Insight Magazine June 2010 by The American Chamber of Commerce in Shanghai

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

INSIGHT The Journal of the American Chamber of Commerce in Shanghai June 2010

VIP VISITOR

U.S.Transportation Secretary POLICY INSIGHT

Chinaâ&#x20AC;&#x2122;s Housing Market EXPO FEATURE

Corporate Sponsorship

The Power of

Engagement Employee engagement not only promotes loyalty, but delivers improved performance

INSIGHT June 2010

The Journal of the American Chamber of Commerce in Shanghai

David Turchetti DIRECTORS

BUSINESS DEVELOPMENT & MARKETING

Karen Yuen COMMITTEES

Siobhan M. Das COMMUNICATIONS & PUBLICATIONS

David Basmajian EVENTS

Jessica Wu FINANCE & ADMINISTRATION

Helen Ren

MEMBERSHIP & CVP

Linda X. Wang

INSIGHT EDITOR-IN-CHIEF

Justin Chan

ASSOCIATE EDITOR

Tiffany Yajima

COMMUNICATIONS ASSOCIATE

Weina Yang DESIGN

Alicia Beebe LAYOUT & PRINTING

Ella Shan Snap Printing, Inc.

INSIGHT SPONSORSHIP SPONSORSHIP MANAGER

Sophia Chen

(86-21) 6279-7119 ext. 5667 Story ideas, questions or comments on Insight: Please contact Justin Chan (86-21) 6279-7119 ext. 5668 justin.chan@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.

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

12 The Chinese Pharmaceutical Market

ISTOCKPHOTO

V I C E P R E S I D E N T, P RO G R A M S

HEALTHCARE SERIES

TIFFANY YAJIMA

Brenda Foster

F E AT U R E S

ZHU XIAOCI

PRESIDENT

IMAGINECHINA

AMCHAM SHANGHAI

By Andrew Chen

As healthcare reform continues in China, the pharmaceutical sector is expected to surpass US$220 billion by 2020, making China the world’s second-largest market after the United States.

17 Chilling China's Housing Fever POLICY INSIGHT

By Ryan Balis

The central government introduced a series of measures in April aimed at cooling off the rise in home prices, which have continued to rise, stoking fears of a housing bubble.

20 Bridging Communication Channels INTERVIEW

By Tiffany Yajima

APCO Worldwide’s Margery Kraus shares her thoughts on opportunities in China and business diplomacy in a changing world.

23 Connecting the Country VIP VISITOR

By Justin Chan

U.S. Secretary of Transportation Ray LaHood talks to Insight about infrastructure growth and the push for high-speed rail.

26 Making a Mark at Expo EXPO FEATURE

By Tiffany Yajima and Justin Chan

A number of American companies are taking advantage of the Expo to tap into China’s growing market and gain exposure.

30 The Power of Engagement COVER STORY

By Justin Chan

In China’s ongoing war for talent, employee engagement has emerged as a viable tool to boost employee retention. Not only does a sound employee engagement strategy foster loyalty to the company and a sense of belonging, it can drive employees to go the extra mile in helping a company achieve its objectives..

I N S I G H T S TA N DA R D S

3 News Briefs

9 Leading the Way ANALYSIS

A PricewaterhouseCoopers study ﬁnds that Chinese cities take top rank among global cities in attracting foreign direct investment.

44 Deal of the Month

BUSINESS BOOKSHELF

Strategic Thinking

Ward Chartier reviews Edward Tse’s new guide to succeeding in China: “The China Strategy.”

