Insight Magazine July-August 2011

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INSIGHT The Journal of the American Chamber of Commerce in Shanghai July/August 2011

Industry Insight

Green Gap of Opportunity Interview

Entrepreneur Tom Siebel new section

Executive Reading Room

Can you tell which one is safe?

Trouble in the Kitchen As Chinese authorities try to put a lid on food safety scandals with new laws, what are the implications for a globalized food industry?

INSIGHT July/August 2011

The Journal of the American Chamber of Commerce in Shanghai

amcham shanghai

Karen Yuen Committees

insight editor-in-chief/ Communications & Publications

David Basmajian

11 The Green Gap of Opportunity

Finance & Administration

Helen Ren

Membership & CVP

Linda X. Wang

INSIGHT managing editor

Bryan Virasami associate editor

Esther Young

16 Gary Locke’s Nomination

Layout & Printing

Ella Shan Snap Printing, Inc.

By Bryan Virasami

Seasoned AmCham Shanghai executives identify the top issues they hope the new U.S. ambassador to China will tackle.

23 Tom Siebel and the Next Big Thing INTERVIEW

By David Basmajian

The Silicon Valley entrepreneur talks to Insight about the next big thing in the IT revolution, America’s competitiveness and what emerging U.S. leaders need to know about China.

Ashley Cahill

Design

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DIPLOMATIC ANGLE

editorial support

Alicia Beebe

By Dr. Michael B. Griffiths

Chinese and American consumers have differing views about sustainable behaviors, according to an analysis based on an Ogilvy & Mather survey.

editorial intern

Ryan Balis

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GREEN BRANDS

Events

Jessica Wu

11

Intel China has a new chairman in China. Find out about other new faces at MNCs and within the Chinese government in our new column.

Business Development & Marketing

Siobhan M. Das

istockphoto

Directors

9 Leadership Changes at the Top

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David Turchetti

MOVERS & SHAKERS

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v i c e p r e s i d e n t, p ro g r a m s

F e at u r e s

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President

Brenda Foster

26 Eat at Your Own Risk Cover story

By Esther Young

As the Chinese government works to rein in companies that skirt food safety standards, the U.S. government is also trying to help Chinese food companies improve the way they process meat, fish and vegetables destined for American dinner plates.

INSIGHT Sponsorship sponsorship manager

Sophia Chen

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

I nsight stan da r d s

3 News Briefs

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10 Manager’s Notebook 43 Deal of the Month

INDUSTRY INSIGHT

The RMB, Wages and Inflation

What does the yuan’s appreciation, rising wages and inflationary pressures mean for manufacturers in China?

USC Marshall School of Business Professor Baizhu Chen argues that fleeing is not the best answer.

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EXECUTIVE READING ROOM

AmCham Shanghai members tell us what books they’re reading and what they can’t wait to read.

I N S I DE 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

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

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Consumer Market Report China Auto Market Outlook From the Chairman: Gearing up for the Chinese Consumer Board of Governors Meeting

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Sizzling Chongqing Dream Day at the Zoo New Member Listing Events in Review Committee Highlights

Inside INSIGHT

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

he safety of the food and drink Chinese people consume on a daily basis is an issue that goes beyond public health. Such a fundamental problem has the potential to threaten the credibility of China’s government in the eyes of the people. In the wake of the melamine scandal in 2008, China implemented the Food Safety Law to address concerns. Yet food safety problems continue to plague the industry and are well publicized in the domestic media.

Do Chinese really care about going green?

Ogilvy’s Dr. Michael B. Griffiths and Kunal Sinha, chief knowledge officer at Ogilvy Greater China, reveal the results of a China-wide study of 1,300 respondents and face-to-face conversations with 24 Chinese families to learn more about the daily routines and consumption and disposal behaviors impacting sustainability in China. As is often the case, they found that not all Chinese consumers think about sustainability in the same way. But, that if engaged effectively, there was an

opportunity to drive sustainable behavior.

Thomas Siebel, the legendary Silicon Valley entrepreneur who made his billions in application software, is also one of the business world’s most prolific philanthropists, named by Barron’s as the third most active in 2010. Siebel traveled to China last month with 18 Siebel Scholars, a group of graduate students in business, science and technology dedicated to addressing the world’s most vexing challenges. Tom Siebel talked to Insight about the next big thing in the IT revolution, America’s competitiveness and what U.S. leaders need to know about China.

Finally, its summer time in Shanghai. While that may not necessarily include a beach vacation and diving into the novel you’ve always wanted to read, we went ahead and asked some of our best-read members which books they are reading, which they recommend and those still on their list of things to read.

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News

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

china business

World’s top luxury market The U.S.-based World Luxury Association predicts China is set to edge out Japan to become the world’s top market for luxury goods next year because of growing domestic demand and the tragic aftermath of the earthquake. In its 2010–2011 Blue Book Report, the association said that China’s luxury market will reach US$14.6 billion in 2012, which excludes sales of private jets, yachts and luxury cars. Luxury sales in China reached US$10.7 billion over a 13month period from February 2010 to March 2011. China’s share of global luxury consumption reached 27% through the first five months of 2011, up 2%. Top-ranked Japan controls a 29% share, down 5%, while Europe and the U.S. hold an 18% and 14% share, respectively.

Auto market cools Total vehicle sales in China, the world’s largest auto market, decreased for the second consecutive month, dropping about 4% in May year-onyear to 1.38 million units. Although the number of vehicles sold increased 4% over the first five months of the year compared to 2010, the sector will likely miss its projected target for sales growth in 2011. Sales of General Motors Co.’s cars decreased 3% in May year-on-year, but demand for fuel-efficient cars produced with joint-venture partner Shanghai Automotive Industrial Corp. (SAIC) helped push up sales 11%. Ford Motor Co.’s May China sales increased 14%, while Japan’s Honda Motor Co.’s sales are off about 32% from one year ago on supply chain disruptions.

Report: China may become No. 1 banking market China may climb to the top of yet another economic metric as the world’s largest banking market as early as 2023, according to a recently released report by PricewaterhouseCoopers (PwC). PwC’s “Banking in 2050” report projects that China’s domestic banking assets will increase from US$6 trillion in 2009 to more than US$20 trillion by 2023, overtaking the U.S. that year. China is singled out as one of the markets with the greatest potential for growth over the coming decades with domestic banking assets projected to reach US$31 trillion in 2030 and over US$72 trillion in 2050 (2009 prices), commanding an estimated world-leading 22.9% share of worldwide banking assets in 2050. According to an earlier version of the report released before the financial crisis, the size of China’s banking sector had been projected to overtake the U.S. two decades later, in 2043.

That 2007 report points out that China’s banking sector benefits from “a large increase in foreign bank investment,” “rapid growth in retail banking,” as well as “huge potential in mortgage and consumer credit markets as incomes rise.”

Largest energy consumer China passed the U.S. to become the world’s largest energy consumer in 2010, according to a recently released report by energy giant British Petroleum PLC (BP). BP’s annual Statistical Review of World Energy report, now in its 60th year, finds China accounts for a worldleading 20.3% share of global energy

consumption compared to 19% in the U.S. Demand for energy across China pushed up energy consumption 11.2% over 2009 levels compared to 5.6% globally, though worldwide growth increased at its fastest clip since 1973. Among particular forms of energy, China’s consumption of oil increased 10.4%, while rising 21.8% for natural gas and 10.1% for coal.

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corporate news

Starbucks gains control of stores Starbucks Corp. and its Chinese jointventure partner Maxim’s Caterers Ltd. agreed to a deal for an unspecified amount that will give Starbucks full ownership of more than half of its mainland China stores. According to the deal, the Seattle, WA-based coffee giant will acquire the 30% ownership share previously held by Hong Kong-based Maxim among 250 stores in Guangdong, Hainan, Sichuan, Shaanxi and Hubei provinces, as well as in Chongqing.

Maxim will gain full control of the more than 100 Starbucks stores in Hong Kong and Macao. The move is expected to help Starbucks focus on developing China into its “second home market,” which includes a plan to open 1,000 additional stores by 2015, up from 450 today.

UnionPay introduces virtual payment China UnionPay Co., Ltd., China’s largest bank card payment processor, launched a virtual payment system that allows users to pay for items online or through a mobile phone. Users with cards issued by more than 60 banks now have the option to use virtual codes instead of physically presenting a card at a point of sale.

Customers also will be able to purchase rail tickets using the platform. The new offering comes online as an industry bank card consumer confidence index shows Chinese card holders are decreasing nonessential spending because of higher food costs and other concerns, resulting in the index dropping to 86.11 in May, down 0.69 from April’s reading.

GE, Harbin Electric ink MOU General Electric Co. (GE) and Harbin Electric Co., Ltd. signed a memorandum of understanding (MOU) that includes Harbin Electric’s plan to buy four advanced gas turbines from GE before the end of 2013. Two of the 9FB turbines feature new “FlexEfficiency” technology,

which can integrate renewable wind and solar resources to produce cleaner energy.

Purchase terms are not publicly available, but GE has invested more than US$500 million to develop the technology. The company plans to deploy the technology to four countries, including China, which will get the technology first. China is the world’s largest consumer and producer of wind power.

Sina plans English microblog Chinese Internet operator Sina Corp. plans to launch an English language microblog this year based on its popular Chinese language site Weibo, as China aims to extend its information influence globally. The new service will be aimed at attracting overseas users, though not from any particular country. Weibo offers users the ability to post video and picture content within posts. Since launching in 2009, Weibo’s user base has grown to more than 140 million compared to the 300 million users worldwide on Twitter, the dominant U.S. microblog founded in 2006 that currently is blocked inside China.

Sina’s English language service would need to abide by Chinese Internet laws and regulations that govern discussion. macroeconomics

Bank lending drops sharply China’s banks lent RMB551.6 billion (US$84.9 billion) in May, down more than 25% from the RMB739.6 billion of new loans extended in April. The RMB3.55 trillion in new loans recorded over the first five months of 2011 is 12% lower than the same period one year ago. The lending drop signals that efforts by the People’s Bank of China (PBoC), China’s central bank, to squeeze credit growth have been successful. Since the beginning of the year, PBoC has hiked interest rates twice and raised the percentage of deposits that China’s banks must keep in reserve six times to record levels. China is likely to continue its tightening policy, as inflation quickened to a 34-month high of 5.5% in May and may hit 6% in June.

Manufacturing growth slows China’s Purchasing Managers Index (PMI), a key measure of the country’s manufacturing sector, shows manufacturing growth decreased in May for the second consecutive month and dipped to its slowest pace in nine months. Continued government efforts to battle inflation and property prices have contributed to the PMI’s sliding to a reading of 52 in May, down from 52.9 in April, according to the China Federation of Logistics and Purchasing.

China’s manufacturing sector has achieved a reading above 50, indicating expansion, for 27 consecutive months.

Separately, the HSBC Holdings PLC and Markit Economics index, another PMI, shows manufacturing growth in China expanded by its weakest pace in 10 months, dropping to a reading of 51.6 in May.

Real estate prices edge up Data from Chinese real estate brokerage SouFun Holdings Ltd. show property prices in 76 of 100 major Chinese cities increased 0.53% in May from the previous month, up from April’s 0.4% monthon-month increase. China abandoned an official national property price index last January, choosing instead to publish city-by-city data. According to SouFun, the average home price increased to RMB8,819 (US$1,361) per square meter in May, up RMB46 from April. Home prices have increased nine consecutive months despite continuous government efforts to cool the nation’s red-hot real estate market.

Restrictions have included raising down payment requirements on second home purchases, introducing property taxes in Shanghai and Chongqing and tightening credit.

Trade surplus widens General Administration of Customs data show China recorded a trade surplus of US$13.1 billion in May, up from US$11.4 billion in April. The surplus is significantly

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smaller than the US$18 billion expected, reflecting rising domestic imports and weaker overseas demand in key markets for Chinese exports. China imported US$144.1 billion worth of goods in May, up 28.4% year-on-year and accelerating from April’s 21.8% increase. Meanwhile, exports slowed to a 19.4% increase in May year-on-year to US$157.16 billion, down from a 29.9% clip recorded in April. Analysts say the data provide evidence that China’s domestic economy remains strong, as it rebalances its economic engine to rely less on exports and more on domestic consumption to drive growth. u.s.-china

China ends wind power subsidies China has agreed to end a program that allocated hundreds of millions in subsidies to wind power companies that use components produced in China instead of those imported. The announcement follows a complaint the U.S. filed last December with the World Trade Organization (WTO), challenging China’s Special Fund for Wind Power Manufacturing in which individual grants were awarded to wind turbine makers of up to US$22.5 million since 2008. “The United States is pleased that China has shut down this subsidy program,” reads a statement from U.S. Trade Representative Ron Kirk. “Subsidies requiring the use of local content are particularly harmful and are expressly prohibited under WTO rules.”

Chinese Green Card holders in U.S. up Data released by the U.S. Department of Homeland Security show the U.S. granted 70,863 Green Cards to Chinese citizens in 2010, up 10% compared to 2009.

Chinese accounted for 6.8% of the more than 1 million Green Card recipients last year, trailing only those from Mexico. The most popular destinations for settlement among all the new Green Card holders are California, New York and Florida. A U.S. Green Card permits

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foreigners to permanently live and work legally in the U.S. The number of Chinese coming to the U.S. is rapidly growing for other purposes, including tourism and education. In 2010, the U.S. welcomed over 800,000 Chinese visitors, a 53% increase over 2009.

Citigroup, Orient Securities agree to partner Citigroup, Inc. and Orient Securities Co., a Shanghai-based brokerage indirectly owned by the Shanghai government, agreed to form an investment banking joint-venture, as the New York-based bank aims to gain a larger presence in China’s domestic capital markets. The partnership will expand Citigroup’s China offerings, allowing it to underwrite stock and bond issues in China, as well as provide domestic advisory services on mergers and acquisitions (M&A). Chinese regulations limit Citigroup’s ownership stake to 33% of the joint-venture, which requires regulatory approval. Meanwhile, Citigroup is rapidly increasing its retail presence in China, expecting to increase the number of its consumer bank outlets to 50 by the end of this year, up from 36 today.

Huntsman declares run for president Jon Huntsman, the former ambassador to China under President Obama and frequent guest speaker at AmCham Shanghai events, declared officially on June 21 that he was running for president of the United States. Huntsman announced his bid in New Jersey and said that his experience as ambassador in Beijing and Singapore helped him understand how the rest of the world sees the United States.

“The view of America from 10,000 miles away is a picture of liberty, opportunity and justice; people secure in their rights and in love with their freedom, people who’ve done more good for more people than any other nation on earth,” he said.

Huntsman, 51, is a former Republican governor of Utah. He has seven children and speaks Chinese.

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government & policy

China could levy foreigner insurance tax China is considering levying an insurance tax for the first time on foreign workers to extend the same social security benefits to foreigners that Chinese nationals enjoy under the Social Insurance Law. Scheduled to go into effect on July 1, the tax would affect the 600,000 foreign workers in China but would vary by location because tax rates are set locally. Foreign workers could pay up to RMB1,285 (about US$200) per month for benefits, while his or her employer could pay up to RMB4,324.56 (US$667) per month. Although details are being drafted, the insurance is expected to help cover state medical, work injury, unemployment and maternity benefits, as well as pensions.

China hikes power rates China’s National Development and Reform Commission (NDRC) raised power prices for non-residential users in 15 provinces, the first such hike in 18 months. Starting June 1, power prices increased in those areas by an average of RMB16.7 (US$2.58) per megawatt-hour, or less than 3%, for industrial, agricultural and commercial users. Though the move does not impact residential users, rates for these users may increase in the second half of 2011. The hike is aimed at averting threats of energy shortages by encouraging production to boost electricity supplies and reducing demand among energyintensive industries. State Grid Corp. of China has warned that there may be as much as a 40 gigawatt electricity shortage this summer.

