Insight Magazine January-February 2012 by The American Chamber of Commerce in Shanghai

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

January/February 2012

ALSO INSIDE Yangtze River Delta Feature Meet the 2012 AmCham Shanghai Chair

Will the

Dragon Roar?

Experts predict how Chinaâ&#x20AC;&#x2122;s rise will impact U.S. businesses and bilateral relations in the Year of the Dragon

INSIGHT Januar y/Febr uar y 2012

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

16 The Delta Challenge

Committees

David Basmajian Events

Jessica Wu Finance & Administration

By Jonathan Shyu

A look at companies doing business in the Yangtze River Delta along with their greatest opportunities and challenges.

Stefanie Myers insight editor-in-chief/ Communications & Publications

Regional focus

18 Meet the 2012 AmCham Shanghai Chair INTERVIEW

By David Basmajian and Bryan Virasami

Helen Ren

An in-depth interview with Ken Jarrett, chairman, Greater China for APCO Worldwide and AmCham Shanghai’s new Chair.

Membership & CVP

Linda X. Wang

INSIGHT

managing editor

Bryan Virasami Senior Associate Editor

Esther Young

Associate Editor

23 Small Firms, Big Impact Business climate

By Kirt Greenburg

SMEs are increasing their exports and China’s the market they are eyeing. What’s next for SME expansion in China?

Ryan Balis Design

Alicia Beebe Layout & Printing

Mickey Zhou Snap Printing, Inc.

INSIGHT Sponsorship sponsorship manager

26 Will the Dragon Roar?

Charles Freeman, Derek Scissors and other China-savvy thought leaders share their outlook and predictions for China in the Year of the Dragon.

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.

COVER STORY

I nsigh t s tandards

5 News Briefs

50 Executive Reading Room

Market Overview

L.E.K. takes a look at China’s theme park market.

DOORKNOCK

Highlights from the Financial Services Viewpoint.

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

44 2011 Shanghai Government Appreciation Dinner 47 Government Relations 48 Inside AmCham Shanghai Events

Cover design by Tian Chi

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

Editor's note

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

t is widely expected that 2012 will be a transitional year for the U.S.-China relationship. An American presidential election has the potential to shake up the power structure in Washington and China will see a handover in leadership that will begin later this year. While political change is different in each country, the impact, for now, on the world’s two biggest economies is a question mark. But it certainly promises to be an interesting year for political observers. One of them is Kenneth Jarrett, the newly elected chair of the AmCham Shanghai Board of Governors, who has more than 20 years experience in China both in business and government. Many of those years were dedicated to improving U.S.-China relations. In an interview, Jarrett talks about how the American elections and China’s leadership change may require the Chamber and U.S. companies to play a stronger role in maintaining healthy bilateral relations. Jarrett also shares his priorities for AmCham Shanghai and reveals why he came to China in the first place.

In this issue, you will also find provocative essays from leading thinkers and China experts such as Derek Scissors from the Heritage Foundation, Shen Dingli of Fudan University, Andy Rothman of CLSA and Charles Freeman of PepsiCo, who tell us what to expect this year. Enhancing services to U.S. SMEs in China and to the Chamber’s growing membership beyond Shanghai are both priorities for AmCham Shanghai in 2012. Kirt Greenburg, AmCham Shanghai’s SME associate and Programs Associate Jonathan Shyu highlight the critical role SMEs play in the global economy, the growing presence of American SMEs in China and look at the challenges companies face in the Yangtze River Delta. Insight’s January/February issue ends with the Executive Reading Room. What are top U.S. executives in China reading? Turn to page 50 to find out.

istockphoto

News

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

CHINA BUSINESS

Sinopec, ENN bid for China Gas State-run China Petroleum & Chemical Corp. and ENN Energy Holdings Ltd. offered up to US$2.15 billion to acquire control of China Gas Holdings Ltd., a Hong Kong-based private natural gas supplier. If approved by China Gas’ Board, the move would help China Petroleum, known as Sinopec, and ENN, a piped-gas supplier, gain access to the Hong Kong company’s end-user network and fulfill rising Chinese gas demand. China Gas has 6.6 million residential customers in addition to nearly 42,000 industrial and commercial customers. ENN will cover 55% of the transaction cost, while Sinopec, which already owns 4.8% of China Gas, will cover the remainder.

A Flipboard for China Flipboard announced it is launching a Chinese version of the company’s popular social magazine app used on Apple, Inc.’s iPad devices in a move to break into the fast-growing technology market in China. To deliver content, Flipboard formed a partnership with Chinese media giant Sina Corp.’s Weibo microblog and social networking company Renren, Inc. The customized Flipboard, which has been made available for free at the Apple China App Store, will include a Chinese language interface and offer links to local content. Terms of the agreement were not publicly announced in what marks the Palo Alto, CA-based company’s first overseas undertaking.

Nestlé takeover bid approved Following an anti-monopoly review, China’s Ministry of Commerce (MOFCOM) approved Nestlé SA’s bid for

U.S. challenges Chinese chicken duties The U.S. has requested the World Trade Organization (WTO) establish a dispute settlement panel to hear a U.S. challenge to Chinese duties on U.S. poultry exports. In 2010, following an investigation, China’s Ministry of Commerce (MOFCOM) imposed antidumping and countervailing duties of up to 105.4% and 30.3%, respectively, on imports of U.S. chicken “broiler products,” claiming the U.S. products were subsidized and sold in China at below fair market value. U.S. poultry exports have decreased nearly 90% since China imposed the duties, according to the U.S.Trade Representative (USTR) office. “The United States will not stand idly by while China appears to have misused its trade remedy laws and put American jobs at risk,” said U.S.Trade Representative Ron Kirk. “We are serious about holding China accountable to its WTO commitments and ensuring that there is a level playing field for American businesses – including our farmers,” he continued.The challenge on procedural and legal grounds marks the 12th trade dispute case.

a 60% stake in Chinese candy maker Hsu Fu Chi International Ltd. in what marks one of the largest foreign takeover deals approved by Beijing. In July 2011, the Swiss food giant offered US$1.7 billion for Dongguan, Guangdong province-based Hsu Fu Chi with hopes to expand deeper into China’s fast-growing US$9.2 billion

confectionery market as of 2010. When the deal closes by the end of the year, Nestlé will become the second-largest confectionary company in China behind Mars, Inc. when measured by sales. Nestlé plans for emerging markets to account for 45% of its sales by 2020, up from around a third today.

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Largest cold logistics center in West China A ground breaking ceremony was held in Chengdu, capital of Sichuan province for what will become West China’s largest cold logistics center. The temperaturecontrolled center, called the Chengdu Silverplow Cold-Chain Logistics Center for Agricultural Products, is a RMB2.5 billion (US$392 million) project developed by Chengdu Silverplow Low-temperature Logistics Co., Ltd. When complete, the facility will feature a 160,000-square-meter distribution center, a 100,000-squaremeter warehouse and storage in high and low temperatures and atmospheric control. Located in the Chengdu Qingbaijiang Bulk Cargo Logistics Park in Chengdu’s Qingbaijiang District, the center will have the capacity to store 300,000 tons of foodstuffs and various products. CORPORATE NEWS

Apple trademark suit thrown out A court in southern China ruled Apple, Inc. does not hold the rights to the iPad name in the China market. In its lawsuit, Apple accused little-known technology company Proview Technology, based in Hong Kong, of infringing the trademark on its popular tablet computer. Beginning in 2000, Proview registered the trademark in China and a number of other countries. The company’s Taiwan unit sold the “global trademark” to Apple-owned and U.K.-based IP Application Development, which transferred it to Apple. However, the Intermediate People’s Court in Shenzhen ruled that Proview holds the rights to the iPad trademark because the sale did not include China. Proview is suing Apple for RMB10 billion (US$1.5 billion) in compensation.

Merck plans China R&D headquarters Merck & Co. announced it will spend a large part of a US$1.5 billion investment over the next five years to build an R&D lab in Beijing. The 500,000-square-foot site will be the New Jersey-based pharmaceutical

giant’s Asian R&D headquarters complete with office and laboratory space, helping the company build up capability and scientific partnerships in fast-growing emerging markets in Asia. The research center, which is scheduled to be complete by 2014, will focus on developing new drugs and vaccines and conducting other research. Merck’s China operations include commercial headquarters in Shanghai, a 300-employee Beijing lab and manufacturing facilities across the country. Merck expects China to become the world’s largest pharmaceutical market in 10 to 15 years.

Cathay Pacific upgrades economy class Cathay Pacific Airways Ltd., the largest international airliner in Asia, plans to upgrade its economy class on many longhaul flights, as the Hong Kong-based airliner tries to attract passengers in the increasingly competitive travel market in Asia. Upgrades include installing an economy cabin with 26 to 34 new premium seats with more legroom and adding personal televisions, outlets for connecting Apple, Inc. devices and mobile connectivity capability in economy-class seats. Cathay Pacific will offer the premium economy cabins on flights to some Australian, North American and European routes beginning in March 2012. Long-haul Boeing 777-300 and Airbus 330 aircrafts will feature the new cabin, but not older Boeing 747s and Airbus A340s planes.

Tencent marks first U.S. bond sale Tencent Holdings Ltd. sold US$600 million worth of five-year U.S. dollar bonds, marking the Shenzhen-based Internet company’s first debt sale in the U.S. market. The sale allows Tencent to use the proceeds raised for working capital needs, including the possibility of strategic acquisitions. In addition, the money will help the company fund its foreign divisions that do not have as strong of cash flow as its domestic operations, point out analysts. Goldman Sachs Group, Inc., Deutsche Bank AG, Credit Suisse Group AG and HSBC Holdings PLC underwrote the bonds, which have a yield of 4.684%.

MACROECONOMICS

Inflation drops to 4.2% Data from China’s National Bureau of Statistics show the country’s Consumer Price Index (CPI) fell to 4.2% in November on easing food prices. November’s reading is down from 5.5% recorded in October and the lowest inflationary increase since September 2010. China’s CPI has increased 5.5% year-on-year through the first 11 months of the year, above the government’s 4% inflationary target for 2011. China’s Producer Price Index (PPI), which measures inflation at the wholesale level, increased 2.7% year-on-year in November, down from 5.0% in October and the slowest gain since December 2009. Analysts anticipate the government will introduce loosening monetary measures to boost growth in response to slower inflationary readings.

Manufacturing contracts Data from China’s Purchasing Managers’ Index (PMI) show the country’s manufacturing sector slowed in November, marking the first contraction since February 2009. The PMI, compiled by the China Federation of Logistics and Purchasing, recorded a reading of 49, down from 50.4 in October. Similarly, HSBC Holdings Plc and Markit Economics’ PMI dropped from 51 in October to 47.7 in November, marking the lowest reading since March 2009. A recording below 50 signals that the country’s manufacturing sector contracted, while a reading over 50 suggests expansion. In explaining the sector’s performance, analysts pointed to a slower pace of economic growth in China on a weak domestic property market.

Lending down slightly Data released by the People’s Bank of China (PBoC), China’s central bank, show China’s banks scaled back lending slightly in November, although the level remains high. New yuan-denominated lending in November fell to RMB562.2 billion (US$88.2 billion) in November, down from RMB586.8

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billion in October. Lending is above the third quarter average of RMB500 billion per month, indicating China is encouraging additional credit growth amid the global economic slowdown and in a period when the amount of new loans typically slows. The country’s broad money supply – the amount in circulation and in savings – increased 12.7% to RMB82.55 trillion by the end of November, while the amount of new deposits decreased RMB262.6 billion year-on-year to RMB324.7 billion. U.S.-CHINA

China levies tariffs on U.S. autos China’s Ministry of Commerce (MOFCOM) announced China will levy tariffs on imports of some U.S.-made sedans and SUVs, citing claimed dumping and U.S. government subsidizing of vehicles. Effective December 15, China began to impose duties ranging from 2% to 21.5% for two years on imported vehicles from the U.S. with engines of 2.5 liters or larger. Although analysts question the impact on auto sales in China, the move follows federal trade complaints filed in the U.S. in October by solar panel companies accusing China of dumping solar products. The automakers impacted by the tariffs include General Motors Co., Chrysler Group Ltd., Mercedes-Benz U.S. International, Inc., a BMW factory in South Carolina and Honda of America Manufacturing Co.

Bill Gates, China discuss nuclear energy Bill Gates, Microsoft Corp. chairman and co-founder of the Bill & Melinda Gates Foundation, is in preliminary discussions with China’s state-owned National Nuclear Corp. on ways to research and develop a new and safer nuclear reactor. A reactor in development by the Gates-backed TerraPower company, a startup based in Washington state, would use depleted uranium to cut down on the amount of nuclear waste emitted. Gates was in Beijing to discuss additional cooperative efforts between China’s Ministry of Science and Technology and the foundation on a US$300 million agriculture modernization

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and healthcare partnership.

National Geographic promotes Chinese culture National Geographic Society and Beijing Normal University signed a memorandum of understanding (MOU) to jointly promote cultural exchanges between China and the U.S. The Washington, D.C.-based scientific and educational nonprofit will collaborate with the Chinese university’s Academy for International Communication of Chinese Culture to launch various Chinese cultural activities, such as seminars and videos. “I think the more interactions between China and elsewhere in the world have made a huge leap forward of people’s understanding of China and its culture over the last 10 or 15 years,” Declan Moore, executive president of National Geographic, is quoted as saying.

JP Morgan approved for $1b fund The Beijing Municipal Government approved JP Morgan Asset Management to establish a US$1 billion RMB-denominated fund, making it the largest ever foreign managed RMB fund. The unit of U.S. bank JP Morgan received approval under the Qualified Foreign Limited Partner Program, which would allow JP Morgan to convert foreign currency into yuan for primate investment purposes in Beijing. The program allows for a maximum of US$3 billion in converted capital per year and benefits foreign investors by allowing for easier access to many restricted industries. JP Morgan and the Beijing government will jointly operate the fund, although it is unknown if the government will invest in the fund. GOVERNMENT & POLICY

Pro-growth policies in 2012 China’s leaders pledged to focus on maintaining growth and social stability in 2012 following the annual closeddoor Central Economic Work Meeting in Beijing to plot China’s economic course in the year ahead. In a statement released, the government’s major policy pledges are

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maintaining prudent monetary policies, holding a stable yuan, increasing social spending, expanding consumption and domestic demand, improving citizens’ livelihoods, funding railway development and reforming tax policy. The priorities mark a shift from the government’s 2011 focus on taming inflation to now boosting growth amid risk in the global economy. The meeting marks the final such major gathering before China’s leadership change gets under way in 2012.

