slot by smartphone revenue. Finland-based Nokia Corp. is the smartphone market leader in China with 6.8 million units shipped in the third quarter, holding a 28.5% share followed by Samsung Electronics Co., Ltd. and Apple, Inc.

APEC summit concludes in Honolulu Leaders from business, education and government convened at the 19th Asia-Pacific Economic Cooperation (APEC) summit in Honolulu, Hawai’i, where representatives from the 21 member economies of APEC, including President Obama and Chinese President Hu Jintao, gathered to discuss the importance of increasing multilateral cooperation and facilitating trade among countries in the Asia-Pacific region. Among the highlights was agreement on what President Obama said were “broad outlines” among the U.S. and eight other countries concerning the TransPacific Partnership (TPP).The TPP is an Asia-Pacific regional free trade pact that the U.S. is negotiating to join and holds the longterm potential to include China and the U.S.’s largest trading partners and major competitors in Asia. “One real highlight was President Obama and Secretary of State Clinton’s reiteration of their focus and commitment to the AsiaPacific region,” said AmCham Shanghai President Brenda Foster who attended the summit. Foster moderated a session at the AsiaPacific Business Symposium, hosted by the East-West Center and the Pacific Basin Economic Council (PBEC), titled “Investment Interests of the People’s Republic of China: High-Value Opportunities.”

China No.1 for shared services China is poised to overtake India to become the world’s No. 1 shared services center (SSC) over the next few years, according to reports of industry representatives at the annual KPMG China Shared Services Summit.

Representatives pointed to China’s advantages in infrastructure, human resources and competitive cost factors. Companies use SSCs by outsourcing or setting up separate corporate entities to handle corporate services such as accounting and information technology. “Lower costs, although diminishing,

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are still an advantage in China,” Ning Wright, partner-in-charge of outsourcing and SSC advisory services at KPMG, is quoted as saying. “But for global companies, they will care more about the quality and sustainability of the services they can find in a country,” continued Wright.

J.P. Morgan joins Chinese loan guarantor venture J.P. Morgan Chase & Co. is investing nearly US$200 million in a new Chinese loan guarantor venture set up to extend credit to small- and medium-sized (SME) Chinese firms. JP Morgan will control a 24.9% stake in the company, which will have a total of RMB5.1 billion (US$803 million) in capital thanks also to backing from the Export-Import Bank of China, Baosteel Group Corp., HNA Capital Holding Co., Ltd. and Siemens AG. JP Morgan will provide a non-managerial role, offering technical assistance, including risk management and new product development. The U.S. bank is looking to expand its presence in China on top of a joint venture it has with Shenzhen-based First Capital Securities Co., Ltd. CORPORATE NEWS

China gets Chevy Volt General Motors Co. (GM) introduced its extended-range Chevrolet Volt to China at the Auto Guangzhou 2011 forum. GM will sell the plug-in hybrid car at 13 dealerships in Shanghai, Beijing, Hangzhou, Suzhou, Wuxi, Guangzhou, Shenzhen and Foshan with a selling price of RMB498,000 (US$78,000). Buyers are not eligible to receive a Chinese tax credit worth around US$9,000 on green vehicle purchases because the Volt is imported. GM is launching the Volt in China to showcase its electric vehicle technology, initially producing the vehicle in Detroit but looking at potentially assembling it in China. The automaker anticipates doubling its sales volume in China to five million vehicles annually by 2015.

IBM, Suning strike ecommerce deal International Business Machines Corp. (IBM) and Chinese retailer Suning Appliance Co. signed an agreement for an undisclosed amount for the U.S. technology giant to build an ecommerce research technology center at Suning’s headquarters in Nanjing, capital of Jiangsu province. The center is aimed at boosting the ecommerce products and services provided by Suning, which is China’s largest consumer electronics retailer by number of stores. Suning is looking to develop a more personalized ecommerce platform, which will include improved search functions and other advancements. The two companies also are establishing a joint ecommerce development lab in Silicon Valley. IBM has provided Suning with internal management systems since 2005.

BoA cuts Construction Bank stake Bank of America Corp. (BoA) is selling the bulk of its remaining shares in Beijing-based China Construction Bank Corp. in a move by the U.S. bank to increase its capital base by selling non-core assets. The sale of roughly 10.4 billion shares to a group of unnamed private investors is expected to net BoA an after-tax gain of US$1.8 billion. When the sale closes in November, Charlotte, NCbased BoA will hold two billion shares, or a 1% stake, in Construction Bank, which can be sold in 2013. Earlier this year, BoA sold 13.1 billion shares in the Chinese bank, or roughly half its stake, yielding a US$3.3 billion pre-tax profit. The two banks will continue to maintain a strategic assistance agreement.

Ping An buys Jahwa Group A unit of Ping An Insurance (Group) Co. of China Ltd. won a takeover bid of state-owned cosmetics maker Shanghai Jahwa Group in a deal valued at a minimum of RMB5.1 billion (US$797 million). Though the final sale price has not been disclosed, Shanghai Jahwa was put up for sale in September

with the Shanghai Municipal Government seeking a RMB5.1 billion minimum price. Ping An expects the acquisition to help it diversity its businesses beyond capital markets. The company also is reportedly planning to invest RMB7 billion in the cosmetics maker over the next five years. The transaction requires the approval of the State-Owned Assets Supervision and Administration Commission of Shanghai. MACROECONOMICS

GDP slowdown forecasted China’s GDP may decrease to 9.2% in 2011, down from 10.4% last year, according to a preliminary estimate by China’s Ministry of Industry and Information Technology (MIIT). The ministry forecasts China’s economic growth may further moderate in 2012 to 8.4% year-on-year. China’s economic output amounted to RMB32.07 trillion (US$5.01 trillion) over the first nine months of 2011, up 9.4% year-on-year. Driving slower economic growth is a cooling domestic housing market thanks to a series of strict regulations rolled out beginning in 2010. According to the ministry, the slowdown in the housing sector will spill over to other areas of the economy, including demand for some commodities and building materials, thereby decreasing output in related industries.

Logistical costs jump Data released by the China Federation of Logistics and Purchasing (CFLP), an agency under China’s State Economic and Trade Commission (SETC), show logistical costs in China increased 18.7% from January to October 2011 compared to the same period a year ago. Total logistical costs over the January–October period amount to RMB6.4 trillion (US$1.01 trillion) on rapidly increasing transportation costs. Higher oil prices and increasing labor costs are driving up transportation costs 15.6% year-on-year to RMB3.3 trillion. Total revenue in the logistics sector increased 15.6% year-onyear, while profits are up 4.5% over the first nine months of the year.

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Trade surplus increases Data from China’s General Administration of Customs show the country’s trade surplus widened to just over US$17 billion in October, up from US$14.5 billion in September but down 36.5% on a yearly basis. Exports decreased 7.2% month-onmonth to US$157.5 billion in October on weaker European and U.S. demand, while imports fell 9.5% to US$140.5 billion. Despite the lower monthly figures, China’s total foreign trade (exports plus imports) is expected to reach record levels in 2011 with trade volume increasing 24.3% yearon-year over the first 10 months of the year to US$2.97 trillion. China’s Consumer Price Index (CPI) dropped to 5.5% in October, down from 6.1% the previous month, which analysts point out may allow Beijing room to loosen monetary controls to boost export growth. U.S.-CHINA

Yao Ming launches California winery Retired Chinese basketball star Yao Ming launched a California winery named Yao Family Wines in an effort to target China’s growing demand for wine, especially from overseas. French beverage company Pernod Ricard SA initially will distribute 5,000 cases labeled Yao Ming, pricing the wine at RMB1,775 (US$289) per bottle to capture the high-end of the Chinese market. A more expensive 500-case Yao Family Reserve branded wine is scheduled for release later in 2011. Yao is the principal owner of the winery along with five other minority shareholders. Data from China Customs show imports of bottled wine in China have jumped 240% from 2008 to 2010.

China gains access to U.S. film market Chinese film production companies Huayi Brothers Media Corp. and Bona Film Group Ltd. announced each is acquiring a 20% stake in Los Angeles, CA.-headquartered film distribution start-up China Lion Film Distribution. The deal for an undisclosed

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amount aims to increase the number of Chinese films screened in the U.S. and Canada, as well as to speed up delivery of films for overseas Chinese. China Lion is in partnership with U.S. theater chain AMC Entertainment to distribute up to 15 Chinese films in its North American theaters each year. China Lion has released 12 movies, including Chinese films Aftershock, If You Are the One 2, What Women Want and The Beginning of the Great Revival.

CCTV expanding U.S. base State-owned broadcaster China Central Television (CCTV) is aggressively expanding into the U.S. with construction under way for a studio in Washington, D.C. as China looks to gain a wider international presence. CCTV plans for the studio, to be housed in 36,000 square feet of office space on New York Ave., to become operational in mid-2012. Six hours of original programming per day will be broadcast in English and is aimed at increasing CCTV’s U.S. audience. CCTV also is looking to hire local staff, including a high-profile broadcaster to serve as its public face. CCTV already is available in the U.S. but in limited areas with high concentrations of Chinese.

China looks into U.S. energy subsidies China’s Ministry of Commerce (MOFCOM) announced it has launched a trade investigation into U.S. government support of renewable energy products in the U.S. Depending on the outcome, China could petition the World Trade Organization (WTO) to address the matter. According to the ministry, the investigation is in response to requests by the China Chamber of Commerce for Import and Export of Machinery and Electronic Products and the New Energy Chamber of Commerce in the All-China Federation of Industry & Commerce. It will last at least through May 25 and will look into U.S. stimulus support for various renewable energy products and equipment in New Jersey, California, Ohio, Massachusetts and Washington.

december 2011

GOVERNMENT & POLICY

Railway ticket sales expand online China’s Ministry of Railways announced it is expanding online ticket sales for nonhigh speed trains. The expansion to “Z” class tickets immediately and to “T” class tickets beginning December 10th offers passengers the option to purchase tickets online and pick up their tickets at railway station ticket offices, avoiding long waits at railway station windows, especially during peak travel seasons. Online sales for high speed bullet trains in “G,” “D” and “C” classes have been available since June 2011. Although the service is not available in English, passengers may buy tickets for travel up to 10 days in advance by logging on to the railways ministry’s official ticketbooking website, www.12306.cn.

China plans incandescent bulb ban The National Development and Reform Commission (NDRC) announced a three stage plan to phase out most incandescent light bulbs in China over five years to encourage use of more energy efficient bulbs. The phase out calls for a ban on imports and sales of incandescent bulbs rated 100-watts and above beginning Oct. 1, 2012. The ban will be extended in 2014 to 60 watt incandescent bulbs and to those bulbs 15 watts and above in 2016. NDRC projects China will save 48 billion kilowatt hours of power per year after the plan comes into effect, contributing to 48 million tons less of carbon dioxide emitted each year. China produces more energy-efficient and incandescent light bulbs – 3.85 billion units in 2010 – than any other country, according to official media.