Government revenue jumps 34% China collected RMB1.06 trillion (US$163.6 billion) in fiscal revenue in May, a 34% increase from a year ago, according to the Ministry of Finance. The increase comes on settlement of 2010 corporate income taxes, which made up about 9% of May’s revenue, and includes taxes,

administrative fees and other sources of government income. Within the total amount collected, the central government gathered RMB618.6 billion compared to RMB442.6 billion for local governments.

China’s revenue for the first five months of the year amounts to RMB4.68 trillion, up 32% year-on-year. Spending over the same period increased 30.9% year-on-year to RMB3.4 trillion. The category of social security and employment accounts for the largest share of expenditures at 14%, followed closely by education.

Shanghai Business

Coke eyes Shanghai listing Coca-Cola Co., the world’s largest soft drink maker, is in talks with Chinese officials to explore the company’s listing on the planned international board of the Shanghai Stock Exchange. The listing would be Coca-Cola’s first outside the U.S. It is expected that a listing in Shanghai would help the Atlanta, GA-based bottler ramp up its US$2 billion expansion

commitment in China, which included opening three plants in the Inner Mongolia region last October. China is considering opening the Shanghai exchange to foreign companies as early as the end of June. Such a move would help Shanghai develop its long-term goal of becoming an international financial center by 2020.

Luwan and Huangpu districts merge In a major administrative change to Shanghai, China’s State Council, or cabinet-like body, has given the go-ahead for the city’s Luwan district to merge into Huangpu district. The merger is expected to help Shanghai develop its financial services industries, reduce operational costs and administrative waste, contribute to more effective urban planning, decrease competitive battles among districts for construction projects and investment and result in upgraded commercial properties in Huangpu. When combined, the new Huangpu district will cover an area of

more than 20 square kilometers and contain more than 900,000 residents. The two districts recorded a combined revenue of US$4.5 billion in 2010.

Xintiandi set for major expansion Xintiandi, a popular upscale pedestrian shopping and entertainment area, is set to double in size by 2016. Senior executives with Shui On Land, which developed Xintiandi 10 years ago, are aiming to expand the area to cover more than 1.2 million square meters over the next five years, up from 570,000 square meters today. Plans for Xintiandi show it will expand into an integrated community, boasting a nine-grade school, a Broadwaystyle theater and even medical facilities in addition to the many restaurants, bars, shopping outlets and office units that currently make up the area. The vision is for Xintiandi to become a “city within a city” that can meet nearly all the various everyday needs of people.

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CHINA & THE WORLD

SOUTH AMERICA ASIA-PACIFIC

MONGOLIA: Mongolia, China upgrade ties to strategic partnership Mongolian Prime Minister Sukhbaataryn Batbold and Chinese Premier Wen Jiabao signed a joint statement on a bilateral strategic partnership in Beijing during the Mongolian leader’s first official visit to China since taking office in 2009. The two leaders pledged to advance their countries’ “goodneighbor relationship,” boost mutual trust and increase political communication. Natural resources and infrastructure will remain a major component of the two countries’ economic cooperation. The meeting also addressed the importance of promoting collaboration in areas including culture, youth, education and tourism. The two countries will work together in fields including trade, mining, transportation, finance, husbandry and energy. China remains Mongolia’s largest trading and investment partner.

MIDDLE EAST

ASIA-PACIFIC EUROPE

Tanzania: China, Tanzania to promote military ties Chinese and Tanzanian military officials agreed to work together to develop ties between the nations’ armed forces through greater cooperation and exchanges in a variety of fields. The agreement came during a visit from Chief of Defense Forces of the Tanzania People’s Defense Forces (TPDF) General Davis Mwamunyang to Beijing, where he met with Chinese State Councilor and Defense Minister Liang Guanglie. In March, members of a special squad of the Chinese People’s Liberation Army (PLA) participated in a joint drill with Tanzanian Marine Corps at a Navy base in Dar es Salaam. Since the two countries established diplomatic ties in the 1960s, China has supported Tanzania’s military development, while Tanzania has supported the One China policy.

AFRICA

Chinese banks back solar expansion into Europe China Merchants Bank Co. and China Development Bank Corp. will back three Chinese solar companies with as much as US$10 billion to build solar energy projects in Europe. The three Chinese solar companies, Goldpoly New Energy Holding Ltd., TBEA SunOasis Co. and China Technology Development Group will use modules produced with their own components, like wafers, polysilicon, cells and inverters. The Chinese solar companies note the alignment between their goals and China’s desire to promote renewal energy. In 2010, China Development Bank lent more than US$35.5 billion for clean energy projects.

MIDDLE EAST EUROPE

NORTH AMERICA MIDDLE EAST

ISRAEL: China, Israel hold senior-level military talks On a recent visit to Beijing, Israeli Deputy Prime Minister and Defense Minister Ehud Barak met with State Councilor and Defense Minister Liang Guanglie to discuss Sino-Israeli relations. Guanglie said China is willing to strengthen military cooperation between the two countries. He praised the achievements made between Israel and China since the establishment of diplomatic ties 19 years ago.

Barak’s visit was the first visit by an Israeli defense minister to China since 2000. Barak also met with chief of staff of the People’s Liberation Army (PLA), General Chen Bingde. China has close ties with the Israeli defense industry. One of China’s most modern fighter jets, the J-10, was developed using an Israeli design.

AFRICA

NORTH AMERICA

MIDDLE EAST SOUTH AMERICA AFRICA

CANADA: Vancouver expects jump in Chinese tourists China Southern Airlines launched a new non-stop flight between Guangzhou and Vancouver on June 13. The flight will be available three times per week. Previously, passengers flying to Guangzhou had to travel through Beijing, Shanghai or Hong Kong. The Canadian Tourism Commission (CTC) predicts the new service will bring 44,000 more Chinese tourists to Canada each year, pumping in an additional US$72 million into the Canadian economy. China granted Canada Approved Destination Status in June 2010. Since then, Canada’s tourism marketers have collaborated to promote their country in China, especially in Beijing and Shanghai. The China National Tourism Administration estimates that China will have 100 million outbound tourists annually by 2020.

AFRICA ASIA-PACIFIC NORTH AMERICA

SOUTH AMERICA

NORTH AMERICA SOUTH AMERICA EUROPE

VENEZUELA: Venezuelan billionaire partnering with Chinese banks Gustavo Cisneros, a well-known Venezuelan billionaire, is forming joint ventures with Chinese banks looking to invest in Latin American commodities. Cisneros aims to create ventures in countries including, Brazil, Colombia, Mexico and Panama in energy, metals and agriculture industries. Cisneros will work to push projects stalled because of government bureaucracy. Cisneros’s daughter, Adriana, will take over operations at Cisneros Group of Companies. China accounts for 9% of foreign direct investment (FDI) in Latin America, behind the U.S. and Holland. Cisneros currently operates in China under a partnership with China Central Television.

ASIA-PACIFIC

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SOUTH AMERICA ASIA-PACIFIC

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

Movers and Shakers is a new column that highlights major personnel changes within the Chinese government at various levels and senior management movements within multinational companies in China. imaginechina

INTEL In May, chip giant Intel appointed Sean Maloney as China chairman.

Maloney joined Intel in 1982 and was in several leadership roles at Intel in Europe, U.S. and Asia. Before he assumed his new job as executive vice president and chairman of Intel China, Maloney was co-general manager of the Intel Architecture Group from September 2009.

PRIVATE SECTOR BURSON-MARSTELLER Christina Wu is the new Market Leader for Guangzhou and Chengdu at Burson-Marsteller in China. Prior to joining Burson, Wu was a director at Bite Communications Hong Kong, and she spent three years in APCO’s Guangzhou office.

Shanghai native Newman Tang also recently joined Burson-Marsteller Shanghai as a director. Tang previously led marketing and communications for the Shanghai Corporate Pavilion at the Shanghai 2010 World Expo. BursonMarsteller is a global public relations firm.

Newman Tang

WAL-MART Wal-Mart appointed Mario-JosĂŠ Medina as chief financial officer and Del Sloneker as chief operations officer of Wal-Mart China in May 2011. Medina joined Wal-Mart Puerto Rico as CFO in 2007 and was promoted to CFO of Wal-Mart Chile. Sloneker joined Wal-Mart in 1986 and has taken senior vice president positions of several departments at the company.

GOVERNMENT STATE COUNCIL Xu Deming is the new director of the National Administration of Surveying, Mapping and Geo-Information. Xu was appointed vice minister of the Ministry of Land and Resources in 2008. Previously, Xu occupied several positions in Liaoning province with surveying and mapping duties.

Zhang Shaonong

Zhang Shaonong was appointed vice minister of Land and Resources by the State Council in May. From 2005 to 2011, Zhang was director of the Organization Department of the CPC Guizhou Provincial Committee.

SHANGHAI In June, Vice Mayor Tang Dengjie of Shanghai stepped down after eight years in that job. Tang joined China South Industries Group Corp., a state-owned enterprise, as president and general manager. As vice mayor, Tang was in charge of foreign affairs, foreign trade and foreign investment for the Shanghai Municipal Government. Prior to that, Tang worked at Shanghai Volkswagen, Shanghai Automotive Industry Co., Ltd. and Shanghai Electrical General Co., Ltd. Shanghai Vice Mayor Ai Baojun is currently in charge of foreign investment and foreign trade.

Jiang Ping was appointed as a vice mayor of Shanghai in June. Jiang is in charge of agriculture, human resources and social security, industry and commerce, as well as quality control. Jiang was previously vice district mayor of Pudong New District, secretary general for the Shanghai Municipal Government and director general of the municipal office, as well as deputy party secretary of Shanghai Municipal Transportation and Port Authority.

Jiang Ping

CHONGQING Wang Yi was appointed director of the Foreign Trade and Economic Relations Commission of Chongqing municipality in May. Wang was deputy governor of the Chongqing New North Zone from 2008 to 2011. He is also vice president of China Council for International Investment Promotion and a specially appointed researcher of China Word Trade Research Center.

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

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M a n a g e r ’ s N ot e b o o k

Sales Team Success: Morale Versus Execution Motivated workers achieve more, says industry expert

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orale – the esprit de corps or “spirit of the body” – is the capacity of a group of people to hold a common spirit of loyalty and comradeship. We think of morale as being deep-seated in the psyche of the individual or group.

Execution, on the other hand, is the process of reaching an objective as the result of performance. A team’s ability to execute is more of a surface measurement that is easily evaluated by an outside observer.

Morale and execution are the cornerstones of powerful sales organizations.

Most organizations recognize the importance of a sales team’s ability to execute, since that is measured by numbers. However, some underrate the importance of morale, which is difficult to measure and is often confused with enthusiasm or situational motivation generated from, for example, a spirited sales meeting. Situational motivation is generally short-lived, but morale is ingrained and tends to have a lasting quality, unless conditions degrade it.

While morale is important, we cannot discount the importance of a sales teams’ ability to execute. Good teams should be

John R. Trease is the author of Nuts & Bolts of Sales Management: How to Build a High-Velocit y Sales Organization. Visit his website, www.treaceconsu lting.com, or contact him at john@treaceconsu lting.com.

able to execute as long as they have the proper skill sets, sales tools and business environment. But poor morale is a dealkiller wherever it exists. A sales team with outstanding execution ability but poor morale will function below its normal standards of performance. The reverse is true as well: a team with average to low execution skills but with outstanding morale will produce sales results consistently above average for their skill level.

When times get tough – and sooner or later they will for any company – a sales team with high morale will continue to produce even against heavy odds. Sports coaches and military leaders understand this concept and take extra efforts to develop and maintain a high level of morale among their team members. History is replete with examples of underdog teams winning against incredible odds.

Execution can be taught to a willing group, but morale cannot. Morale, like reputation, takes time to develop and can be quickly lost. Books have been written on team morale, but let us review some situations that demonstrate the importance of a team’s cohesion and trust in leadership.

I was once a sales rep for a company that changed its sales sample policy every few months. As reps, we never knew what to expect, and this put our sales process in jeopardy: we continually had to relearn how to operate within the company’s new rules. This took time away from selling and degraded our sales efforts. We had little confidence in management, as we

believed they did not know the business well enough to understand how disruptive this practice was. Worse, their actions indicated to us that management did not care about the sales team.

These inconsistent or frequently changed management policies damage morale in large part because they make it difficult for reps to anticipate the future.

People like to believe their futures are secure, and actions by management that challenge that will degrade morale. Sales reps want to work for leaders who care about them and who keep unnecessary changes to a minimum. This company’s sales sample policy struck out on both counts and was destructive to morale.

Since morale is a state of mind, it is difficult to measure, but there are signposts that indicate the vitality of team spirit in an organization. A sales team with high morale will, nine times out of 10, accomplish its objectives ahead of schedule and with minimal resources.

Team members will arrive at meetings early and stay late. They will always be prepared in meetings and on sales calls.

They will always look and act sharp. In difficult times, they will offer more positive suggestions than negative complaints.

While my point is not to marginalize execution, in the final analysis, morale nudges out execution nine times out of 10 as the single most important factor that defines powerful sales organizations and places them above weak ones. Highmorale teams not only sell more effectively – they are much more fun to be around.

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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istockphoto

By Dr. Michael B. Griffiths

The Green Gap of Opportunity

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n 2010, Ogilvy & Mather set out to close the “sustainability gap” – the gap we had identified between consumers’ stated sustainability practices and their actual habits. We found that this gap existed both in China and the U.S., and we saw that closing it was not only an environmental opportunity but also a business opportunity: if the needs and desires of consumers could be better addressed with targeted messaging, businesses would profit from enhancing sustainability practices. The right place to start researching this issue was with the consumers themselves.

Over a period of four months, Kunal Sinha, chief knowledge officer, Ogilvy & Mather Greater China, and I led a team of strategists and ethnographers from our sustainability practice, OgilvyEarth, and consumer insights team Discovery to Tianjin, Shanghai and Wuxi, to study 24 families. We spent time in people’s homes, observed their daily routines and recorded their consumption and disposal behaviors. This was followed with a nationwide quantitative study among 1,300 respondents to further understand and measure the sustainability opportunity.

Our findings were rich and diverse. The first and perhaps most important observation was that consumers are different: we cannot expect every consumer in China to engage with sustainability in similar ways. Our study identified seven rich qualitative categories, each of which would need to be engaged with differentiated communications: flexible progressives, ambitious futurists, active individualists, ghetto rebels, misguided materialists, passive skeptics and prestige protectors.

The second most important finding was that no

matter how “misguided” or “skeptical” consumers were about sustainability issues, there was still an opportunity to engage them in dialogue favorable to sustainable behavior. Our informants exhibited both barriers and opportunities, but the former could in every case be turned into the latter if we sufficiently understood what motivated their consumption.

The green consumer Many Chinese consumers’ actions are much more sustainable than they are given credit for, yet their actions may not be recognized as such. While a “green” consumer in the U.S. may be a passionate ideologue, an activist with a political agenda and all the right clothes made of organic cotton and hemp, such consumers are rare in China. The “green” consumer in China may be just quietly doing what they have always done, what they have needed to do, unaware that re-using water in the home or switching off the lights as they leave the room are intrinsically political acts with an impact upon the entire planet.

These consumers sort garbage not necessarily because they know that recycling is good for the natural environment, but because it makes sense to do more with less – the bottles and cans can be sold for a few cents, money that can be usefully employed elsewhere in their household. The green Chinese consumer need not be poor, however; we found a correlation between green practices and education level, which usually attends higher incomes. But they will have invariably found ways of bringing together enhanced means with sustainable practices learned through hardship, poverty and the direct experience of pollution and environmental damage.