INSIDE AMCHAM

37 From the Chairman: Expo Fever 39 AmCham Shanghai New Member Listing

40 Events in Review 43 Committee Highlights

INSIDE INSIGHT

he Shanghai 2010 World Expo is in full swing and Shanghai is buzzing with Expo fever! Despite some initial concerns about overly optimistic attendance projects, anyone who has been in Shanghai over the past month can attest to the incredible number of visitors that have descended on the city. In fact, the Expo recently eclipsed 500,000 visitors in a single day! This month’s Expo feature looks at the eﬀorts of some American corporations to leverage the Expo, through their support and sponsorship of pavilions and other Expo-related activities. Insight will continue to examine diﬀerent aspects of the Expo over the next few months, so stay tuned! JUSTIN CHAN EDITOR-IN-CHIEF

AmCham Shanghai’s 2010 World Expo Business Series has already hosted a number of distinguished speakers including U.S. cabinet secretaries and major global CEOs. Stay tuned to our dedicated Expo page at expo.amcham-shanghai.org for details on upcoming visitors. This issue of Insight features two interviews conducted with speakers

who were a part of the speaker series, U.S. Secretary of Transportation Ray LaHood and Margery Kraus, founder and CEO of APCO Worldwide, a leading public affairs and communications firm. Nearly every company in China has experienced the challenges of recruiting and retaining staff. This month’s cover story takes a look at employee engagement, which has emerged as a core retention strategy that more and more companies are employing. Aside from financial compensation, companies can create an environment where employees are engaged and as a result, more loyal and dedicated to the company’s overall goals. Another regular hot topic in China is the housing market and whether a housing bubble exists or not. This month’s policy insight reviews the impact of recent regulations aimed at reining in the country’s booming real estate market. Finally, turn to this month’s installment of our healthcare series, which looks at the growing pharmaceutical market in China.

IMAGINECHINA

News

N NE EW WS S B BR R II E EF FS S

EXPO 2010

At Expo, Coca-Cola celebrates 125 years Marking 125 years of operations, the Coca-Cola Co. grabbed attention at the 2010 World Expo with the opening of its Happiness Factory and its participation in catchy Expo festivities. The Happiness Factory is the company’s corporate pavilion showcasing its “history of innovation in beverages and sustainability worldwide,” according to a company news release. On May 8, “Coca-Cola Day” was celebrated at the Expo Garden with performances that attracted more than 2,000 visitors and Haibao, the Expo mascot. Animated company characters also took part in kicking oﬀ the Expo 2010 Parade, which will run for 184 days and is expected to attract more than 30 million people. The Atlanta-based bottler expects China to move up from number three to become its largest market by 2020.

Israel showcases original E=mc² notes Visitors to the Israel Pavilion at the 2010 World Expo were treated to a display of the manuscript on which Albert Einstein wrote his famous physics equation, E=mc². Israel brought the rare treasure to Shanghai to mark the country’s ﬁrst standalone pavilion at a World Expo. Israel built a 2,000-square-meter national pavilion at a cost of US$10.5 million to signal the importance it places on attracting a strong trade relationship with China. The country hopes to draw attention with displays of Israeli technological innovation and its development in green technology. The Hebrew University of Jerusalem lent the Einstein manuscript for a period of at least one week. It had never been publicly displayed on such a mass scale prior to the 2010 World Expo.

EPA lends hand at Expo The U.S. Environmental Protection Agency (EPA) joined Shanghai’s Environmental Protection Bureau (EPB) to provide real-time air quality information from the 2010 World Expo site. The monitoring system, named “AirNow International,” combines the EPA’s technology and Shanghai’s existing network of air quality monitors.The EPA launched AirNow.gov in 1998 to provide air quality reports for nearly 400 U.S. cities.The agency is conﬁdent the system helps raise public understanding about air pollution sources. “There’s a real power in real-time data,” said Jeff Clark of the EPA’s Ofﬁce of Air Quality Planning and Standards. “People start to buy into concern for air pollution.” The system in Shanghai monitors PM10 (particulate matter measuring 10 micrometers or less in diameter), sulfur dioxide and nitrogen dioxide. In addition to AirNow International, the EPA reports it is working in cooperation with China to address environmental concerns related to climate change, water, toxic, solid and hazardous wastes and environmental governance.