Zhuhai imposes property price ceiling The southern Chinese city of Zhuhai in Guangdong province announced new housing restrictions that set an effective price ceiling on home transactions. According to the regulation, Zhuhai will not issue licenses for home sales that exceed RMB11,285 per square meter (US$1,775). Observers expect

the control to apply only through the end of 2011. In addition, buyers may purchase only one home per family in the city’s central district, while sales to nonresidents are strictly controlled. Meanwhile, October housing prices decreased 0.23% across 100 leading Chinese cities compared to the previous month, according to the China Real Estate Index System. On a yearly basis, average prices increased 5.21%, down from a 6.16% clip in September. SHANGHAI BUSINESS

Shanghai issues first local gov’t bonds Shanghai completed China’s first local government bond sale since a 1994 ban, issuing a total of RMB7.1 billion (US$1.1 billion) in three- and five-year debt to shore up the city’s financial position. The bonds, issued in two tranches, pay a yield of 3.1% on three-year paper and 3.3% on five-year paper. Shanghai is one of four local governments approved by the central government to sell bonds directly,

instead of through the Ministry of Finance, under a pilot program aimed at improving transparency. Soon after Shanghai’s sale, the Guangdong Provincial Government issued RMB3.45 billion (US$543 million) in threeyear bonds with the local governments in Shenzhen and Zhejiang province planning to issue their own bonds this year.

UC Berkeley to open Shanghai office Officials from the College of Engineering at the University of California, Berkeley and Zhangjiang Hi-Tech Park signed a memorandum of understanding (MOU) to open a Berkeley office in Shanghai. UC Berkeley will set up a center in the hi-tech zone “where UC Berkeley students, professors and researchers could collaborate on research projects focusing on biotechnology, green technology and information technology,” according to the university. In addition, UC Berkeley plans for the office to serve as a base for its students to

come to Shanghai for internships with local companies. An opening date has not been set. In November, UC Berkeley Chancellor Robert Birgeneau visited Shanghai for a Berkeley Shanghai Biotech Forum and to meet with education and business leaders.

Hongqiao adds private jet facility An aviation base at Hongqiao International Airport has gained approval to house mainland China’s first private facility for maintaining jets. The base’s obtaining a license for “4S store for private jets” allows it to service China’s growing fleet of private jets in a faster and more cost effective way. The base features a 4,000-square-meter hangar, a 2,000-square-meter maintenance center and three gate positions for planes. It became operational in March 2010 and is capable of maintaining more than 40 jets per year. The number of private airliner trips at Shanghai’s two airports – Hongqiao and Pudong International Airport – has jumped to 2,900 movements thus far in 2011.

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CHINA & THE WORLD

SOUTH AMERICA ASIA-PACIFIC

SOUTH KOREA: Kia plans third China manufacturing facility Kia Motors Corp. announced it is planning to complete a new vehicle manufacturing plant in China by 2014 through its Chinese joint venture, as the South Korean automaker aims to meet Chinese demand in the world’s largest auto market. After the plant comes online, Kia expects its production capacity in China to increase to 730,000 units per year, up from 430,000 today. The automaker plans for its third China facility to produce “strategic models developed especially for the Chinese market,” a representative is quoted as saying. Kia is South Korea’s second-largest automaker following Hyundai Motor Co., controlling a 3.5% share of the China market over the first 10 months of 2011, up from 3% the previous year.

MIDDLE EAST

NIGERIA: China to help develop regional manufacturing China is planning to help transform Nigeria into a regional manufacturing hub. The pledge came during a meeting between the two countries in Chongqing, where Nigerian Minister of Trade and Investment Olusegun Aganga met with Chongqing Liangjing New Area Director Weng Jieming. Wang is quoted as saying the government would support companies’ export and investment in Nigeria, particularly automobile and motorcycle industries. Nigeria is highlighting its ready availability of raw materials and demand for Chinese products as attractive features for Chinese investment. In 2011, bilateral trade between China and Nigeria has amounted to US$13.3 billion since February with 15% growth per year expected going forward.

ASIA-PACIFIC EUROPE

MIDDLE EAST EUROPE

AFRICA

SWEDEN: Atlas Copco breaks ground on Wuxi plant Atlas Copco, a Stockholm, Sweden-based industrial group, began construction on a US$22.5 million compressor assembly factory in Wuxi New District in Jiangsu province. When complete, the 45,000square-meter facility will help the company boost production on “portable compressors, industrial and oil-free air compressors as well as compressor elements” for China and Asian markets, according to a company statement. The site will also include a test lab and R&D facility that will be used for new product development. The factory is scheduled to begin operations in July 2012. Atlas’ presence in China includes 13 manufacturing facilities and more than 100 offices.

NORTH AMERICA MIDDLE EAST

AFRICA

IRAQ: China to increase Iraqi oil lifting 50% in 2012 China is expected to increase its Iraqi crude oil lifting by 50% in 2012 to a maximum of 500,000 barrels per day (bpd), as China continues to move to increase supplies to feed the country’s growing energy needs. The output would represent 10% of China’s total crude imports, moving Iraq up to be one of the country’s top oil suppliers. Most of the oil is expected to be exported to China, though some supplies could be sold on the open market. Iraq is the fastest-growing Organization of the Petroleum Exporting Countries (OPEC) producer, pumping 2.7 million bpd with output increasing to 4.2 million bpd by 2016, according to the International Energy Agency.

SOUTH AMERICA MIDDLE EAST AFRICA

NORTH AMERICA

UNITED STATES: NFL promotes American football in China The National Football League (NFL China) drew 3,500 fans to its NFL Experience in Shanghai, a promotional event aimed at exporting the U.S. sport to China. Hall of Fame running back Tony Dorsett and four San Francisco 49ers cheerleaders were in attendance to help promote the NFL. “China would be an important market for any sport because you have so many people here,” Dorsett is quoted as saying. The event featured a full-tackle game between the Shanghai Nighthawks and the Beijing Guardians next to Shanghai Stadium. In addition to scheduling another NFL Experience in Guangzhou, the NFL is trying to expand its presence in China through offering live Internet streaming of games on a PPTV service.

SOUTH AMERICA

SOUTHAMERICA AMERICA NORTH EUROPE

AFRICA NORTH AMERICA ASIA-PACIFIC

BRAZIL: Sinopec buys stake in Galp State-owned energy giant China Petrochemical Corp., known as Sinopec, announced it is paying US$3.54 billion to acquire a 30% stake in the Brazilian subsidiary of Portuguese oil company Galp Energia SA, as China continues to move to tap into Brazil’s massive oil resources. Under the partnership, Sinopec will gain 21,300 barrels of oil equivalent per day in 2015, increasing to 112,500 barrels oil equivalent per day in 2024. Sinopec’s total investment in Galp, including the 30% stake, will reach US$5.18 billion with the addition of projected capital spending. The transaction requires approval from Chinese regulators.

ASIA-PACIFIC

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SOUTH AMERICA ASIA-PACIFIC

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

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

BRUNSWICK Brunswick Group, a corporate communications and investor relations partnership, announced its expansion in China and the opening of a new office in Shanghai in November. The company appointed Poling Cheung head of its Shanghai office, its third office in China, in addition to Beijing and Hong Kong. As an action to strengthen its China team, the company also moved senior partner Cindy Leggett-Flynn from New York to Hong Kong. Poling Cheung

PRIVATE SECTOR ADP ADP Dealer Services, a global technology solutions provider for auto dealers, appointed Chen Bingwei president and general manager of Asia Pacific in November. Chen joined ADP in 2010 as vice president of Asia-Pacific, bringing 23 years experience in IT services, including 16 years of servicing the auto industry. Prior to joining ADP, Chen was general manager of enterprise services business at China HewittPackard Co., Ltd. AIR PRODUCTS Air Products appointed Stephen Jones China president based in Shanghai in August. Since joining Air Products in 1992, Jones has held many leadership positions, including most recently senior vice president and general manager of Tonnage Gasses, Equipment and Energy, a position he was appointed to in 2009 and continues to serve along with his new role. EATON Power management company Eaton Electrical China appointed Shen Wei general manager of power quality in November, holiday responsibility for uninterruptible power supply (UPS), critical power solutions and services. Shen was previously general manager of a UPS system joint venture that was acquired by Eaton in late 2007.

GOVERNMENT In late October, the State Council made a number of appointments in its financial watchdog agencies: imaginechina

Guo Shuqing was appointed chairman of the China Securities Regulatory Commission. Guo held various positions in government agencies and financial institutions, including chairman of China Construction Bank since 2005, director and party secretary of the State Administration of Foreign Exchange, and deputy governor of the Peopleâ&#x20AC;&#x2122;s Bank of China, among others. Guo Shuqing

Shang Fulin was appointed chairman of the China Banking Regulatory Commission. Shang was most recently chairman of the China Securities Regulatory Commission, a position he had held since 2002. Prior to that, Shang was president of Agriculture Bank of China. He currently serves on the Monetary Policy Committee of the Peopleâ&#x20AC;&#x2122;s Bank of China.

Shang Fulin

Xiang Junbo was appointed chairman of the China Insurance Regulatory Commission. Xiang has held several positions at the Agriculture Bank of China since joining in 2007, including most recently chairman and president earlier. Before that, he was vice president at the People Bank of China, a position he had held since 2004. Xiang Junbo

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

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c u lt u r e By Anne-Laure Monfret

Saving and Losing Face Anne-Laure Monfret

French writer says a person’s social image is of paramount importance in China

nyone who works or studies in China know the importance of “saving face.” But what is “face” really all about? Understanding this essential element of the social code in China and its implications in the business world could save crucial time and help avoid a faux pas. From a Westerner’s perspective, face (miàn zi or simply “your face”), is above all a matter of pride or offense. From a Chinese perspective, however, face is also a serious matter of social position, image and social standing. In a Confucian society, all individuals are connected and exist as members of a group: family, company, region and country. So, if you offend a member of a group, you offend the entire group. Keeping this in mind is essential to understanding what face really means to the Chinese. Chinese society is based on harmony and under no circumstances should you break this harmony. Face is a form of mutual respect, politeness and a kind of savoir-vivre that focuses on maintaining good relationships. It is present in many Chinese rituals, from giving gifts to making a toast. What can you do to save your Chinese counterpart’s face? What are the most common mistakes and faux-pas to avoid? The basic rule: never criticize in public, but wait for a private moment. Westerners sometimes contradict others or question their decisions in the middle of a meeting. In China, this public criticism respresents a loss of face and the higher the social position, the more severe the loss of face. As the Chinese proverb goes: The dragon that

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flies the highest will have a greater fall. You cannot make the slightest remark that may undermine the manager’s credibility, and by extension, the company’s credibility and the harmony of the group. The Chinese will rarely criticize someone in public — unless they deliberately want them to lose face. Avoid pointing out who committed the mistake. If you sometimes feel that the Chinese are hiding something from you, they are actually giving more importance to saving face than to truth. Put simply, the value of face in China is probably as important as the value of truth in North America. In China, admitting a mistake is equivalent to losing face. When there’s a problem, Westerners have a tendency to point fingers and use a lot of “yous” trying to identify who is the responsible party. On the other hand, the Chinese never mention the name of the person and instead, choose to talk about the issue. Pay attention to the way you welcome a visitor. When a Chinese guest is visiting, it is important to go and meet him personally rather than send a lower level employee. It is also essential to welcome him with a sign indicating his name, title and company and to have several people greet him in your offices when he honors you by his visit. Foreigners often neglect these points, while the Chinese pay a great deal of attention to these details. Always accept the face that someone gives you. When the Chinese invite you to a restaurant, they are giving you face by being generous hosts. In return, you must accept the food served. If you don’t want to eat certain types of food, you can always make an excuse such as “I’m allergic to

eggs.” The Chinese won’t be fooled but it’s much better than saying “Oh, no, no thank you,” which would really offend them. In China, making a toast is a mark of friendship and respect. By refusing a drink, your Chinese counterpart may lose face. Fortunately, there are a few tricks that allow you to drink moderately and protect face and your liver. For instance, if you have the option of choosing your drink, you can opt for beer. At least it is not as strong as Chinese rice wine. Take into consideration the different types of social positions. In China, all relationships are hierarchical and clearly defined, which is the basis of harmony. Respecting hierarchy in China is not just being nice and polite; instead, treating people according to their hierarchical positions is absolutely necessary. For example, if you offer gifts to employees, you must absolutely prepare a more

consequencial gift for the top-ranking executives. A high-ranking Chinese man once became very angry when a foreigner gave him a small pocket diary in the middle of a meeting. The Chinese boss was convinced it was a deliberate attempt to cause him to lose face. In fact, the present was just too ordinary and inexpensive for someone of his highranking position. Which leads to another question: once you have caused a Chinese to lose face, what can you do to help him recover face?