Thankfully, the “anti-green” consumers

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Consumers in China and the United States engage in and view sustainable behaviors in different ways, according to an Ogilvy & Mather survey

Shades of Green

u.s.

OgilvyEarth researchers interviewed Chinese consumers who shared their thoughts about being green.

China facts: • Less than 25% of all consumers feel they have the power to solve environmental problems.

• Just 18% are inclined to limit consumption (buy less). Across consumers of varying persuasions, there was a tendency to think it was someone else’s responsibility to act first.

• 55% say they buy things to make their lives more convenient (such as a car).

• Interviewees feel that governments had overwhelmingly the greatest power and obligation to solve environmental problems vis-à-vis individuals and corporations - a finding that was drastically reversed in Ogilvy’s U.S. sister study, where informants feel individuals had the greatest power and obligation.

Room to grow in China: • 90.7% feel that the sustainability movement is on the upswing.

• 80% want some recognition for their green efforts.

• 78% prefer guidelines on how to live a sustainable life on their own.

• 69% would buy green if the price was similar to comparable products.

• 65% say going green would be easier if their neighbors were also actively green. identified as a significant proportion of the total (18 percent) by our sister study in the U.S. are rare in China (two percent) The cynicism that characterizes sustainability discourse in other parts of the world does not have a hold in China, and the issue is nowhere near so polarizing. This represents an opportunity: if Chinese consumers can be engaged with simple, clear messaging that can be understood by everyone, made accessible to everyone and practiced by everyone, sustainability challenges can be addressed firmly in the “green” mainstream. This is preferable to communications campaigns that portray a handful of people as green superheroes.

If Chinese consumers are motivated by the search for safe and nutritious products in what they see as an unstable and untrustworthy marketplace, we need to give them solutions that clearly point to the environmental impacts of their choices, both good and bad, and show them how their behaviors impact beyond their individual households, on their communities and the world at large.

“Consumer brands have not only an opportunity to improve reputation, but also to see real business returns through engaging consumers,” says Shenan Chuang, CEO of Ogilvy & Mather Greater China.

“As a result of this research, we now have deeper insights into how we can effectively engage with various demographic groups in China around environmental issues, and create new customers and brand advocates along the way.”

New sensibilities One of the most significant opportunities for engagement we identified was the birth of a child.

We had deliberately loaded the qualitative sample

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Super Greens

Super Greens

Upper Middle Greens Middle Greens

%

Upper Middle Greens

Lower Middle Greens

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Lower Middle Greens Green Rejecters

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% Green Rejecters

to include 12 families with new babies or young children, because we were especially interested in the consumption practices surrounding this lifechanging event. This is a time, we discovered, when young people begin to think about maximizing efficiency, re-using resources and stewardship of the natural environment for the first time, or at least in new ways.

They may have learned about sustainability issues in school – indeed most had, but they had not put this knowledge into practice in their own lives. The arrival of a child demanded an enhanced focus on future planning, ongoing health and well-being of an economic household, bringing these issues into focus.

The influence of the older generation was particularly crucial here, too. We found young people not only rely on the baby’s grandparents for support during the first few months of a baby’s life, but they also absorb knowledge from their parents that they may have otherwise regarded as obsolete.

Lessons learned through poverty in their parents’ youth, such as the importance of saving water and electricity, of re-using bathroom water for cleaning the floor and of cooling the room with a fan instead of the air-conditioner, were appreciated anew.

There were immense opportunities for targeted engagements here, too: families were looking for channels to exchange baby clothes, to give and to receive, to clothe their baby and empty their home of rapidly growing stocks of gifts.

The birth of a child was also a time when young individuals and couples began to reassess their relationship to society at large and the forces that govern it. Many informants were remarkably well aware of the central government’s efforts to give sustainability prominence on the political agenda,

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O P INION B y To m M c C aw l e y

The Darker Shade of Green

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umans have a wider range of perception for the color green than any other color. If you ask a hundred people what it means to be green, most likely get a hundred answers.

However, if you ask these same people if fossil fuels are green, 99 out of 100 will likely say no, and at least one will probably punch you in the face for even asking the question.

The Darker Shade of Green, or achieving sustainability through the more efficient use of energy sources such as coal, gas and oil, is essentially the opposite of what most people call “green” but may be our best chance of creating a more sustainable environment in the near and medium term.

How is that you may ask. Well, it again depends on how you see green. Most people believe reducing greenhouse gas is critical to our survival as a species. Just about anyone will agree that reducing acid rain, dust and mercury is a really good idea.

So, saving energy should be seen as the most fundamental component of being green, though not the final word.

For example, let’s use CO2 content as the metric for greenness (save Energy=reduce CO2=reduce other toxic substances). Let’s also agree on some absolutes. Fossil fuels will be here during the lifespan of everyone reading this article. China will continue constructing many buildings.

Now, consider a new one million m2 mixed use community in northeast China, a community size that many developers commonly build each year. This city, built to the current 65 percent Energy Saving code, will generate about 100,000 tons of CO2 every year for at least the next 30 years by meeting the electricity, heating, cooling and hot water needs for the residents, workers and visitors.

During these 30 years, China will continue doing good work and aggressively implement non-fossil fuel based energy sources such as solar and wind. So, in about 30 years, this community would have generated at least 2,400,000 tons of CO2. If we want to cut this number in half, we need to still basically reduce the carbon footprint of this community by 50 percent today.

So, does anyone think we can realistically plant in excess of 30 million new trees (and water them) in this city to off-set the carbon? I hope not. Invest in solar photovoltaic? Maybe if you have US$120 million, cover almost every square meter of rooftop and accept a 20-year financial payback period.

How about installing gas-based combined, heat, power and cooling (CCHP)?

Now, not everyone may understand that electricity from the grid is less than 35 percent efficient delivered to the

building, which means that 65 percent of the original fuel’s energy is wasted, primarily in the form of hot water, which also results in a lot of water used for cooling. Central heating systems are better but typically have a net efficiency of only 60 percent to 70 percent. Hot water boilers in the home are even better, ranging from 80 percent to 90 percent.

With CCHP, you can use the waste heat from electricity generation to provide not only heat in the winter but hot water all year round and even cooling in the summer, using Absorption Chilling technology (cooling produced from heat). If you use natural gas as the primary fuel source, you can reduce greenhouse gas emissions by as much as 65 percent. It would cost about US$45 million and the financial payback period should be between five to seven years.

Sustainable forestry is a great idea, no doubt. Solar photovoltaic (PV) at the utility scale will make financial sense very soon here in China. These are big scale projects that will be done anyway. However, why not focus on doing more in the community, which really is easier than a building by building approach, now?

China’s built environment will grow by about 2,000,000,000 m2 per year - which is 2,000 times the example above - every year for the next decade or two. Should we wait until the grid becomes sufficiently de-carbonized? Should we wait until we figure out how to build every building green and make sure that also means energy efficiency (which is not always the case)? Or should we embrace the darker shade of green and make real, significant impact now, in a way that is both technically feasible and financially attractive?

The communities, not just buildings, which we build today, will be around for a long, long time. Do the math and you’ll find that there will be a lot of zeroes that follow the number of tons of CO2 generated that could have been pragmatically avoided, not to mention other toxins eliminated from our air, water and land, if we do something at a big enough scale today, and next year, and probably for the next decade.

Tom McCawley lives in Shanghai and is a partner at the Prometheus Group, a full service merchant banking firm that specializes in cross-border transaction between China, the U.S. and the Middle-East. Tom is also a father who wants the best future possible for his daughter, and just happens to think that some things, just by thinking about them differently, can make a difference.

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yet they often felt the government was falling short in the implementation of their policies, in terms of educating the masses, and in terms of providing channels to make sustainability easy for individuals to partake in. This is where brands have an opportunity to intervene. Sustainability can be easy, cheap and clear. By sponsoring community level garbage-sorting initiatives, making sustainable alternatives more affordable, and highlighting their own sustainability credentials, brands can capitalize on that point at which individuals begin to address their social responsibilities in a way that sees everyone gain.

Culture, choice and individuals Though the vast majority of our subjects had a clear idea of what sustainability is, there were some who confused sustainability with aesthetic principles, or with China’s broader project of imposing order on a fast “developing” world. There were even people who worked in the environmental health departments of local governments who demonstrated a complete separation of the official, workplace discourse and their personal, household practices.

Across consumers of varying persuasions, there was a tendency to think it was someone else’s responsibility to act first – their neighbors, the government, people more affluent than themselves, or green “champions” like Al Gore or Li Bingbing, China’s goodwill ambassador to the United Nations Environment Programme.

We recognized that this was ultimately a cultural issue. Sustainability in China is as much about the awakening of individual agency to the opportunities and challenges faced by the possibility of expressing oneself in recently unthinkable ways, as it is about the physical environment per se. On one hand we found young people learned from the economizing practices of their parents; on the other, we saw them challenge what they believed to be the wasteful and reckless behavior of their elders, such as littering in the streets and failing to sort garbage.

“When a question about adoption of green behavior is put to consumers in China, they instinctively claim to be green because they already have the basic knowledge they need to change their behaviors – and it is the politically correct thing to

say,” Sinha says. “But the reality is, while they may be concerned, they often feel powerless or do not have the means to adopt sustainable behavior.”

The government has heavily invested in the sustainability agenda, through the massive budget stimulus package, through communications at school, and through mega-events such as the 2008 Beijing Olympics and the Shanghai 2010 World Expo – all of which reinforce the perception that the government has the greatest power and responsibility to resolve China’s environmental crisis. But posturing is not the same thing as sustainable development. Our informants felt that governments had overwhelmingly the greatest power and obligation to solve environmental problems vis-à-vis individuals and corporations – a finding that was drastically reversed in our U.S. sister study, where informants felt individuals had the greatest power and obligation.

Most interesting, however, was that when it came to actual action, almost as many Chinese informants indicated that individuals were doing as much to solve environmental problems as the government.

They wanted to take the initiative and lead from the front. They still expect the government to play a strong role – indeed many demand it. But they want a stake in the process – to feel that their decisions matter beyond the supermarket checkout.

The excuse is often made that China must become rich before it can worry about sustainable development. But this is an unsustainable vision that serves only a few. Sustainability is as much about a process of self-exploration as an economic issue, and to move here from economic growth requires a change in consciousness. The heroes who can make it happen are among us. We just need to provide them with appropriate solutions. The challenge is to make China’s sustainability agenda part of a global revolution in human priorities, instead of a factor of China’s “rise,” and that has to start with “me.”

Dr. Michael B. Griffiths is director of ethnography at Ogilvy & Mather, Greater China. He can be reached at michael.griffiths@ogilvy.com. To see the full report and the 10 future pathways for companies to encourage sustainability, visit www.ogilvyearth.com/thoughtleadership.

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The challenge is to make China's sustainability agenda part of a global revolution in human priorities.”

d i p l o m at i c a n g l e

B y B rya n V i r a s a m i

imaginechina

Our Man in Beijing

Insight asks AmCham Shanghai members to identify the major issues the new American ambassador to China should address.

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nergetic, business-friendly and great – some of the words American business executives in Shanghai are using to characterize Gary Locke, who is expected to win Senate confirmation soon and become the next U.S. ambassador to China. Government officials and political observers across the world will certainly be watching every move Locke makes as ambassador.

He will also be watched keenly by industry leaders who are cautiously optimistic that the former Commerce secretary would shake things up and try to take U.S.-China relations to a new level.

When asked what Locke should put on his list of priorities, few failed to mention trade, equal enforcement of laws or market accessibility. At the same time, some urged Locke to go beyond economic issues and stressed that the way to better economic relations is cross-cultural understanding.

James Rice, the CEO at CSM Foods in Shanghai, who has been in China for 21 years, says Locke’s experience gives him a good grasp of China and the business issues that are important to China and the U.S.

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“I think he’s going to be a great ambassador,” Rice says. “He seems like a very energetic guy and he is passionate about working in China so he’s a good choice.” However, Rice believes that there’s a bit of “coldness” in U.S.-China relations at the moment.

He says that Locke would be a “great” ambassador but must first tackle social and cultural barriers to “warm up relations between the U.S. and China.”

“America doesn’t understand China and China doesn’t understand America. And I think it’s the U.S. ambassador’s job to raise Chinese people’s awareness of America and it’s his role as ambassador of America to raise American people’s understanding of China,” Rice says.

The ever-expanding and yet complex relationship between the two nations will present challenges for Locke as it did for his predecessors.

But American businessmen and women expressed confidence in his leadership style and his record as Commerce Secretary. They also say that Locke, who has traveled to China on several trade missions, would hit the ground running.

Locke is no stranger to China or AmCham Shanghai. In fact, he has sat at the same table with

Chamber members on more than one occasion, including during the Shanghai 2010 World Expo.

As such, expectations are high.

“As Governor of Washington and then as U.S. Commerce Secretary, Gary Locke has always been a welcome partner of AmCham Shanghai’s,” says Brenda Foster, president of AmCham Shanghai.

“My only request would be that Ambassador Locke continues to consider AmCham Shanghai a partner as we work together to open markets and create business opportunities for U.S. companies. I look forward to working with Gary Locke as U.S. Ambassador to China.”

Trade barriers and policy issues are also a top concern for Phillip E. Branham, president of the B&L Group, Inc. and the 2004 Chairman of AmCham Shanghai. “I think the new ambassador needs to talk trade, emphasizing exports into China, breaking down non-tariff trade barriers (such as China government procurement). Another point to talk about would be removing China’s impediments on investing in the U.S. Right now China obstructs this as much or more than the U.S. because of required Chinese approvals,” Branham says.

Pilar Dieter, a principal at Solidiance Greater China, is among those who want Locke to lobby the Chinese government to enforce laws evenly. She says this is important to American multinationals her consulting firm advises to keep the regulatory environment transparent and easy to understand.

“From medical device quality control to domestic logistics practices in the express parcel and freight business, foreign companies often find themselves at a competitive disadvantage when abiding by regulation that may not be adhered to by all players in the market,” Dieter says.

New beginnings President Barack Obama nominated Locke as ambassador after Jon Huntsman, former governor of Utah and a Republican, stepped down to explore a run for president. In his nomination speech, Obama pointed out that Locke, if approved, would be the first Chinese American to hold the job. He also pointed out the importance of the position.

“As one of the world’s fastest-growing

economies, our relationship with China is one of the most critical of the 21st century,” Obama said.

“Continued cooperation between our countries will be good for America, it will be good for China and it will be good for the world.”

Gary Locke’s background reads like the typical story of an American who worked his way up.

Locke’s grandfather moved from China to the U.S. 100 years ago on a steamship and worked as a domestic servant in Washington State, according to White House statements. His father took the job in return for a chance to learn English.

“I’m actually excited about him because he is the first Chinese American to actually hold a position,” says Jay Boyle, managing partner at ECFO Transaction Services. Boyle, who came to China with a private equity fund start-up 15 years ago and has been working for himself for the last nine years as an adviser to small businesses, identifies tax rules, market access and protectionism as his main areas of concern.

“From a small business perspective it’s about market access. There is a great deal of lip service about a level playing field with American companies doing stuff in China but once you get at the local level, it doesn’t hold water,” Boyle says.

“There is a lot of local protectionism out there.”

Solid record Locke set another record when he became the first Chinese American governor of any state, in 1996.

Many credited him for creating jobs there and attracting business to Washington. When Obama nominated him as ambassador, top U.S. CEOs and other industry leaders offered praises for Locke.

They include John Frisbee, president of the USChina Business Council and corporate leaders at Coca-Cola, Honeywell, The Walt Disney Company and PepsiCo. Robert Holleyman, president and CEO of Business Software Alliance, praises Locke and says he is wellsuited to address issues faced by his industry.