China, Germany market sustainable urbanization One of the more eye-catching buildings at the 2010 World Expo is the GermanChinese House. The house marks the close of a three-year, ﬁve-stop bi-national event series titled “Germany and China – Moving Ahead Together.” The structure

is constructed using Chinese Julong bamboo for a small yet striking and environmentally friendly design. The focus inside the house is on showcasing a vision for sustainable urban development, ﬁtting nicely with the oﬃcial Expo theme of “Better City, Better Life.” To better understand urban challenges, visitors are invited to build their own virtual city using

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INSIGHT

JUNE 2010

an interactive computer game. Elsewhere, an accompanying exhibit spreads best practices for building sustainable urban development.

Expo site drives merchandise sales Sales of 2010 World Expo merchandise reached nearly RMB8 million (US$1.17 million) over the three-day May Day holiday. Souvenir passports, which sell for RMB30 per copy, proved to be a top seller. All 50,000 copies were sold out on opening day, driving the price of scalped passports marked with pavilion stamps up to RMB750 online. Underestimating demand, Expo organizers increased production of the popular item to 80,000 copies per day. The Expo has also become lucrative for pavilion operators. Other positive business included US$5 million in sales of Chilean products, such as copper handicrafts, wines and Pisco liquor. “[The] Chile Pavilion at the Shanghai Expo 2010 is proved to be the global investment we projected in China,” said Hernan Somerville, Chilean commissioner general to the Expo. CHINA BUSINESS

China,Taiwan open tourism offices China and Taiwan agreed to strengthen tourism links by establishing respective tourism offices in Taipei and Beijing. The agreement marks the first semi-official presence by both sides since splitting in 1949. The offices will be responsible for promoting tourism sites and handling travel problems, though they will not be issuing tourism visas. Up to 3,000 Chinese have visited Taiwan each day since President Ma Ying-jeou opened Taiwan to Chinese tourists in mid-2008. As a result, Taiwan experienced the fastest tourism growth in Asia in 2009, according to Taiwanese officials. China receives more than four million Taiwanese visitors annually. If agreed to, a China-Taiwan free trade agreement under negotiation for a possible June signing would be a further display of improved cross-strait economic relations.

China plans new green city China broke ground on a new clean energy city in Turpan, Xinjiang Uyghur Autonomous Region. The new city will cover 8.8 square kilometers and is designed to take full advantage of the arid natural environment of the Gobi Desert. The hallmark of the city’s power sources will be clean, renewable resources, such as solar radiation, wind and ground heat. Planners also envision using solar energy storage batteries for taxis and buses. China hopes the new city will be a model for energyeﬃcient living. The government also hopes it will lead to improved political stability in the region. The city will be constructed in three phases over 10 years.

Gamesa tapping wind energy market Spanish wind turbine manufacturer Gamesa Corp. began construction on a new wind turbine plant in Baicheng City, Jilin Province, accelerating the company’s expansion into China’s booming wind energy market. The new factory is expected to come on line in 2011 and to produce 250 Gamesa G8X-2.0 megawatt wind turbines per year. When complete, it will mark Gamesa’s fifth wind turbine plant in China. Gamesa recently announced plans to enter China’s offshore wind energy market by the end of 2011, in line with hopes to bring a five-megawatt wind turbine to China. One entry method the company is pursuing is the acquisition of an unnamed German wind power company. China’s wind energy market grew at an annual rate exceeding 100% over the past four years. CORPORATE NEWS

Nissan-Dongfeng constructing additional plant Dongfeng Nissan Passenger Vehicle Co., a joint venture established in 2003, announced it began construction on a second vehicle manufacturing plant in Guangzhou’s Huadu District. The automaker expects the new plant to increase annual capacity by 240,000 units. In April, Nissan announced it would more than double the number

of vehicles produced throughout China to 900,000 units by 2012. The new plant is expected to be completed in 2012 at a cost of RMB5 billion. When complete, Guangzhou will become Nissan’s largest production base. According to Xinhua, the company sold 520,000 units in China in 2009, placing it sixth among passenger automakers by sales volume.