Restoring face There is a Chinese proverb: Spilled water is hard to regain (fù shu nán shōu). In essence, once you have caused a loss of face, it will be difficult to restore it. If you awkwardly insist on saying “sorry, that’s not what I meant,” it will often make matters worse. In most circumstances, the best solution is not to mention the incident ever again. The only way to restore the balance is to apologize in a formal manner and publicly, in front of those who witnessed the incident or to give him back face, for instance, by complimenting him in front of others – in a sense, by losing your own face or giving face to him. Respecting face in China is not a question of acting Chinese or pretending to be more Chinese than the Chinese. The key is being yourself and at the same time being aware of the cultural sensitivity of Chinese face. In the end, paying close attention to “face” and its implications is always good for your business. Anne-Laure Monfret is a management and human resource specialist who spent eight years in Shanghai. She is the author of Saving Face in China - A First-Hand Guide For Any Traveller To China which was originally published in French in 2010. The book is available at Garden Books in Shanghai.

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“

Spilled water is hard to regain.”

election 2012 B y Rya n B a l i s

AmCham Shanghaiâ&#x20AC;&#x2122;s 2012 Chair Ken Jarrett moments after the election results were announced.

New Board and 2012 Chair Elected 14

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mCham Shanghai members elected a new Chair, the 2012 Board of Governors and overwhelmingly backed five Proposed Amendments to the AmCham Shanghai Constitution. Murray King, chair of AmCham Shanghaiâ&#x20AC;&#x2122;s Nominations and Elections Committee, along with AmCham Shanghai President Brenda Foster, announced the results at this yearâ&#x20AC;&#x2122;s Annual General Meeting (AGM) on November 17, 2011 at the Four Seasons Hotel. Newly elected Board members will take office January 1, 2012.

Kenneth Jarrett, chairman, Greater China for APCO Worldwide was elected 2012 Chair, while Robert Theleen, chairman & CEO for ChinaVest Ltd. was elected 2012 Vice Chair. Members also voted in the following governors to the 2012 Board: Andrew Au, chairman and CEO, Citibank China; Eddy Chan, head of China and senior vice president, FedEx Express; Ted Hornbein, managing director for Asia, Richco; Marie Kissel, vice president, government affairs and public policy, Baxter Asia-Pacific; Daniel Krassenstein, director, Asia Operations, Procon Pacific, LLC; Chen Lienjing, managing director,

A member casts his ballot.

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AmCham Shanghai members elect 2012 Chair, 2012 Board of Governors and back all proposed amendments

“

PROPOSED AMENDMENT 1: Clarification of Membership categories and an update of proxy voting

The amendments mark the first significant revision to the Constitution in 24 years …”

PROPOSED AMENDMENT 2: Selection of the AmCham Shanghai Board Vice Chairman

15 (5%)

52 (16%) 272 (84%) 315 (95%)

Yes No

Total: 330

PROPOSED AMENDMENT 3: Clarification of “quorum”

PROPOSED AMENDMENT 4: Updating office holder requirements 74 (23%)

26 (8%)

Yes No

Total: 324

249 (77%)

PROPOSED AMENDMENT 5: Language update to the AmCham Shanghai Constitution 15 (5%)

304 (95%)

290 (92%)

Total: 315

Total: 323 Yes No

Total: 319 Yes No

Yes No

The 2012 Board of Governors are: Chair Kenneth Jarrett, Chairman, Greater China, APCO Worldwide

Ted Hornbein, Managing Director for Asia, Richco Marie Kissel, Vice President, Government Affairs and Public Policy, Baxter Asia-Pacific Daniel M. Krassenstein, Director, Asia Operations, Procon Pacific, LLC

Vice Chair Robert A. Theleen, Chairman & CEO, ChinaVest Ltd.

Chen Lienjing, Managing Director, Pratt & Whitney China Operations

Governors Andrew Au, Chairman and Chief Executive Officer, Citibank China

Peter Sykes, President, Greater China, The Dow Chemical Co.

Eddy Chan, Head of China and Senior Vice President, FedEx Express

Eric Zheng, General Manager, Chartis Insurance Company China, Ltd.

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James Rice, CEO, CSM nv China

Pratt & Whitney China Operations; James Rice, CEO, CSM nv China; Peter Sykes, president, Greater China, The Dow Chemical Co.; and Eric Zheng, general manager, Chartis Insurance Company China, Ltd. In accordance with its Constitution and Bylaws, AmCham Shanghai held a Special Run-Off Election between November 18, 2011 and November 22, 2011 due to a tie vote in the General Election. In the Run-Off, members elected Dan Krassenstein, director, Asia Operations, Procon Pacific, LLC, to the 2012 Board. “On behalf of AmCham Shanghai, I congratulate the newly elected 2012 AmCham Shanghai Board of Governors. I would also like to thank all the candidates who ran for the Board. The strength of this year’s candidate slate is an illustration of the quality of our membership,” said Brenda Foster, president of AmCham Shanghai. “I would also like to thank 2011 Board members who are completing their term on the Board,” continued Foster. “These Board members include Chairman Eric Musser, Vice Chairman Robert Roche and Governor Matthew Targett. The commitment of their time and talent to AmCham Shanghai is much appreciated and we look forward to their continued participation in the Chamber.” In addition to electing a 2012 Board, members overwhelmingly passed the five Proposed Amendments to the AmCham Shanghai Constitution. The amendments update and clarify the existing language of the Constitution, further ensuring the transparent governance of the Chamber and helping AmCham Shanghai better meet the needs of a dynamic and fast-growing membership. The amendments mark the first significant revision to the Constitution in 24 years and will take effect on January 1, 2012. A 10 percent quorum was achieved to amend the Constitution. In addition, each proposed amendment passed by more than the two-thirds required vote.

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i n t e rv i e w B y E s t h e r Yo u n g

Kris Gopalakrishnan

The Next Growth Engine An interview with Infosys’ Kris Gopalakrishnan and Rangarajan Vellamore

nfosys, a global technology services company, is India’s second largest IT exporter and a global leader in the “next generation” of IT. Established in 1981 by seven entrepreneurs and an initial investment of US$250, the company now employs over 140,000, and its revenues exceeded US$6 billion in 2010. Infosys is also growing its business in China by setting up campuses in both Dalian and Shanghai. Infosys expects its China business to grow 30 percent in 2012. One of the original seven founders and current Executive Chairman Kris Gopalakrishnan and Rangarajan Vellamore, chief executive of Infosys Technologies China, spoke to Insight on Infosys’ focus on innovation, sustainability and its growing business in China. Here are excerpts from the interview. Insight: What sets Infosys apart in trying to create innovative products? Gopalakrishnan: “We measure how much of our revenues come from new products and services. I’m proud to say that about 55 percent of our current revenues come from products that were introduced in the last five or six years. Any company should set that kind of goal and measure, so that it knows that there is continuous renewal happening. Things can become quickly obsolete in

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the market, so you have to continuously introduce new products and services. “We also look at what could be the engines of growth three years from now, five years from now, and start investing right now. The areas that we’re investing in right now are mobile technology, cloud and sustainable technologies. We also believe that education and learning will become very important for up-scaling and rescaling people in the future, so we are working on learning services. We’re looking at digital marketing – as more services move online, companies are moving to manage that online advertising. “There are these types of new engines for us, and so, in three to five years, these will become new products for us. These are our engines of growth.” Insight: What is Infosys’ business edge in China? Gopalakrishnan: “One, we bring our experience working with multinational corporations. Second, we bring a commitment to the education and training of our employees, especially in the IT industry where technology is changing every 18 months. You need to commit to education and training. One of the first things we did when we came to China was to set up our own education facility. We believe that if somebody leaves us and joins somebody else, it doesn’t matter. He or she will become an asset to society and the industry.

“Third, we are leveraging our facilities in China to bring out new products and services – China is actually an integral part of our R&D sector. Some of the things that they are working on in China will become products and solutions for the global market.” Vellamore: “We are working on a few projects related to sustainability. We are very much localizing the products that we have in the banking space – that work is done completely here in China for the China market.” Insight: What do you think are the next trends in the China market? Vellamore: “One of the trends that I do see is more Chinese companies going global. Some companies have even been approaching us about a strategy to go to India. The second trend we see is that many companies want to embrace the next wave of innovation. They might see cars around, and instead, they want to build rockets. The speed of innovation has to increase.” Insight: What are some of the biggest challenges for Infosys in China in the next two or three years? Gopalakrishnan: “The first problem we have is that we’re new to this market. We have to create reference clients. We have to create brand awareness. Second, every country has different business practices. Even global companies have to localize to meet the local requirements. We need to localize products, localize services, localize business practices, localize IT systems. “But, from an innovation perspective, new models can emerge from places like China, where many are willing to experiment, because there’s really no legacy in IT – they [in China] can experiment with new things. And that I see as a great opportunity to take innovation from China to the global market.” Vellamore: “Just to give an example, web commerce is booming in China, but the cost of the systems and the investment that companies want to put in is significantly lower compared to what there is in developed economies. We have to find how we can reduce that cost but implement the same

functionalities, features, security and userability.” Insight: In AmCham Shanghai’s 2010–2011 China Business Report, one of the challenges our members reported was intellectual property (IP) theft. How have you been meeting these challenges? Gopalakrishnan: “One of the things we do is creating awareness among our employees. We need to be clear on how employees can operate. The whole ecosystem is important. You have to make sure the employees are aware of the implications on them. “The second area is with our external actions – which is our dealing with the government to understand the process. If there are any IP theft issues, what kind of recourses can I take? We have been working closely with the government on expressing certain views. We continue to do that. There is a trend of improvement in the last eight to 10 years, there are more mechanisms of recourse that we see. But we also have to understand the system on our part. For example, our localized projects here do their IP registration in China. “What we also do for some customers who are very concerned is we do the work in three different geographic locations. No one geographic location has the full recipe.” Insight: India and China are the two fastest growing countries. Do you feel like there is more interaction between the two countries? KG: “I feel that in today’s world, you will both compete and cooperate. I feel that there are significant opportunities, though, for us to cooperate, as the problems facing both countries are very similar. A majority of the population needs to see the benefits of economic growth and development, and there will be a large growth of new consumers. And they have to consume smartly, in a sustainable way. These are issues facing both countries, and here we can cooperate.” Insight: If you had to pick a favorite IT product, what would it be? I see that [Mr. Gopalakrishnan] has an iPad. KG: “An iPad, an iPhone and a Windows phone! Right now, my favorite IT product…well, I don’t have an iPhone 4S yet…”

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“

One of the trends that I do see is more Chinese companies going global. Some companies have even been approaching us about a strategy to go to India.”

l e g a l u p dat e B y B rya n V i r a s a m i

The Social Insurance Law and You Employers and expats in Shanghai await guidance from local authorities

very foreigner in China has something to say about a recent government requirement that calls on them to participate in the countryâ&#x20AC;&#x2122;s social insurance programs and make monthly contributions. Many are not sure when they must start sending money to local authorities or how they will benefit from it. But one thing seems certain: foreign nationals, multinational companies and SMEs in Shanghai are struggling to obtain a better understanding of what they should be doing today to be in compliance and when Shanghai will issue specific rules. The interim measures implemented October 15, 2011 that refer to foreigners say that all foreign

nationals with work authorization are now included in the social insurance system and employers and their employees must both make financial contributions toward retirement, medical and other programs. As employers wait for Shanghai to issue rules, some legal experts have offered slightly different views about what employers should be doing now. In theory, Shanghai companies are now required to register all foreign nationals with work authorization and start contributing to the system, but in reality, many are simply waiting until itâ&#x20AC;&#x2122;s legally required to do so. There are different interpretations, even among experienced attorneys, about whether the measures are now mandatory in Shanghai. Meanwhile, Beijing issued specific rules

Social Insurance Cost Figures based on current rates for local staff in Shanghai and will remain the same when foreigners are required to participate.