China marks 10 years in WTO On December 11, China marked the 10th anniversary of its membership in the World Trade Organization (WTO). Since joining the Geneva-based WTO, China steadily has climbed to become the world’s second largest economy, amassing a GDP that reached US$5.9 trillion in 2010, up from US$1.3 trillion in 2001. China’s development has helped to lift hundreds of millions of Chinese from poverty, and the country has grown to be a key market for U.S. exports and job creation. As America’s fastestgrowing major export destination and third largest overall, U.S. goods exports to China have increased 467% since 2000 compared to 55% for the rest of the world, supporting about 500,000 American jobs in 2010.

PBoC cuts reserve ratio The People’s Bank of China (PBoC), the country’s central bank, reduced banks’ reserve ratio requirement in the first such move since December 2008. China’s major banks will be required to set aside 21% of deposits, down from a record 21.5%. The 17.5% reserve requirement for small- and medium-sized banks was unchanged. The adjustment should pump RMB350 billion to RMB400 billion (US$55 billion to US$63 billion) into the economy that previously was required to be held by banks. Despite the reserve cut, analysts do not expect China to cut interests rates, as inflationary pressures remain high. China last cut interest rates in December 2008 during the depths of the global economic slowdown.

SHANGHAI BUSINESS

New cultural center planned Officials with the Zhabei District Government announced plans to build a movie and cultural center in the downtown area complete with new cinemas, a Chinese Film Museum covering Chinese film history and video and film industry headquarters. The center will be located on a converted 3.19-square kilometer area of Suzhou Creek Bay in Zhabei. When complete, officials expect the area to be a cultural center to rival the famous urban landscape on the bank of the Seine River in Paris. The center also will help drive growth of Shanghai’s film industry, attracting film studios, performances and related organizations to the area. Construction is scheduled to be complete by 2015.

Survey: living costs rising Shanghai is now Asia’s eighth most expensive city to live in, according to the recently released Cost of Living Survey conducted by consultancy ECA

International. Price inflation along with the steady appreciation of the yuan are pushing up living costs in Shanghai, contributing to higher cost pressures in the city. Worldwide, Shanghai is the 41st most expensive city. By comparison, Beijing ranks 35th, while Hong Kong fell to 58th. Tokyo maintained its position in the survey as the world’s most expensive city to live in.

Futures Exchange looks for foreign members The Shanghai Futures Exchange reportedly is planning to accept foreign traders’ participation in a move to expand the exchange market over the next five years. A broader membership is aimed at helping the exchange not only influence prices but increase trading volume, which decreased 52% over the first 11 months of 2011 in part because of various government policies and increasing competition from other foreign exchanges. The move to allow foreign firms to trade directly on commodity markets would be beneficial in several ways by decreasing trading fees, reducing

risk and helping foreign firms grow their China commodities business. Participation may be extended to foreign banks, trusts, securities and fund companies.

U.S., China launch radiation detection system U.S. and Chinese officials are cooperating to prevent the smuggling of nuclear materials, launching a radiation detection system at Yangshan Port in Shanghai. The effort is part of the U.S. Department of Energy’s Megaports Initiative, which aims to beef up nuclear detection capabilities and alarm systems at seaports around the world. To achieve that goal, the department’s National Nuclear Security Administration is installing nuclear screening systems at 100 of the world’s largest ports by 2015, seeking to scan 50% of the world’s containers for dangerous cargo. Yangshan is one of the world’s largest ports, facilitating the shipment of 3.86 million containers in the January–October period in 2011. More than 679,000 of these containers were bound for the U.S.

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CHINA & THE WORLD

SOUTH AMERICA ASIA-PACIFIC SIA PACIFIC

JAPAN: Yamaha woos wealthy golfers Yamaha Corp. will sell gold-painted golf clubs made exclusively for the China market in an attempt to appeal to China’s high-end golfers. The driver and iron club set will carry a price tag of about US$16,500 or nearly twice the price of the Japanese musical instrument maker’s most expensive clubs sold in Japan, where it controls an estimated 7% of the golf market. Yamaha expects to begin selling the Impres X brand clubs in Beijing by the end of 2011. Though the company’s golf business in China has room to expand, Yamaha’s total China sales are achieving high growth, amounting to US$1.6 billion in FY2010.

MIDDLE EAST

SOUTH AFRICA: Beijing–Johannesburg direct flights in 2012 Starting January 31, South African Airways will offer nonstop service between Beijing and Johannesburg, as the airliner looks to expand in the fast-growing Asian travel market. The 15hour, three-times-per-week service on Airbus A340-600 planes marks the Johannesburgheadquartered carrier’s first service to China. The direct route is expected to boost business and leisure travel and trade between China and South Africa, as well as to neighboring African countries and the Southern African Development Community (SADC). It follows a strategic partnership agreement signed between the two countries in August 2010 to cooperate in various areas, including transportation.

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GERMANY: Shanghai VW to build Ningbo factory Shanghai Volkswagen Automotive Co. (VW), a 50-50 joint venture between Volkswagen and the Shanghai Automotive Industry Corp. (SAIC), is set to build a car production facility in Ningbo, Zhejiang province. Shanghai VW will invest RMB11.76 billion (US$1.85 billion) during the first phase of construction on the plant, its sixth in China. The plant is scheduled to be complete in 2013 and will be capable of producing 300,000 vehicles per year, generating an estimated RMB36 billion (US$5.6 billion) in revenue. Shanghai VW manufactured and sold more than one million vehicles over the January–November 2011 period, up a record 13.7% from the previous year.

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EUROPE MIDDLE EAST

IRAN: Huawei limits business Chinese telecom equipment manufacturer Huawei Technologies Co. announced it would limit its business in Iran following reports that authorities there had been using the company’s equipment to track and arrest dissidents. A statement from Huawei said the company “will voluntarily restrict its business development [in Iran] by no longer seeking new customers and limiting its business activities with existing customers.” The Shenzhen-based company said it based its decision on the “increasingly complex situation in Iran.” Huawei said it will continue to “provide necessary services to ensure communications for Iran’s citizens” on existing contracts in Iran, where it employs about 1,000 workers.

AFRICA

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CANADA: Cnooc, Nexen sign joint venture China National Offshore Oil Corp. Ltd. (Cnooc) and Canada’s Nexen, Inc. signed a joint venture in which the Chinese state-owned energy giant will gain a working interest in six deepwater exploration wells in the Gulf of Mexico operated by Nexen. Cnooc will gain a 20% working interest in the Kakuna, Angel Fire and Cypress wells, as well as the option of picking up between a 10% and 25% working interest in three additional exploration wells. Financial terms of the deal were not disclosed. Cnooc has an additional partnership with Calgary-based Nexen at the Long Lake thermal oil sands project in northern Alberta, controlling a 35% ownership stake.

SOUTH AMERICA

SOUTHAMERICA AMERICA NORTH EUROPE

AFRICA ASIA-PACIFIC SIA PACIFIC NORTH AMERICA

VENEZUELA: China agrees to US$4b loan Chinese and Venezuelan officials signed an agreement for China to provide a US$4 billion bank loan that President Hugo Chavez said will be used mostly to fund housing construction projects. Since 2007, China has lent nearly US$40 billion to the oil rich South American nation, including US$32 billion through the China Development Bank. In return, Venezuela sends China about 400,000 barrels of crude oil per day. In addition to the latest deal, China and Venezuela have agreed to jointly build a 400,000 barrels per day oil refinery in China. Venezuela produces an average of 2.3 to 2.4 million barrels of oil per day.

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M ov e r s a n d S h a k e r s c o m p i l e d b y 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.

BURSON-MARSTELLER

David Zhao

Burson-Marsteller China appointed David Zhao executive vice president in December. Zhao has more than 20 years of experience in communications including a stint at Hill & Knowlton, where he served as managing director for China. In a company statement, Zhao was described as a “wellrecognized senior counselor and industry leader” in China. He will be expected to work “across Burson-Marsteller China’s practice groups to provide senior client counsel, thought leadership, and input on talent development.”

PRIVATE SECTOR MICROSOFT Microsoft Corp. announced that Isaiah Cheung is now vice president, Greater China and general manager of Consumer Channels Group. In the new role, Chueng is responsible for developing business with OEMs, mobile operators, distributors and retailers that were integrated in this group in April 2011. Cheung was earlier at Hewlett-Packard where he was China vice president and general manager of the Personal Systems Group. EASTMAN CHEMICAL Eastman Chemical Co. appointed Edwin Williamson vice president and managing director of its Asia-Pacific Region in 2011. Williamson is responsible for the expanding region as well as growing the company’s core businesses. Williamson moved to Shanghai as director of legal affairs, Asia-Pacific in 2007. He joined Eastman in 2002. EMC corporation Edwin Williamson EMC appointed Cai Hanhui global vice president and president of EMC China in November 2011. EMC, a storage hardware solutions, said Cai’s appointment will help boost its cooperation with domestic Chinese partners and strengthen its cooperation with central and local governments. Cai came from Oracle where he was global senior vice president and general manager of Fusion Middleware in the Asia-Pacific region. Prior to that, he was global senior vice president and managing director of Oracle China.

GOVERNMENT imaginechina

STATE COUNCIL Li Jinzao was appointed vice minister of the Ministry of Commerce (MOFCOM) in November 2011. Prior to his appointment, Li spent 15 years in various government positions in southwest China’s Guangxi region, following seven years at the NRDC in research roles. In addition, Jiang Zhigang was appointed deputy director of the StateOwned Assets Supervision and Administration Commission in November 2011. The Commission oversees the central government’s major enterprises.

Fu Ziying

JIANGSU Fu Ziying was appointed vice governor of Jiangsu Provincial Government. Fu was formerly vice minister of MOFCOM. He joined MOFCOM in 1981 and held various positions, including director general of the Department of Planning and Finance at MOFCOM, a position he was appointed to in 2003. If your company has executive personnel changes, please contact Joyce Bian at joyce.bian@amcham-shanghai.org.

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IN D USTRY INSIGHT By Michel Brekelmans

imaginechina

Michel Brekelmans

Is it Worth the Ride? Chinaâ&#x20AC;&#x2122;s growing theme park market offers opportunities for the right investors

nyone who stands in line for a roller coaster ride during a Chinese holiday can figure out that demand for theme parks in China is strong just by looking at the crowds that swarm into these venues. However, it is not all plane sailing: entertainment industry conditions vary greatly, with many theme parks still struggling to earn decent returns. It is becoming increasingly clear that in the competitive theme park market, companies need to understand the key factors that impact profitability for them to grow in China. Today, thousands of theme parks are scattered throughout China. In 2010, there were an estimated 350 million park visits in China or an average of 115,000 visitors per park. Most are small scale and far removed from the Western entertainment powerhouse examples like Disneyland or Universal Studios. In addition, there were 1.4 billion domestic tourist attraction visits in 2010 or an increase of seven percent per annum since 2000.

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Theme parks include all site-based and destination venues where visitors pay a fee to go on rides such as roller coasters and Ferris wheels that are based on one or more specific or central themes. The market, however, is dynamic. Attendance rates have been growing and are expected to keep growing rapidly for years. The average amount each visitor spends is about RMB50, a relatively low figure with room for growth. Theme parks â&#x20AC;&#x201C; and their ilk â&#x20AC;&#x201C; are no small business, and the high visitor rates have resulted in a lucrative franchise. The market for these venues in China has experienced double-digit growth over the last decade albeit from a low base. The rises in per capita income is one of the key drivers for the industry. Chinese income per capita has increased 9.8 percent per annum in real terms over the last 10 years, which has led to the emergence of a vast Chinese middle class, with ever more disposable income. Improvements in the high-speed rail network, airport infrastructure and increases in car ownership have also made it easier to travel. The

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imaginechina

The aircraft carrier Kiev was refitted into a luxury hotel as part of the Tianjin Binhai Aircraft Park

higher number of public holidays gives Chinese consumers more spare time for leisure and entertainment activities. Chinese travellers like to travel just like people from other nations. Over the past six years, revenues at Chinese tourist attractions have increased steadily. This has not suffered even after admission fees at many attractions went up. Today, natural scenic spots, theme parks and historical sites are the largest segments by revenue in the Chinese entertainment market.

Not always a scream The increase in demand has been met by a large increase in the number of attractions. Since China’s first theme park, Splendid China, was opened in 1989 in Shenzhen, the number of such parks has exploded to over 3,000 in 2009. However, the quality of individual sites varies substantially. Nearly 70 percent operate at a loss and only 10 percent were profitable in 2009. The vast majority are owned and operated by domestic operators, often with little prior experience in running these types of business or as a front to obtain cheap land from local government authorities to do property

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development.

Standing out Using qualities practiced at more successful theme parks, we have identified several key factors that explicate the poor performance of many of China’s attractions. First is the ease of access. Theme parks simply must be easy to reach, and investors must consider available transportation systems. Frobel, a RMB800 million theme park in Wujiang, Jiangsu province, shut down in 1997 after one year because the small local population in Wujiang could not sustain the large park. The transportation infrastructure was not enough to lure crowds from Shanghai. Theme park developers also need to consider their competition. Similar attractions compete for the same visitors and will cannibalize each other if they don’t distinguish themselves from each other. For example, both Guangzhou and Chengdu have over 10 scaled “Western-style” theme parks but none has a high attendance level. On the flip side, Tianjin Binhai Aircraft theme park presents a successful case. Unlike other theme parks which

focus on roller coasters, Tianjin Binhai Aircraft entertains tourists with real aircrafts, a 4D film about aircrafts and military simulation activities which draw visitors in droves. Tianjin Binhai offers another lesson as a strong and recognizable brand is a key to success in this industry. Western theme parks, such as Disneyland and Universal Studios, have successfully done so. Many of China’s entertainment sites lack clear themes or even a single theme and so having just a set of thrill rides may not always do the trick.

Laying down track Many Chinese developers view site-based entertainment more as a one-time investment and few Chinese theme parks continuously look for new ways to make the site more attractive and fresh. One exception is Lemandi theme park in Guilin, Guangxi province. After it opened in 2000, it still opens at least one new attraction a year. It also hosts a wide variety of events with celebrities, including the China Youth Water Skiing Team and a world-famous hypnosis performer. As a result, it has experienced double-digit growth in recent years. Experience from Western operators indicates that successful attractions should provide a high level of service to their customers, offering reliable and friendly service in a clean and safe environment. Limited waiting times, for example, is important and in an easy to follow environment with helpful staff. In the United Kingdom and the U.S., ancillary revenue – or, income gained from non-admission spending such as food, beverages, souvenirs and photos – represents at least 40 percent of a theme park’s total sales, and sometimes substantially more. This is typically much lower in China. For instance, the OCT Group, a large Chinese site-based entertainment operator, earns just 20 percent of its revenue from ancillary sources.