Taobao,Yahoo Japan team up Alibaba Group’s Taobao.com, the dominant eBay-style auction site in China, and Softbank Corp.’s Yahoo Japan announced a partnership that will allow each company’s product listings to be sold on the other company’s site. Yahoo Japan will host translated versions of Taobao’s listings on its “TaoJapan” section for a fee paid by merchants. Similarly, sellers on Yahoo Japan will be given the option for their products to appear in Taobao’s “China Mall” section (listing on Taobao is free). The two companies are betting that joining their combined 250 million users will lead to overtaking eBay to become the world’s top online marketplace. Taobao expects this year to double the US$30.5 billion of goods sold through its site in 2009. By comparison, eBay posted US$57.2 billion in transactions in 2009. The cross-listing deal will begin in June.

United, Continental agree to merger United Airlines Corp. and Continental Airlines, Inc. announced they would merge to create the world’s largest airline. The companies expect the nearly US$3.2 billion deal to result in savings of between US$1-1.2 billion per year by 2013 partly through cost cutting and anticipated international service growth. Shareholders and U.S. antitrust regulators must sign on to the megamerger, which is expected to be ﬁnalized in Q4. United and Continental, both members of the Star Alliance group, oﬀer daily non-stop service from Shanghai and Beijing to several U.S. cities. Analysts say the short-term impact for Chinese domestic airlines should be little despite the new, combined airline seeking to gain long-term market share in China.

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INSIGHT

MACROECONOMICS

April measures cause inflation worry China’s robust recovery continued in April but official data released by China’s National Bureau of Statistics are increasing inflationary expectations. Consumerprice inflation (CPI) crept 2.8% in April on an annual basis, up from a 2.4% bump in March and set the fastest pace in 18 months. Natural disasters fueled a 5.9% rise in the price of food in April. Moreover, the price of property increased 12.8% in April from a year earlier across 70 of China’s large and medium cities. Housing prices rose above March’s 11.7% gain, outpacing market expectations and posting the fastest increase in five years since China started collecting data. The new data may increase pressure on China to take measures, such as raising interest rates, to counter trends suggesting China’s economy is overheating.

China’s GDP forecasted for double-digit growth China’s GDP is expected to rise 10.7% in the second quarter thanks to continued strong domestic demand, according to a report by China’s State Information Center. The forecast is less than the 11.9% surge posted in Q1 because tightened credit led to a smaller increase in investment. Retail sales are expected to grow 19% in Q2, up from 17% last quarter, added the SIC. The report emphasized that China’s “economy is not overheated,” and the country’s growth remains “within a range of reasonable expansion.” A recent report by the United Nations Economic and Social Commission for Asia and the Paciﬁc estimated that China’s economy will grow 9.5% in 2010 – the fastest growth in the Asia-Paciﬁc region.

China’s trade balance returns to surplus China posted a trade surplus of US$1.68 billion in April, rebounding from a US$7.24 billion deficit in March – the country’s first monthly deficit in six years. China’s return to positive territory was

INSIGHT

helped by a 30.5% growth in merchandise exports from April 2009, which exceeded market expectations. Despite the Greek debt crisis, China’s exports to the European Union have increased 30.4% in 2010. China also posted a 19.6% rise in exports to the United States through April. Imports in April increased 49.7% year-toyear to US$118.24 billion but were down from a 66% explosion in March. U.S. - CHINA

Trade delegation promotes clean energy U.S. Commerce Secretary Gary Locke led a trade mission to China to promote U.S. exports of clean energy technologies. Executives from 24 large and small U.S. companies accompanied Locke on what marked the Obama administration’s ﬁrst cabinet-level trade mission. The administration is championing exports of leading U.S. green technologies as it aims to advance the ambitious National Export Initiative to double U.S. exports by 2015 in support of two million jobs. During his mission, Locke also advocated for improved access to China’s government procurement market and enhanced protection and enforcement of intellectual property rights. The delegation visited Hong Kong, Shanghai and Beijing on its China leg before making a stop in Jakarta, Indonesia.