“He is an energetic and effective champion for U.S. industry in general and for software companies and other copyright holders in particular. The software industry faces an enormous challenge with

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“

Locke is no stranger to China or AmCham Shanghai.”

“

As Commerce Secretary, Locke travelled four times to China and played a key role in hammering out trade agreements.”

rampant piracy in China. Secretary Locke, working with President Obama, U.S. Trade Representative Ron Kirk and Treasury Secretary Tim Geithner, has succeeded in elevating the use of illegal software and other intellectual property concerns to the top of the bilateral economic agenda,” Holleyman said.

As Commerce Secretary, Locke traveled four times to China and played a key role in hammering out trade agreements. While others identified the trade deficit as a top concern, more than a few say he should focus on closing the cultural deficit first.

“It’s important to have harmonious relations between the two countries. One of full understanding and mutual respect,” said Pierre E. Cohade, president, Goodyear Asia-Pacific.

Cohade says that while commercial issues are important, bilateral relations rest heavily on human relations and hopes that the new ambassador would promote more exchanges and cultural understanding, including better educational exchanges.

“The U.S. will need to liberalize its visa policy

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in order to welcome more students to the U.S. and we should find ways to encourage more young and bright minds to study in China,” Cohade says.

During his confirmation hearing at the Senate Foreign Relations Committee in late May, Locke highlighted some priorities he would address as ambassador, including climate change and the proliferation of nuclear weapons and materials.

He also pointed out that he helped to double state exports to China as governor of Washington.

“If confirmed, helping U.S. companies do more business in China will be a big part of what I do every day as ambassador,” he said. “It’s a win-win proposition. American workers benefit, because the more U.S. firms export, the more they have to produce, and the more they have to produce, the more people they have to hire. That means more jobs here at home.”

Bryan Virasami is Managing Editor of Insight. He can be contacted at bryan.virasami@amcham-shanghai.org.

INDUSTRY INSIGHT

By Baizhu Chen

imaginechina

RMB, Wages and Inflation – Don’t Flee Yet

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he yuan’s appreciation, rising wages and inflationary pressures may raise concerns for manufacturers with operations in China – indeed many are saying that we’ll see a mass exodus toward countries seen as offering lower costs. But leaving China may not be so simple, and may be an unwise decision.

Chinese government realizes the economy needs to be rebalanced towards domestic consumption, which requires an alignment of the RMB towards equilibrium value. No one knows what the exact equilibrium value is, but some studies speculate the yuan will settle somewhere in the middle of the next decade, at a value between RMB4 and 5 to the dollar.

Labor costs

Exchange rate Every month, it seems the RMB touches a new high. The yuan’s storied ride began from 1994, when the government depreciated the currency almost 60 percent, to RMB8.7 to the U.S. dollar.

Chinese exports became very competitive, and a trade surplus began to grow.

The yuan stayed at that level for years until China joined the World Trade Organization (WTO) in 2001, and China caught the world’s attention.

The pressure to re-evaluate the yuan mounted, but it wasn’t until August 2005 that the Chinese government allowed the currency to float.

Since then, the RMB has since been appreciating at an annual rate of 3.5 percent per year and will likely maintain its pace with the continuing weakness of the U.S. economy, U.S. monetary policy and Beijing’s keen focus on increasing domestic consumption.

What are the implications for the future? The

Meanwhile, wages in China are continuing their double-digit rise. Manufacturing firms have seen their labor costs shoot up at an average rate of 14.8 percent annually for the last two decades. That puts the average annual Chinese wage at about RMB28,898 (US$4426) in 2008.

At the same time, labor shortages are affecting China’s coastal regions and manufacturing hubs.

China’s population doubled from 1950 to 1980, but the following era of family planning means the country’s demographic dividend is nearly depleted.

The rapid increase in the working population has come to an end.

Meanwhile, consumption rates are continuing to decline. Even as salaries have ballooned, workers’ share of the income pie has steadily dropped. In 2010, labor compensation accounted for less than 40 percent of GDP, down from 53 percent in 1997. The government aims to rectify this imbalance by implementing reforms to increase household income.

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RMB appreciation, rising wages and inflationary pressures mean that manufacturers are worried.

But setting up shop elsewhere may not be the surefire solution.

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Balancing the rmb: Some studies speculate that the yuan will settle in next 10 years, given recent appreciation rates.

Beijing is also embarking on a series of measures aimed at strengthening workers’ interests: raising the minimum wage, increasing enforcement of minimum wage law and widening implementation of the collective wage consultation system, which shifts bargaining power back towards labor. The worker-friendly Labor Contract Law passed in 2008 continues to increase the cost of labor for businesses.

Inflation To top that off, inflation rates in China of nearly five percent year-on-year makes everything, from raw materials to payroll to machinery, more expensive.

Going forward, studies indicate that inflation could accelerate, increasing at rates greater than five percent a year. (By comparison, from 2000 to 2007, the U.S. inflation rate was only about 2.6 percent.)

All these factors taken together mean that companies in China will see their wage bills increase by more than three times by 2020. If the renminbi continues to appreciate at its present average rate of 3-3.5 percent per year, China’s wage rate in U.S. dollar terms will surpass Mexican wages in the second half of this decade. Just as significantly, the mainland will close its wage gap with Taiwan in the next 10–15 years.

Should I stay or should I go?

What should manufacturing companies do?

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Returning home is still not much of an option for Western firms. Chiefly, China’s wage rate is still far cheaper than American salaries. If we normalize the U.S. wage to US$100 per hour, China’s manufacturing workers are still earning only US$4.20 in comparison. Even with the current pace of currency appreciation, Chinese wages will remain less than a third of U.S. rates by the middle of the next decade. Based on wage costs alone, moving to western economies is not likely to be economically attractive for a long time to come.

What of other developing countries? If you’re looking solely at the cost of labor, China long ago lost its advantage, and some companies are already moving south to Vietnam, Cambodia or Bangladesh. Yet wage rates are only a part of the calculation that companies make when deciding where to locate production.

Consider Vietnam. Wages for Vietnamese workers amount to about a third of China’s. But Vietnamese labor productivity is low, and the country is troubled by stifling government regulations and bureaucracy, as well as higher inflation rates.

Inefficient infrastructure means transit costs can be higher. Vietnam also lacks complete value chains in many industries, particularly in textiles and fashion, so operating in China can mean readier access to such things as raw materials and land.

Wage inflation is also an issue. The Vietnamese nominal wage rate has jumped 16 percent per year since 2000, while labor productivity has only improved by 12 percent annually. By comparison, even though China’s labor costs have been rising annually by more than 14 percent, improvements in labor productivity clock in at nearly 20 percent every year.

Further, there’s the simple issue of labor supply.

Vietnam’s population is only 87 million to China’s 1.3 billion. Henan province alone has a population of more than 100 million. South and Southeast Asian nations may seem cheaper, but companies moving south may ultimately be disappointed in the net cost savings they realize.

Journey to the West?

Moving inland can be an enticing option. Labor is

cheaper there than on China’s coast, and firms are also drawn to the opportunity to serve the growing consumer power of inland Chinese.

Some companies have already made the move. Intel operates a large manufacturing and testing campus in Chengdu, Sichuan province.

APL, a large ocean shipping company, recently moved its 500-person back-office from Shanghai to Chongqing. Expected savings? About US$1.5 million in the first year following the move.

Then there’s electronics manufacturing giant Foxconn, which makes Apple’s mobile devices.

Just last year, Foxconn built a facility in Henan province in central China that employs 200,000 workers. Savings expected by locating lower-value manufacturing inland (while keeping operations higher up the value chain in the coastal hub of Guangdong)? RMB1.8 billion (US$275 million) on labor in just its first year of operation.

Yet moving west won’t be a long-term solution.

Labor costs are rising faster in the western provinces than on the coast. For example, while wages in Guangdong rose 12 percent in 2008, in Henan they jumped 18.4 percent. Shops inland also lag behind their coastal counterparts in other ways, such as degree of tech innovation and use of value-added methods.

The grass may be greener on this side of the fence Of course, manufacturers on China’s coast can always choose to stay put. But how do you still remain viable when worker salaries are rising double digits each year?

For Glory Shoes Industry, the answer was to continually improve, innovate and be more efficient.

The world’s largest utility boot manufacturer, Glory makes shoes for brands such as Caterpillar, Wolverine, Bates and Timberland. Its Pearl River Delta plant employs more than 7,000 workers.

In 2007, the company set up operations in Bangladesh and Cambodia to tap into lower-cost labor there. Yet after three years of operation, Glory found that total per-unit production costs in China were still lower; it has since poured efforts into improving efficiency at home. The company

bought better machines, streamlined production methods and deployed an enterprise resource planning (ERP) system. Implementing the ERP system reduced daily inventory levels by more than half and reduced turnover time from 45 days to 14 days.

Ramatex Industrial provides another excellent case study. The Singaporean-owned company operates a vertically-integrated cotton textile manufacturing facility on the Yangtze River Delta.

Because sewing is the most labor-intensive part of Ramatex Industrial’s production line, the company might have been compelled to move inland or to another country. But several factors keep its facilities on China’s coast. First, as a fullyintegrated and automated textile firm, its major cost component is materials rather than labor.

China is the largest cotton producer in the world, so staying put means Ramatex enjoys ready access to inexpensive cotton. Excellent logistical support and port access also help.

Certainly, for years pundits have been calling the end of China’s draw for foreign firms, with the yuan’s appreciation, double-digit growth in labor costs and inflationary pressure. Even so, many companies have decided to stay.

Over the next 10 to 15 years, laws and regulations designed to protect labor’s interest will be more rigorously enforced, and the balance of power will continue to shift towards the worker.

Beijing should tread carefully. Moving towards a European-style welfare state labor model too quickly – especially when its population is aging rapidly – means China’s labor cost advantage may erode before its industries can step up the value chain. That would leave China stuck in the infamous middleincome country development trap.

Japan and Korea were once where China is now; Beijing should consider these development models carefully. Let’s hope China manages to recreate a workers’ paradise without putting itself out of business.

Baizhu Chen is an economics professor at the University of Southern California. He can be contacted at baizhu@marshall.usc.edu.

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Moving towards a European-style welfare state labor model too quickly...means China's labor cost advantage may erode.”

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i n t e rv i e w B y Dav i d B a s m a j i a n

Tom Siebel and the Next Big Thing

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om Siebel founded and ran Siebel Systems, a multi-billion dollar customer relationship management software company, from 1993 until it merged with Oracle in 2006. Today, Siebel splits his time between the Siebel Foundation, which focuses on initiatives that support the homeless and underprivileged, education and research programs, methamphetamine abuse prevention and alternative energy solutions, and C3, an energy management company dedicated to “sustainable sustainability,” enabling organizations to maximize cash flow and profitability by optimizing their energy and carbon strategy. Tom Siebel talked to Insight about the next big thing in the IT revolution, America’s competitiveness and what emerging U.S. leaders need to know about China.

What is the “next big thing” in the IT revolution and what is driving it?

It took thousands of years for the human race to reach a population of 1 billion, at around 1750.

Today, there are 6.5 billion people on the planet, and it will be 9 billion within the next 30 years.

This kind of growth presents challenges and some interesting opportunities. A larger proportion of people will live longer. By 2040, the population over age 65 in the U.S. will reach 79 million, and in China it will triple to more than 322 million–giving rise to a growing healthcare market. Population growth will have implications

Tom Siebel

for our food supply, availability of clean water and for energy.

Energy demand has risen exponentially with the exploding world population. Today, U.S. energy use alone is roughly double all of Europe’s in 1850 – the Industrial Age. World energy use is on track to nearly double again in the next 20 years. Hydrocarbon-based sources – oil, coal, and gas – account for more than 85 percent of energy consumed today.

The opportunity for innovation in the area of alternative energy is immense. The world requires new, clean energy sources and the devices and systems that will exploit those new sources to meet demand. The pressing need to reduce carbon emissions and gain efficiencies extends the energy opportunity beyond just consumption.

Significant innovation and new technologies are required. World-changing discoveries will be made. Great companies will be built. And IT will play a significant role.

You have a new energy company, C3, focused on measuring energy usage. Can you tell us about your new company?

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Legendary Silicon Valley entrepreneur Tom Siebel muses on the IT revolution and fostering a community of leaders.

The Siebel Scholars Program The Siebel Scholars program was established in 2000 by the Siebel Foundation, a nonprofit, public benefit corporation founded by Thomas Siebel in 1996. The Siebel Foundation engages in strategic philanthropy - it does not entertain grant requests but invests in projects it creates and operates. Since 2000, the Siebel Foundation has granted more than US$200 million to various charitable causes.

The goal of the Siebel Scholars program is to recognize outstanding academic achievement and demonstrated leadership in the most talented students from the world’s leading educational institutions. As leaders in the fields of business, computer science and bioengineering, these students focus on targeted technologies, policies and economic and social issues. Siebel Scholars are key advisors to the Siebel Foundation, guiding the development of innovative programs the Foundation initiates.

Each year, 85 graduate students are selected as Siebel Scholars based on academic performance and demonstrated leadership and receive a US$35,000 scholarship award toward their final year of studies.

Nineteen graduate schools were selected for the program, including Johns Hopkins University, University of Pennsylvania, Massachusetts Institute of Technology, Stanford University and Tsinghua University.

Funding for the Siebel Scholars program was established through a grant of more than US$40 million. Each school selected for the program received an endowment of more than US$2 million.

Core to the program is a commitment to developing solutions to critical social issues with a focus on areas that are underserved and that are expected to have the highest impact on society. The Seibel Scholars program seeks to leverage business and engineering expertise to fuel innovation, drive breakthroughs and accelerate progress Each year, the Foundation holds the Siebel Scholars conference. Both current and past Siebel Scholars and thought-leaders from around the world in the academic, business, government and research communities convene to discuss and debate global issues and search for solutions. The 2010 conference was held at MIT and focused on energy and the climate. Speakers included Thomas Friedman, Arati Prabhakar, Andrew Revkin, Jim Rogers and Richard Sandor. The 2011 conference – Synthetic Biology – will be held at the Howard Hughes Medical Institute in Ashburn,Virginia this October to explore the science, applications, benefits, and risks of synthetic biology.

– Furnished by the Siebel Scholars Program

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C3 is a very exciting organization. It’s an enterprise application software company in which we have assembled an unbelievably talented team.

They’re in the process of building and bringing to market a family of enterprise software products that allow organizations to comprehensively characterize their energy dynamics in real time.

Using the C3 application, companies can then arrive at mitigation strategies to reduce their energy carbon footprints, to manage those mitigation strategies throughout the product life cycle and, finally, monetize the results. So, the effect of that for our customers like GE Energy, Siemens, Dow Chemical and others is to dramatically reduce their energy footprint in real time, sometimes by 20 to 30 percent. For some of these organizations, the expected savings is on the order of US$1 billion a year. When you’re saving US$1 billion a year in energy, this is what we call “sustainable sustainability.” It is absent regulation, absent carbon taxation, absent carbon reporting requirements, absent any sort of government financial encouragement. It’s just bottom line savings and increased profitability, and our customers are very excited about that.

You have been outspoken on the competitiveness of the United States and what must be done to maintain and improve it. What are the keys to enhancing America’s competitiveness, and what role does innovation and the IT industry play?