Thrills ahead The Chinese domestic tourism and leisure markets

still have huge growth potential. China’s average domestic travel spending per capita is significantly below that of developed countries. As China continues to see rapid economic growth with a rise in its GDP per capita, so will spending on domestic travel, and possibly theme park attendance will go up. Currently, the average time people spent at a park is six to seven hours. A well-developed theme park, similar to ones in the U.S. or other Western countries, could encourage visitors to stay overnight or even three days at nearby hotels. They would patronize restaurants and other resort amenities and attend live shows. In light of Western type attractions in the pipeline – including Disney’s under-construction resort in Shanghai – companies will have to step up their game to succeed in the market.

Bumper car traffic As more sites open their gates without any distinguishable differences to visitors, generating substantial returns will be difficult. Developers need to gain an in-depth understanding of their target customer segments, develop realistic projections of the total addressable market and implied revenue and profit potential including the required investment levels to maintain sustained growth. Furthermore, developers will need to improve their offering, build strong consumer brands, generate ancillary revenue streams and improve the overall customer experience. These are difficult challenges but the rewards could be substantial for the brands that stand out.

Michel Brekelmans is a partner at L.E.K. Consulting, a global strategy consulting firm with offices around the world and based in Shanghai. He has over 15 years of experience in strategy consulting, including over 10 years in Asia. The firm provides strategy, M&A and organisational development services and is an advisor to media and entertainment executives.

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Many of China’s entertainment sites lack clear themes or even a single theme and so having just a set of thrill rides may not always do the trick.”

regional focus B y J o n at h a n S h y u

Suzhou Vice Mayor Huang Qin addresses the crowd at AmCham Shanghai’s First Annual Suzhou Government Appreciation Dinner

The Delta Challenge

Executives in the Yangtze River Delta are adapting to a new business climate to stay competitive

s we head into the Chinese New Year, general managers and other executives at American companies in Jiangsu and Zhejiang provinces have a plethora of critical issues on their radar. The list includes the social insurance law for foreigners, the U.S. Foreign Corrupt Practices Act (FCPA) and indigenous innovation. In addition, GMs are keeping a close eye on the pending high-level leadership changes in the central government as well as local implementation targets under the 12th Five-Year Plan to see how their companies will be impacted in the next five years. Many GMs and management teams at American companies, who are part of AmCham Shanghai’s Suzhou committee that covers the Yangtze River Delta (YRD) region, meet monthly to discuss many of these local issues and benchmark company performance. The YRD includes Jiangsu and Zhejiang provinces, and AmCham Shanghai has approximately 370 members in this region. In recent years, American companies have been expanding more aggressively throughout the YRD with new manufacturing facilities and research and development centers, including the Suzhou Singapore Industrial Park. Large companies such as Black & Decker, Bosch, Samsung, AMD and Emerson are a few of the 4,000 foreign enterprises that have a presence in the industrial area.

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AmCham Shanghai is responding to this growth by providing events, training and networking opportunities to its members in the YRD. Managers at several companies have said in interviews with Insight that labor is one of their key concerns. They explained that hefty salary increases, high turnover in blue collar fields and potential labor unrest are issues they think about daily and expect to remain a concern in the near future. Craig Kerr, a partner at PwC who advises clients in the Yangtze River Delta, said leaders in local economies will find the need to transform from traditional manufacturing to high value added research and development and services. The YRD’s future is not in blue collar jobs, but in technical and white collar jobs, he said. In an effort to understand and possibly help companies deal with these challenges, AmCham Shanghai asked its members what companies in the YRD should look out for in 2012.

Regulatory environment Since the implementation of China’s new corporate income law in 2008, many companies have faced phasing out of incentives and an increased tax burden in China. As the cost of doing business increases, companies are re-evaluating their own expansion plans and exploring alternatives, according to Steven

Tseng, global leader, value chain transformation services at PwC. American companies in the YRD are now looking for new ways to ease their tax burden and are trying to find out how to get certified as a “high technology” company, which enables them to enjoy a significant reduction in the corporate income tax rate. Certification is available for “enterprises conducting research and development in China,” said Tony Chen, vice chair of the AmCham Shanghai Legal Committee and a partner at Jones Day, an international law firm. However, companies may need to file patents to secure this status. “Not applying for a patent in China is the equivalent of giving everyone a royalty-free license,” Chen said. “Worse, not applying for a trademark in China often allows another party to register the trademark in China.” He advises clients to tailor their China IP strategy for the long term that includes participation of the general manager, and not just a lawyer. A memorandum of understanding (MOU) between the U.S. Patent and Trademark Office (USPTO) and the Jiangsu Provincial People’s government was signed on September 2011 in an effort to improve the IP enforcement environment in the YRD.

Labor Besides tax and high technology considerations, finding, retaining and compensating blue and white collar workers is a concern, due to rising blue collar wages and fierce competition for technical and engineering workers from industrial parks such as Shanghai’s Zhangjiang Hi-Tech Park. “Companies should provide more opportunities and responsibilities to engineering and technical staff,” said Bill McEathron, general manager of Mercury Marine (Suzhou) and Chair of the AmCham Shanghai Suzhou Committee. Some believe that more training opportunities for U.S. and Chinese employees could prove valuable. One Suzhou-based member company regularly brings in U.S. staff to China and sends some factory operators to the U.S. for training. In addition, companies are also making it easier for workers to enjoy long term career paths in select

blue collar fields. By providing opportunities for upward mobility from the factory floor to the office in a blue collar environment creates an incentive to stay, according to Frank Liao, general manager at Avery Dennison (Suzhou). Other companies are planning to make large capital investments to increase automation and upgrade existing plant facilities, thus reducing reliance on labor and repositioning production for the domestic Chinese market. However, these investments are being made in a time of tight liquidity in capital markets. To cope with this, Tim Huang, chief operating officer of Bank of America Merrill Lynch China suggests that “general managers should work with their multiple entities in China on cash pooling to manage working capital efficiently.” Given the uncertainty of world capital markets and the continuing strain on liquidity, general managers should look internally at cash available in 2012.

Craig Kerr

Frank Liao

Moving forward This year, general managers in the YRD will need to be prepared for new challenges. “The general manager’s role has changed from management of a plant facility as a fixed asset for production volume purposes, to an increasingly diversified role, where research and development, design and sales need to be taken into consideration, as many GMs shift their focus from simply manufacturing for exports to also developing, selling and distributing products for the domestic market,” said Rob Choy, vice president of UTi, a logistics company and chair of the AmCham Shanghai Logistics and Transportation Committee. As many companies reposition from export oriented production to production for the domestic market, American executives are increasingly making visits to their YRD-based plants to coordinate and implement change as well as better understand the China market. With the increase in visits, an additional role general managers have taken is that of tour guide, providing company executives with a Yangtze River Delta tour of both new skyscrapers and shopping streets, as well as boat trips around the YRD’s historic water towns, providing a true East-meets-West mix.

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Bill McEathron

Steven Tseng

i n t e rv i e w

Kenneth Jarrett, AmCham Shanghaiâ&#x20AC;&#x2122;s 2012 Board of Governors Chair, center, chats with President Brenda Foster and a guest during an event.

A Conversation with the New Chair AmCham Shanghaiâ&#x20AC;&#x2122;s 2012 Chair talks to Insight about his priorities, politics and the business climate

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enneth Jarrett, a former U.S. consul general to Shanghai and a longtime member of AmCham Shanghai, was elected Board Chair in November. Jarrett is chairman for Greater China of APCO Worldwide, a Washington-based public affairs consultancy. He served as consul general between July 2005 and August 2008, part of a 26-year career in the U.S. Foreign Service and has more than 20 years experience in U.S.-China relations. He is known as a devoted advocate of improving bilateral ties and has pledged to use his experience to help AmCham Shanghai members. He graduated from Cornell University and holds degrees from Yale University and the National War College. He also studied at the HopkinsNanjing Center at Nanjing University, the Chinese University in Hong Kong and the Taipei Language Institute. Before working in the U.S. government, he was an English teacher at the Shanghai Foreign Languages Institute from 1979–1981. In December, he spoke to Insight’s David Basmajian and Bryan Virasami about his plans as Board Chair, bilateral relations and more. Here are excerpts from that interview. Insight: What are some of your goals and challenges as the new chair of AmCham Shanghai? Kenneth Jarrett: “In terms of how I view next year [2012] in my role as Board chair, I see this as moving forward with the three-year strategic plan that was put in place last year. This was, in fact, the first three-year strategic plan and it touches on all the key areas for the Chamber, particularly for this coming year. Key elements of this are the SME Center, the further expansion into the Yangtze River Delta as well as continued discussion on government advocacy and the policy issues. “These are not new areas for the Chamber. Paying attention to the needs of SME members has been an ongoing focus for the Chamber and likewise for the interest in the YRD. Thus, this year’s priorities are more of a case of taking the Chamber and moving it to the next level of its work in each of these three areas.” Insight: As Chairman of APCO Worldwide in

China, you’re quite busy. What are some of the reasons you wanted to become Chair of AmCham Shanghai? KJ: “This is now my seventh year in Shanghai This time around, my interest in the Chamber chairmanship flows from my previous work in public service and the interaction I had with the Chamber when I first came to Shanghai as the (U.S.) consul general in 2005. From my interaction with the business community starting back in 2005, and now as a member of that community, I’ve seen the important role the business community plays here in Shanghai and the Yangtze River Delta in terms of advancing U.S.-China relations. Hence my interest in continuing to work to improve U.S.China business relations. In fact, that’s been the focus of my professional life whether in the public sector or now in my private sector capacity. I was on the Board in 2011, and I’ve been active with the Chamber for many years. I’m certainly a big fan of what the Chamber does and not just from the services that it provides to its members, which is its key mission, but also from what it does to help support U.S.-China relations in terms of the role business can play. That, I would say, was the main motivating force. Serving as Chair is another way for me to contribute where I believe I have something to offer based on my experience, my strengths, and my knowledge. It is also something I enjoy doing.” Insight: You’ve had a long career in government and now in business, and much of it has been focused on China. What got you interested in China in the first place? KJ: “Well that was more happenstance than it might appear. If you look back at my career you might mistakenly conclude that I developed my career in a very methodical fashion, block by block, putting in place certain pillars upon which I advanced to the next stage. It’s true that I was growing step by step, but there was less foresight than you might imagine. My initial interest in China came from a history class I took as an undergraduate at Cornell University where I had a professor who had lived in China in the 20s and 30s and was a very captivating speaker. His stories were exciting and

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The business relationship has been a key stabilizing factor in U.S.-China relations since normalization in ‘79”

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Next year, as the political temperature rises, there could be pressure on the Chamber to be more outspoken…”

from that I started to pursue an interest in Chinese history. Upon graduation, not knowing what to do, I decided I would study Chinese and headed off to Hong Kong. One thing led to another and my love affair with China continues to this day. It’s still a subject I find fascinating and one for which there is much more to learn.” Insight: When did you first come to China? KJ: “I went to Hong Kong in December 1974 and studied there until the fall and then went to Taiwan for about a year and a half. The first time I came to the Chinese mainland was in fact when I arrived in Shanghai in September 30, 1979. I came here as an English teacher at the Shanghai Foreign Languages Institute.” Insight: 2012 is the Chamber’s 25th anniversary since re-establishment in 1987. What role do you think AmCham Shanghai has played in the development of U.S.-China relations since then and how has it contributed to the success of U.S. companies in China? KJ: “First, I would point out that the Chamber is older than 25 years. The Chamber has an almost 100-year history in China. How has the Chamber contributed to U.S.-China relations postnormalization? I firmly believe the answer is that it has made a significant contribution. If you look at Shanghai today, Shanghai by far has the single largest concentration of U.S. investment in China. We’re serving many of those companies that have investment in this region since many of them are members of the Chamber. The Chamber helps companies understand the business environment here in China and opens up business opportunities for them. Members employ a large number of Chinese workers, and this certainly exposes many elements of Chinese society to what the United States is like. Local staff travel to the United States and they’re exposed to how American supervisors operate, and how American factories and offices are run, since the style differs from a traditional Chinese company. In this sense, local employees are exposed to different management methods that are perhaps more open than what you would see in a traditional Chinese company.

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“The business relationship has been a key stabilizing factor in U.S.-China relations since normalization in ‘79. U.S.-China relations have experienced lots of ups and down and this is something that anyone who has been around the bilateral relationship long enough understands and is comfortable with. Yet the ups and downs still can be unsettling and it’s often at those valleys in the relationship when the business community gets activated and helps to smooth out the political differences that erupt. This is possible because for both countries the economic interdependence is so strong and so deep. Thus, the business community has influence and impact when they remind political leaders that they can’t become too extreme in pursuit of what might be political goals if that disrupts the business relationship which is so important for both countries. The Chamber’s role in all of that is critical – both in terms of understanding how the members assess the business environment in China and reflecting that both to the Chinese government and the American government, as well as in helping to address specific issues and helping members pool and share their experience so they get the benefit of what others are seeing and hearing.” Insight: Given the U.S. presidential elections and leadership transition in Beijing in 2012, can you give us your insight into how these events may impact bilateral relations and the overall business climate for U.S. companies? KJ: “That indeed will be a special feature of 2012 because we’re entering the election season in the United States, and China has its leadership transition that begins next year [2012] as well. This is certainly going to affect the bilateral relationship in the United States and these actions are taking place against the backdrop of tough economic times. Unemployment in the United States is dropping but it’s still quite high. We already saw in the last midterm election that China came in for a higher degree of attention than it had in the past. Moreover, we can already see in the run-up to the coming election – through the solar panel case and other actions by Congress – that there

is again sharp focus on U.S.-China economic relations, whether on the value of the renminbi or the trade deficit or particular industries that have grievances because of alleged dumping. I expect we will see more of this activity next year. You should expect to see sharper rhetoric from the U.S. about the lack of a level playing field or the decks being stacked against U.S. business. In that climate the Chamber will have a critical role to play as an interpreter or analyzer of the facts on the ground because we pride ourselves as being the voice of American business in China. I believe that is a true statement. The Chamber has an obligation to those in the United States, as well as to the Chinese government, to report how we see the situation here. Next year, as the political temperature rises, there could be pressure on the Chamber to be more outspoken in terms of how we see the situation if we can contribute to a more reasoned debate about these issues. I think that will be a valuable contribution.” Insight: APCO Worldwide is a global company. What are your clients asking about these days that didn’t concern them before? KJ: “By far our greatest activity is in the general area of government regulations and evolving policies where companies are looking for predictive counsel, the need to know what is going to happen next. The Chinese government’s decision making process remains quite opaque, which means it’s not that easy for foreign companies to have a clear read on what’s taking place. Even when you have documents that put policies in black and white, they’re not necessarily articulated in such a clear way that you can grasp from the document itself what’s happening. That creates opportunities for consultancies like APCO. Through our own network of contacts and our ongoing interaction with government officials, we are in a position to analyze policy changes and offer advice and insights to clients on how the policy environment is developing.” Insight: Tell us something about you. What are some of your hobbies? KJ: “My wife is an artist and a painter, so I do like

Kenneth Jarrett greets U.S. Ambassador Gary Locke in Shanghai

cultural activities whether it’s going to art shows or museums or cultural performances. I also like to swim and to be out in Mother Nature in open space. So if there’s time I like to take a trip somewhere to walk in the mountains or things like that.” Insight: Anything we didn’t ask that you’d like to talk about? KJ: “I’d like to remind everyone that the Chamber is a membership-driven organization and that all of the board members are looking for feedback from the members. We want to make sure we’re responding to what the members want. Thus, at anytime we would welcome whatever suggestions members have for us.”