California lures Chinese automaker Chinese green automaker BYD announced its ﬁrst U.S. corporate headquarters will be in Los Angeles. The decision is expected to generate between 50 and 200 jobs for California over the next several years. The company plans a statewide and eventual national rollout of its electric vehicles in the U.S. To lure BYD, which stands for “Build Your Dreams,” Los Angeles oﬀered a package of roughly US$1 million in incentives. These include the city’s purchase of a number of BYD electric vehicles and a fast-tracking of approvals for the installation of electric charging stations. Moreover, BYD will

JUNE 2010

enjoy reduced tariﬀs on its zero-emission vehicles coming through the Port of Los Angeles.

China big U.S. corn customer China placed no fewer than two orders totaling 415,000 metric tons of U.S. corn over a two week period from late April, aiming to replenish domestic stockpiles. Historically, China has not purchased large quantities of U.S. corn since 2001. But lower domestic output and planting delays because of cold and rain spells caused prices to spike to US$7 per bushel in China – the highest mark in two years. Analysts predict China may purchase up to 1.5 metric tons of foreign corn this year and will become a net importer for the ﬁrst time since 1996. China is the world’s number two corn consumer, trailing only the U.S. GOVERNMENT & POLICY

China’s banks increase reserves China’s central bank, the People’s Bank of China, ordered banks to increase their reserve ratios by 0.5%. The deposit hike is the third adjustment by half a percentage point this year aimed at tightening the money supply. Beginning May 10, major banks and smaller financial institutions must set aside 17% and 14%, respectively. The directive does not apply to rural credit cooperatives and village banks. The Shanghai Composite Index closed at a seven-month low following the announcement. The move comes amid China’s attempts to tame surging property prices and growing inflationary expectations. Economists warn that China may need to raise interest rates to offset pricing pressures meaningfully.

China mulls carbon tax Experts predict that China will likely impose various environmental taxes, including a carbon tax around 2012. “We expect China will start to levy various taxes only if they are helpful in mitigating greenhouse emissions and developing a low-carbon economy,” said Jiang Kejun, a senior researcher with the China Energy

Research Institute under the National Development and Reform Commission. The tax would apply to coal, natural gas and oil enterprises but not individuals. China would likely boost subsidies to support clean energy industries. The levy would be in line with China’s aim to discourage the growth of a fossil fuel-based economy. In 2009, the government committed to decrease China’s carbon intensity by 40% to 45% of 2005 levels by 2020.

of all online domestic sales. Moreover, Shanghai retailers sold just over 12% of all online merchandise in China. “[Shanghai] is a city that has to be number one, and apparently online shopping (and spending) is no exception,” noted CNN on the results. Beijing and Shenzhen ﬁnished in second and third place with RMB11.25 billion and RMB6.48 billion, respectively.

SHANGHAI BUSINESS

A revitalized Shiliupu Dock opened on a trial run and is ready to accept river sightseers. Though facilities are incomplete, the renewed dock south of the Bund now boasts a water tourism center and a ship terminal with 12 berths. Two cruise companies are operational thus far, but oﬃcials expect more to follow to meet tourism demands. For World Expo-bound travelers, the 25-minute cruise on the Huangpu River is touted as a picturesque route to the festivities. A roundtrip ticket

Shanghai tops online shopping market Shanghai is China’s number one online shopping market in terms of online spending and online selling, according to a report by Alibaba Group’s Taobao. com, China’s largest e-retailer. Shanghai residents spent RMB17.42 billion (US$2.56 billion) online over the last year ending in May, accounting for 8.67%

Shiliupu Dock revitalized for tourism

from Shiliupu costs RMB60 to RMB80 or passengers can disembark at the water gate near the African Union Pavilion at the Expo.