Schemes

Monthly Base*

Employer %

ER Amount

Employee %

EE Amount

Basic Pension

11,688.00

22%

2,571.36

935.04

Unemployment Insurance

11,688.00

233.76

116.88

Basic Medical Insurance

11,688.00

12%

1,402.56

233.76

Work-related Injury Insurance

11,688.00

0.5%

58.44

Maternity Insurance

11,688.00

0.5%

58.44

37%

4,324.56

11%

1,285.68

Sub-total

5,610.24

Total Note: The cap of monthly calculation base equals too three times of last year's Shanghai average monthly salary published by Shanghai government.

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Source: June He Law Offices, Deloitte

for foreigners to enroll in November and said it will provide every foreigner with a social security identification number, attorneys say. “The Shanghai authorities have not yet issued any local implementation rules for collection of social security and from what we understand, they in fact, do not seem to intend at the moment to start implementation. They’ve sort of left it as being a voluntary contribution scheme at the moment in Shanghai,” Yong Yong Ng, a director with International Executive Services at KPMG in Shanghai, said during an interview early last month. In late November, AmCham Shanghai’s Government Relations Department was told by relevant authorities in Shanghai municipality that the city’s social insurance regulations will be based on 2009’s Circular 38, which pertains to foreign workers, and that it will not be changed significantly. Circular 38 states that foreigners need to participate in retirement, health insurance and worker’s compensation but not unemployment or maternity for foreign workers. Additionally, Shanghai officials told AmCham Shanghai that employers “should” implement policies to enroll in the system but that enforcement is not yet at the “must” implement stage.

The background Employers have previously been required to provide basic insurance to their Chinese staff but the new law standardizes the system to eliminate any differences between eligibility to social insurance programs between employees with rural and urban residency, according to Gordon Feng, an attorney at Paul Hastings who specializes in employment laws and whose clients include multinational companies. Ron Cai, the managing partner at the Shanghai office of Davis Wright Tremaine, and his colleague Jay Si, also explained that local governments have discretions in setting implementation rules. Before July 1, 2011, workers in Shanghai also had to participate in three different social insurance systems, according to Si. They are the urban social insurance for city residents, township social insurance for local rural residents and

the comprehensive one for non-local residents without a Shanghai hukou. Cai was also involved in preparing comments issued by AmCham Shanghai sent to Chinese authorities about the measures. Many foreign workers have said privately that they would not benefit from the system that requires them to contribute to the medical, retirement and other aspects of the program, even though they have to contribute to it. It’s a point that several government-run news outlets in China have acknowledged including Xinhua and the Global Times. The law states that foreigners need to enrol in the system. Previously, they were able to register and receive the benefits but did not have to do so. Multinationals and expat workers also like to point out that they already have comprehensive medical insurance and tend to use western hospitals which are not allowed to accept Chinese medical insurance. In addition, most feel they may not stay in China for 15 years in order to qualify for the pension portion of the program, despite the inclusion of a rule that allows early lump sum pension withdrawal.

Pay or not to pay There are about 230,000 registered foreign workers in China, according to government figures, and they are now required to enroll in the system based on the national law. Feng from Paul Hastings said the he doesn’t think many local foreigners are voluntarily signing up for the program in Shanghai. “Both the employers and foreign employees don’t feel it’s beneficial because both of them have to pay quite a lot for the social insurance programs, but receive few benefits under the current social insurance system,” Feng said. While it’s unclear just how many foreigners are currently without insurance or how many would take advantage of it, some attorneys said the number of expats who are without medical insurance is more than a handful especially those who came to China on their own to find their own jobs. Employers in Shanghai that decide to proceed now, before local rules are issued, and register

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“

They’ve sort of left it as being a voluntary contribution scheme at the moment in Shanghai,”Yong Yong Ng, KPMG, Shanghai

Attorney Jeffrey Wilson

their foreign employees with the social insurance programs can pay both the employer and employee contributions. Employers may choose to pay the employee contributions for the employee instead of deducting the amounts from the employee salary, attorneys say. Ng from KPMG said clients who have approached the company for advice have been told to start setting aside funds just in case the Shanghai government rolls out rules that are retroactive to October. And others are offering the same advice. Jeffrey Wilson, counsel with Jun He Law Offices in Shanghai who helped AmCham Shanghai prepare comments on the draft measures for submission to the Ministry of Human Resources and Social Security before the law took effect on October 15, also said that many companies are taking a wait and see approach to how Shanghai authorities implement the rules. He noted that the local authorities may gradually implement the requirements, building upon the voluntary system that has been in place for several years. Wilson has said that requiring foreigners in

China to participate in the programs should not be entirely unexpected given that it is common practice for other countries to require foreign national employees to participate in local social insurance programs. Wilson concludes that the new requirements continue a trend of the government attempting to implement national treatment to foreign investors and foreign employers by elimination of preferences previously enjoyed.

New expense Ng from KPMG said their calculations show that most of their multinational clients would be required to pay a maximum of RMB4,325 per expatriate worker each month and if they cover the employee portion of the tax, they would need to pay an additional RMB1,286 per worker every month. In essence, the employer paying in excess of RMB50,000 a year per expat worker could prove costly to even a multinational and pose a burden for SMEs. “So if you’ve got 10 expatriates, already

‘Wait and See’ Greta Mikelonis, Principal at Mercer, a consulting company, talks to Insight about the findings from a survey about the Social Insurance Law Greta Mikelonis

Insight: What prompted the company’s survey? Greta Mikelonis: “The majority of our clients are multinational companies that we know would be affected by the changes in the legislation. We wanted to have a credible sample to provide advice to clients about what to do and what their peers were doing. With 475 participants, we feel that this gives employers a feel for current positioning and understanding of the law.” Insight: In your view, how would you characterize the overall feeling of the survey participants? GM: “Most companies are still taking a ‘wait and see’ approach. As of now, for major cities only Beijing had published any specific guidelines. Most multinationals have foreigners in multiple locations and they want to see how things work across the country before they take action. Eighty-four percent of employers have indicated that at this point in time they are not going to change their current compensation and

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that’s half a million in annual costs and obviously if you’ve got 20, that’s RMB1 million in additional costs,” Ng said. In terms of SMEs, Ng said many executives feel the law could hit them harder. “SMEs will definitely be hit harder because 50,000 in additional cost per head is a much more significant amount to them than for MNCs,” she said. Anecdotally speaking, some SME executives have indicated that they might want to see “real” action being taken towards enforcement before they start making contributions, she said.

Unclear provisions Those who end up paying into the system have some options to get the money back, attorneys say. For example, an expat who has worked in China for 15 years could collect a pension once they’re retired. Those who leave earlier can make a lump sum withdrawal of the individual contributions but it’s not clear how long this would take. Xinhua, the official government news agency,

said in several articles that foreigners are not the only ones complaining about the new measures and acknowledged they are not clear as to when foreigners might benefit from the unemployment and maternity insurance. Another article said that exempting foreign companies from the law could provide them with an “unfair cost advantage in hiring.” “However, their complaints may be related to the fact that many foreign companies automatically assume that they are entitled to favorable policies while operating here,” Xinhua said. “There is also a belief that higher costs are equivalent to a worsening investment climate, which is not entirely true.” As companies in Shanghai wait for the government to unveil the rules, Ng from KPMG advises companies to do what many legal experts feel is the right thing to do to ensure compliance. “Companies should at least start to accrue for these costs at least from October 15 in case the Shanghai authorities subsequently change their minds and require a backdating of the contributions,” she said.

benefits policies, but 44 percent say that in the future they may review them again.” Insight: Will this law affect both Chinese-owned and foreign firms? GM: “Yes, this will affect any firm in China that employees non-PRC nationals. It is not limited to foreign firms. Multinational employers tend to have more foreign employees. However, as a percentage of total employees the number is still relatively small.” Insight: What about foreigners working for Chinese companies in China? GM: “As far as we are aware, any employee who is working in China on an official work permit will be required to participate, independent of the type of company.” Insight: What are you generally advising clients to do about this law? GM: “Our advice is to focus on the following areas: 1) Quantify and summarize the number of foreign employees in your company, making sure that nationality is noted (German and Korean employees have separate rules, and more countries may sign treaties with China in the future.) 2) Conduct a rough estimation of both the company and employer cost using the current social insurance contributions in place, and applying any caps that exist. 3) Prepare a communication plan to explain to senior management and the employees themselves what the changes are and how they will be affected.”

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It is not limited to foreign firms.”

It was a busy year at AmCham Shanghai for everyone â&#x20AC;&#x201C; members and staff alike â&#x20AC;&#x201C; who played a role in making all of our events a big hit, including the 2011 Charity Ball, the Independence Day celebration, the CSR conference, several government trade delegations and much more. Here are some highlights from the year.

AmCham Shanghai 2011 Charity Ball

Charity Ball

Dream Day at the zoo

President Brenda Foster at the Yong Ning Village Maternal Healthcare Center in Yunnan Province

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Illinois State Gov. Pat Quinn in Shanghai

Doorknock delegation in Washington, D.C.

Independence Day celebration

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Secretary of State Hillary Clinton watches as Gary Locke signs papers making him ambassador to China.