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

Ikonic to Build Martial Arts Theme Park in Hubei

imaginechina

A martial arts performance near the Wukang Mountain

os Angeles-based Ikonic Entertainment Group and Hubei Wudang Taichi Lake Investment Group have agreed to jointly develop a US$3.1 billion martial arts-oriented theme park and resort in Hubei province. The 330,000-square-meter venue will be situated south of the manufacturing city of Shiyan near Wudang Mountain, famous for being a center of Chinese martial arts. Los Angeles Mayor Antonio Villaraigosa, who attended the signing ceremony in Beijing as part of his 12-day trip to Asia in December, said that the project could create hundreds of jobs in Los Angeles and boost business for numerous LA-based subcontractors and service providers. “The two partnerships formed today will bring out the best of both cultures while generating economic prosperity for Los Angeles and China,” Villaraigosa said in a statement.

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Ikonic will be the master designer and projects manager for six projects commissioned by Taichi Lake Group, and the two groups have said that the kung-fu park is the first step towards the largest theme park and resort in China. The martial arts theme park has already begun construction and is expected to be completed in two years. The planned theme park will feature a US$50 million live show and stuntmen, and directors from Hollywood will be invited to participate. Ikonic is a new entity co-founded by the head of Landmark Entertainment, Tony Christopher and Jack Chen, founder and CEO of Transworld Capital. It specializes in the design, development and management of entertainment venues for the China market. Ikonic is expected draw talent from Landmark Entertainment. “This project is an example of the ver y best of L.A.’s creative industry capabilities being exported overseas on a large scale,” said Christopher. “Our goal is to demonstrate Los Angeles’ truly unique ability to deliver worldclass entertainment to the world.” Landmark Entertainment helped design some of the most popular rides in the U.S., including Jurassic Park: the Ride at Universal Studios Hollywood, Terminator 2: 3-D at Universal Studios, Florida and the Amazing Adventures of Spider-Man at Universal’s Islands of Adventure in Florida. In 2010, there were an estimated 350 million visits to theme parks in China, and the number is expected to grow. Ikonic’s announced theme park follows in the footsteps of Disney’s planned 3.9square-kilometer park in Shanghai, which began construction in April and is expected to open at the end of 2015. Disney expects more than 10.5 million visitors annually to the park.

s mall b u s i n e s s B y K i rt G r e e n b u r g

Small Firms, Big Impact

U.S. Trade Representative Ron Kirk, center, and Michael Punke, U.S. Representative to the World Trade Organization, talk to a delegate at the WTO Conference in Geneva.

here is no shortage of success stories when it comes to U.S. multinationals operating in China but things are less rosy for small and medium sized enterprises (SMEs). However, AmCham Shanghai is taking steps that could help improve the business environment for American SMEs in a variety of ways. SMEs, defined by the U.S. Small Business Administration as firms with less than 500 employees and by the EU as firms with fewer than 250, provide the backbone of the international e conomy. Thoug h less k now n t han l arge organizations, these companies employ the majority of the world’s workforce. According to a 2010 World Bank/IFC report, the number of global SMEs per 1,000 people grew by 6 percent annually between 2000 and 2009. Much of this growth was fueled by emerging markets. Even in the high-

income OECD nations such as the U.S., there was a 3 percent jump. Currently, U.S. SMEs account for 99.9 percent of U.S. businesses and employ over half of the nation’s workforce. In the U.S., most SME products and services never leave U.S. shores. Operating in the world’s largest economy does come with advantages, and many SMEs find success just in the U.S. The US Census Bureau reported that of the 27 million U.S. SMEs in 2009, less than 1 percent exported to any country and just one tenth of these exported to China. There are many reasons for even the most successful SMEs to export, however, and many reasons for the U.S. to further its support of these entities. Then-U.S. Secretary of Commerce Gary Locke noted in a speech in May at the New Markets, New Jobs NEI Small Business Tour: “In a global economy where 95 percent of

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Although they face challenges, SMEs are critical to the global economy

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[Few SMEs export to or invest in this country due to the obstacles along the road.”

the world’s consumers live outside U.S. borders, you’ve got to go where the customers are. The more markets you are selling in, the more diversified your customer base is,” Locke said. “That’s why U.S. companies that exported a lot generally held up better during the recession than companies that didn’t. And the truth of the matter is that your ‘made-in-the-USA’ goods and services are highly valued and greatly desired throughout the world.” U.S. Trade Representative Ron Kirk also previously addressed the importance to SMEs. “Small- and medium-sized enterprises are at the heart of employment and job creation here in the United States, and so a heightened focus on helping this sector is the right thing for USTR to do. American companies of all sizes must export their goods and services to get our economy growing again,” Kirk said. Wit h ne arly 20 p ercent of t he world’s consumers, the lure of China’s growing middle class in particular is undeniable for many smaller businesses in the U.S. who seek additional sales in a time of slow growth at home. In 2010, total merchandise exports to China from the U.S. totaled US$92 billion, up from only US$16 billion annually 10 years prior. Yet, relatively few SMEs export to or invest in this country due to the obstacles along the road.

Challenges In 2010, the U.S. International Trade Commission, in a report comparing the export competitiveness of U.S. SMEs, described many of these challenges. Domestically, the barriers included cumbersome U.S. government regulations, lack of access to finance, transport and logistics costs, and the small scale of SME production. On the foreign side, problems ranged from government regulations and market knowledge to language and cultural barriers. The more different and unusual the market, the language, the culture, and the regulation, the more challenging operating in the country become. The commission noted that the share of exports attributable to the SME sector in the U.S. is less than half that of the EU.

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They hypothesized that part of this difference was due to differences between key support structures in the two regions such as: Trade financing: the two regions are on par. The U.S. provides better financing options for the pre-exporter but U.S. restrictions on domestic content and direct shipping requirements are tighter. Representation in foreign markets: the EU has an advantage with a larger number of sources and higher level of assistance. Support for trade fair participation: EU countries provide more financial support to their SMEs to participate. Investment promoti on: EU cou nt r ies proactively seek FDI as an “indirect form of export promotion.” The US focus is on exports.

The strategy The commission identified several key strategies an SME can use when entering foreign markets. One is to join forces with other firms through business and trade associations like AmCham Shanghai. The chamber already facilitates knowledge exchange through its committees, performs an advocacy role with both the U.S. and Chinese governments, sponsors programming aimed at U.S. business in China, and provides a network of over 3,700 members who can assist one another. Another suggestion is to work with larger companies, brokers, or agents who can help the SME reach the scale needed to meet foreign demand. AmCham Shanghai assists in this area as well. The chamber holds more than 360 events a year, bringing businesspeople with the common goal of succeeding in China together. Among these members are potential mentors who understand regulatory and transportation issues, the legal environment, and the cultural and language challenges faced by U.S. businesses in China. The third is to take advantage of the many support programs offered by the U.S. federal and state governments. Many SMEs are unaware of such programs that could be beneficial to them. Programs at the Export-Import Bank, the Small Business Administration, the U.S. Department

of Agriculture, and the U.S. Department of Commerce assist SMEs. AmCham Shanghai works closely with these agencies to meet the needs of our SME members. In October, the Chamber co-hosted an event that featured Ex-Im Bank Chairman Fred Hochberg. AmCham Shanghai believes that it can play an even more significant role in all of these areas. Late in 2011, the AmCham Shanghai Board of Governors voted to approve the creation of an SME center to focus on smaller enterprises entering or operating in the China market. Relying on the strength of its brand, the breadth of expertise housed within the membership, and the variety of partnerships the chamber has forged with both U.S. and Chinese government entities, AmCham Shanghai intends to provide a platform to make doing business in China simpler for the SME. The center is expected to provide basic assistance, training, and secondary research, much

like AmCham Shanghai’s existing services and publications. For higher level assistance, the SME Center will facilitate a connection to one of the chamber’s member service providers. Talk about the center has been applauded by key officials in China and abroad including Locke. In fact, at a speech delivered at a special AmCham Shanghai event last year, Ambassador Locke reiterated his support for the organization’s plans to provide more services to SMEs and the center. “It shows the significance of your role here in the region and the great potential you have to really promote further cooperation between the commercial and trade interests of the United States and China,” Locke said.

Kirt Greenburg is AmCham Shanghai’s SME Associate

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2012 PREVIEW

China’s Economy in the Andy Rothman

China Macro Strategist for CLSA Asia-Pacific Markets

he Chinese economy will continue to decelerate this year, but 8.5 percent GDP growth will be far from the hard landing some fear. Although this will be the first year since 2002 where GDP rises less than 9 percent, the Communist Party seems comfortable with this slower pace of growth, which means we will only see marginal easing of monetary and fiscal policy. The Party will ease only modestly because the economy is not yet showing signs of requiring greater stimulation, not because of concerns over inflation. As this issue went to press, inflation numbers were very positive, showing significant cooling pressure on both a year-on-year and month-on-month basis, for food and non-food prices. The Consumer Price Index (CPI) will be significantly lower this year. Investment, the key engine of growth, will expand by less than 24 percent YoY for the first time in a decade, largely because of slower growth in government spending on public infrastructure. But we expect fixed asset investment to rise 21-22 percent, so the change will not be dramatic. Through November, the growth rate of investment by private firms (31 percent YoY) was faster than that of state owned enterprises (6 percent) for the 21st consecutive month, reflecting both that SMEs are relatively healthy and that state firms have the capacity to ramp up capex spending if the Party deems that to be necessary this year. Overall investment by manufacturing firms remained strong, up 31 percent year to date. Consumption will remain very strong this year, driven by the 12th consecutive year of doubledigit nominal urban income growth. With retail

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The most important policy change in 2012 is expected in the second quarter: the Party will allow some cities to relax enforcement of restrictions on home purchases...”

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sales expected to rise 16 percent and household expenditure 10 percent, China will continue to be the world’s best consumption story, for everything from instant noodles to luxury cars. Exports will continue to slow, but unless Europe collapses, exports will not drop as sharply as during the global financial crisis, and the impact on China’s economy will not be dramatic. The Chinese economy is already less export-dependent. Back in 2007, prior to the last slowdown, net exports contributed 18 percent to China’s GDP growth. But through the first three quarters of 2011, net exports accounted for a –0.7 percent drag on growth. China is a continental, domestic investment and domestic consumption led economy, with exports playing a modest, contributing role.

Growth and jobs We do, however, expect layoffs in the export processing sector, which should lead to a small fiscal stimulus, to accelerate construction of projects related to water, the environment, power transmission and low-income housing, with the purpose of creating temporary jobs. Another consequence of slower export growth is that the pace of renminbi appreciation will slow this year to about 3 to 4 percent annualized, down from the 5 to 6 percent pace of the recent past. The main reason for this is to allow the Party to express empathy with the plight of exporters and workers in that struggling sector, with Beijing understanding that slower appreciation will not actually boost exports. But policy-makers also note that with the current account surplus-toGDP ratio down to about 3 percent (from the 2007 peak of 10 percent), there is little evidence that the

Year of the Dragon currency is significantly undervalued. While a European collapse could result in even less than 3 percent appreciation against the dollar, devaluation is not under consideration in Beijing. The most important policy change in 2012 is expected in the second quarter: the Party will allow some cities to relax enforcement of restrictions on home purchases, including easier access to mortgages for first-time buyers (although cash down payment requirements will remain high). This is important because in our view the key China risk

this year is, will the Party relax the policy measures which are slowly strangling Chinaâ&#x20AC;&#x2122;s housing market, or will it strictly enforce the current restrictions until after the market crashes late in the year?Â We believe there is a 75 percent chance the Party will relax enforcement of its housing policy measures by the summer, avoiding crashing the important residential sector and leading to an acceleration of home sales and construction activity in the second half of 2012.

White House Photo

President Barack Obama makes a point with President Hu Jintao of China near the end of the APEC summit in Honolulu, Hawaii, in November.

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Managing the U.S.-China Relationship Charles Freeman

Vice President, Global Public Policy and Government Affairs, PepsiCo, Inc.

.S.-China relations have reached an uneasy calm in the immediate aftermath of the financial crisis. After an initial bout of “aggressive” exuberance as Beijing tested the limits of its newfound clout relative to what it views as a United States in decline, China has returned to a U.S. policy that seeks to reduce friction and highlight cooperation. U.S. policy with respect to China has also devolved from the Obama administration’s early sunnier aspirations for partnership with China on matters of global concern to one of risk management and surprise-avoidance. All in all, therefore, the two sides are doing their level best to get along despite divergent agendas in economics, defense and normative arenas. The political transition in Beijing and presidential election in the United States are challenging the respective foreign policy establishments in both

U.S. Secretary of State Hillary Rodham Clinton greets Chinese Foreign Minister Yang Jiechi in New York in September 2011.