Holiday retail sales boom Fueled by World Expo visitors, retail sales in Shanghai over the May Day holiday soared 22.1% from the same period last year. The city’s large- and medium-sized retailers netted a combined RMB4.13 billion (US$604.76 million) in sales among their roughly 4,000 local stores citywide from April 30 to May 4. The shopping spree was nearly ﬁve times higher than in 2000 – the ﬁrst year China established an extended May holiday. The top selling items were World Expo souvenirs, clothing, luxury watches, food and gold and jewelry, which increased 53.5% in sales. The Nextage Department Store in Pudong earned RMB107 million (US$15.67 million) in sales, the most among Shanghai’s shopping centers.

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LEASING HOTLINE

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Email: info@spsp.com.cn www.spsp.com.cn

Come and embrace the holistic vision of Work, Live and Play that will appeal to both your talented employees as well as raising the profile of your Corporation among your peersJand competitors. UNE 2010 INSIGHT 7

86-21-61821816

CHINA & THE WORLD SOUTH AMERICA

MIDDLE EAST

ASIA-PACIFIC

INDONESIA: PetroChina Co., China’s largest oil company, announced it will increase its investment in Indonesia by 30% this year to US$639 million to boost oil and gas exploration and development. The investment will add two wells to PetroChina’s aggressive exploration activities in Indonesia and signiﬁcantly boost its local production target of 106,000 barrels of oil equivalent per day.

ASIA-PACIFIC

AFRICA

SOUTH AFRICA: China’s Jidong Development Group and the China-Africa Development Fund struck a deal to partner with two South African ﬁrms – Continental Cement and Women Investment Portfolio Holdings (Wiphold) – to build a cement plant in Limpopo Province. The Chinese entities will commit RMB347 million and will hold a 51% stake in the plant. The new plant is expected to cost RMB1.5 billion and produce 2,500 tons of cement per day, helping to ﬁll a local cement shortage caused by a construction bonanza for the 2010 World Cup in South Africa in June. The deal is China’s largest investment in South Africa since the Industrial & Commercial Bank of China’s purchase of a US$5.5 billion stake in Standard Bank in October 2007.

EUROPE

MIDDLE EAST EUROPE

RUSSIA: Chinese President Hu Jintao visited Moscow to commemorate Russia’s 65th anniversary of Victory Day and to discuss boosting bilateral cooperation with Russia. The occasion was celebrated with wreath-laying ceremonies and a military parade on Red Square. The parade involved more than 10,500 troops, including active-duty American and NATO contingents for the ﬁrst time. During Hu’s two-day stay, his Russian counterpart, Dmitry Medvedev, pledged to strengthen cooperation with China on trade, science and technology, culture and regional affairs. In addition, the two leaders agreed to boost ties on major international issues, such as climate change, energy security and terrorism, as well to seek a greater voice for both countries with respect to the G20.

NORTH AMERICA MIDDLE EAST

AFRICA

QATAR: Chinese Premier Wen Jiabao and visiting Prime Minister and Minister of Foreign Affairs Hamad bin Jassim bin Jabor al-Thani from the Gulf state of Qatar signed a memorandum of understanding to strengthen cooperation on energy, financial and infrastructure sectors. Wen said China will work with Qatar to handle the global financial crisis and to collaborate with the country on energy and infrastructure construction. Qatar pledged its cooperation to promote oil and gas businesses and to expand mutually beneficial investment. The Qatari leader was in China to attend the seventh China-Arab Cooperation Forum held in Tianjin, a two-day meeting of representatives from China and 22 Arab states.

NORTH AMERICA

SOUTH AMERICA MIDDLE EAST AFRICA

UNITED STATES: McDonald’s Corp. is expanding a six-year experiment to recruit franchise partners in China, the fast food chain’s fastest growing market. As an incentive, it slashed the franchise fee to RMB2 million (US$292,920), down from RMB8 million (US$1.2 million). The company will initially focus on opening new franchises in Jiangsu Province. Franchises account for 80% of McDonald’s outlets worldwide, but in China the company has only six franchised stores. The move will help McDonald’s reach an ambitious growth target in China of 2,000 outlets by 2013.