The Year at a Glance The economy, political ties, food prices and Steve Jobs were some of the highlights of 2011, our distinguished contributors say

Ken Jarrett

Chairman, Greater China, APCO Worldwide

New Ambassador in Town The change in Ambassadors is always a significant event in U.S.-China relations and Gary Locke’s arrival in Beijing in August was no exception. The first appointment of a ChineseAmerican as Ambassador already ensured that Ambassador Locke would be the subject of intense public scrutiny. That became all too evident when the Ambassador decided to have a cup of coffee in the Seattle airport. Thanks to the wonders of the Internet and microblogs, Ambassador Locke left his first impression on China’s netizens even before he stepped off the plane in Beijing. Millions of Chinese were struck by the Ambassador’s humility, waiting in line for his own coffee and carrying a backpack. Several months into his tenure, the Ambassador continues to impress with his outreach to the Chinese people and his obvious commitment to strengthening U.S.-China relations. For the American business community, we welcome his sharp focus on bilateral trade and economic issues. 26

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John V. Grobowski & Sherry Zhang

Faegre & Benson LLP, Shanghai Office

New Rules for Representative Offices In an effort to strengthen oversight of representative offices established by foreign enterprises inside China and respond to perceived abuses of their use in China, the State Counsel issued the Administrative Regulations for the Registration of Representative Offices of Foreign Enterprises on November 19, 2010, with effect from March 1, 2011. These regulations impose a two-year head office existence requirement, strict limits on business scopes, annual reporting requirements and a limit on the maximum number of foreign representatives that a representative office can have (four). These tightened requirements for representative offices were widely implemented in China by local administrations for industry and commerce in 2011. They resulted in many closures of representative offices that were not in compliance with these requirements and in the conversion of many representative offices into wholly foreign-owned enterprises.

c ov e r s to ry

Wm Patrick Cranley

William Brekke

Director of Development, The Hopkins-Nanjing Center, 2000 Chairman, AmCham Shanghai

Pricipal Commercial Officer, U.S. Commercial Service/ U.S. Consulate General, Shanghai

Banner Year

Celebrating 25

Despite the gloomy global economic climate, 2010 and 2011 have been banner years for U.S. exports to China, proving American companies are increasingly competitive, engaged and profitable here. In 2010, U.S. exports to China increased by over 32 percent to almost US$92 billion. From January to September 2011, they’ve totaled US$74 billion, an 18.3 percent increase over the same period in 2010. Last year, the U.S. Commercial Service facilitated over US$34.8 billion of export transactions worldwide – a 76 percent increase over 2009 – demonstrating its crucial role in overall U.S. business success overseas. In Shanghai the U.S. Commercial Service witnessed key wins this year: the establishment of direct flights between Shanghai and Honolulu, a reservation procedure for Group Leisure Travelers (GLT) that lowers visa interview appointment wait-times, the ground breaking of the Shanghai Disney Park and the establishment of NYU’s campus. The U.S. has also launched SelectUSA, a new initiative that showcases the United States as the world’s premier investment location.

Not many ventures in China can boast 25 years of growth and success, but two great examples are the American Chamber of Commerce in Shanghai and the HopkinsNanjing Center. The Center celebrates its 25th anniversary in 2011, AmCham Shanghai’s is right around the corner in 2012. From today’s perspective, it is difficult to imagine the leadership and courage that was necessary to gain approval for the establishment within China of an international affairs graduate program founded on the idea of open access to information and the free exchange of ideas between English-speaking Chinese and Chinese-speaking American students living, studying and growing together. But both the Hopkins-Nanjing Center and AmCham Shanghai have weathered the dramatic ups and downs of U.S.-China relations for decades, and their alumni now facilitate China’s ever-expanding engagement with the world, to the benefit of all partners. Their missions remain as vitally important today as they were a quarter of a century ago.

Top Ten China Stories Here is a selection of 10 business-related stories that you may have missed in 2011.

imaginechina

DRINK UP: Coca-Cola said in June that world’s largest soft the drink company is exploring the possibility of listing its stock on the Shanghai Stock Exchange, part of its plan to invest heavily in China. The company said earlier that it intends to invest US$4 billion in China between 2012 and 2014.

GRAND SLAM: Tennis star Li Na became the first Chinese player and first Asian ever to win a Grand Slam singles title after she beat Francesca Schiavone to win the French Open in June. Li Na, 29, who was born in Hubei province, has been credited with raising the profile of the game in China due to her victory. december

2011

imaginechina

LET’S BLOG: Sina Weibo, China’s twitter-style Internet service, reached 250 million registered accounts, a milestone that came just two years after the site went online. Sina, which has 25 million active daily users, is planning to launch an Englishlanguage site.

Li Na

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Dr. Matthew Targett Head of Innovation, Bayer Technology Services Asia

China’s 2011 coal consumption and policies are especially notable as a snapshot into China’s gargantuan energy needs and its plans to meet them. China consumed more than an estimated 3 billion tons of coal in 2010, but China’s government is putting in sizeable investments for new coal conversion technologies that will make China’s coal processing more efficient. China is also prototyping some new process technologies at commercial scales in order to lessen dependence on oil related imports for materials such as common polyethylene and polypropylene plastics. These developments impact many fronts: it touches on China’s innovation challenges and IPR laws and it necessitates dialogue about China’s technology transfers from foreign companies innovating in this area. There will likely be successes – but many failures. Either way, it signals China’s ambitions to being less dependent on petroleum imports and it is an opportunity to make profound progress towards clean coal.

Top Ten shanghai Stories

GAME OVER: Shanghai native Yao Ming, 30, and arguably China’s most famous sports figure, announced his retirement from the NBA in July following a foot injury that kept him off the basketball court for long periods. In addition to being owner of the Shanghai Sharks, he’s now taking classes at Shanghai Jiaotong University and helping to campaign against shark fin soup. 32

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Yao Ming

imaginechina

Rao Talasila

Senior Manager, Cisco Systems

Farewell Jobs

Steve

“I will switch my Mac Book back to a PC only at gun point,” said a recent Apple convert in my office. As a PC user for some 20 years, I was surprised that I agreed with that statement a year after switching to a Mac Book. I clearly became more productive and now can focus on managing my work instead of managing my computer. This dramatic turnaround in opinion is not because of a one-time hit product from Apple, but is a culmination of over 25-years of visionary thoughts and execution by Steve Jobs. He may no longer be with us, but he leaves our industry with a philosophy of persisting in creating beautiful and highly usable products. As my 4-year old son retraces the outlines of Chinese & Telugu characters (a South Indian language) on his favorite iPad applications, I silently thank Steve Jobs for creating such a marvelous product. The iPad made learning interactive & fun. This is no small feat as many of the parents like me agree. Thank you, Steve.

SPEED: The new high-speed train between Beijing and Shanghai’s Hongqiao Railway Station opened to the public on June 30. Trains now travel about 300 km/h and it takes about five hours to make the 1,305km journey. Flights between the two cities take two hours barring delays.

istockphoto

High-speed trains

NEW CAMPUS: New York University began construction of its campus in Pudong in March and it will run as an independent entity that grants degrees. It will be operated by NYU and East China Normal University when it opens in 2013. Several other U.S. schools have forged ties with Chinese institutions, including Duke, Berkeley and MIT.

FREE TRADE: The Shanghai government announced that it will develop three of its bonded areas into China’s first free trade zone (FTZ). The FTZ, which will allow for free exchange of currency, tax exemptions and other services, is part of the city’s ambitions to become a global shipping center.

NYU groundbreaking in Shanghai

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insight

Top Ten quotes A selection of noteworthy quotes from 2011 picked by editors at Insight President Hu Jintao and President Barack Obama

“For an economy like the United States, where our biggest competitive advantage is our knowledge, our innovation, our patents, our copyrights, for us not to get the kind of protection we need in a large marketplace like China is not acceptable.” President Barack Obama, Reuters, Nov. 12

“The new mechanism for global economic governance should reflect the changes in the world economic landscape. It should observe the principle of mutual respect and collective decision making and increase the representation and voice of emerging markets and developing countries.” President Hu Jintao, Reuters, Nov. 12

“China and the United States are like people in the same boat, and we have to row in the same direction to get anywhere.” Secretary of State Hillary Rodham Clinton, State.gov blog, May 9

“I would argue that Iran is the most transcendent foreign-policy challenge, which could take a lot of bandwidth out of the Oval Office. But on a day-to-day management basis, when it comes to economics, security, trade and investment, there’s only one relationship that matters in the world. The United States and China are now on the world stage.” 34

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“Sun Zhen, deputy at the National Bureau of Statistic and Wu Chaoming, deputy director at the People’s Bank of China, have just been jailed five and six years respectively for leaking economic data. I’m finally beginning to understand Chinese law -- apparently there’s no crime in manufacturing fake data, but leaking fake data is a crime.”

Thomas Friedman, columnist, New York Times, Oct. 18 writing on the U.S. currency bill

Larry Lang, talk show host, on a Sina Weibo entry, Shanghaiist, Oct. 27

“I’ll need an extra bottle [of wine] for my history professor so he can give me a good grade and let me skip his class.” Yao Ming, Wall Street Journal, talking about his new wine business and why he may miss class at Jiaotong University to promote the brand, Nov. 28

“If you ask a Chinese peasant farmer whether China should help save Europe, he will ask you who’s going to save him,” says one senior official working on China’s policy stance toward Europe.” Financial Times, Nov. 20

“The bar is being raised significantly, and I think Chinese companies do understand that they need to understand our system better than they have in the past.” Christopher Hickey, Insight, USFDA director in China, June 17, writing on U.S. laws impacting Chinese food exporters

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Jon Hunstman, U.S. presidential candidate, Wall Street Journal interview, Nov. 21

“One, I really hope the people pushing this bill do not give up. Two, I really hope the people pushing this bill do not succeed. And, three, I really hope no one thinks this legislation will make any sustainable dent in our unemployment problem, which requires much more radical rethinking.”

“In the U.S. you issue tickets in order to control traffic. In China, we control traffic in order to issue tickets.” Driver Yang, Insight magazine article about Chinese truckers, September

Driver Yang

inside amcham B O A R D o f g ov e r n o r s b r i e f i n g

Highlights from the November 2011 Board of Governors Meeting Financial Report Helen Ren, director of finance and administration, reported that the Chamber continues to be in a strong financial position. Chamber revenue is over budget as is revenue from the Corporate Visa Program. AmCham Shanghai’s member retention rate is at budget. Helen also reported that Chamber expenses are at or under budget, and Board Treasurer Eric Zheng remarked that he believed AmCham Shanghai is in a good financial position. Shaanxi Regional Business Delegation The Shaanxi Regional Business Delegation was reviewed. A delegation of 22 members traveled to Xi’an and Shaanxi province from October 20–22, 2011 where delegates met with the vice-governor of Shaanxi province and the Xi’an mayor. Similar to the first delegation held in March 2011 in Chongqing, the goal of the trip was to develop business opportunities for Chamber members. Initial reports from participating members regarding the trip outcomes have been positive and several members have said that they would like to see more business delegations in the future. The next delegation will travel to Chengdu tentatively set for early 2012.