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countries. Those jockeying for power in Beijing in the run-up to the change in leadership do not want to be seen as overly accommodating to U.S. hegemony, particularly given China’s new sense of its own global heft, so will have a difficult time keeping in check bombastic rhetoric. Talking tough on China, always an easy way to score political points on the U.S. campaign trail, has even greater resonance with an electorate that increasingly views China as a primary competitor and threat. That said, and despite the occasional negative rhetorical flourish from candidates in the United States and the odd PLA official in China, the calm in the relationship, even if uneasy, is palpable. The unspoken supposition in Washington is that the fragile global economic recovery depends in significant part on the ability of the world’s largest developing economy and the world’s largest developed country to manage their affairs peacefully and effectively. Hotheads in both countries may be gnashing their teeth at the indignities visited by one country upon the other, but the public angst does not have much traction in the corridors of power. Cooler heads in Beijing and Washington recognize that neither country has much to gain (and both have much to lose) from open diplomatic hostility, but the ability of these cooler heads to manage the instincts of a vocal subsection of their own domestic publics is limited. Under the circumstances, the best the two sides can hope for is that no external diplomatic crisis fundamentally tests the domestic political will of either Beijing or the United States. What business needs most is a U.S.-China relationship without surprises.

Forecasting the Expat Job Market Larry Wang

CEO and Founder, Wang & Li Asia Resources

F “

[A]ll roads point to China as far as the greatest potential for business growth is concerned…”

or 2012, the employment market for expats in China can be summarized with one big question: “How will a difficult global economic situation impact the pace of talent localization in the mainland?” Will it further accelerate it, or decelerate it? Overall, mainland professionals working in multinational companies continue to accumulate their international-caliber experience, training and exposure every year. As a result, the localization of positions in China is extending further into both higher levels and a broader range of positions. For instance, one of our major U.S. manufacturing clients that historically uses expats to fill most of its director and above roles in China recently started passing us search mandates with clear and specific instructions to target mainland professionals for these positions. This includes roles that cover Asia Pacific region responsibilities, which was not the case before. From our past experience as a recruitment firm servicing global companies in China, economic downturns in other markets only lead to an accelerated pace of localization here for many positions traditionally occupied by expats. In the face of tough conditions, companies review and more closely scrutinize their cost and labor force. This applies to operations worldwide. Although some companies may strategically invest to grow their business during such a period, most look for ways to reduce cost and operate more efficiently. In China, this makes many higher paid expat positions stand out and vulnerable to replacement with less expensive and increasingly capable local talent. At senior management levels (director level and above), the greatest competition for expats is not so much from local mainland professionals, where the gaps still exist in their key capabilities,

experience and international mindset to handle these higher level roles. The main threat for their replacement comes from the mainland returnees and regional Chinese professionals who not only have more relevant skill sets and resources for this market (e.g. Mandarin skills, cultural background, local relationships, etc.), but also possess greater international experience. A tighter employment situation in places like the United States and Europe drives people to look at other options for their career. For many mainland returnees and regional Chinese currently living abroad, exploring opportunities in China becomes a top-of-the-list consideration. On the plus side, in the final analysis for many companies, all roads point to China as far as the greatest potential for business growth is concerned. Relative to the rest of the world, it’s still the best place to be for employment opportunities and career upside. Increasing investment and plans for expansion by multinationals here mean huge initiatives to further build teams and resources, improve quality and efficiency and deliver new products, services, solutions and opportunities in this market. These are capability areas and achievements that the local talent market still lacks a strong track record in delivering at the scale and to the degree that most senior management positions require. For expats, this means that the window of opportunity, although continuing to shrink, is still there for now. Mainly though, you need to be someone who can drive and deliver significant results and value in these key business, operation and leadership areas more effectively than what a local hire or replacement can achieve. Ultimately, these are capabilities and achievements that stand up best in any market and under any market condition.

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China and the American Elections Derek Scissors

Research Fellow, The Heritage Foundation

t is well known that foreign policy typically plays a minor role in American elections. It is a measure of China’s importance that the Sino-American relationship could nonetheless change the 2012 campaign. It is highly unlikely that China will determine who secures the White House or which party controls either House of Congress. But the specter of China has already moved the national debate, unfortunately in a worrisome direction. The reason China is an exception to the rule of foreign policy being secondary is the perceived impact of Chinese policies on the domestic U.S. economy, an impact not attributable to any other single country. The obvious example is the claim that China’s exchange rate interventions cost large numbers of American jobs. The claim is false but it has a real political effect, pushing politicians of all ideologies and parties toward a more critical stance concerning China. This has been true for a number of years. The difference in 2012 is persistently high U.S. unemployment. The Obama administration and Congress have to this point failed to make progress on what should be their top task of job creation. Incumbents are therefore vulnerable and will seek to shift blame elsewhere, to the other party but also to foreign targets such as the European Union crisis and predatory Chinese trade actions.

“

The Presidential election itself will have the usual China dynamic, but with a disturbing twist.”

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In Congress this will be akin to death by a thousand cuts. Incumbents will assail China and their challengers will respond by accusing them of failing to act against the PRC. Each individual charge and counter-charge will be minor but there will be hundreds of these during the primary and hundreds more during the general election. Media coverage may portray American popular sentiment as turning sharply against China, which might be partly true but will certainly be partly a function of electoral gamesmanship.

The China dynamic The Presidential race is clearer. The longer the Republican primary continues without a victor, the more incentive there is for the competitors to try to stand out in the crowd. One of the ways they have and will continue to try to do this is to outmatch each other in antagonism toward China. This is poisoning the well on a larger stage and will magnify what occurs in

Congressional primaries. The Presidential election itself will have the usual China dynamic, but with a disturbing twist. It is typically the case that the challenger attacks the incumbent President for being too China-friendly (then becomes China-friendly himself if he wins). The twist is that, on economic issues, President

Obama is already far from a free trader. The unemployment situation and their own political calculations have pushed the Republican candidates to criticize even an ambivalent President as too forgiving of the PRC. This is a notably worse situation than when clearly protrade Presidents were attacked by their challengers. Itâ&#x20AC;&#x2122;s not all bad news: in one very important set of elections, China will be an object of praise. Many governors of U.S. states have already made trips to the PRC and more will visit in 2012. In gubernatorial races, the candidates will compete, not over who can

be more critical of China, but over who can most effectively engage China. While the 2012 election pushes the American national government toward confrontation, the states will move increasingly toward cooperation. Finally, it may be surprising that the election can be discussed with scant mention of actual issues in Sino-American relations. The U.S. political debate involving China is primarily emotional rather than intellectual, about themes rather than facts. Unfortunately, the dominant theme may be anger and confrontation.

U.S. Treasury Secretary Timothy Geithner and Vice Premier Wang Qishan of the State Council at the airport in Qingdao, China in 2010.

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Embarking on a New Era

Shen Dingli

Executive Dean, Fudan University Institute of International Studies and Director of the Center for American Studies

very five years, the Chinese Communist Party convenes its major Congress. In the fall of 2012, the Party will convene its 18th Congress, when a new generation of leadership will emerge to command China’s top positions. This foretells China’s emphasis on stability during its transition. The new collective leadership will face some challenges while commanding significant opportunities. Despite the recent financial crisis in the U.S. and Europe, China still expects sustained economic growth at a rate of some 10 percent per annum, with its GDP reaching some US$7 billion in 2012. This will empower the country’s competitiveness to rid poverty and far better balance its overall development and wealth distribution. To secure stability in 2012, Beijing is likely

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to stress the importance of maintaining globalization, which requires co-dependence of and renders co-prosperity to members of the international community. To this end, China has to engage in economic and trade cooperation with the rest of the world with a more balanced approach. Per China’s 12th Five-Year Plan of doubling imports from 2011–2015, China is likely to import some US$1.5 trillion in 2012. Meantime, China will also lift its investment overseas, generating more opportunities for its trade partners. In 2012, China’s foreign relations policy will continue to draw international attention. Much will focus on the U.S. “return” to Asia and its implications on China, especially the handling of its maritime interests. Indeed, for the past two years, there has been quite a

few incidents from maritime disputes among several stakeholders in East Asia.

High seas On the issue of the South China Sea, China and the U.S. exchanged views in this regard during their Consultations on Asia-Pacific Affairs in Honolulu in June and in Beijing in October. Given China’s clear statement on its core interests in the South China Sea – that China is entitled to all islands in the region and their close waters – I expect that the temperature on this issue will cool down. China and the U.S. share common interests in protecting the freedom of navigation, per the U.N. Convention on the Law of the Sea (UNCLOS), on the high seas. While the two countries remain somehow different on the interpretation of some of their respective rights in the exclusive economic zone, they may continue to narrow the gap in the remaining

areas in 2012. A major challenge, as well as an opportunity, lies ahead. In 2012, it is expected that the United Nations shall close its negotiation on the follow-on international arrangement to the Kyoto Protocol, hopefully positively. However, given the present global economic slowdown and leadership shuffle in 2012, the chance to wrap up with a grand bargain does not seem great. In my view, this is where China and the rest of the world need to properly balance their interests, either short-term or long-term. Since President Barack Obama’s State visit to China in November 2009, China-U.S. relations got twisted from December that year because of their differences at the Copenhagen summit. It remains a challenge how to turn this into an opportunity after the 17th Conference of the Parties (COP17) to the United Nations Framework Convention on Climate Change in Durban.

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China has to engage in economic and trade cooperation with the rest of the world with a more balanced approach.”

imaginechina

China’s 2011 National Assembly in Beijing

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The South China Sea Equation Stephanie Kleine-Ahlbrandt

Project Director, International Crisis Group, North East Asia & Adviser, China and Bryan Klein, Beijing Office

n 2012, ongoing political disputes in the South China Sea – an oil-rich area claimed by six Asian nations – continue to generate serious tensions that could lead to conflict. The long-simmering disputes culminated in a series of dramatic events last summer when Chinese patrol vessels slashed the research cables of Vietnamese survey ships on two separate occasions and the Philippines president accused China of firing on a Filipino vessel and violating the nation’s exclusive nautical zone. China, the Philippines and Vietnam all reacted by increasing military activities and engaging in live fire drills. While the diplomatic war of words has calmed down, tensions remain high. Given the nationalist sentiment underlying all parties’ claims in the South China Sea, future incidents could be difficult to de-escalate. As a response to growing concerns that the scope and ambiguity of China’s territorial claims coupled with its assertive behavior may harm economic interests and national sovereignty, nations in Southeast Asia are increasing their naval capacities. In December, the Philippines launched its largest warship, a recently-purchased U.S. Coast Guard cutter, to guard disputed waters near its shores. Malaysia, Vietnam and Indonesia are all acquiring submarines. More naval vessels sailing the South China Sea raises the likelihood of further skirmishes.

Growing fears This security dilemma is compounded by the interaction between the U.S. and China in the South China Sea. While Beijing says they prefer to solve its disputes oneon-one with its smaller neighbors, Washington has made it clear that with over half of the world’s

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merchant fleet tonnage sailing across the South China Sea each year, preserving freedom of navigation is a national interest. Recent announcements concerning America’s pivot to Asia and the imminent deployment of 2,500 U.S. marines in Australia, just south of the disputed region, have reaffirmed Washington’s intent to remain present in the region. As Southeast Asian nations run to the U.S. for assistance, Beijing increasingly fears that America aims to encircle China militarily and diplomatically. Underlying all of these concerns is the potential that discoveries of oil and natural gas beneath disputed sections of the South China Sea could fuel conflict. China has repeatedly warned oil firms against exploring Chinese-claimed territory in the South China Sea, most recently after Exxon Mobil discovered hydrocarbons off Vietnam in August. As existing oil resources become depleted, claimant states are looking to potential resources in the South China Sea to fuel their economies. The Philippines has already announced plans to begin drilling in Reed Bank, the same spot where last March a Filipino seismic survey ship was harassed by two Chinese patrol boats claiming the area was in Chinese territory. China and ASEAN will begin drafting a binding Code of Conduct for the South China Sea this January. While the drafting process presents an opportunity to build confidence in the region, more action needs to be taken to avoid further clashes. All nations in the region should take concrete steps to implement and adhere to the 2002 Declaration of Conduct, which rejects the use of force in the South China Sea. Additionally, parties should agree to an “Incidents at Sea” agreement to help actors on the open water ease tensions in the event of a clash. If this chance to set a constructive path forward is not taken, further clashes in the South China Sea could escalate into conflict.

A Formidable Year Ahead By Nicholas Consonery Asia Analyst at Eurasia Group

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Europe is the biggest global dilemma that China faces in 2012.”

n October 26, 2011, European leaders – besieged by markets – agreed to add resources to their bailout fund, the European Financial Stability Fund (EFSF). The fund was meant to thwart insolvencies, but as the summit came to a close the leadership knew that they had not secured enough capital to put to rest the risk of government default. That night, President Nicolas Sarkozy revealed a plan to secure such resources. Within mere hours, the French president called Chinese President Hu Jintao to ask for his help. Europe is the biggest global dilemma that China faces in 2012. Europe’s desperate need for new capital gives Beijing an opportunity to use its financial resources to bolster its influence in the region. But on the other hand it also creates a series of headaches for Beijing. First, the Chinese leadership wants to help maintain growth in Europe’s economy, but it is constrained in terms of how much support it can provide. Chinese citizens support a more influential China, but not when that comes at the expense of priorities at home. Ensuing weakness in the European economy also threatens China’s own economy. For now Beijing has yet to answer Sarkozy’s request for assistance. China will likely play a role in relief efforts this year, but only just so. The leadership is also placing a high premium on internal and international stability in the lead up to its historic political transition this year. This is good news for the global economy because, as the outcomes from the December Central Economic Work Conference made clear, Beijing will do whatever is necessary to ensure that the domestic economy maintains steady growth. Guaranteeing stability on the international front will be harder in 2012. Vehement internal debates were inflamed in 2011 within the government, and perhaps between the civilian leadership and the military, about what China’s role in the world should be. These debates, sparked by troubling events in the Middle East and in the world economy, will persist – and the absence of resolution could spark unexpected and worrying policy outcomes.

French President Nicholas Sarkozy

In this context, there is a risk that Beijing could face more difficult strategic policy choices this year regarding volatile hot spots like Iran and the South China Sea. The tenuous political environment raises concerns about the potential outcome of such choices. Either way, Beijing will seek to regain its strategic footing in Asia this year, given that 2011 ended with a barrage of foreign policy successes for the U.S. in the region. These successes were disquieting for Beijing, but they highlighted the realities of Asia today. While China’s economic development is a source of lucrative new business opportunities, countries in the region are taking steps to hedge their bets and avoid becoming too economically or politically tied to it. On the business front, Chinese firms and investment funds will continue to look aggressively for global investment plays, especially in the energy and commodities space but in other sectors like infrastructure and perhaps even finance as well. China’s national oil companies will pursue more investments in emerging market oil fields, and increasingly in North American unconventional oil and gas. These investments will create exciting business opportunities – but they will make it harder for Beijing to maintain its “non-interference” principles. And they will threaten to embroil the Chinese government in more difficult conundrums than it would prefer in this formidable year.