Innovation is and will be at the heart of the competitiveness of the U.S. globally in the years to come, and I think there is great promise in this area. At the same time, I think that much of the emphasis of current U.S. public policy is protective – they’re protecting consumers, protecting investors, protecting healthcare, protecting welfare. I think that the competiveness of the nation would be well served if there was an equal or greater emphasis upon the creation of jobs, the creation of business, the creation of markets and the growing of markets, and ensuring the educational foundation is there to make sure the country can continue to be competitive. Tax policy, export policy, import policy, immigration and the movement of human capital are all going

to be critical. I wouldn’t be surprised if moving forward there wasn’t more focus on those things that will increase the competitive stature of the United States.

Some have called the recent run up in valuations of social media, social networking and other technology companies “another digital gold rush.”

Do you see these companies as being overvalued?

In the next decade, we’ll see advances in the application of information technology and the convergence of IT and communication technology in the new metaphors that are collectively known as social media. It’s clearly already an area of substantial growth. In addition, if you look at the liquidity that has been pumped into the global markets since 2008, I think it is having an inflationary effect on some categories of assets.

I believe we’re seeing some frothiness of equity markets, some segments of the technology markets are potentially overvalued and some of that is in the social networking space. It doesn’t mean these aren’t good companies individually, but periodically the market overvalues these things based on other factors and the growth potential of the sector as an aggregate, and that appears to be the case right now.

What are your thoughts on China-U.S. relations?

China is a US$6 trillion juggernaut growing at a 10 percent compounded yearly growth rate.

This is an economic phenomenon with great mass and velocity that will continue to affect every aspect of commerce. It can’t be ignored, it must be understood, and I think we have to understand China moving forward. There are big differences in our respective perspectives – but there are also many opportunities to work with China to address issues like energy, currency, and trade.

We need to focus on policies that unleash the competitive and independent spirit of the American people. We need to be constructive, creative and solution-oriented when it comes to international challenges.

You were ranked number three among the world’s top 25 philanthropists by Barron’s magazine

in 2010 and the Siebel Scholars program is one of your best known. Would you tell us about the Siebel Scholars program?

There are 623 Siebel Scholars in the world representing over a decade of the top five students in business, computer science and bioengineering at the world’s leading graduate schools. This delegation of 19 Siebel Scholars is an accomplished group that includes executives at leading healthcare, investment, consulting and energy companies like Morgan Stanley, Baxter, McKinsey, Kraft and the Hina Group, as well as post-doctoral researchers in Bioengineering and Computer Science at Lawrence Berkeley National Labs, University of California, San Diego and Tsinghua University.

For almost all of them this will have been their first visit to China. We’ll have spent four days in Beijing, four days in Shanghai and a few days in Hangzhou meeting with government leaders, business leaders, entrepreneurs and financiers with the hope of allowing them – and the greater Siebel Scholars community – to gain deeper insight into the issues and opportunities facing China and the rest of the world. Siebel Scholars are independently drawing conclusions that what is happening in China is an economic event of epic proportions that is likely to have significant influence on their professional lives moving forward.

The Siebel Scholars community is a vibrant, active group of leaders who work together to effect meaningful change. Our objective is to expose them to a realm of government leaders, researchers, experts and experiences to inform their approach to driving solutions with a lasting impact to today’s most pressing issues. They’re instrumental in the development and operation of our philanthropic initiatives undertaken by the Siebel Foundation, including the Siebel Stem Cell Institute to investigate the root causes of diseases and prospective therapies, the Meth Project, a large-scale drug prevention program now in eight states in the U.S. and an energy initiative launching later this year.

David Basmajian is Director of Communications & Publications at AmCham Shanghai. He can be contacted at david.basmajian@amchamshanghai.org.

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We need to focus on policies that unleash the competitive and independent spirit of the American people.”

As Chinese authorities try to put a lid on food safety scandals with new laws, what are the implications for a globalized food industry?

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c ov e r s to ry

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

Trouble in the Kitchen

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ast month, China’s government issued the toughest statements to date to tackle domestic food safety violations. They include the threat to revoke business licenses and confiscate equipment from companies that intentionally add non-edible materials into food products. These new regulations came soon after the National People’s Congress hiked penalties for food related crimes.

“Only through enduring fair and strict enforcement of the laws can the authority of the food safety laws and the lawful operation of food companies be ensured,” says Yuan Shuhong, deputy director of the Legislative Affairs office of the State Council.

While the stricter penalties may encourage chronic violators to adopt proper standards when they prepare frozen dumplings, process farm-raised catfish and slaughter pigs for mass consumption, the issue is so multifaceted that the threat of penalties alone has not proven to be the most effective solution to guarantee safe food, several reports and studies show.

At the same time, no one expects it to be easy, but a review of current regulations, U.S. government studies and reports from independent organizations and statements released from Chinese government agencies reveal a long list of safety issues with meat, fish and vegetables that stretches from untidy rural fish farms to old processing plants and from open-air delivery trucks to processed foods consumed by Americans. In recent years, Chinese consumers have been catapulted from being mere bystanders who rely on their instincts to skeptical consumers whose confidence level is being tested.

China began to address the issue of food safety more

aggressively in the last 10 years. But the issue became part of a contentious national debate in 2008 when the industrial chemical melamine was found in milk and linked to deaths of six children. As a result, the wide reaching Food Safety Law was implemented in 2009, and it covered everything from food additives to expiration dates. The law was said to integrate all previous existing food safety standards to form one comprehensive set of regulations, designed to restore consumer confidence in domestic products.

Since the law went into effect, however, food scandals have not disappeared from the front pages of Chinese newspapers, and reports about tainted buns remain in people’s mind. In late April, reports said that pork in Henan province contained clenbuterol, a steroid used to eliminate fat and grow muscles. It was banned in China after being linked to dizziness, headaches and hand tremors. In March, 286 people in Hunan province were reportedly sick after eating pork laced with ractopamine, a chemical similar to clenbuterol. Police officers in January allegedly detained 96 people who were suspected of using the melamine-contaminated milk that should have been destroyed in 2008.

A recent government survey showed that more than 70 percent of the population remains “highly concerned” about food safety – a daunting number, given the government’s stated commitment of feeding its 1.3 billion strong population with safe and affordable food.

But food safety in China is not just a concern to health-conscious Chinese consumers. More and more Chinese food products are ending up on dinner tables across the U.S. and other countries. According to a

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[A] loss of consumer trust could be a blow to international trade.”

recent U.S. International Trade Commission (ITC) report, China’s agricultural exports topped US$35.7 billion in 2010, a 13 percent jump. According to the U.S. Department of Agriculture (USDA), China is a fast growing source of food imports in the U.S., tripling in volume from 2001 and 2008. Not only do compromised food safety standards affect the health of a global community, a loss of consumer trust could be a blow to international trade.

That was a concern back in 2007 when the U.S. Food and Drug Administration (FDA) issued alerts about wheat gluten, rice protein products and several types of farm-raised fish and shrimp from China. After the alerts, less shrimp were exported to the U.S., the customs department says in a report. The report also points out that the most common type of Chinese food products that have been turned away range from fish and shellfish to fruit and vegetables. These are generally processed, the report says, and common problems include the presence of “filth,” unsafe additives and inaccurate labeling. Some farm-raised fish and shrimp also showed signs of “harmful veterinary drug residues.”

As a result, the FDA and other U.S. government agencies have been working closely with their Chinese counterparts to share information about food safety and help Chinese producers meet U.S. federal safety standards. Multiple parties are moving forward in regulating China’s food market, but in what environment are they operating? Amidst the difficulties, are there opportunities for foreign companies in the quest for safe food?

The trouble with regulation The Chinese government seems serious about food safety, and there are serious challenges.

Part of the difficulty is identifying who is in change and identifying the criteria for safety.

In China, oversight of food safety overlaps among the Ministry of Health (MOH), the State Administration for Industry and the Ministry of Agriculture (MOA), among other government entities. The central government has implemented international level standards, but provinces can set their own standards – and amid some of the inconsistencies are testing requirements that are prohibitively stringent. Supervision is often lost in the bureaucratic tangle, and companies find it hard to be in compliance.

Another challenge to regulation lies in the mere scope of the domestic market here. For

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example, China produced 450 million pigs in 2008, according to the United Nations, compared with 65 million in the U.S. This is combined with vast variety of across China’s landscape. The USDA estimates that China has some 200 million farming households and over 400,000 food processing enterprises, most with 10 or fewer employees.

The food market is highly competitive, and the profit margin is very narrow, given price caps and the government’s goal of providing food for everyone. With additives and fertilizers in wide supply, many farmers and food producers are using them to get a competitive edge, without any real accountability for the implications of the additives in the larger food supply, or fully accepting the importance of improving the overall quality of China’s food supply.

Many are even trying new products – without knowing the risks. Take the recent “exploding” watermelon scare, where 115 acres of watermelons planted near Nanjing split open after heavy rain.

Though initially labeled as dangerous and blamed on the plant growth stimulant forchlorfenuron, the bursting watermelon case was later attributed to the erroneous application of the chemical (forchlorfenuron is widely used as a growth stimulant in the U.S.).

Tracking these smaller food producers requires immense resources and training. The decentralization of government, however, has shifted the responsibility of interpretation and supervision to the lower levels of responsible departments, which may not be equipped to enforce compliance. “China needs both robust consumer protection laws and the means to enforce them, especially at the local government level,” writes Chinese law specialist Stanley Lubman in the Wall Street Journal.

The logistical landscape There are also challenges for food producers who are seeking to implement food safety practices.

One is the still-developing nature of China’s infrastructure. Safety standards must be applied across the entire food chain to ensure a safe food supply, experts say. “If the ingredients or components are not safe going in, the product is not likely to be safe coming out,” says Sam Hsu, CEO of Ecolabs, an industry safety company.

The transport issue is a growing concern.

“Even if the product is good going into shipment, its safety is compromised if it is not refrigerated, sealed, or handled properly” says Nor Coquillard,

senior counselor at consulting firm APCO. The USDA’s 2009 report, Imports from China and Food Safety Issues, points out that small vendors usually sell vegetables and meat the same day they are picked and slaughtered, and then transported in small open trucks.

“Refrigerated storage and transport equipment is relatively scarce. When temperature-controlled infrastructure is available, power outages, railroad delays, and differing temperature standards may lead to spoilage. Awareness of food-borne illness risks is relatively low in China, and the incidence of such illnesses reported by official statistics is probably underestimated,” the report notes.

More than 90 percent of fruits, vegetables and meats in the U.S. are transported using cold storage. But the USITC estimates that 15 percent of meat and five percent of fruits and vegetables in China are transported using cold storage, leading to a relatively high level of spoilage.

Many larger and more experienced food suppliers, processors and retailers in China, mindful of the importance of food safety and the challenges, already have integrated food safety procedures in their factories.

Food retailer Metro, for example, actively participated in the development of the International Food Standard (IFS) that provides food management certification and performs due diligence on their suppliers in China. Hormel Foods employs metal detection, microbiological swabbing programs and pest control programs in its Shanghai and Beijing plants.

Food safety for these food producers is not only a brand strategy but integral to their business.

“In my experience, food producers have to have the confidence that what they’re doing is right for the people that they are feeding,” says Ron Buatte, principal of International Consultants and a longtime veteran of China’s food industry.

“Otherwise, just on a practical level, they’re not going to be in the business very long.”

The changing consumer market Consumer forces are also playing a part in food safety’s unfolding story in China. Purchasing choices will likely incline towards those products that are safe as an important criterion. Consumers, for example, are more likely to purchase produce from a wet market, as fresher produce is perceived as safer, and more consumers are buying meat at supermarkets because of the availability of cold storage.

U.S. Food Imports from China (2008) Meat, dairy, eggs, honey Beverages 1% 1%

Grains and oilseeds 2% Other food 5%

Tea and spices 3% Confections 2% Pet food, animal feed 4% Fish and shellfish 41%

Food ingredients and preparations 8% Juices and other products of fruits and vegetables 24%

Fruits, vegetables and nuts 10%

Note: Chart shows U.S. food imports from China. Percentages do not add to 100 due to rounding.

Graph courtesy of the U.S. Food and Drug Administration

The increasing prosperity of a growing middle class is allowing more leeway in choices, and consumers tend to judge a product by its price.

According to the ITC, 52 percent of Chinese believe that low prices mean poor quality – compared to the U.S., where 16 percent believe this to be the case. After the 2008 milk scandal, demand for foreign-branded milk powder spiked. Consumer demand for better quality will have an impact. If food safety is not already integrated into company strategy, it will be even clearer that it must be, following in the steps of Hormel and Metro.

“Food safety goes far beyond an industry issue in China,” says Swen Neufeldt, China Director of Business Development at Hormel Foods International. “More than many other markets, it is a consumer issue – as China’s consumers attain greater wealth, their concerns with food safety will increasingly influence how they shop and what they buy. A lot of companies will begin to understand that failing in food safety puts their brand at risk.”

There is also a need for education among consumers to differentiate between dangerous and safe additives. “There were media reports that ethylene was used to accelerate growth in bananas,” says Wang Jianwei, an official from the Zhejiang Department of Agriculture. “These reports stirred public outrage, but in fact, using ethylene in this way is a common agricultural practice and is not dangerous in any way.”

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higher standards: Larger food producers, such as this pickle factory already implement rigorous food safety procedures in their factory.

The next steps Wu Ming, a professor at Beijing University’s school of public health, says that many countries, including the U.S. and Japan, experienced similar phases of their development in order to adjust their food safety standards.

On the regulatory side, China’s government seems to be taking organizational steps to mitigate the confusion of oversight. Last year, the State Council formed the Food Safety Commission to coordinate the process. Since then, the Food Safety Commission, along with the MOH, released a number of food safety standards, regulations and notices that cover the national and provincial levels. MOH plans to publish a list of legal and illegal food additives later this year.

China will also open the National Center on Food Safety Risk Assessment with 300 scientists and public health professionals on staff who will issue new standards for additives and contaminants.

Another key ingredient for food safety in China is education, especially for the smaller, independent farmers and processors who make up a large part of China’s food landscape – to switch focus on food safety from inspection to prevention.

“Chinese farmers, whose education levels are generally low, should be told when and how to use plant hormones, fertilizers and pesticide,” reports Wang Liangju, a professor at Nanjing Agricultural University to the Financial Times.

The Chinese government is exploring partnerships with universities and public health entities to offer training for small and mediumsized food enterprises. They already are expanding public education efforts, requiring workers in the food production industry to be trained before taking a job, with employers and main employees required to receive no less than 40 hours a year on food safety training.

On the global stage, there is indication of increasing multilateral effort to align food safety standards. The FDA, for example, established an office in China in 2008 and has been conducting technical exchanges and training on food safety best practices to push U.S. export standards.

Christopher Hickey, the FDA director in China, tells Insight that he and others have been traveling across China to conduct food safety outreach.

Agency experts conducted Food Defense and Food Protection training events in Beijing, Shanghai

An interview with Ralph S. Tyler, Chief Counsel, U.S. Food & Drug Administration What is a challenge for the FDA in securing food safety?

A large and growing por tion of the food consumed in the United States is not grown or produced in the U.S. – it is imported. The challenge is how to ensure food safety in a global market when the traditional approach of the FDA has been in a domestic regulatory environment.

Are there unique challenges of food safety in China?

The FDA certainly recognizes the importance of China as an exporter to the United States. A tangible recognition of that fact is the establishment of the FDA’s office in China so that the agency has greater knowledge in China and has the opportunity to work with Chinese industry and Chinese regulators.

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What are the greatest opportunities for U.S. industries to support that effort?

In January of this year, the president enacted a major piece of food safety legislation, the Food Safety Modernization Act (FSMA), which has in its conceptual framework a focus on the prevention of food-borne illnesses. It has a major focus on imports and working with governments and industries in other countries. FDA is now in the midst of thinking through a whole range of policy issues on how to implement that law and develop the regulations and guidance documents. Those documents will be put out for public notice and comment. Industries can provide information about the impact FSMA will have on them. Industry now works in a global marketplace, and it is tremendously important for FDA to receive their information.

and Guangzhou in which they addressed ways to prevent food from becoming adulterated and getting a food protection plan in place.