AmCham Shanghai’s Yangtze River Delta Initiative Helen Ren reviewed plans to extend AmCham Shanghai’s presence in the Yangtze River Delta (YRD) region, with an initial focus on Suzhou, and highlighted YRD activities so far this year. With the strong support of the Suzhou Committee, AmCham Shanghai held the first annual Suzhou Government Appreciation Dinner in April of 2011 and has increased the number of Chamber events in Suzhou. The final objective of 2011 for the YRD initiative is to present to the Board a plan to execute the Chamber’s YRD strategy. First steps in 2012 are to begin a planned Suzhou government outreach targeted for February 2012. In Attendance Governors: Eddy Chan, Kenneth Jarrett, Ted Hornbein, Marie Kissel, Eric Musser (Chair), Jim Mullinax, Robert Roche, Robert Theleen, Kevin Wale and Eric Zheng Apologies: Andrew Au, William Brekke, Brenda Foster (President) and Matt Targett Attendees: David Basmajian, Siobhan Das, Helen Ren, Karen Yuen and Linda X. Wang

The AmCham Shanghai 2011 Board of Governors Chair

Governors

Andrew Au Citibank China

Matthew Targett Bayer Technology and Engineering

Ted Hornbein Richco

Eric S. Musser Corning China

Immediate Past Chair

Robert W. Roche Acorn International

Robert Theleen ChinaVest

Kenneth Jarrett APCO Worldwide

Eddy Chan FedEx Express

Marie Kissel Baxter Asia-Pacific

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Kevin E.Wale General Motors China Group

Eric Zheng Chartis Insurance

i n d u s t ry u p dat e B y Mat t h e w Ga r n e r

Something to Declare What new rules from Shanghai Customs mean to businesses that import and export goods

n September, the AmCham Shanghai Customs Liaison Taskforce met with officials from Shanghai Customs and discussed recently implemented changes and their responses to the 2011 AmCham Shanghai Customs Survey Report, which offered feedback and questions from Chamber members on Shanghaiâ&#x20AC;&#x2122;s customs policies. Based on that, the Government Relations (GR) department at AmCham Shanghai gleaned a list of tips that international companies in China may use to improve customs clearance times and logistics efficiency. Out of the 381 companies surveyed for the report, 30 percent of importers of goods into China identified valuation as the most troublesome of their customs operations because of its complex compliancy requirements. Why the difficulty? To alleviate declaration bottlenecks, Shanghai Customs has instituted pre-

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valuation and pre-classification procedures to declare goods before they arrive. A key to this is classifying and valuating all component pieces and materials from which customs goods are made (e.g., a coffee mug is made out of PVA, a polymer, but the handle is ceramic). All component pieces must be correctly matched to their designated category within the China/Shanghai Customs category and valuation index. Declaration requires presenting a copy of a contract that outlines this price structure of the item and component items. This becomes a problem because many logistics departments are not privy to the contract. When confronted with this requirement, they often cannot complete a breakdown of component values in good time because of the number of departments involved. Shanghai Customs also often interacts with company finance departments, as they are most familiar with all price structures of the goods being declared. But finance departments are often unaware of customs requirements and so require additional time to gather correct information and approvals.

CEO in the loop To mitigate these difficulties, Shanghai Customs recommended that CEO or executive-level managers be aware of these requirements and be involved in the valuation process. The pre-valuation policy, above all, needs cooperation across all departments. Having management involved from the beginning facilitates information sharing between the finance and logistics departments. Many companies do not want to carry out these procedures for fear of information leakage, but Shanghai Customs has the responsibility of keeping the information private and can be held liable. Valuation requirement compliance is key. If a company cannot provide the necessary price information, it will have to pay a deposit or fine, or will have to wait long periods of time for goods

to be released from customs. This can mean added costs and can be a big burden for small- and medium-sized companies that depend on imports into China. When all pricing valuations are clearly stated, goods can clear customs within five working days, though processing times may be longer with materials that require an expert adviser on materials valuation. During the declaration process, customs officials may have clarification questions. In many cases, this is understood to be an audit by customs and because it is seen as a formal procedure, those in the logistics or other departments do not directly answer questions and request a written statement from Shanghai Customs to present to their superiors. This adds more time and work to the customs declaration process. However, questions are often answerable over the phone and do not need to be made into a formal process.

Be sure to register According to Shanghai Customs Regulation 33, pertaining to the import and export of samples and advertising materials, cosignees of imports and shippers of exported samples and/ or advertising materials must obtain a customs registration number or hire an import/export trading company to do it for them. One of the main reasons for implementing this policy was to increase accountability on the side of the express carrier, as express packages in the past occasionally contained illegal or contraband materials. In these cases, when customs officials attempted to locate the end party they sometimes found it is a fake or non-existent company. As a result, all registered express carriers must have written confirmation of recipient clients giving them authority to declare customs items and at the same time prove that they are a legitimate company. Since implementation, adapting to this regulation has been difficult for express delivery companies like FedEx and UPS as well as smaller companies sending and receiving express packages, as often the receiving company does not give carriers, or does not know to give carriers, the

authority to declare customs items. This has led to longer clearance times for all samples and advertising materials. Companies delivering product samples/ prototypes or commercial materials through express delivery should know in advance that these will have to clear customs and so should require that recipients give written authorization to their express carrier (FedEx or UPS in most cases) to declare customs. This issue was addressed to Shanghai Customs through the liaison program and in response, Shanghai Customs has agreed to postpone full implementation of the program for another year until July 7, 2012.

Digitize customs handbook For those companies in Bonded Zones (particularly Waigaoqiao Bonded Zone), keeping track of the amount of materials going in and out and raw materials being housed is a big priority for customs. Traditionally, these numbers were recorded in an official Customs Handbook by the companies themselves, and the numbers were checked by officials on a regular basis. However, in an effort to increase efficiency, customs recently shifted monitoring to an electronic system. As digitalization is the trend in regulation enforcement and monitoring, companies involved in export processing should become familiar with the system, outlined in the order entitled Shanghai Customs Regulations Regarding Networking of Processing Trade Industries (currently no English version available). Shanghai Customs recommends becoming familiar with customs regulations and following customs announcements (http://shanghai.customs. gov.cn/publish/portal27/) as well as staying current on customs training programs and seminars. By knowing regulations ahead of time, it can be easy to improve clearance times, minimize shipping times and save on supply chain costs.

Matthew Garner is a government relations associate at AmCham Shanghai.

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â&#x20AC;&#x153;

Many companies do not want to carry out these procedures for fear of information leakageâ&#x20AC;Śâ&#x20AC;?

p o l i c y u p dat e B y R o b e rt S m i t h

Robert Smith

A Preview of Shanghai’s VAT Pilot Significant changes to tax laws on the horizon for businesses

long anticipated transformation of China’s indirect tax system will merge some services previously subjected to the Business Tax (BT) into the Value Added Tax (VAT) on a pilot basis in Shanghai. Companies – even those outside Shanghai – need to understand how these changes affect their business and that they have a short time to act, given that the first VAT return is due mid-February 2012. The VAT and BT regime was introduced in 1993 and revised again in 2009, but the rules remain “provisional” awaiting an upgrade to a law. China’s government has been considering, for the last few years, the possibility of introducing a comprehensive reform by merging both VAT and BT activities into a single Goods and Services Tax (GST). Such a change would closer align China’s VAT system and decrease cascading taxes, but would require significant efforts from China’s government and companies to adapt to the new environment. VAT is an important tax in China and accounts for more than one-third of the government’s tax revenue, while BT accounts for another 14 percent, totaling close to 50 percent of total tax revenue. Any regulatory changes would need to be carefully studied prior to implementation. The Shanghai VAT Pilot program gives the Chinese government an

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opportunity to test run any reform policies.

VAT pilot On November 16, the Ministry of Finance (MOF) and the State Administration of Taxation (SAT) issued a statement explaining the rationale for the pilot and arrangements with Shanghai along with two circulars – Circular caishui [2011] No. 110 and Circular caishui [2011] No. 111. Circular 110 sets out the overall VAT pilot framework and provides insight into possible future developments. It paves the way for additional services, locations, etc. to be introduced and even how some services, which are not included in the Shanghai pilot, such as financial services, could be treated. If the Shanghai pilot is successful, as anticipated, it is expected to expand to include other locations, services and maybe even on a nationwide basis, as was the case with the trial on fixed assets. A second circular, Circular 111, states that transportation services and “certain modern” services would be covered along with “in-scope” services within these two categories. The in-scope services are subject to two new VAT rates of 6 percent and 11 percent, increasing the total number of different VAT rates and raising the chances for error by companies. The new rates

may lead to a tax reduction, but this may not always be the case and there will be instances where higher taxes will be incurred. Some transition measures such as leasing contracts and certain BT exemptions carry forward were designed to lessen the impact. Even with definition of in-scope services, questions remain on whether numerous types of services fall into these categories. Some situations will certainly require clarification from Shanghai tax officials on the appropriate treatment, and it is expected companies will be raising such concerns.

What does it mean? With only one month left for compliance, much has to be completed in a short time. We are aware that companies have already received letters, notices and contacts from officials to conduct a “self-assessment” on services provided and conclude whether they are in-scope. In other cases, the local tax bureau has informed companies to convert immediately from a BT taxpayer to a VAT taxpayer. Companies are concerned about the speed with which the transition process is being rolled out since the pilot can have a significant impact on operations, accounting processes and overall tax burden that requires a significant investment in time, effort and resources. Irrespective of whether a company is inscope, out-of-scope or located in/out of Shanghai, businesses are faced with a slew of new questions and reassessment. For in-scope businesses, staff must consider changes to pricing and commercial arrangements. Is it possible to pass on the VAT to customers through price negotiations? How would VAT sensitive data be created/stored/handled for return preparation? For out-of-scope businesses interacting with inscope businesses, staff must also consider its own unique financial impact – will they incur additional costs from in-scope suppliers? Should the company postpone or expedite purchases/sales of items that will be impacted by the pilot? In summary, the Shanghai pilot is coming quickly and most companies will be impacted one way or another. About 90 percent of respondents to Ernst & Young’s 2011 China VAT survey stated

VAT changes are “important,” with 54 percent answering “very important.” In contrast, 80 percent responded they were “not so confident” that current VAT processes were generating accurate VAT return results and only 16 percent thought they had “experienced staff who could strategically manage their indirect taxes.” Most seem to agree the pilot will affect their business but a large group still has work ahead to build a stable organizational structure that can properly manage VAT processes. On balance, the pilot and future reforms should result in favorable outcomes for most companies in the long-term, since VAT can be passed through the supply chain and blocked VAT and inefficiencies with the BT regime should decrease. Nevertheless, as with any regulatory change, companies should expect to encounter short-term operational challenges and must manage the financial impact. Robert Smith is the Asia-Pacific leader of indirect taxes at Ernst & Young. Ernst & Young is collaborating with China’s government on the overall VAT Reform and the pilot program.