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A Win-Win Game Dan Steinbock

Research Director of International Business at the India, China and America Institute (USA), Visiting Fellow at Shanghai Institute for International Studies (China), and EU Center (Singapore)

hina needs technology and know-how. America needs jobs and capital. In 2012, U.S.-China commercial relations could deepen or drift further apart. After 10 years of China’s entry to the WTO, lingering global demand and rising trade protectionism may spell trouble for both Chinese exports and the Obama administration’s export initiative. In 2010, world trade recorded its largest annual increase as merchandise exports surged 14.5 percent. In 2011, however, world trade will be halved to 6.5 percent as the debt crises in major developed countries continue to reduce global demand. Still, U.S. exports are booming to China, which is America’s third-largest export market. In these circumstances, Washington’s focus on renminbi appreciation is a distraction, while its fixation with imports from China is progressively redundant. Until recently, China served as the “world factory” and the emphasis of economic policies was on production. In the coming years, China will begin to shift toward consumption. That’s an opportunity America should not miss.

“

The anti-subsidy retaliation game has already begun and it is taking place in the emerging industries of the future…”

OFDI Direct investment In the past decade, outward foreign direct investment (OFDI) moved into China. In the future, Chinese capital will increasingly move abroad. In the past five years, China’s OFDI flows soared from under US$3 billion to over US$60 billion in 2010, but there were few Chinese investments in the U.S. This outcome was not inevitable. After the

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CNOOC debacle in 2005, however, Chinese companies did not feel welcome in America. So Chinese OFDI focused on developing countries and a few resource-rich developed economies. The good news is that since 2008 Chinese OFDI has been taking off in America. As Chinese companies advance up the value chain, they are also upgrading their technology and augmenting their managerial skills and talent. In the coming decade, Chinese firms are expected to place US$1–2 trillion in OFDI worldwide. That is a huge opportunity for the United States too, but only on the condition that policymakers proactively keep the investment environment open and work together with Chinese companies, not against them.

Self-defeating tactic Recently, anti-dumping cases have been used to target China’s trade policies because China is still considered a “non-market” economy. To build a case, the terms allow a country to substitute China’s prices with those of another, often pricier, market economy. It is a convenient and self-defeating tactic. The anti-subsidy retaliation game has already begun and it is taking place in the emerging industries of the future – clean technology. In early November, the U.S. government launched an investigation into imports of Chinese solar panels. In return, China’s commerce ministry is looking into U.S. renewable energy subsidies. That’s a win-lose game for both. In the U.S., this political tit-for-tat in and around the anti-subsidy cases is tempting in an election year. In turn, China will respond via

countermeasures. There is a precedent: The Smoot-Hawley Act of 1930, which unleashed a string of countertariffs that turned a great recession into a global depression. There is an alternative: enhancing, expanding and deepening U.S.-Chinese cooperation in clean energy. American companies need cost advantage while Chinese firms need expertise. Washington hopes to increase energy security and Beijing needs sustainable cities. Thatâ&#x20AC;&#x2122;s a win-win game for both.

Whatâ&#x20AC;&#x2122;s at stake In the 1970s and 1980s, U.S.-Japanese relations were haunted by persistent trade friction. As long as Japanese high-tech companies were primarily exporters, the relationship was antagonistic. Things changed when Japanese companies began to invest in America. Gradually, jobs and capital substituted for clash and conflict. With China, far more is at stake. With the second act, failure should not be an option.

U.S. Secretary of Commerce John Bryson checks out U.S.-made airport vehicles at Beijing Airport before heading to the Joint Commission on Commerce and Trade (JCCT) in Chengdu in November.

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door k n oc k B y E s t h er Yo u n g

Room to Grow Roadblocks limit U.S. financial services firms, says Viewpoint report

h i n a’s p l a n n e d s h i f t f r o m a manufacturing-based, export economy to one more driven by domestic consumption has turned the Chinese government’s focus towards improving its financial services market. The accompanying growth has potential to create tremendous opportunities for U.S. banks, investors and insurance providers, according to AmCham Shanghai’s Viewpoint, “Financial Services in China: Capitalizing on the World’s Fastest Growing Market,” which was prepared for lawmakers in Washington, D.C. on AmCham Shanghai's annual Doorknock in September. The market size has been growing substantially for financial services of all kinds. At the end of 2010, total Chinese banking assets topped RMB1.74 trillion (US$270 billion), up 29 percent from the previous year. In 2010, China produced US$5.6 billion in investment-banking revenue – the largest in Asia. From 2000-2010, China’s total insurance premium volume has grown RMB160.9 billion (US$25 billion) to RMB1.45 trillion (US$225 billion). AmCham Shanghai member companies are focused on accessing this growing market in China and in fact have taken a lead role in the country’s financial service market, ranking second in financial service exports to China behind Japan. U.S. financial services in China play a key role in the larger effort to increase U.S. service exports, which increased to US$15.7 billion in 2009, and achieve the objectives of the National Export Initiative (NEI).

Good for the U.S. A strong American presence in China supports

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

U.S. economic growth in several ways. U.S. companies looking to export goods to China, for example, particularly small to medium sized enterprises (SMEs), are supported by U.S. banking institutions in China, which provide local market expertise and channels for financial transactions and asset management. A strong U.S. presence in China also enables Chinese foreign direct investment (FDI) in the U.S. U.S. financial service providers possess the knowhow and capital to match and support Chinese companies seeking to invest. Already sought-after at the U.S. state and city level, Chinese investment in the U.S. reached US$30 billion in 2010 and has supported economic growth and the creation of U.S. jobs. Companies are also competing in one of the fastest growing markets in the world. Increasingly, to keep up their market share of the global market, U.S. financial services providers will have to be successful in China. U.S. competitors from Europe, Asia and elsewhere are competing here in China as well.

Roadblocks While the opportunity in China is great, American firms face significant challenges and many have been

unable to fully penetrate the China market. Foreign banks hold only two percent of China’s total financial assets. In China, U.S. firms are confronted by a complex and sometimes inconsistent regulatory policy that tend to favor local Chinese financial service providers, a tightly controlled monetary policy and number of other obstacles. AmCham Shanghai urges the U.S. government to engage China on the following issues: 1. Regulatory reform. To ensure U.S. financial service competitiveness, it is vital to formulate clear and transparent regulations and requirements governing foreign financial service providers in China and establishing clear roles between regulatory bodies in China. Efforts should be made to eliminate overlap between regulatory bodies like the People’s Bank of China (PBoC) and China Banking Regulatory Commission (CBRC). 2. Market access. Pressing China for full market access will help American companies compete in the world’s fastest growing market. Basing capital requirements for U.S. banks in China on the financial strength and resources of the bank’s head office, for example, and removing the 50 percent cap on foreign ownership for U.S. financial service providers enable foreign companies to more easily increase capital in their operations in China, deploy world-class service platforms and invest in China’s capital market. 3. National treatment. Official regulations in China make no distinction between domestic and foreign-invested financial service providers, but foreign companies often face more challenges when seeking to expand or conduct business. For both commercial banks and insurance providers, the approval process for branch expansion is extremely time-consuming, while domestic Chinese financial service providers do not face such obstacles.

(S&ED) and the U.S.-China Joint Commission on Commerce and Trade (JCCT), but the U.S. government should follow up on commitments that China has made. In May 2010, for example, the U.S. and China agreed to open up the financial futures trade related to commodities. However, a year later, there are still limitations for Qualified Foreign Institutional Investors (QFIIs). Only five big local Chinese banks can currently offer margin accounts and brokers seeking to participate in futures trading related to commodities must open an account at one of these five institutions. The PBoC has not so far allowed foreign banks to open margin accounts and they are effectively barred from handling accounts related to commodities. In addition, during the May 2011 S&ED, China pledged to advance toward allowing U.S. and other foreign insurance companies to sell mandatory third party liability (MTPL) auto insurance. Healthy competition would help the highly competitive auto insurance market refocus on customer service, consumer protection and underwriting results. China should implement its pledge to open the MTPL auto insurance to foreign companies as soon as possible. The reduction of challenges for U.S. companies would not only support the U.S. economy, but help China reach its ultimate goal of fostering a vibrant financial services market and establishing Shanghai as a global financial center, the report said. Unit Millions of USD

“

While the opportunity in China is great, American firms face significant challenges and many have been unable to fully penetrate the China market.”

Financial Services exports to China by country, 2006-2009 (escl. Japan)

1400 1200 1000 800

Bilateral and multilateral agreements There has been some progress toward addressing these challenges. Free and fair access to the China financial services market has been a top agenda item at bilateral and multilateral discussions, including the Strategic & Economic Dialogue

600 400 200 0

2006

2007

2008

2009

Source: OECD Library, Australian Government Department of Foreign Affiars and Trade

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M a n a g e r ’ s N ot e b o o k

What’s Your UVP Factor?

Why strategically focusing your image is a key to success Norman Yen

By Norman Yen

was taught early that to beat the rest, you had to be the very best. This was a basic “law of the rat race,” especially if you wanted to get your dream job, a promotion or to win in general. However, the key to success is not only what you do about yourself, your product or even your company – it is also what you are in the mind of the decision maker. With a bevy of competing data, ideas and choices, how in the world do you get your idea or even yourself to stand out? Or, put another way, what is your Unique Value Proposition (UVP)? By answering this question, you explain in a simple way your personal “position” on why decision makers should buy from you, or rely on you, and not someone else. One of my favorite stories is about a struggling student and entrepreneur named Tom Monaghan, who, while studying to be an architect in Michigan, borrowed US$500 with his brother James to purchase a small pizza shop named DomiNick’s Pizza. After struggling in a competitive

Norman Yen sp ecializes in co ac hi ng an d tr ain ing an d hi s cl ien ts inc lu de ind ivi du als an d organizations in Ch ina and Asia. Norman can be reached at Norman@Yen4Alpha.c om.

market, Tom came up wit h a ver y powerful UVP: “Fresh, hot pizza in 30 minutes or less.” With the power of that UVP, he was able to transform his simple pizza business into a billion dollar empire, which he sold in 1998. This still is the UVP for what is now known as Domino’s Pizza. Another key is matching your UVP to the needs of the decision makers. A number of years ago, I was flown to New York as one of two finalists to see the board and founding members of a successful China-U.K. joint venture that sought to aggressively expand globally. My competitor was 10–15 years my senior, more seasoned in China and more fluent in Chinese, while I was perceived as younger but with a stronger international track record. After a 60-minute presentation and 30 minutes of Q&A from the board, their last question was simply, “So…why should we hire you?” My reply and UVP was simple. “I fit your requirements,” I said. “I have more than 15 years of proven international experience, with a successful track record in acting and driving forward locally.” Was I more experienced or smarter than my competitor? No. However, I was able to convince the board that I

was a safer bet to help them expand internationally, which was the key concern on their mind. So, how do you begin to create your own UVP? Here are some tips and questions you should ask yourself to determine your UVP. 1. Write out a simple sentence that answers this question: “Why should a decision maker buy what you are selling?” 2. After establishing a UVP, ask yourself: “Why should anyone care about your UVP?” If you can answer this, you are on the right track. 3. Ask three simple questions to further test the quality of your UVP: • Is it simple? Ensure that your UVP is concise and very easy to understand. • I s i t r e l e v a n t ? E n s u r e y o u r message is focused, unambiguous and believable. • Is it unique? Do you have a trait that the client cares about that is your strength and is difficult to copy? Whether you are getting a new job or selling your service or idea, positioning can dramatically tip the edge to your favor. Positioning is not about being the very best at all things to all people, but how to get your idea to stand out in the mind of the decision maker in a simple, relevant and unique way.

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

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

Highlights from the December 2011 Board of Governors Meeting Export Compliance Working Group (ECWG) Committee Approval An overview of ECWG and AmCham Shanghai’s participation in the group to date was provided by AmCham Shanghai staff. Board members discussed the opportunities offered by making the ECWG a formal AmCham Shanghai committee including business and training opportunities for member companies. The Board approved the establishment of the Export Compliance Working Group as the 24th AmCham Shanghai Committee. Yangtze River Delta (YRD) Business Plan The business plan for AmCham Shanghai’s proposed YRD expansion was reviewed by Board members. The plan as presented included initial YRD objectives as laid out by the Board, the addressable market in the YRD and the Chamber’s current competitive position. The plan also included a recommendation to open an office in Suzhou which will support the delivery of services to Chamber members in Suzhou and the management of sales and marketing functions. The Board approved funding for the YRD expansion initiative.