Hickey says that the U.S. Food Modernization Safety Act (FMSA) recently signed into law by President Obama has raised the playing field. “The FMSA changes our system of food safety from one of reaction to one of prevention. One of the key elements is that food importers have to show that their suppliers are putting in place plans to address and mitigate risks in the process of food production. The bar is being raised significantly, and I think Chinese companies do understand that they need to understand our system better than they have in the past,” he says.

A better trained regulations department in general may mean better prevention and inspection on a domestic level, and this may combat the few unscrupulous players that have caught media attention. “Shady food producers will only adventure into the game of risk and return when they know the chance of being investigated and treated is very small,” says Peter Ben Embarek, food safety and nutrition technology officer of the World Health Organization’s China Office.

A changing market Some of the effects of industrial, consumer and government forces are playing out on the ground.

Hundreds of dairies, for example, were ordered to close in April when they failed the tougher safety audits in the aftermath of the melamine scandal. The trend may move towards market conglomeration,

as smaller players who cannot comply are pushed out, and those who can effectively ensure safe foods capture more of the market.

As domestic retailers are pushed to up the quality of their products, foreign brands may emerge winners. Many Chinese consumers view processed and fresh imports as higher in quality than local, domestically produced foods. Foreign brands are often valued for their reliable food safety standards. While it may cost more in the short term, Metro and Hormel’s brands may well win trust among China’s consumers.

The advantages can spread into secondary industries related to the food industry. The need for education is a prime example. Many companies can leverage their experiences in the agriculture, food processing and transportation industries in China. Ecolabs’ focus on providing food safety systems to food processing companies for a competitive edge is one force that can push the level of quality up across the market – or at least provide experience.

There is a long road ahead before food safety fades from people’s memory but there may be clarity ahead. Chinese officials have highlighted food safety as a spotlight issue and promise a continued focus, for the sake of people’s health, as well as other reasons. “Food safety concerns the people’s interests and livelihoods, social stability and the future of socialism with Chinese characteristics,” a Supreme People’s Court notice says.

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Many Chinese consumers view processed and fresh imports as higher in quality than local, domestically produced foods.”

Esther Young is Associate Editor at Insight. She can be contacted at esther.young@amcham-shanghai.org.

Food safety is increasingly a global effort – does the FDA have programs that coordinate efforts across the globe?

I wouldn’t put it quite that way. It’s no single country’s role to coordinate efforts at the global level. We’re working with several countries around the world and various organizations to try and get a greater uniformity of standards. I think that one of the ideas that is central to effective cooperation in this area is that FDA has as much to learn from other countries as they have to learn from us.

There have been food safety problems in the U.S., and there have been drug safety problems. These are not problems that are limited to any one country, and there is no country that has solved them all. What the effort needs to be and what the effort is, I think, is not only identify best practices, but also to maximize the regulatory authorities of other countries. The FDA cannot, in this day and age, adequately meet its responsibility to protect the lives of American citizens by simply regulating within the boundaries of the United States and not interacting with governments outside the U.S. We need to strengthen the regulatory regime in the United States, and we need to work with other regulatory regimes in other parts of the world to help strengthen them.

Do you have any particular advice for U.S. business in China?

What I would say is that they play a tremendously important role in meeting the same objectives FDA is trying to meet – safe products, products that are properly manufactured, properly labeled, properly distributed. They play a first line role in assuring consumer protection. The FDA will endeavor to make the rules clear, but the burden of regulatory compliance rests on industry.

It’s our job in part to hold them accountable.

What are you doing here during this trip through China?

We’ve been meeting with ministries and industry leaders. We are not only continuing personal and professional relationships, but gaining a greater understanding of what’s important to Chinese regulators and tr ying to align regulator y systems to meet common objectives. China has an interest in exporting to the United States and the United States has an interest in receiving imports from China, and, of course, we want the products to be safe. j u ly / a u g u s t 2 0 1 1

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Chinese Companies Going Toe-toToe with Multinationals

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s the world’s leading companies compete to win their fair share of the booming China consumer market, they are encountering local Chinese competition that is increasingly well prepared to compete with multinational companies (MNCs) and who are, in some areas, outpacing them.

More than 60 percent of Chinese companies surveyed report that they are expanding or planning to expand R&D centers in China – only 26 percent of MNCs could say the same. Chinese companies are also leading the way in the adoption of e-commerce as a selling channel in China, a market with more than 400 million Internet users.

These and other data from the recently released China Consumer Market Strategies 2011, a report produced by AmCham Shanghai and Booz & Co., indicate that Western MNCs may soon face more formidable Chinese competition. These stronger rivals likely will be competing not only on price but also on innovative features and offerings.

An executive of a Chinese automobile company concurred, “In the old days, Chinese companies had a cost advantage while western companies had high quality and better brand awareness. The gap is increasingly small.”

Top market trends China Consumer Market Strategies 2011 report is based on a survey of 135 companies competing in China and reveals six key trends impacting the Chinese consumer market. This is the first report to provide a clear picture of how companies, both

Chinese and multinational companies, private and state-owned, are responding to the explosion of consumer activity in China.

“More than 80 percent of U.S. companies in China are here to serve the China market.

The emerging Chinese consumer is a key factor driving that trend,” said Brenda Foster, president of AmCham Shanghai.

The most influential consumer market trends explored in the report include the increasing use of the Internet and mobile communications among Chinese consumers, which is having a dramatic impact on how they learn and shop, and a change in consumer expectations driven by an increase in external exposure through travel and wider access to media.

“The race is on to win in China’s emerging consumer market,” stated JoAnne S. Bessler, a partner at Booz & Co. “While both Multinationals and Chinese companies are competing intensively in China, they are taking different approaches and strategies to secure their market position.”

Regarding the number one trend impacting the China consumer market, access to Information technology – essentially, shopping on the Internet and cell phones, as well as social media and gaming – the consensus among company respondents is that Western MNCs should be in a position to most effectively respond given their experience in other markets. However, survey results show that Chinese companies have exhibited a much higher adoption of e-commerce – 93 percent of Chinese companies have plans to or have already established e-commerce sales and marketing channels compared to approximately 60 percent of

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MNCs need to leverage the Internet as a sales channel and beef up local R&D, says new survey.

China Consumer Market Strategies 2011, based on a survey jointly conducted by AmCham Shanghai and Booz & Co., polled a total of 135 companies, both Chinese and international, in April and May 2011. The companies were presented with six trends impacting the Chinese consumer and in a series of 22 questions were asked to rank each of them by importance, its impact on consumers and the company’s preparedness in responding to it.

Of the companies surveyed, 70 percent were Western MNCs, 15 percent were private Chinese companies, 10 percent were state-owned enterprises, with the rest based in Hong Kong, Taiwan and other Asian regions. Broken down by industry, 38 percent were consumer goods companies, 33 percent were industrial outfits catering to the consumer market such as auto companies, nine percent were material companies, eight percent were healthcare-related and 12 percent were in other categories.

MNCs that have adopted e-commerce in China.

Where companies fall short While Chinese companies are slightly more confident than their Western counterparts regarding their preparedness to respond to these trends, the study indicates that companies, both MNCs and Chinese, are not fully prepared to address these emerging trends.

However, when asked about barriers impacting their ability to address these trends, MNCs and Chinese companies offer starkly different responses.

Almost three-quarters of MNCs believe that human resources, or their ability to hire and retain talented people, is their single biggest barrier. These companies report challenges in finding professionals who both understand the market and are able to communicate with, convince and be entrusted by Western senior executives.

In contrast, only 13 percent of Chinese companies see human resources as an impediment, while 74 percent see “organization, structure and process” as the key bottleneck to growth. This may stem from a need to expand operations at a national or even more likely, at the international level. They feel they are not yet organized to scale up.

Regardless of the difference in trends perceived as important and the reported level of preparedness, companies, both Western and Chinese, take a similar approach to the critical actions needed to address Chinese consumer market trends. These include developing new products and services, adapting a brand strategy, conducting market research and adapting a marketing communication strategy.

Critical challenges At the launch event, JoAnne S. Bessler and Adam Xu, principal, from Booz & Co. reviewed some of the challenges that both Chinese companies and MNCs should be wary of.

Bessler highlighted a key concern for MNCs. “Chinese companies are expanding R&D activities at a rapid pace and MNCs should expect to face more formidable Chinese competition in the not too distant future. These stronger rivals will be

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competing not only on price but also on innovative features and offerings.”

Said Kenneth Newell, president of PepsiCo Greater China Beverages, “There really is a ‘need for speed’ if multinationals are to successfully compete in China. The MNCs need to be able to better compete with the flexibility and agility of the local Chinese companies. Multinationals in China need to pay heed to the faster pick-up of the key trends highlighted in this report by the local Chinese companies. They must drive change that will facilitate driving greater empowerment to enable faster and bolder local decision-making.”

“Ms. Wu” and “Mr. Li” Survey results provided valuable insight into the Chinese consumer, and two profiles were presented at the June 13 report launch event in Shanghai.

“Ms. Wu” and “Mr. Li” represent consumers who companies will have to win over to succeed in the increasingly competitive China consumer market.

Ms. Wu, 22, a single woman who recently graduated from college, plans to join a Hong Kong listed Internet company. The Chengdu native studied in Beijing but wants to work in Shenzhen.

She is highly mobile and Internet savvy, relying on the Internet to shop. Ms. Wu has significant disposable income and is willing to spend it on herself.

Mr. Li, 38, is a mid-level manager of a Fortune 500 company. He lives in Shanghai with his wife and their eight-year old daughter. Mr. Li is consuming more than his parents did, especially when making purchases to raise his little girl. His demanding job requires him to travel throughout China, Asia and North America, resulting in exposure to not only new products and services but social trends, ideas and cultures.

Despite their age difference, the survey results indicate that consumers like Mr. Li and Ms. Wu share some important characteristics, namely the “four mores”: they consume more than their parents did; they demand more quality in the products and services they consume; they exhibit more brand loyalty; and they want more information before they make a purchase.

market insight istockphoto

A Road Paved with Opportunities

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he Chinese auto market, now the fastest growing and largest in the world, has become a key market for the leading players in the global automobile industry. The emergence of the Shanghai International Auto Show as one of the top shows in the world is just one indication that the China market, where sales topped 15 million vehicles in 2010, is leading the industry. In this increasingly competitive environment, what are foreign and domestic auto companies doing to capture their share of the market?

AmCham Shanghai and AlixPartners’ recently released report, 2011 China Auto Outlook, provides an overview of the auto market in China and how companies, both Chinese and international, are responding to key trends. The report reflects the results of an in-depth survey of senior executives at leading domestic and international automobile companies with operations in China. Excerpts from the report represented here show that although sales slowed a bit last year, there’s a lot of room for growth.

AlixPartners 2011 China Automotive Outlook begins by saying that even though light-vehicle sales in China slowed as purchase incentives ended in 2010, the industry outlook is far from gloomy. China’s population, particularly in urban areas, is getting wealthier, and by 2016 the number of households with enough annual income to buy a car is likely to double.

In its fourth consecutive year, the study and survey are based on extensive industry data as well as an in-depth survey of more than 40 senior executives from both foreign and domestic players

in China’s automaker and auto-supply sectors.

Competition is intense, with more than 30 domestic original equipment manufacturers (OEMs) vying for a share of a market that is also crowded with foreign brands. At 29 percent, domestic OEMs’ market share was the lowest among all major countries in 2010.

At the same time, the growth rates for parts and services are expected to top 30 percent as the number of cars on the road in China grows to more than 145 million by 2015.

Incentives gone As China phased out car-buying incentives, yearon-year sales growth dropped significantly from record levels. The long-term outlook for the auto industry, however, is still resolutely positive, with projected annual sales growth ranging from 12 percent to 15 percent over the next five years.

A number of trends are in play.

Industry executives surveyed expect domestic OEM market share to climb from 29 percent in 2010 to about 34 percent in 2016. Although major manufacturers BYD, Chery and Geely all lost market share in 2010, by 2016 Geely and SAIC are expected to achieve the largest market share gains by OEMs. The 32 percent passenger vehicle growth in 2010 was the highest of major global markets. In 2008–2010, vehicle categories showing the strongest growth were the SUV and Compact segments, with CAGR increases of 58 percent and 43 percent, respectively.

However, sales growth in Q1/2011 quickly

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Auto industry executives are optimistic about new car sales and predict a booming auto parts market, survey shows

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OEM and auto parts industries in China can expect to see healthy growth rates, from 10 percent to 15 percent, over the next five years.”..”

reflected the absence of buying incentives, slowing to about nine percent, while growth in April slipped to three percent. The purchase incentives – originally a five percent purchase-tax reduction for small cars that was reduced to 2.5 percent in early 2010 – were phased out as of December 31, 2010, along with subsidies for farmers to upgrade from agricultural vehicles to light trucks and minivans. Also phased out: an RMB18,000 subsidy for scrapping older vehicles, ahead of their assessed usage life, for new ones. Recently implemented restrictions on new car purchases in major cities also contributed to the slowdown in sales growth.

Despite the meager showing for Q1/2011, market data support expectations for 12 percent to 15 percent sales growth over the next five years.

Seventy-two percent of urban households with income greater than RMB60,000 own a car, up from 66 percent in 2009.

While those car owners currently represent 20 percent of the urban market and only 10 percent of all households, the number of households earning RMB60,000 or more is expected to double in the next five years, greatly increasing the likelihood that sales will grow as predicted. OEM exports, however, are not expected to grow significantly through 2016.

Ivo Naumann, managing director at Alix Partners, says that as Chinese consumers earn more, they are more likely to buy cars. He spoke to a group of AmCham Shanghai members during the June 21 launch of the report at the Four Seasons hotel.

“The key to projected market growth is in the increasing wealth of the Chinese consumer population. There is a threshold where buyers will tip toward buying cars, i.e. when the disposable urban household income reaches RMB60,000 a year. Currently, only about 20 percent of Chinese households are above that threshold, which is projected to grow,” Naumann says.

There are some bumps in the road that needs attention. “The big challenge out there is how to deal with increasing production costs,” Naumann says.

An averaging of survey respondent projections indicates that market share for hybrid and electric vehicles is expected to reach 13 percent by 2016.

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However, the survey indicates that only 12 percent of respondents believe these vehicles will be economically viable without government subsidies.

In 2010, new energy-saving incentives were introduced, and they include a fixed RMB3,000 subsidy for vehicles with engine displacements of 1.6 liters or less and performance that exceeds fuel economy standards by at least 20 percent. This subsidy applies to 206 different models from 26 OEMs. In addition, a Central Government alternative-energy vehicle purchase plan makes 25 cities eligible to offer consumers subsidies for purchasing alternativeenergy cars – up to RMB50,000 for hybrid vehicles and RMB60,000 for electric vehicles.

Auto parts China’s auto parts suppliers are the most profitable in the world, and the industry appears poised for exceptionally robust revenue and export growth over the next few years. In 2010, auto parts revenues in China increased by 44 percent, to about RMB1.6 billion. Propelled by the recovery of export demand, that revenue growth was seven percentage points higher than the growth rate posted by OEMs. After declining seven percent from 2008 to 2009, exports recovered the following year with a growth rate of 43 percent, when export revenue increased from 38 percent to 54 percent in Germany, Korea, Japan, and the United States – the industry’s top destination.