Type of VAT Taxpayer

Service Category “In-scope” Services Grouping

VAT Rate

General VAT taxpayer

Transportation services

Land Air Water Pipeline

11 percent

“Modern” services

Movable property leasing (finance and operating)

17 percent

R&D and technology Information technology Cultural and creative Logistics auxiliary Authentication and consulting

6 percent

All VAT pilot services

3 percent

Small scale VAT taxpayers

All VAT pilot services

Souce: Ernst & Young

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inside amcham from the chairman

An Outstanding Year

011 was an important year for AmCham Shanghai. We continued to grow and enhance our organization, building a government relations and advocacy program, expanding the Chamber’s footprint in the fast-growing Yangtze River Delta and launching new programs to support our members in an increasingly competitive Chinese market. The continued development of AmCham Shanghai’s government relations efforts here in China and in the U.S. was one of our top priorities. Our goal has been, and will continue to be, to align the Chamber’s GR efforts with members’ business objectives. So far in 2011, the Chamber has hosted a record number of delegations from U.S. and Chinese state and provincial governments, as well as visits from mayors of leading cities of both countries. Eric S. Musser Chair of the Board of Governors

The annual Doorknock in Washington, D.C. was one of AmCham Shanghai’s most productive ever. During the September visit, Doorknock delegates engaged Obama administration officials, congressional leadership, think tank representatives and members of the U.S. media in 40 targeted meetings concentrating on boosting U.S. exports and jobs and market access challenges facing U.S. companies in China. The Doorknock already has achieved some important outcomes, including a visit to AmCham Shanghai by the U.S. Export-Import Bank (ExIm). AmCham Shanghai’s Financial Services Committee partnered with Wells Fargo Bank to host ExIm Chairman Fred Hochberg and more than 40 Chinese banks and companies to promote how U.S. banks in China and ExIm can offer services to support the purchase of U.S. products and services. AmCham Shanghai continues to build a strong foundation in the Yangtze River Delta and beyond. Leveraging an active Suzhou Committee that hosts monthly roundtables, we hosted our first-ever annual Suzhou Government Appreciation Dinner in April. The dinner was a tremendous success with more than 100 AmCham Shanghai members, Suzhou Mayor Yan Li and other U.S. and Chinese government officials in attendance.

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inside amcham from the chairman

This year we kicked off AmCham Shanghai’s Regional Business Delegation trips as a new program to support members’ growing interest in expanding into Western China. In March, more than 70 members visited Chongqing to meet with government officials and tour U.S. and Chinese facilities. In October, we held our second trip in Xi’an and Shaanxi province, where delegates met with local officials, including the governor of Shaanxi province and the mayor of Xi’an. Our next Regional Business Delegation is scheduled for Chengdu in early 2012 and promises to be equally valuable. We’re looking forward to even bigger things in 2012, which marks the 25th anniversary of AmCham Shanghai. In addition to celebrating the success of our members over these many years, next year we’re looking to launch the Chamber’s newly established SME Center as both a physical and virtual resource to support Chamber SMEs. We’ll also continue to strengthen our relationships with provincial governments, which provide members access to key officials and opportunities to build their business outside of Shanghai. Finally, as always, we’ll continue to build upon our many successful member programs and events, including our popular Spotlight Sessions that have drawn nearly 900 attendees to more than 30 sessions so far in 2011, our newly established HR Fair & Workshop and key Corporate Social Responsibility (CSR) initiatives. I want to thank the 2011 Governors, Committee leaders and members, and the entire AmCham Shanghai staff for their dedication and contributions to serving you – our members. I also want to single out President Brenda Foster for her tireless leadership aligning AmCham Shanghai with the business objectives of our members. I congratulate incoming 2012 Chair Kenneth Jarrett and the newly elected Board of Governors. I am confident that AmCham Shanghai – the largest AmCham in the Asia-Pacific – will do even greater things in 2012 and in the years ahead. It has been an honor and privilege to serve as your 2011 Chair. I thank all of you for your support, and I look forward to my continued participation and service to the Chamber in the years ahead.

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doorknock B y b rya n v i r a s a m i

Healthcare in China Viewpoint report outlines the challenges and opportunities U.S. companies face in the China market

he healthcare market in China has nowhere to go but up and that translates into significant growth opportunities for American c o mp a n i e s t h at w i s h t o s t ay competitive at home and abroad. That’s the bottom line of a recent “Healthcare in China” Vie w point rep or t publishe d by AmC ham Shanghai that summarized the market opportunities in the country and assessed the challenges ahead. The 16-page report, is one of four Viewpoints published in 2011 and used during the organization’s annual Doorknock trip to the U.S. capital. The healthcare report said that although C h i n a’s h e a l t h c a r e m a r k e t o f f e r s g r e a t opportunities for U.S. companies that export to China, there are significant challenges that need to be addressed. The report said that while the U.S. is one of the largest exporters of pharmaceutical products and medical de vices to China, maintaining a competitive edge is crucial if U.S. companies want to be a part of China’s booming economy that would help contribute to the creation of jobs at home. Most importantly, the export of U.S. healthcare related products and services is crucial to fulfilling the goals of the National Export Initiative (NEI), which includes doubling U.S. exports by 2015 and creating two million new American jobs. If market trends in China and other emerging countries continue, according to the Washingtonbased Alliance for Healthcare Competitiveness, up to 40 percent of new jobs created in the U.S. over the next 25 years will be healthcare related. One of the main drivers of growth is the

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2011

HEALTHCARE

Healthcare in China

Diagnosing the Challenges and Opportunities in the China Market Industry Insight

Download the full report at www.amcham-shanghai.org

Chinese government’s reform initiative that was launched in 2009 with a US$125 billion plan to offer basic healthcare to every Chinese citizen. It calls for thousands of new hospitals and clinics across t he count r y, t raining for me d ic a l professionals and better services. In addition, China’s unprecedented economic growth has created a larger middle class population eager to find a higher standard of medical care offered by U.S. medical professionals and hospitals here. The report also offered a breakdown of the h e a lt h c are i n du s t r y i n t h re e c at e gor i e s : pharmaceutical, medical devices and services. The report quoted figures from Business Monitor International (BMI) that said the pharmaceuticals market in China may grow 22 percent to $69 billion this year while the medical devices market is expected to reach $18.3 billion in 2011, a 16.3 percent rise. The overall healthcare market in China is projected to grow 16 percent to $287 billion in 2011. Presently, China is the third largest market for

medical devices in the world, just after the U.S. and Japan. And still, the market by many estimates, will continue to grow every year and it is expected become the second largest within a few years reaching an estimated US $43 billion by 2019. In 2009, China imported 31 percent of its medical devices from the U.S., followed by 20 percent from Germany and 16 percent from Japan. For the U.S. to stay competitive, AmCham Shanghai, among other things, is urging the U.S. government to prioritize market access barriers that prevent Chinese patients from having access to lifesaving and sustaining medical products that include large radiology equipment such as MRIs and CT scans.

Services The report further explained that U.S. services providers are competing aggressively in the China market and are key to supporting the delivery of improved healthcare to the Chinese people. This includes support services to manufacturers, hospitals and pharmacies that range from supply chain, distribution, management consulting and sterilization services to healthcare delivery in U.S. invested hospitals. Again, the issue of a level playing field is a major concern as state-owned enterprises are given preferential treatment and foreign hospitals face obstacles when it comes to expanding and opening other sites in China. Hospitals also have problems importing certain medicine used around the world including lifesaving drugs with no substitute.

markets which are expected to grow 5 to 7 percent in 2011, the report said. Additionally, the U.S. is a top competitor in the China drug market. From 2008 to 2009, China imported 13.4 percent of all foreign medical and pharmaceutical products from the U.S., followed by 7.7 percent from Japan. From 2006 to 2009, imports of U.S. pharmaceutical products climbed 107.6 percent. U.S. healthcare companies have many concerns about the pharmaceutical market in China including a bureaucratic approval process, pricing policies and a cumbersome process for clinical trials. The report clearly stated that AmCham Shanghai commends the work done by U.S. government agencies to address these issues in the past but feel that China must be pushed to follow up on commitments made. The report made other recommendations: create a level playing field for all players, build a more efficient re g u l ator y approv a l pro c e s s an d re w ard manufacturers for innovation so they can compete.

“

China’s unprecedented economic growth has created a larger middle class population eager to find a higher standard of medical care…”

The full healthcare report and three other viewpoints are available at www.AmchamShanghai.org

Imports of Medical Devices by Source, China, 2009

Pharmaceuticals The report said that China’s enormous US$69 billion pharmaceutical market is now the third largest in the world. Some other facts: China’s drug market is poised to grow even larger and some analysts predict growth of 25 to 27 percent in coming years, a significant figure compared to single digit growth in the U.S. and in many other developed

Source: UNICTAD, UNCTAD stat

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Spotlight on CSR Best CSR Practices at 2011 Conference

CONFERENCE

More than 100 representatives from business, local non-profits and government offices attended AmCham Shanghai's Seventh Annual Corporate Social Responsibility (CSR) Conference, CSR Innovation: New Ways to Engage Key Stakeholders, which was held November 9 at the Renaissance Shanghai Zhongshan Park Hotel. The conference featured panels on government relations and CSR, social media campaigns, public-private partnerships and , cross-border CSR strategy. Richard Kelly, managing director at IDEO s Asia-Pacific office, kicked off the conference with a keynote speech. Kelly encouraged attendees to think big. “Truly global brands need to be asking truly global questions – questions that are bigger and more important than any one of them can answer,” said Kelly. “Companies need to be asking questions about poverty, peace, sustainability, entrepreneurship, education…[by] solving them together, you can make the economic pie bigger for everyone, and carve out a larger slice for yourself as well.” Speakers considered the new role of public-private partnerships. “AmCham Shanghai and our members are committed to responsible business practices globally and in China,” said Eric Musser, chairman of AmCham Shanghai. “AmCham Shanghai is also at the forefront, encouraging U.S. businesses in China to play a vital role in bringing positive impact to the greater community we operate in.” , General Electric (GE) China issued the 2010 GE China Sustainability Report at the conference that details GE s CSR strategies and practice with an objective to support a sustainable economy in China through its day-to-day business operations.

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Corporate Leaders

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Goverment Relations AmChams, USCBC Brief U.S. JCCT Negotiating Team AmCham Shanghai joined AmCham China and the U.S.-China Business Council in Beijing to host the new U.S. Secretary of Commerce John Bryson for a breakfast briefing on the challenges and opportunities facing U.S. companies operating in China. Secretary Bryson was on his way to Chengdu for the 22nd session of the U.S.-China Joint Commission on Commerce and Trade (JCCT) from November 21-22. The Secretary was joined at the briefing by the U.S. Ambassador to China, Gary Locke, U.S. Trade Representative Ron Kirk and several other members of the U.S. team. AmCham Shanghai was represented by Board Chair Eric Musser, Vice Chair Robert Roche and Board Secretary Marie Kissel. The discussion focused on key industries and issues in the China market, including the growing opportunity in healthcare, conditions for U.S. investment in China, Chinaâ&#x20AC;&#x2122;s innovation policies and the foreign investment catalog. (Nov 19)

U.S. Wants to Increase FDI, Says SelectUSA Official Barry Johnson, executive director of SelectUSA, met with AmCham Shanghai members where he outlined the SelectUSA program and its future outlook. Ten years ago, says Johnson, the U.S. commanded 20 percent of world FDI flows, but currently attracts 12 percent. Given that increased FDI into the U.S. correlates to job creation, new business, infrastructure upgrades and improvements in the educational system, the Obama administration has put a high priority on attracting more FDI into the U.S. To do so, it created SelectUSA, under the Department of Commerce. SelectUSA has several roles. One is an advocacy service, working to inform investment companies of the support they can get when investing in the U.S. SelectUSA can also act as an ombudsman, working to eliminate regulatory impediments for investing companies. SelectUSA seeks to turn attention to the opportunities, not challenges, in investing in the U.S. (Nov 9) For more information on SelectUSA, visit: http://selectusa.commerce.gov/.