SME Business Plan Kirt Greenberg, program associate, reviewed the business plan for AmCham Shanghai’s planned SME Center. The plan included an overview of the market for SME services as provided by other nongovernmental organizations (NGOs) and government agencies. The concept of a “virtual” SME Center and its importance to the overall success of the SME Center program was also presented and discussed. The Board considered different aspects of the SME Center including the physical layout of the Center, services to be offered and how the SME Center will provide member service providers additional business opportunities. In Attendance Governors: Andrew Au, Ted Hornbein, Kenneth Jarrett, Eric Musser (Chair), Matt Targett (by phone), Robert Theleen, Kevin Wale and Eric Zheng Apologies: William Brekke, Eddy Chan, Marie Kissel, Jim Mullinax and Robert Roche Attendees: David Basmajian, Chen Lienjing, Siobhan Das, Brenda Foster (President), Kirt Greenberg, Dan Krassenstein, Stefanie Myers, Helen Ren, Jim Rice, Jonathan Shyu, Peter Sykes, Karen Yuen and Linda X. Wang

The AmCham Shanghai 2012 Board of Governors Chair

Governors

Andrew Au Citibank China

Eddy Chan FedEx Express

Chen Lienjing Pratt & Whitney

Ted Hornbein Richco

Marie Kissel Baxter Asia-Pacific

Daniel M. Krassenstein Procon Pacific

James Rice CSM nv China

Peter Sykes Dow Chemical

Eric Zheng Chartis Insurance

Kenneth Jarrett APCO Worldwide

Vice Chair

Robert Theleen ChinaVest

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AmCham Shanghai New Members: Jan - Feb 2012 U.S. Corporate Membership AZZ Trading (Shanghai) Co., Ltd. WANG Kevin

Sussek Machine (Suzhou) Co., Ltd. DING Ning United States Pharmacopeia Research & Development (Shanghai) Co., Ltd. HU John J. SandForce Information and Technology (Shanghai) Co., Ltd. CHEN Frank TOSOH SMD (Shanghai) Co., Ltd. ZHANG Zhiguo U.S. Associated Corporate Membership

Changzhou Micarta Composite Material Co., Ltd. DAVIS Dustin Genzyme (Shanghai) Biopharmaceutical Service Co., Ltd. ZHAO Ping McCann-Erickson HAMMOND James Shanghai International Theme Park and Resorts Management Company Ltd. KING Murray ArcelorMittal (China) Co., Ltd. DENG Daniel Shanghai International Theme Park Associated Facilities Company Ltd. Cooper Tire (China) Investment Co., KING Murray Ltd. TSAUR Allen K Shanghai International Theme Park Company Ltd. CTPartners Commercial Consulting KING Murray (Shanghai) Co., Ltd. YUAN Alan Shenzhen Jiehan Trading Co. Ltd WHITFORD Brien Sanborn Cypress Semiconductor Technology (Shanghai) Co., Ltd. Sigma International Group BOLLESEN Michael LIU Iris Liya Dockwise Shipping (Shanghai) Co., Ltd. tenKsolar (SHANGHAI) CO., LTD. ZENG Sheng MEYER Dallas Wayne Hamilton Sundstrand (Shanghai) Tyson (Shanghai) Enterprise Management Co., Ltd. Management Consulting Co., Ltd. NUNES Pierre Jules TEETER William Hertz Equipment Rental Company Argosy (Shanghai) Aerospace Material HIGGINS Charles Ltd. MARKS Paul National Oilwell Varco Petroleum Equipment (Shanghai) Co., Ltd. Seitz (Changzhou) Motion Control WHITE Lynn Merritt System Co., Ltd. LI Yongsheng PPG Management (Shanghai) Co., Ltd. FRY Terry Aetna (Shanghai) Enterprise Service Co., Ltd. PrimeVest Group/ Hongjing International CHENG Hong Education KWOK Andy CareerBuilder (Shanghai) Network Information Co.,Ltd. Troy Specialty Chemicals Trading CUCINELLA Nick (Shanghai) Co., Ltd. CHANCE Robert Sauer-Danfoss (Shanghai) Co., Ltd. LARSON Terry Active-Semi (Shanghai) Co., Ltd. BLACKLEDGE Larry Shanghai Link Testing Technology Company Limited Nokia Siemens Networks Technology HARKIN Ronan (Beijing) Co., Ltd., Zhejiang Branch YI Jiangguo Shaw International Services, Inc., Shanghai Representative Office American Securities CHU Anna ONG Ee-Ping Apple Procurement and Operation Carlyle Investment Consulting Management (Shanghai) Co., Ltd., (Shanghai) Co., Ltd. Suzhou Branch LUO Yi CUI Yushan Coach Shanghai Limited Camiant (Nanjing) Inc. SELIGER Jonathan FAN Xunyi CooperVision Optical Trading (Shanghai) CGN Management Consulting Company Limited (Shanghai) Co., Ltd. SZE Lap Man LAW Harry Dell Services (China) Co., Limited, ComPsych (Shanghai) Management Shanghai Branch Consulting Co., Ltd. WILLIAMS Kirk LI Yan Firth Rixson Aerospace Components Cummins Generator Technologies (Suzhou) Co., Ltd. (China) Co., Ltd. LI Chenxing DONG Haochun Fisher Regulators (Shanghai) Co., Ltd. Foley & Lardner LLP, Shanghai Rep. ZHOU Dong Office. US Johnson Controls (China) Investment JI Xueqing Linda Co., Ltd NSF Shanghai Co., Ltd. MOULTON John Harmon ZHANG Alex Novatel Wireless (Shanghai) Co., Ltd. Sino-American Shanghai Squibb YANG Yongxi Pharmaceuticals Ltd. The i g hNielsen t J A NCo. U A (Shanghai), RY / F E B R U Ltd. A RY 2 0 1 2 POINTEAU Jean-Christophe Michel 4 2 i n sYAN Xuan

Avon Products (China) Co., Ltd. ZHAO Haiqing BSC Medical Device Technology (Shanghai) Co., Ltd. MADDALI Mahesh CareFusion (Shanghai) Commercial and Trading Co., Ltd. XU Coco Crane Worldwide Logistics (Shanghai) Co., Ltd. YANG Ming Crocs Trading (Shanghai) Co., Ltd. LEE Ted Tuern Eastman (Shanghai) Chemical Commercial Co., Ltd. WILLIAMSON Paul Edwin Guangdong Carat Media Services (China) Ltd., Shanghai Branch GROSSMAN Seth Kraton Polymers Trading (Shanghai) Co., Ltd. KOLLURI Prakash NetApp (Shanghai) Commercial Co., Ltd. CHAN Man Chun Pall Filter (Beijing) Co., Ltd., Shanghai Branch FU Lei Saint-Gobain Abrasives (Suzhou) Co., Ltd. GUO Franck Ingersoll-Rand Machinery (Shanghai) Co., Ltd. REN Zhixiong Innophos (Taicang) Food Ingredients Manufacturing Co., Ltd. LAPOINTE Denis Shanghai Air-Tec Compressor Solutions Co., Ltd. QIU Qi Tiffany & Co. (Shanghai) Commercial Co., Ltd. AU YEUNG Sylvia Wrights Commercial (Shanghai) Co., Ltd. HUANG Yufeng Small Business Membership Shanghai Dazzling Dragon Limited Rep. Office ABBANAT Robert Shanghai Jiashi Info-Tech Co., Ltd. CHYAU Carol Non-Resident Individual Membership N/A TIONG Jeffrey Jee Hui WILLIAM J MCGRATH PC MCGRATH WILLIAM Non-Resident Corporate Membership ABI Marketing Public Relations ISACSON Alan Hu Business International Group Co., Ltd. PAN Hermes Los Angeles Business Journal TOLEDO Matt

Associate Membership Burson-Marsteller HUANG Efen Celanese (China) Holding Co., Ltd. NEUMANN Peter CIGNA & CMC Life Insurance Company Limited HIDELL Anthony Crocs Trading (Shanghai) Co., Ltd. LING Jie DLA Piper UK LLP, Shanghai Rep. Office ZHAO Yan Dockwise Shipping (Shanghai) Co., Ltd. HUANG Evelyn ExxonMobil (China) Investment Co., Ltd. TAM Philip FMC Asia Pacific, Inc., Shanghai Rep. Office WU Lyn Guarantee Records Management of Shanghai KONG Xiwei Hu Business International Group Co., Ltd. HU Caesar Hu Business International Group Co., Ltd. LV Yoyo Hu Business International Group Co., Ltd. TIAN Tim Improved Piping Products Ltd., Shanghai BUENNING Michael Ingersoll-Rand (China) Investment Co., Ltd. WANG Vivian InterChina, Shanghai Office SINCLAIR James Intralox Conveyor Belts (Shanghai), Ltd. LAPEYRE Killian KPMG SHEN Chao Michael Matson Shipping (Shanghai) Co., Ltd. SCOTT Christopher Allan Mission Foods (Shanghai) Co., Ltd. YAN Harry Nike Sports (China) Co., Ltd. DONG Wei PM Architectural Engineering Consulting (Shanghai) Co., Ltd. GAO Rae PPG Management (Shanghai) Co., Ltd. YU Joseph PSG (Shanghai) Co., Ltd. WANG Weibo Shanghai Dazzling Dragon Limited Rep. Office ZENG Pearl Shanghai International Theme Park and Resorts Management Company Ltd. ZOU Jing Shanghai International Theme Park Associated Facilities Company Ltd. ZOU Jing Shanghai International Theme Park Company Ltd. ZOU Jing Shanghai Johnson, Ltd. ZHANG Sophie Shenzhen Jiehan Trading Co. Ltd ALBRIGHT Jeffrey Scott

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

SHL HongKong Limited, Shanghai Rep. Office SMITS Tim Starbucks (China) Company Limited ADAMS Andrew Starbucks (China) Company Limited SILLOWAY Marie Starbucks (China) Company Limited YU Hua Timken (China) Investment Co., Ltd. BENTON Don Troy Specialty Chemicals Trading (Shanghai) Co., Ltd. SMITH Daryl D. Troy Specialty Chemicals Trading (Shanghai) Co., Ltd. XIA Ying Waste Management, Inc. CAREY Christopher Weber Shandwick WorldwideInterpublic Marketing Services (Shanghai) Ltd. LOWE Natalie Weber Shandwick WorldwideInterpublic Marketing Services (Shanghai) Ltd. SURTI Shashin Whirlpool (China) Investment Co., Ltd. KNIEHL Axel Torsten ABI Marketing Public Relations SINGH Vijaya ABI Marketing Public Relations ZHU Juliet Ye Albemarle Management (Shanghai) Co., Ltd. HU Xiaodong Corning China (Shanghai) Regional Headquarter BARNEY Nate Deloitte Touche Tohmatsu Certified Public Accountants, Ltd. JIANG Cathy DuPont Agricultural Chemicals, Ltd., Shanghai QIU Ming Eaton (China) Investments Co., Ltd. SHANG Erbing Grace China Ltd. PIERGROSSI Michael Hangzhou MSD Pharmaceutical Co., Ltd., Shanghai Branch QIAN Mike IBM (China) Co., Limited GILBERT Lisa Improved Piping Products Ltd., Shanghai NANCE Scott Nokia Siemens Networks Technology (Beijing) Co., Ltd., Zhejiang Branch LO Bin Shanghai American School LI Wendy Tyco Electronics (Shanghai) Co., Ltd. MERSZEI Jason 3M China, Ltd. XUE Yong Acorn International CHEN Gavin Wei Yu Alere (Shanghai) Diagnostics Co., Ltd. YU Xiaoyan Aon-COFCO Insurance Brokers Co., Ltd. LIU Xin

BorgWarner Automotive Components (Ningbo) Co., Ltd. YU Hongying Coach Shanghai Limited BOZEC Yann Fabien Coach Shanghai Limited DEVAGUPTAPU Manikya Amba Colgate Sanxiao Co., Ltd. LAN Thomas Cormark Store Fixturing & Display Co., Ltd. OUYANG Jeff Corning (Shanghai) Co., Ltd. RIVERS David Corning China (Shanghai) Regional Headquarter MANN Douglas Emerson Electric (China) Holdings Co., Ltd. GU Honghu Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, Shanghai Rep. Office COLLINS Amy Louise General Motors (China) Investment Company Limited REECK David Jones Lang LaSalle Surveyors (Shanghai) Co., Ltd. NOVAK Theodore Kirkpatrick & Lockhart Preston Gates Ellis, LLP, Shanghai Rep. Office SOMMERS Amy L. Navistar (Shanghai) Trading Co., Ltd. BEAUSOLEIL Kevin Navistar (Shanghai) Trading Co., Ltd. HERRERA Luis Navistar (Shanghai) Trading Co., Ltd. O’CONNOR Kevin Navistar (Shanghai) Trading Co., Ltd. WU Norris Navistar (Shanghai) Trading Co., Ltd. YAN Jim Pact Environmental Technology Co., Ltd. LEUNG David Philips (China) Investment Co., Ltd. ZHANG Eric Sauer Shanghai Hydrostatic Transmission Co., Ltd. YANG Jinbao Sauer-Danfoss (Shanghai) Co., Ltd. YANG Jinbao Shanghai Amphenol Airwave Communication Electronics Co., Ltd. DOERR Klaus-Dieter The Walt Disney Company (Shanghai), Ltd. KING Murray The Walt Disney Company (Shanghai), Ltd. MORLEY Gregory Visteon Asia Pacific, Inc. LI Lian Whirlpool (China) Investment Co., Ltd. BORRA Barbara Wyeth Pharmaceutical Co., Ltd. CHOY Keith Aavid (Shanghai) System Co., Ltd YIN Tracy Andrew Telecommunications (China) Co., Ltd. LIU Jianzhong

APCO (Beijing) Consulting Company Ltd. Shanghai Branch STANSFIELD Amy Apple Procurement and Operation Management (Shanghai) Co., Ltd., Suzhou Branch LEW Sandra Applied Biosystems Trading (Shanghai) Co., Ltd. KADIA Siddhartha Chandrakant Armstrong (China) Investment Co., Ltd. HSUEH Chialing Armstrong Teasdale LLP, Shanghai Office (U.S.A.) JIN Ying Autodesk Software (China) Co., Ltd., Shanghai Branch FIGLIOLIA Tiziana Blake Dawson Shanghai Representative Office, Australia ZHAO Liang Blake Dawson Shanghai Representative Office, Australia ZHUANG Yuan Broadcom Singapore PTE Ltd. Shanghai Rep. Office ZHANG Jianxian Changzhou Trina Solar Energy Co., Ltd. KINGSLEY Mark Corning China (Shanghai) Regional Headquarter FU Xiaodong Danaher (Shanghai) Industrial Instrumentation Technologies R & D Co., Ltd. XU Fudong Dell Services (China) Co., Limited, Shanghai Branch WANG Chenghua Delphi Automotive Systems (China) Holding Co., Ltd. LI Bob Dover Corporation Regional Headquarter PRICE Gary Eaton Electrical Ltd. DE VRIES Wilbert Eaton Electrical Ltd. WANG Ying Gap (Shanghai) Commercial Co., Ltd. BAER Christine GlaxoSmithKline (China) R&D Co., Ltd. XIANG Yuanzhen Honeywell Automotive Parts Services (Shanghai) Co., Ltd. KILLE Alistair Infosys Technologies (China) Co., Ltd. HUAN Cascade Johnson Controls Building Efficiency Technology (Wuxi) Company Limited HU Xianghua Kohler China Investment Co., Ltd. LIN Anita Kraft Foods Corporate Management (Shanghai) Co., Ltd. WANG Maggie Kraton Polymers Trading (Shanghai) Co., Ltd. TOIG Bruce Wayne Microsoft (China) Co., Ltd., Shanghai Branch SHER Jimmy J A N U A RY / F E B R U A RY 2 0 1 2

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Nexteer Automotive (Suzhou) Co., Ltd. Shanghai Branch DARLING Brian James Nike Sports (China) Co., Ltd. LOH Pei Hua Nike Sports (China) Co., Ltd. ZHAO Hongye PACCAR China Ltd., Shanghai Rep. Office SONG Edward Pepsico Foods (China) Co., Ltd. DAI Weijun PPG Services (Shanghai) Co., Ltd. WENN Horace RF Micro Devices (Beijing) Co., Ltd., Shanghai Branch REN Grace RF Micro Devices (Shanghai) Technology Co., Ltd. REN Grace Rieke Packaging Systems (Hangzhou) Co., Ltd., Shanghai Branch Company HE Qin Rockwell Automation (China) Company Limited VAN BURICK Theo Rohm and Haas (China) Holding Co., Ltd. TAN Toon Howe Russell Reynolds Associates Co., Ltd. TAN Boon Heon Russell Reynolds Associates Co., Ltd. YANG Weiwei Shanghai NI Instruments, Ltd. CHAN Kin Choong Shanghai NI Instruments, Ltd. DE KEY Samson Lee Syngenta (China) Investment Company ZHANG Madelaine TRW Asia Pacific Co., Ltd. RODAVICH Rodney Wal-Mart (China) Investment Co., Ltd. FRIEDMAN Barry Wanvog Furniture (Kunshan) Co., Ltd. SUN Liying Whirlpool (China) Investment Co., Ltd. TALSMA Sam York (Wuxi) Air Conditioning and Refrigeration Co., Ltd. CHEN Xiaojiao Carpenter Technology (Shanghai) Distribution Company Ltd. REINERT JR. Charles H. Coca-Cola (China) Beverages, Ltd. BAI Changbo Cummins Filtration (Shanghai) Co., Ltd. AHLUWALIA Gunjan Eaton (China) Investments Co., Ltd. CHIEN-HALE Elizabeth Melaleuca (China) Wellness Products Co., Ltd. LAMB Trent Edwin Tellabs Communication Technologies (Shanghai) Ltd. HE Maoping Thermo Fisher Scientific (China) Co., Ltd. SMITH Rodney Lee 43

Amb. Locke Toasts Shanghai Officials at Annual Dinner U.S. business community, Shanghai government celebrate partnership

ary Locke, the U.S. Ambassador to China, along with the AmCham Shanghai Board of Governors, AmCham Shanghai President Brenda Foster and more than 400 Chamber members, raised their glasses to celebrate the long-standing partnership between the U.S. business community and the Shanghai Municipal Government and to thank the government for its support of American businesses in Shanghai.