The report shows the OEM and auto parts industries in China can expect to see healthy growth rates, from 10 percent to 15 percent, over the next five years, driven primarily by increases in China’s per capita wealth. In addition, sales of electric and hybrid vehicles are expected to have an impact on the market by 2016, although government subsidies will be key to their economic viability. Because the country’s population of cars continues to grow and age significantly, the aftermarket is expected to provide significant growth opportunities for parts makers, car dealers, repair services and others in the industry. With parts sales and repair services much more profitable than new car sales, dealers are expected to see some of their best years in recent memory.

Zhejiang Governor Calls Chamber Members Ideal Business Partners From June 8–9, AmCham Shanghai led a business delegation to Ningbo and Cixi City in Zhejiang province to met with provincial and industry leaders and learn about investment and trade opportunities in the region. The Zhejiang government hosted the group of American business leaders and promoted the province as an ideal investment and industry development destination.

Delegates were first welcomed at a lunch hosted by the Ningbo Deputy Mayor Chen Yijun, followed by a VIP meeting with Party Secretary Zhao Hongzhu. “We welcome AmCham Shanghai to our region,” said Deputy Mayor Chen. “This is a good opportunity to better relations between the U.S. and China and a way to develop a solid platform for trade and business from both sides.”

“We appreciate the Zhejiang government’s warm hospitality,” said AmCham Shanghai President Brenda Foster. “AmCham Shanghai looks forward to building meaningful partnerships between Zhejiang and the American business community to assist Zhejiang in meeting its economic development goals.”

The Zhejiang government then hosted delegates at the Zhejiang Investment and Trade Symposium at the Ningbo Shangri-La Hotel. Zhejiang governor and representatives from the Ministry of Commerce offered presentations and information on the investment environment for foreign companies in Zhejiang. “We wanted to offer strong support to explore new spaces for development, accelerate the transformation of our economic model and ensure growth for multinational corporations,” said Zhejiang governor Lv Zushan. Highlights for investment included the Jinxi Economic Development Zone, which features new manufacturing and hi-tech infrastructure, already attracting 180 global companies. The conference was followed by a special presentation from Cixi City officials. Located across Shanghai and accessible via the newly opened Hangzhou Bridge, Cixi City is building residential communities and developing its port to attract businesses to the area.

The following day, the Deputy Mayor of Cixi City Hu Jianguo hosted Chamber delegates on a city tour of Cixi and its industrial center, which concluded with a dialogue and networking session with local Cixi entrepreneurs. The Ningbo and Cixi visit was part of a series of AmCham Shanghai Government Relations (GR) delegations, which aim to connect Chamber members with Chinese government officials.

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inside amcham from the chairman

Gearing Up for the Chinese Consumer

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he Chinese consumer is increasingly in the spotlight these days. A key reason is that the number of consumers is growing. China is forecast to become the secondlargest consumer market in the world by 2015, not far behind the United States, with enough purchasing power to buy 14 percent of the world’s products, up from five percent today.

The exploding consumer market is one of the main factors driving the “In China for China” trend among U.S. companies. In this year’s AmCham Shanghai China Business Report, almost three-quarters of U.S. companies stated that they are designing unique products or services to sell in China, and more than 80 percent claim to produce or source goods and services in China for the China market.

Eric S. Musser Chairman AmCham Shanghai

In June, the Chamber released two reports that focus on opportunities and challenges presented

by China’s consumer market.

Launched on June 13, 2011, the China Consumer Market Strategies report, developed by AmCham Shanghai and Booz & Co., includes the most influential trends driving the China consumer market. At the top of the list is the increasing use of the Internet and mobile communications among Chinese consumers. With an estimated 400 million Internet users in China, this trend is having a dramatic impact on how consumers learn about products, services and how they shop.

AmCham Shanghai releases two key reports looking into China's growing consumer market.

The report also provides valuable insight into the local Chinese competition. Particularly noteworthy is the expansion of R&D activities among Chinese companies. MNCs should expect to face more formidable Chinese competition that will compete not only on price but also on innovative features and offerings.

On June 22, AmCham Shanghai and AlixPartners’ released the 2011 China Auto Outlook, which provides an overview of the auto market in China, now the world’s largest, and how companies, both Chinese and international, are responding to key trends. The report states that, even though sales in China slowed as purchase incentives ended in 2010, China’s population is getting wealthier and by 2016 the number of households with enough annual income to buy a car is set to double. Sales of electric and hybrid vehicles are expected to have an impact on the market by 2016, although government subsidies will be key to their economic viability.

A commonality between all sectors of the market? Fierce competition. U.S. companies will continue to face not only foreign players from around the globe but seasoned Chinese companies, both private and state-owned.

While significant challenges exist, I have every confidence that U.S. companies will find a way to succeed in China, and I hope you will continue to look to AmCham Shanghai as an important business resource to support your business success.

To download the China Consumer Market Strategies 2011 or the 2011 China Auto Outlook, go to www.amcham-shanghai.org.

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

Highlights from the June 2011 Board of Governors Meeting Chair’s Report Eric Musser, Chair of the Board of Governors Chair welcomed Robert Theleen to the Board. Robert replaced Paul Brown on the Board who relocated to India to assume the role of President, International Paper India.

Financial Report Brenda Foster, president of AmCham Shanghai, provided the June 2011 financial report. The President reported that cost controls have been effective and revenues have been in line with budget expectations with the exception of new member revenue and revenue from AmCham Shanghai’s Corporate Visa Program, both of which are tracking above budget.

2011 Doorknock Planning Report Governor Robert Roche reviewed the 2011 Doorknock objectives which focus on advocating on issues most critical to the business success of AmCham Shanghai members.

Governor Roche also reviewed the members of the delegation and provided an overview of the Doorknock’s key message – enhancing U.S. competitiveness in China. The AmCham Shanghai Washington, D.C. Doorknock will take place from September 1923, 2011.

President’s Report The President provided an overview of the Chamber’s May 26-27, 2011 regional business delegation trip to Chongqing, the first such trip conducted by AmCham Shanghai. Governor Kenneth Jarrett, who participated in the delegation, remarked that the Chongqing trip was a strong start to the Chamber’s regional delegation program and valuable for members wishing to learn more about the Chongqing market and opportunities there. The President also reported on the 2011 Nominations and Elections Committee (NEC), specifically that the NEC is being formed and will begin the process of developing a slate of candidates for the 2012 Board of Governors election.

In Attendance Governors: Andrew Au, Eddy Chan (by phone), Kenneth Jarrett, Marie Kissel, Eric Musser (Chairman), Robert Roche, Matthew Targett, Robert Theleen, Kevin Wale (by phone) Attendees: David Basmajian, Siobhan Das, Eric Fiedler, Brenda Foster (President), David Turchetti, Linda X. Wang APOLOGIES William Brekke, Ted Hornbein, Jim Mullinax and Eric Zheng

The AmCham Shanghai 2011 Board of Governors: Chairman

Governors

Andrew Au Citibank China

Matthew Targett Bayer Technology and Engineering

Ted Hornbein Richco

Eric S. Musser Corning China

Immediate Past Chair

Robert W. Roche Acorn International

Robert Theleen ChinaVest

Kenneth Jarrett APCO Worldwide

Eddy Chan FedEx Express

Marie Kissel Baxter Asia-Pacific

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Kevin E.Wale General Motors China Group

Eric Zheng Chartis Insurance

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r e g i o n a l d e l e g at i o n

Sizzling Chongqing

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hina has been called “the land of the superlatives” for its historic rates of growth in just about every city and region of the country. But even by China’s standards, Chongqing’s development during the past five years has been astounding. Between 2006 and 2010, Chongqing’s GDP has gone from US$50.6 billion to US$118 billion, reaching 17.1 percent annual GDP growth in 2010. Per capital GDP of Chongqing’s residents has nearly tripled since 2006.

Located at the intersection of the Jialing River and the upper reaches of the Yangzi, Chongqing is one of the economic powerhouses of central China, and its attractiveness as an investment destination has not escaped the attention of U.S. companies.

According to the U.S. Commercial Service, the U.S. ranks No. 2 in terms of foreign trade partners for Chongqing behind the European Union and ahead of Japan. At the end of 2010, Chongqing was playing host to more than 500 U.S. invested companies.

With an eye towards driving China’s Great Western Development Strategy, otherwise known as “Go West”, the central government established Chongqing as the fourth municipality to be directly administered by Beijing in 1997. With an area of 82,400 square kilometers and a total population of 32 million, Chongqing is truly massive. Since then, the youngest and largest centrally governed municipality has grown to become one of China’s manufacturing hubs and is well established as China’s automobile and motorcycle manufacturing capital accounting for over 60 percent of Chongqing’s US$7.49 billion in exports in 2010. Projects like Changan Ford Mazda’s US$750 million engine plant, which

The Changan Ford Mazda factory in Chongqing

broke ground on June 16, ensures that Chongqing will maintain its leadership of China’s auto industry.

AmCham Shanghai’s regional delegation From May 26–27, Brenda Foster, president of AmCham Shanghai, led a delegation of 77 U.S. companies including ADP, Coca-Cola, Dow Corning, FedEx, Harley-Davidson and GE China to explore the Chongqing market. The trip, sponsored by Nu Skin China, was the result of an invitation made by Chongqing Mayor Huang Qifan during his meeting with AmCham leadership in Shanghai during the Shanghai 2010 World Expo. Delegation partners included the Ministry of Commerce Investment Promotion Agency and the Chongqing Foreign Investment & Trade Commission.

During the visit, delegates met with top Chongqing investment officials who laid out the city’s vision as the commercial and industrial center of central China. Factory tours were also arranged to give delegates a perspective from U.S. companies that have already made the leap and included visits to Changan Ford Mazda and Hewlett-Packard Chongqing. Finally, delegates h a d t h e opp or t u n it y t o m e e t w it h l o c a l Chongqing companies in an effort to gauge opportunities in this fast growing market.

Xi’an Regional Business Delegation: From October 20-21, AmCham Shanghai will lead a business delegation to Xi’an and Shanxi province. Please contact Government Relations Associate Lydia Li at Lydia.li@amcham-shanghai.org for more details.

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AmCham Shanghai leads a delegation of 77 U.S. companies to one of the fastest growing markets in China.

C SR H i g h l i g h t s

AmCham Shanghai Team Visits CSR Projects in Yunnan AmCham Shanghai President Brenda Foster recently traveled to Lijiang City and Ninglang County,Yunnan province, to inspect local healthcare conditions and the impact of AmCham Shanghaifunded mother and infant care projects. She was joined by CSR Committee Vice Chair Rebecca Branham, CSR and Government Relations Manager Oliver Yang and officials from the Shanghai Soong Ching Ling Foundation.

Since 2006, AmCham Shanghai and its member companies have supported Soong Ching Ling’s mother and infant care projects in rural Yunnan, Guizhou and Guangxi provinces.

The team traveled to Yunnan to assess current projects, investigate local healthcare conditions and explore future areas of cooperation. Through the Mother and Infant Care program, AmCham Shanghai and its donor partners provide healthcare support in three areas: supplying medical equipment and devices to village hospitals and clinics, providing tailor-made training programs for local medical doctors and healthcare workers and donating ambulances to increase coverage in rural areas of southwest China.

The Mother and Infant Care programs have supported the development of rural maternal and child healthcare. Over 5,000 babies have been safely delivered at project-funded birthing centers, and infant and maternal mortality has decreased significantly. Team members noted several major challenges in rural healthcare development, including the distance between villages and limited development of care at the township level. In the future, Mother and Infant Care Program supporters will seek to leverage AmCham Shanghai member companies’ expertise and resources to build more effective ways to address healthcare challenges in rural Yunnan. (May 11–16)

Underprivileged Children Enjoy a Dream Day at the Zoo Corporate volunteers brought 100 underprivileged children to the Shanghai Zoo for the annual Dream Day at the Zoo. Over 60 volunteers from AmCham Shanghai, the Shanghai Charity Foundation and AmCham Shanghai member companies Synopsys,The Walt Disney Company, Intel and Owens Corning participated in the day’s activities.

Volunteers took groups of children to view the animals, including the Zoo’s pandas, bears, wildcats and penguins.

“The kids we accompanied were very special,” said Intel volunteer Long Qian. “I could see their smiles came deep from the heart, and we could sense their happiness at the Zoo that day.” After viewing the animal exhibits, the children were treated to a special performance that included Chinese acrobats, a puppeteer, a magician and a musical performance.

The “Dream Day” program was originally initiated by the Rotterdam Zoo in Holland in 1996 to provide entertainment for chronically sick children and their families. In 2009, Shanghai Zoo became the program’s first partner organization on the Chinese mainland, and the Zoo runs it together with the Shanghai Charity Foundation to roughly coincide with International Children’s Day on June 1. In Shanghai, Dream Day at the Zoo is supported through the Make a Difference Corporate Volunteer Alliance, a corporate volunteer platform supported by AmCham Shanghai and its member companies. (June 11)

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deal of the month imaginechina

Legendary Entertainment, Huayi Brothers to collaborate on films

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egendar y Entertainment, one of Hollywood’s top film producers and the company behind hits like The Hangover, Inception and The Dark Knight, struck a co-production deal with the Huayi Brothers Media Corporation of Beijing, one of China’s largest entertainment conglomerates.

The two companies will form a new movie and television company and produce English-language films and TV shows in China. The venture between the entertainment companies, called Legendary East, will be based in Hong Kong. The deal marks Legendary Entertainment’s formal entry into the Chinese market, where other Hollywood production companies, like Fox, have already co-produced films for the Chinese market.

Huayi and Legendary Entertainment will coproduce films, beginning with one or two “major, event-style films” a year beginning in 2013. Huayi, a publicly-traded company, will distribute the films in China, while Legendary Entertainment, which is affiliated with Warner Brothers, will distribute the films in other countries. Still, many details of the partnership were not released, including project budgets and concepts. While Inception was a major hit in China, Legendary will have to abide by China’s film censorship regulations on violence and sex.

“It’s great to have a local partner that helps us overcome the unique challenges of the China market, but it’s imperative that these be global

films that attract an audience around the world,” said Thomas Tull, Legendary’s chairman and CEO, according to The Hollywood Reporter.

The deal will allow Legendary Entertainment to gain greater access to China’s cinema market, one of the fastest growing in the world. Hollywood continues to face a major import restriction in the Chinese market: only 20 foreign movies are screened in domestic theaters each year. Legendary ’s partnership with Huayi Brothers is expected to allow the company to circumvent this quota. In 2010, box office receipts in China increased 40 percent to RMB10 billion. Huayi Brothers’ films accounted for 17 percent of the Chinese box office last year, with hits like Aftershock and Shaolin.

China’s main film industry association predicts the country will become the world’s second largest film market in 2015. Currently, China has about 6,200 movie screens. Chinese officials expect the country to have 20,000 screens in operation by 2015 and 40,000 by 2040.

In September 2010, Tull sold a 3.3 percent stake of his company to Orange Sky Golden Harvest Entertainment for US$25 million. Kelvin Wu, former Orange Sky chief executive, will become chief executive of Legendary East. Tull will serve as Legendary East’s executive chairman.

Goldman Sachs advised Legendary Entertainment on the formation of its new venture, which will be advised by Centerview partners.