AmCham Shanghai Attends Ningbo China Marine Economy Investment Fair AmCham Shanghai attended the Ningbo China Marine Economy Investment Fair, where the municipal government of Ningbo, Zhejiang province outlined the city's Five-Year Plan and the city's focus on building its maritime economy. The Ningbo government's plans for development echo those of the central government. The central government's 12th Five-Year Plan outlines seven pillar industries of future growth, including clean energy, advanced manufacturing and new materials. The Ningbo government has identified these key growth sectors in Ningbo under a maritime frame. Ningbo's energy development, for example, will revolve around clean maritime energies like wind, tidal power and biofuel as well as offshore mining and drilling. Ningbo's focus on services and education will revolve around maritime tourism, including the development of seaboard hotels and yacht clubs, as well as maritime-related financial services like shipping insurance. This strategy, said officials, is supported by Zhejiang province and the central government. (Nov 10)

Shanghai Customs High Tea Mixer The Chamber's Customs Liaison Program Taskforce held a panel discussion with officials from Shanghai Customs, follow by an afternoon tea mixer with Shanghai Customs officials. Panel participants included Division Chief of Logistics Supervision and Control of Shanghai Pudong International Airport Customs Wang Hai Cheng, Deputy Section Chief of Inspection of Waigaoqiao Port Customs Qi Jin Lin and Section Chief of Inspection Management of Shanghai Customs Supervision and Clearance Division Zhang Jun. The discussion addressed common customs issues and gave regulations updates regarding goods inspection and clearance efficiency in Shanghai. After the panel discussion, meeting participants were able to talk one-on-one with panel participants. Customs officials encouraged importers to visit the Shanghai Customs website to monitor the status of goods, new regulations, statistics and tariff information. (Nov 21)

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Event highlights

inside amcham

November Monthly Member Briefing AmCham Shanghai welcomed Consul General in Shanghai Robert Griffiths and Bill Weinstein, economic minister at the U.S. Embassy in Beijing, at November’s Monthly Member Briefing. Weinstein spoke on U.S. Ambassador to China Gary Locke’s visit with AmCham Shanghai members, the second U.S.-China Governor's Dialogue that recently took place in Beijing and upcoming events important to the U.S.-China relationship. Congratulating AmCham Shanghai on Ambassador Gary Locke’s successful event with Chamber members, Weinstein said that Ambassador Locke will be focused on growing jobs in the U.S. by increasing the volume of exports from the U.S. to China as Consul General in Shanghai Robert Griffiths, right, and Bill Weinstein, well as encourage in investment in the U.S. economic minister at the U.S. Embassy in Beijing from the Chinese. Weinstein touched on the U.S.-China Governor's Dialogue, which AmCham Shanghai attended, in which leaders from U.S. states and provincial governors spoke on bilateral cooperation on investment and trade, as well as cultural and educational exchanges. Weinstein also spoke on the 21st U.S.-China Joint Commission on Commerce and Trade (JCCT) meeting that took place at the end of November in Chengdu. Leaders at the event, said Weinstein, will not only engage with China on intellectual property (IP) protection and indigenous innovation, but also follow up on commitments made at previous bilateral talks. (Nov 1)

Bay Area Council Looks to Boost Ties with AmCham Shanghai A delegation from the Bay Area Council called for increased collaboration with AmCham Shanghai and discussed ways to raise exports from California to the China market in a roundtable discussion with AmCham Shanghai members. The Bay Area Council was in China leading an executive delegation of Bay Area-based business leaders as well as representatives from the Port of Oakland, Alameda County and the California State Senate. Jim Wunderman, president and CEO of the Bay Area Council, said he wanted to continue the Ben Kinnas introducing Jim Wunderman, president and conversation started at the roundtable. "We're looking CEO of the Bay Area Council for more collaboration with AmCham Shanghai," said Wunderman. Representatives from the executive delegation included Janet Lamkin, president of Bank of America in California, as well as Janet Liang, president of Kaiser Permanente Hawaii. (Nov 8)

december 2011

insight

Event highlights

inside amcham

U.S. Export-Import Bank Comes to Shanghai A delegation from the U.S. Export-Import Bank (ExIm), led by Chairman and President Fred Hochberg, addressed Chamber members, Chinese banks and potential buyers of American products, services and commodities in an event co-sponsored by AmCham Shanghai and Wells Fargo Bank at the Portman RitzCarlton in Shanghai. The Bank’s objective: to finance and insure U.S. export deals that grow jobs in America. As America’s official export credit agency, ExIm is eager to boost government-backed financial support for U.S. exports to China, which make up only a fraction of the agency’s total portfolio, said Hochberg. The Bank has authorized US$254 million worth of sovereign-guaranteed loans to assist China-bound U.S. exports thus far in 2011, up from US$15.1 million last year but down from the nearly US$500 million authorized in 2000. By comparison, ExIm directed US$2 billion in assistance for U.S. exports to India over the past two months alone. Ben Kinnas, right, with Fred Hochberg, Chairman and President of the U.S. Export-Import Bank

Hochberg says ExIm is working to increase the Bank’s activity in China and aims to facilitate more robust U.S.-China trade by opening markets in China where credit is restricted and the potential for growth is strong. Stepped up financial support would help U.S. companies in these and other industries compete more aggressively in China’s fast-growing market. For companies interested in using ExIm’s services, Hochberg recommended contacting Wells Fargo here in Shanghai, or another U.S. bank with operations in China. Companies may also contact ExIm directly through James Lewis, the Bank’s senior business development officer, by email at james.lewis@exim.gov. The U.S. Consulate, Foreign Commercial Service (FCS) or foreign banks can provide information on the ExIm Bank and the services offered. (Nov 9)

Documentary Screening Sheds Light on Rural Healthcare Challenges Filmmaker Carol Liu and Stanford University senior fellow Scott Rozelle presented the documentary Restoring the Light at the AmCham Shanghai office. Liu and Rozelle screened the film and discussed two major challenges of rural development in China: healthcare and nutrition. “To move to the next level of economic development, China has to go beyond the cities and develop human capital in rural areas,” said Rozelle. “But right now, only 40 percent of junior high school graduates in poor rural areas move on to an academic high school, and less than five percent go to college. A big , part of the problem is that if students are sick or malnourished, they can t learn effectively even if they have adequate school facilities.” , “Liu s film explores the challenges of providing healthcare, specifically vision care, for villagers in rural Ningxia province. After an introduction from the China Foundation for Disabled Persons, Liu and her crew followed the lives of an eye care doctor, a grandmother and a young boy with cataracts. “The film gives a clearer picture of the challenges in rural China," said Liu. "We hope it will inspire people to take action and work on bringing better healthcare to rural areas.” Since 2006, AmCham Shanghai and member partners have supported rural healthcare development in Yunnan, Guizhou and Guangxi , provinces through the Soong Ching Ling Foundation s Mother and Infant Care program. The Chamber and its partners have donated over RMB3 million and provided 91 villages with basic medical devices for infant and maternal healthcare. Over 4,800 babies have been delivered at sponsored birth centers, and a maternal mortality rate of zero has been achieved at 13 project sites. (Nov 21)

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december 2011

committee highlights

inside amcham

Manufacturer’s Business Council Schindler Escalator and EHC Escalator Handrail Factory Tour Members of AmCham Shanghai’s Manufacturer’s Business Council (MBC) had the opportunity to visit two Shanghai factories, the Schindler Escalator Competence Center and EHC Escalator Handrail. The first stop on the tour was Schindler’s Escalator Competence Center where Asia-Pacific Escalator Sales Director Gunter Frimmel presented the history of Schindler to members, then led a shop tour. Located just north of the city center, Schindler’s Shanghai plant is a sprawling 81,500-square-meter complex where 350 employees produce roughly 9,000 escalators annually. As the first industrial joint venture in China in 1980, Schindler’s products can be seen across the country in facilities ranging from shopping malls and hospitals to office buildings and airports. Most notably, Schindler supplied the two, 22 meter escalators prominently featured in the China Pavilion at the Shanghai 2010 World Expo. The second stop on the tour was EHC Escalator Handrail Co. Founder and CEO Ron Ball, who is also a member of the MBC, opened the Shanghai location of the Canada-based company in 1996 and now produces the only handrail which is approved by all escalator manufacturers. The 12,000-square-meter plant is located in Malu, western Shanghai, and its products are supplied to major manufacturers such as Schindler. Following the shop tour at EHC, MBC members held a roundtable discussion on relocation options for manufacturers in China and AmCham Shanghai’s General Manager’s Index survey, which is conducted and published monthly. (Nov 3)

Education & Training Committee Get Up, Get Energized: Workshop Energizers “Everyone get out of your seats. Stand up. Grab a partner. Now, turn your back to the person next to you and change one thing about your appearance,” says an activity leader. Laughter ensues. “Now, change three things about your appearance.” Members of the audience gasp. “Now, five things.” More gasps, more laughter. AmCham Shanghai’s Education & Training Committee got participants out of their seats at its workshop energizer event at the ELS American Education Center. At the event, four presenters were put to the test: they were asked to share ice breakers and activities to get audience members more comfortable in their environment. It worked. Their energy captivated the audience. Their activities gave trainers and facilitators a learning experience about how to get more people involved within their organization. At the end of the above activity, the message was clear: the activity was not just about changing your appearance, but being comfortable with change. (Nov 14) Events and Committee Highlights are reported by Kathy Vitale, Ryan Balis, Susan Lawrence, Christine Francois and Esther Young

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EXECUTIVE SHOPPER

What’s your favorite place to buy holiday gifts in Shanghai? This month, Insight invited managers and executives to tell us where they like to browse for holiday gifts, and there were a few surprises. Pilar M. Dieter, Principal – Greater China, Solidiance Place: Dongtai

Lu Antique Market and Taobao

Gary Rieschel, Managing Director, Qiming Ventures Place: Shanghai Tang and Spin Remarks: “Shanghai Tang always has just cool things and great merchandising and Spin has some of the finest porcelain ceramics I have seen with very innovative designs.” James Macadie, General Manager, Shanghai Marriott Hotel Hongqiao Place: Hongqiao

Flower Market

Remarks: “I like the Hongqiao flower market on Hongjing Road, which is three blocks away from the Shanghai Marriott Hotel Hongqiao, where you can buy Christmas trees, holiday decorations and nice holiday gifts.” istockphoto

Andreas Trauttmansdorff, General Manager, The Westin Bund Center Shanghai Place: Yu

Garden

Remarks: “My favorite place to shop are the antique shops in the Yu Garden area. There is also an antique market there, which my wife in particular likes and on weekends they extend the exhibition to another two floors and if one has the time, there are many bargains to be had. We bought some nice paintings, prints and photographs. In terms of price, like anything in China, you have to bargain and one can usually settle on discounts on the original asking price of anything between 75 to 50 percent.” Sarah Köchling, Inventor, ?What If! Innovation Ltd. Place: Cha

Mi Jia (Fumin Road)

Remarks: “My favorite place to shop for holiday gifts is Cha Mi Jia ( 茶米家 ) on Fumin Lu. It means ‘tea rice house’ and is basically a lifestyle concept shop that sells elegant Chinese tea, porcelain and rice. The shop sells all six major types of Chinese tea and they are happy to help consumers learn and explore them in their charming little space. Their signature teas are all my favorites: Lapsang Souchong, White tea, and High Mountain Oolong. They also carry gorgeous Jingdezhen ceramics from Spin. Packaged separately or with some of the lovely ceramics, this tea always makes a great gift.

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december 2011

imaginechina

Remarks: “Dongtai Lu Antique Street market for over the top Communist chotchkies that drive my father in law crazy, and Taobao.”

december 2011

insight

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