In remarks to an audience of over 500 attendees, Locke expressed his own appreciation for the Shanghai government. “Thank you to the esteemed members of the Shanghai government and other regional government leaders for your work to expand the economic opportunities for both our countries.” He also thanked AmCham Shanghai for being “effective in bringing the right people together to advance the U.S.-China relationship.” Vice Mayor Ai Baojun and Sha Hailin, deputy secretary general of the Shanghai Municipal Government and chairman of the Shanghai Municipal Commission of Commerce attended along with more than 130 local officials. “U.S. companies have enjoyed sound development in Shanghai. At the same time, they have also played an important role in the rapid development of Shanghai,” said Ai. “We welcome more U.S. companies to invest in Shanghai. We also look forward to seeing U.S. businesses playing an even more important role in Shanghai’s economic development as they prosper.” The event highlighted the ongoing commitment of the American business community to Shanghai and the important role American companies play in Shanghai’s economic development. During his speech, Ai reported that by October 2011 U.S. companies had accumulatively invested in 6,859 projects in Shanghai and made contractual investment that surpassed US$14 billion. Eric Musser, the 2011 Chair of the AmCham Shanghai Board of Governors said, “Much of the credit for Shanghai’s success lies with Mayor Han, Vice Mayor Ai and the other Shanghai officials here with us tonight. We look forward to enhancing and deepening our valued partnership with Shanghai as we work together to achieve the city’s ambitious development goals that will shape the business climate in Shanghai for years to come.”

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Shanghai Vice Mayor Ai Baojun and Amb. Gary Locke

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Platinum Sponsors

Corporate Table Sponsors

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GoverNment Relations Second Annual Joint China Auto Forum with MOFCOM The 2nd Annual Joint China Auto Forum with China’s Ministry of Commerce (MOFCOM), held in Yancheng, Jiangsu province, focused on key challenges to the new energy vehicle (NEV) industry and how all key players, automakers, domestic and foreign, government agencies and industry associations can work together to overcome them. This day-and-a-half forum drew over 100 attendees, including government officials, industry experts from automotive manufacturers, auto parts suppliers and research consultancies.

Guests on a factory tour

The forum was jointly hosted by AmCham Shanghai, the Investment Promotion Agency (CIPA) of MOFCOM, Yancheng Municipal People’s Government, and supported by the China Association of Automobile Manufacturers (CAAM). The Yancheng Municipal Government served as co-host. AmCham Shanghai’s annual forum provides a platform for dialogue between government officials and industry experts to address hot topics in the evolving automotive industry in China and how U.S. automobile companies can play an important role in developing it. (Nov. 22-23)

Private Enterprises and Industry Fortune 500 Dialogue AmCham Shanghai and other business associations partnered with MOFCOM for its annual program, Dialogue between Chinese Private Enterprises and the Industry Fortune 500, hosted this year in Ningbo, Zhejiang province. The theme of this year’s dialogue was Win-win Solutions & Strategies: Auto Business Climate Forecast and Market Outlook. The inaugural event, held in Wenzhou last year, welcomed industry executives, government officials and over 100 participants and highlighted several pressing issues on how foreign invested companies can work effectively with local private business leaders in specific industries. This year, the dialogue focused on the auto industry, with industry leaders sharing best practices for successful cooperation between local leading private businesses and MNCs in China. (Dec. 14-16)

Annual Shanghai Headquarter Economy Summit AmCham Shanghai attended the annual Shanghai Headquarter Economy Summit, led by Shanghai Vice Mayor Ai Baojun, which addressed Shanghai’s ambitions to become a regional trade, shipping and finance center by the year 2020. Representatives from the Shanghai Municipal Government convened at the forum to hear suggestions from the business and academic communities on ways to increase the number of companies with their headquarters in Shanghai. In attendance this year were Vice Secretary of Shanghai Municipality Xiao Guiyu, Director General of the Shanghai Municipal Commission of Economy and Informatization Wang Jian and Gao Kang, secretary general of Qingpu District, which co-hosted this year’s Summit. Tineke Zuurbier, chair of the AmCham Shanghai Healthcare Committee, presented the Committee’s suggestions on increasing the number of multinational healthcare companies with their Asia-Pacific headquarters in Shanghai. AmCham Shanghai suggested first and foremost the need for an information platform, which would involve productive dialogues with the right people in specific industries, with a view to clarify the investment climate and marketing trends for foreign MNCs. (Dec. 10)

Retreat with MOFCOM CIPA and Zhejiang Commission of Commerce Members of AmCham Shanghai attended a Government Relations (GR) retreat with chief officers from MOFCOM and the Zhejiang Commission of Commerce. At the retreat, MOFCOM CIPA reviewed its 2012 schedule of major MOFCOM events and the contents of these activities. Among these are the annual Canton Fair and the CIFIT fair, to be held in Xiamen, as well as several new initiatives, including the Dialogue between Chinese Private Enterprises and Industry Fortune 500 and the Mayor’s Forum with the Industry Fortune 500. AmCham Shanghai members provided suggestions and thoughts to MOFCOM officials regarding these events, allowing a dialogue on ways that foreign businesses may work with the government on GR communications and investment-related projects. The retreat itself was part of an ongoing effort by AmCham Shanghai to increase dialogue between American businesses and Chinese central and regional administrative bodies on methods of mutual cooperation. (Dec. 14)

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Event highlights

inside amcham

U.S. Trade Rep Gives JCCT Update AmCham Shanghai hosted Chris Adams, the U.S. Trade Representative (USTR) from Beijing, for a discussion of the most recent U.S.-China Joint Commission on Commerce and Trade (JCCT) talks, which concluded in Chengdu in November. Adams described the development of agreements at JCCT as the culmination of year-round discussions. "We formed agreements on several key issues," said Adams, "but we need to redouble our efforts and continue to engage our Chinese counterparts." He discussed several major AmCham Shanghai’s 2011 Chair Eric Musser, left, and President agreements, including developments on indigenous Brenda Foster with Chris Adams innovation policy, subsidy programs, intellectual property rights and forced technology transfers. AmCham Shanghai members posed questions about each agreement and offered feedback on the business environment and the regulations' effects on foreign businesses in China. Established in 1983, the JCCT is the principal forum for addressing bilateral trade issues between the United States and China. (Nov. 29)

Attaché Discusses Children’s Product Safety Regulations AmCham Shanghai hosted U.S. Consumer Product Safety Commission (CPSC) Attaché and Regional Director for Asia-Pacific Jeffrey Hilsgen for a discussion on recent developments in U.S. consumer product safety regulations. Hilsgen provided an outline of HR2715, enacted in August 2011, and took questions related to product safety regulations. HR2715 clarifies lead allowances, relaxes content limits and testing required for phthalates in inaccessible parts of children’s products. Hilsgen noted that the law applies specifically to companies that manufacture children’s products.

Jeffrey Hilsgen talks about product safety

After presenting an update on product testing regulations, Hilsgen discussed the work of the CPSC’s Asia-Pacific office. “We work closely with the Chinese Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) to clarify and publicize U.S. safety regulations,” said Hilsgen. “Our agencies have a very good relationship.” Hilsgen also noted the importance of working with a trusted importer who has in-depth knowledge of U.S. regulations and legislation. The law requires CPSC to solicit public comments on the best means to reduce third-party testing costs and describes possible adjustments to regulatory requirements for small manufacturers. CPSC’s public comment period for some of these matters will remain open until January 23, 2012. Visit CPSC’s website at www.cpsc.gov for more information. (Dec. 5)

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committee highlights

inside amcham

CSR AmCham Shanghai Helps Launch Corporate Volunteer White Paper AmCham Shanghai, the Shanghai Committee of the Youth League and Junior Achievement China co-hosted the launch for Junior Achievement China’s white paper on corporate volunteerism, Do Well, Do Good: China’s New Wave of Business Volunteers. The event included speakers from the Youth League, Beijing Normal University as well as corporate speakers from AmCham Shanghai member companies Alcatel, Dow Chemical, Ernst & Young, General Electric, Mary Kay and Timken. Attendees heard a summary of the white paper and corporate volunteer case studies from several business sectors. Junior Achievement China Executive Director Gao Yang provided an outline of the survey and research that went into completing the white paper. Results indicated that corporate volunteers approach volunteerism with business sense and skills learned in the workplace. “They hold the same expectations towards non-profit organizations as they do towards the private sector and will use business sense to solve problems that they encounter while volunteering,” noted Gao. “Employees place a strong emphasis on efficiency and effectiveness. A majority from our survey felt that the CSR culture in China is growing, and a large majority felt that they could contribute directly to the improvement of Chinese society through volunteering.” After the white paper summary, corporate speakers discussed social responsibility and presented case studies of CSR programs in China. Noting the importance of balance in CSR programs, Paul Mak, president, Greater China at Mary Kay, noted: “Organizers shouldn’t think about ‘the company’ or ‘the employees.’ Actually it should be the company and the employees working together…the company needs to give the space and resources to make the employees and the program succeed.” (Dec. 1)

Tax Committee Shanghai's VAT Pilot Means Changes to Tax System Shanghai’s impending value added tax (VAT) pilot program is a good opportunity to test reforms to China’s complicated tax code, but its short implementation period may pose a challenge to companies included in its scope, said tax experts at an AmCham Shanghai event. The Chamber’s Tax Committee welcomed Robert Smith, a partner at Ernst & Young, and Sarah Chin, a partner at Deloitte, who discussed the government’s plans, announced in November. China’s government has been considering VAT reform for a few years. However, VAT and business tax (BT) currently account for close to 50 percent of the government’s tax revenue collection, and making adjustments to such an important system needs to be carefully studied and monitored. The Shanghai VAT pilot program – the first of its kind, with the possibility of expanding to other cities – gives the Chinese government an opportunity to test run any reform policies. The changes include tax rate adjustments, depending on each company’s industry and function. The program, with its January 2012 implementation date, will necessitate that companies quickly understand the changes and align themselves with the new directives. The speakers recommended that members continually engage with their local tax bureaus to establish the exact changes that need to be made. (Dec. 2) Events and Committee Highlights are reported by Susan Lawrence and Esther Young

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Executive Reading Room This month, we asked executives to tell us what they’re reading or planning to read in 2012, and here’s what they told us. Lorna Davis, Chairman and President, Kraft Foods China Book: The World

is Flat by Thomas Friedman

Remarks: “I love Fareed Zakaria [host of GPS] and this guy is a frequent guest. It is a fascinating book on how the world has been made accessible in a new and dramatic way, mostly because of technology. I am reading and rereading Switch by Chip Heath and Dan Heath about how to make change effective. His analogy of the Rider and the Elephant and his practical pointers are really helpful.” Charlie Liu, Director, International Business Development, Cathay Industrial Biotech Ltd. Book: The Arabian

Nights, Edited by George Stade

Remarks: “I've never actually read it, and figured I should read something non-science/work related to avoid turning into a pumpkin.” Kent D. Kedl, Managing Director, Greater China and North Asia, Control Risks Book: I

Have Seen the Future: A Life of Lincoln Steffens by Peter Hartshorn

Remarks: “Lincoln Steffens was a political insider at the dawn of the 20th century, turning his connections into a field of investigation, exposing corrupt politicians and business people in what was the early days of modern business in the U.S. Steffens’ tireless reporting and ability to get confessions on-the-record for the popular McClure’s Magazine was the foundation of ‘muckraking’ journalism and a keystone in the media being seen as the fourth estate in the United States. In the midst of the challenges we face working in the early stages of modern business in China, it is somehow comforting to know that, not too long ago, the United States was suffering from similar challenges.” Robert Theleen, Chairman, ChinaVest and AmCham Shanghai Vice Chair Book: Asia,

America and the Transformation of Geopolitics by William Overholt

Remarks: “Mr. Overholt provides us with a dynamic analysis of the Asian region and connects the major powers to each other. The rise of China, the decline of Japan, new alliances with India, Vietnam all come together in a refreshingly new look at Asian ascendency and the challenges of America. He begins with a clear description of America's relationships with Asia in the 20th century and how China and Japan reversed roles of friendship from the first half of that century (Japan as enemy, China as the abused friend) to post-WWII Asia where the alliances reversed themselves with the advent of the Cold War, the hot wars with North Korea and its ally, the PRC to Vietnam. He challenges us to reflect upon the self interests of each part of Asia and the dilemmas America faces in the rapidly changing circumstances. For anyone with a serious interest in Asia, this book must be required reading.” Edward A. Snyder, Dean and William S. Beinecke Professor of Economics and Management, Yale School of Management Book: Doing What

Matters by James Kilts

Remarks: “I am five months into a job where there is so much opportunity and at the same time incomplete information. This book captures this sense of untidy but high priority leadership – and is not formulaic. It is one of my favorite books on leadership and is certainly undervalued.”

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