– Ashley Cahill

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Entertainment conglomerates will produce movies aimed at local and foreign markets

AmCham Shanghai New Members: May - June 2011 U.S. Corporate Membership C3-e Information Technology (Shanghai) Co., Ltd. YU Jai Jein Citicorp Software and Technology Services (Shanghai), Ltd. HOSANG Richard Data I/O Electronics (Shanghai) Co., Ltd. MA Qinghua IMS Market Research Consulting (Shanghai) Co., Ltd. SIAN Satwinder Singh PGI Far East Precision Products Co., Ltd. RUICCI Joseph Polypore (Shanghai) Membrane Products Co., Ltd. THUET Christophe Shanghai Sourcing Company Limited AGNEW Peter Gibson Consulting Shanghai Limited KAWECK Jackie

U.S. Associated Corporate Membership Color-Me Education Information Consulting (Shanghai) Co., Ltd. SCHWARTZ Adam Cooper Electric (Changzhou) Co., Ltd. GAO Kevin Corning Life Sciences (Wujiang) Co., Ltd. ZHOU Libo Discover Information Technology (Shanghai) Limited WANG Fude Flextronics Global Enclosure (Shanghai) Co., Ltd. TEO Sengwei Hilite Automotive Systems (Changshu) Co., Ltd. FAN Patrick Production Resource Group Co., Ltd. AU Wa Lung WAC Lighting (Shanghai) Co., Ltd. WANG Thomas

Small Business Membership Nature Food Shanghai Limited WHITE Gavin

Non-Resident Individual Membership VAN VLECK Andy

Non-Resident Corporate Membership Apex Logistics International Inc. TAO Hailin Touchroad International Holdings (USA) Corp., Ltd. HE Liehui

Corporate International Affiliate Membership Dexion (Shanghai) Logistics Equipment Co., Ltd. WANG Adrian

Institute of Executive Coaching and Leadership DICKEL Antony John PIA (Shanghai) Co., Ltd. XIAO WATSON Weihua SierraSolar Power China Co., Ltd. ZHANG Kaijun Solidiance Greater China DIETER Pilar

Individual Int'l Affiliate Memberhsip Catalai China Programme VARLEY Mark ORFANIDIS Dimitris PAPERFLOW TOISON Olivier Shanghai Powering International Ltd. RED Nancy

Associate Membership Air Products & Chemicals (Shanghai) Gases Co., Ltd. MIAO Ping Apple Procurement and Operations Management (Shanghai) Co., Ltd. LEW Sandra Apple Procurement and Operations Management (Shanghai) Co., Ltd. MCKELVEY Matt Apple Procurement and Operations Management (Shanghai) Co., Ltd. WANG Caroline Autodesk Software (China) Co., Ltd., Shanghai Branch SHEN Xiaojing Avery Dennison (China) Co., Ltd. GILLMANN Kurt Brian Baker & McKenzie Shanghai Office YING Weiliang Blue Frog (Shanghai), Ltd. DANKS Coralie Caterpillar Remaufacturing Services (Shanghai) Co., Ltd. XIA Haoran Classic Business Consulting (Shanghai) Co., Ltd. PAN Ella Continental Automotive Asia Pacific Co., Ltd. Shanghai EHLERS Hans-Joerg Continental Automotive Asia Pacific Co., Ltd. Shanghai LIU Yi Dow Corning (Zhangjiagang) Co., Ltd. DERMON Timothy Dow Corning (Zhangjiagang) Silicone Co., Ltd. DERMON Timothy Eagle Ottawa China, Ltd. QIU Chanzheng Electronic Arts Computer Software (Shanghai) Co., Ltd. GAO Zhongjun Ernst & Young CHAN Jenny

H.C. Olsen & Associates (Shanghai) Trading Co., Ltd. PANG Haowei PENG Xiaojia WANG Linlin Harman International (Shanghai) Management Co., Ltd. KARCH David Hewitt Associates Consulting (Shanghai) Co., Ltd. CAO Xin LIU Yuan Horizon Lines, LLC MYERS Kelly Hudson Recruitment (Shanghai), Ltd. CHEUK Cherol IMS Market Research Consulting (Shanghai) Co., Ltd. LIU Andy Lovells LLP, Shanghai Rep. Office (U.K.) FENG Katie ZHU Eric Medtronic (Shanghai) Management Co., Ltd. MICKELSON Michae Momentive Performance Materials (Shanghai) Trading Co., Ltd. QIU Jianfeng Pfizer Investment Co., Ltd. SHUM Stephen Rockwell Automation (China) Company Limited JOPPRU Mark Andrew Suzhou Littelfuse OVS, Ltd. DONG Jue Hua WPMI (Shanghai) Enterprise Consulting and Service Co., Ltd. FAN Jeffrey

Individual U.S. Citizen Membership BETA Software Technologies (BST) KWAN Ben Connected Culture & Communications Inc. TUNG Claire My China Sales Team Eric MCGRAW AIKEN William Martin LE GRO Thomas Professional Way Limited CARL EUGENE Dorris U.S. Abroad Tax YEN David Winda Environmental Technologies (Shanghai) Co., Ltd. ZHOU Jing World-Check YUAN Jim

Educational Membership University of Denver ALLEN Douglas

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.

event highlights

inside amcham

Author Series: Helen Wang on The Chinese Dream The Rise of the World’s Largest Middle Class Helen Wang, author of The Chinese Dream: The Rise of the World’s Largest Middle Class, addressed a group of AmCham Shanghai members at the Four Seasons Hotel. She discussed the book and commented on some of the important economic issues facing China and the United States.

Wang, a native of Hangzhou who now lives in California, began by showing a twominute video that captured the essence of the book and her work. The Forbes columnist then went on to offer her definition of the Chinese middle class: someone who earns between US$10,000 and US$60,000 a year, is college educated with a stable job and sets aside a third of his or her income for discretionary spending. She also spoke about Jack Ma, the Internet mogul behind Taobao.com and Alibaba.com, and how he used his experience in the U.S. to succeed in China. She talked about how many U.S. multinationals fail to succeed in China because they did not adjust their business model to suit the Chinese market.

Helen Wang speaks about China’s rising middle class.

For example, she said Home Depot is failing in China because most Chinese do not have the experience in improving their homes the way Americans do and may do well in offering pre-made home decorating options. On the other hand, she said Pizza Hut has been a success story because the company repositioned itself as an upscale dining establishment instead of a fast-food eatery.

Wang also told the audience that China has the world’s fastest growing consumer market which will reach US$16 trillion by 2020. She said opportunities abound in luxury goods, healthcare, education and clean technology. (June 1)

Representatives of the Shanghai Municipal Government meets with Chamber members.

AmCham Shanghai Government Relations Roundtable AmCham Shanghai recently met with a Shanghai Municipal Government research group and shared results from a yearly survey that covered some of the challenges that MNC headquarters face when developing in Shanghai. Key challenges faced by companies opening regional headquarters include tax rates (corporate and individual), talent shortages and a difficult business environment. Other topics covered included the financial industry in Shanghai and the plan to develop Shanghai into an international shipping center by 2020.

Brenda Foster, president of AmCham Shanghai, moderated the government relations roundtable and was accompanied by 12 CEOs from American regional headquarters in Shanghai. Ruan Qing, deputy chief commissioner of the policy-research oriented CPC Shanghai Committee, Huang Feng, vice chairman of the Shanghai Municipal Government (Commission of Commerce) and other staff were at the event, representing the Shanghai Municipal Government. The U.S. CEOs shared best practices they learned from their international operations on how to mitigate the challenges highlighted in the Chamber survey report. The Shanghai government staff noted that the survey will be presented to senior decision makers in Shanghai in the following months, including Party Secretary Yu Zhengshen. (June 3)

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inside amcham

June Monthly Member Briefing Hugo Restall, Wall Street Journal Asia Editorial Page Editor, recently discussed a variety of economic issues during AmCham Shanghai’s Monthly Members’ Briefing.

Restall spoke to Chamber members about macroeconomic challenges facing China, focusing on the potential risks China will face in pursuing a policy of sterilization, where the central bank suppresses currency appreciation or inflation. Restall used the examples of Japan and Malaysia in the 1980s and 90s to support his belief that by pursuing a policy of sterilization, domestic inflation is “not vanquished; only deferred.”

Restall noted that, in March 2011, China’s official reserves surpassed US$3 trillion. He said that large reserves like these insulate a country from balance of payments risk. According to Restall, the country faces a choice between inflation and having a lack of credit to finance growth. He said Beijing could use its administrative control over the economy to direct credit away from sector bubbles, but this would be “a difficult trick to pull off, economically and politically.”

Hugo Restall with AmCham President Brenda Foster and Chamber Chair Eric Musser.

In the question and answer session, Restall addressed a variety of issues. When asked to compare Shanghai as an international financial center (IFC) with Hong Kong, he said that it will take a long time for Shanghai to challenge Hong Kong on a large range of financial products. He identified convertibility of the Chinese yuan as the key challenge in becoming an IFC. Members also asked about the effects of quantitative easing on the Chinese economy and the wisdom of greater Chinese investment in gold. (June 7)

CEO of Nalco Erik Fyrwald – Water, the World’s Most Important Resource AmCham Shanghai welcomed Nalco CEO Erik Fyrwald at the Westin Hotel, where he discussed the importance of water in the continued development of the global economy and how governments and business leaders must take a leading role in developing appropriate regulations and policies to accurately price and manage water resources.

Fyrwald began his talk by emphasizing that water shortage “is the number one issue facing the world” today. Over 40 percent of the world lives in water-stressed areas, while water supplies continue to diminish.

While China uses most of its water for agricultural purposes, Shanghai’s Erik Fyrwald speaks about the need for water industrial water consumption is on par with developed nations’ average conservation. use, making Shanghai an attractive market for water efficiency technology.

Many of China’s growth industries, like steel production and coal product manufacturing, are particularly water intensive. Additionally, energy policies must recognize that for every one barrel of oil produced, three barrels of water are used. A focus on water sustainability is important for future growth.

Fyrwald identified regulation, behavior modification and increasing evidence of return on investment as reasons compelling companies to create responsible water plans. Water efficiency and future plant siting are essential parts of an effective water sustainability plan. Through new technologies and careful planning, Fyrwald believes that companies and governments will be able to meet the global challenge. (June 15)

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committee highlights

inside amcham

Environmental Committee The China Greentech Report 2011: China’s Emergence as a Global Greentech Market Leader Alan Beebe, managing director of China Greentech Initiative (CGTI), discussed China’s emergence into the greentech industry and the implications of this growth for foreign enterprises at AmCham Shanghai’s Environmental Committee event.

Beebe spoke to Chamber members about China’s policy aims, for the continued expansion of the greentech industry. He identified the major causes for such unprecedented growth in the industry as rapid urbanization in China, increasing demands on resources and a policy commitment to capturing a larger share of the greentech market. Beebe also discussed the government’s support for the electrical vehicle (EV) pilot programs that have now expanded to over 25 cities.

Founded in 2008,The CGTI has rapidly grown to become the only China-international collaboration platform of 100+ organizations, focused on identifying, developing and promoting green technology solutions in China. Partnering organizations are technology buyers and sellers, service providers, investors and policy makers. Built on two cornerstones, strategic market research and a network of 300+ industry experts, CGTI provides participating organizations with world-class market insights and partnering opportunities. (June 10)

Food, Agriculture & Beverage Committee The 2011 AmCham Shanghai China Food Industry & Food Safety Forum

Forum speakers discussed food safety best practices.

The Food Industry & Food Safety Forum half-day event brought together business leaders, food science professionals, government officials and key opinion leaders in a discussion of major trends in food safety in China. The event was hosted by the Food, Agriculture & Beverage (FAB) Committee, which connects Chamber members from the food supply and food services industries to facilitate sharing of best practices across the farm-tofork supply chain. Speakers from companies, including Coca Cola, Mars Foods, Metro and Hormel Foods, addressed issues related to risk prevention, regulatory issues and strategies for building consumer trust in China’s food supply chain landscape.

The event was kicked off by FAB Committee Chair Sam Hsu, senior vice president & general manager of EcoLab. Mr. Hsu spoke about important factors affecting the FAB industry landscape in China, saying that Chinese consumers are becoming more sophisticated, demanding more convenience and higher food safety standards.

Dr. Jan Kranghand, China head of quality assurance & managing director Star Farm Consulting, of food retailer Metro, discussed the importance of implementing high quality assurance standards across the whole supply chain, maintaining the same food safety levels on a global scale. Metro assures the safety of its food products through the implementation of Global Food Safety Initiative (GFSI) standards along the supply chain, requiring supplier certification. Frank Rocco of Frank Rocco & Associates discussed The U.S. Food Safety Modernization Act (FSMA) related to compliance by foreign suppliers. Rocco noted the importance of consumer pressure in forcing the government to better regulate food safety.

The day’s final panel, on risk assessment and crisis prevention, included managing director of APCO Worldwide (Beijing) Greg Gilligan and Dr. Huaying Zhang, Coca Cola’s vice president of Risk Management for Greater China and Korea. Mr. Gilligan talked about the role of social media in the rise of consumer activism, noting that in China 60 percent of social media users say they believe what they read through social media, a much higher percentage than in the U.S. AmCham Shanghai would like to thank Ohio State University and Global Times for supporting the forum. (June 17) Events and Committee Highlights are reported by Ashley Cahill, Susan Lawrence, Lydia Li, Mark Radin, Bryan Virasami and Esther Young j u ly / a u g u s t 2 0 1 1

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Executive Reading Room

Insight has asked CEOs and other executives to tell us about the books they’re reading and to recommend a few they found hard to put down. Here’s what they told us.

Business Leadership in China

by Frank T. Gallo

The Social Animal

by David Brooks, New York Times columnist

Recommended by Douglas A. Jackson, president, China Business Unit, Coca-Cola (China) Beverages Ltd.

Recommended by Lorna Davis, president and chairman in China, Kraft Foods

Jackson calls the book “practical and simple’” as well as an easy read. Also reading: On China by Henry Kissinger, which he calls, “very insightful and at times a real personal account....a terrific read.”

The Party

by Richard McGregor The Party also on the reading list of Pr a k ash Su nd are s an , ge ne r a l manager, Microsoft (China) Co., Ltd. Shanghai Branch and several others.

drives decisions…”

Davis says the author “articulates so clearly that the way to explain human behavior is not to just reduce their actions into rational components, but to see how much emotion

Also recommends: The Geography of Thought by Richard Nisbett At her bedside: When a Billion Chinese Jump

The Origins of Political Order

by Francis Fukuyama Recommended by Pierre E. Cohade, president, Goodyear Asia Pacific Remarks: “A fascinating comparative history of how mankind has eventually organized itself in many evolving political systems.

Understanding the roots of today’s political order generates direct insights about Corporate Governance and Government Relations."

Chiang Kai Shek: China’s Generalissimo and the Nation He Lost

by Jonathan Fenby Recommended by Dean Ho, general manager, UBS International Remarks: “It’s grim but a good and important read. CKS is the subject but only a player. Fenby produces a tapestry of survival in the vacuum of power after imperial China and WWI…China is drenched in disorder, corruption, famine and poverty. CKS is characterized as a survivor who could access overseas Chinese funding, U.S. arms and political support...”

On his reading list: Ways of Thinking of Eastern Peoples: India, China, Tibet, Japan by Hajime Nakamura.

Remarks: “If you think often about why Chinese government commands so much compliance and so little civil disobedience, then this will be valuable reading. Comparisons revolve about Buddhism and it’s a good way to learn about Buddhism without going to Hollywood.”

Insig h subm t welco mes i Recommended by Tom Siebel, Silicon Valley entrepreneur abo ssions u f r t Remarks: “A very well written history of the development of information and communication read books om rea der s t o h r ey theory.” p Plea se in lan to r have ead nam clud Also on his reading list: The Ascent of Money by Niall Ferguson . e e rem of the the ful Remarks: “A riveting history of the inception of financial institutions in western civilization.” l ar ks boo ks, s and abo om u t com he nam t the bo e e of pan o y an you ks com d r m Br ya ents to title. Se nd n.Vi : ra shan 4 8 i n s i g h t j u ly / a u g u s t 2 0 1 1 ghai sami@ amc .org ham .

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The Information by James Gleick

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