AFRICA ASIA-PACIFIC

NORTH AMERICA

CANADA: The China Investment Corp. (CIC) agreed to form a partnership with Penn West Energy Trust to help develop oil-sands in the Peace River area of Northern Alberta. As China’s sovereign wealth fund, CIC is committing US$798 million to acquire a 45% stake in the venture and also agreed to buy approximately US$425 million of Penn West securities. Penn West is contributing US$1.76 billion of assets and retains a 55% stake in the general partnership. The Alberta-based company will control operations on the project whose assets include 237,000 acres of oil-sands leases on which it currently produces 2,700 barrels of oil equivalent per day.

SOUTH AMERICA

NORTH AMERICA EUROPE ARGENTINA: The state-owned China National Offshore Oil Company Limited (CNOOC) agreed to a US$3.1 billion deal to buy a 50% stake in Argentina’s Bridas Energy Holdings. The deal, initially SOUTH AMERICA signed in March, creates a 50-50 joint venture to help China expand oil and natural gas exploration and production in South America to feed mounting energy demand at home. The deal is expected to increase CNOOC’s oil reserves by 318 million barrels, or about 12%, and to raise the company’s average daily production by 46,000 barrels of oil equivalent. CNOOC, China’s third-largest oil company and largest offshore oil producer, posted a daily production average of 530,728 barrels of oil equivalent at the end of 2008.

ASIA-PACIFIC 8

INSIGHT

JUNE 2010

SOUTH AMERICA ASIA-PACIFIC

A N A LY S I S IMAGINECHINA

Leading the Way

f 21 leading cities, Shanghai and Beijing lead the way in attracting foreign direct investment (FDI), according to Cities of Opportunity, an annual report on what makes cities thrive, jointly conducted by PricewaterhouseCoopers LLP and the Partnership for New York City. According to the report, Shanghai ranked first in the total value and number of greenfield projects funded by foreign direct investment. In these two categories, Beijing ranks second and fourth, respectively, among the leading 21 global cities. Beijing and Shanghai outpaced even traditionally dominant world cities in the total value of these job-creating projects underwritten by foreign investment. Cities of Opportunity took an in-depth look at the emerging picture of city life. The report used 58 variables to analyze the performance of the 21 global cities. To a great extent, the successes and shortcomings that surface validate the central thesis of the research – namely, that the more well balanced a city is for both businesses and residents, the better it will fare. As implied in this year’s study, New York City is faring well in comparison with other global capitals in the aftermath of the economic downturn in 2008. However, looking beyond the Asia-led financial recovery, Shanghai, Hong Kong and Singapore are making their mark as potential future centers of business, finance and culture, says the report. A good case can be made that any one of them may prove dominant in the Asia-Pacific region and perhaps beyond. Shanghai, a historic center of business, finance and culture in mainland China, sits at the fulcrum of what is expected to become the world’s largest economy, according to the report. The city is well situated to manage China’s domestic capital markets

and in fact ranked highest in attracting FDI both in terms of the number of greenfield projects and the total value of capital investment. Attracting FDI is one of the variables in the Economic Clout indicator, the category that indicates a city’s ability to influence world markets, attract investment and stimulate growth. Additionally, Shanghai ranked highly in Information and Communication Technologies (ICT) competitiveness, one of the measurements of technology IQ and innovation. “Shanghai is attracting an increasing amount of foreign investment,” says Nora Wu, PricewaterhouseCoopers China’s lead partner for Shanghai. “Although Shanghai has some way to go towards its goal of building an international financial center, it has already embarked on comprehensive preparatory works. Shanghai has a track record of achievement during the past decade, which makes people confident of its potential. This confidence is further enhanced by the support from the central government.” The tiger growth cities of Beijing and Shanghai, says the report, have developing business structures that attract investors with the potential of China’s burgeoning market, particularly for multinationals. Beijing ranks third in the “number of global 500 headquarters,” following Tokyo and Paris, while boasting the highest percentage of working age population of any city, typical of tiger growth cities. With the goal of becoming a world-class city, Beijing has started to build itself as a center for international trade and attract multinationals to establish regional headquarters and stay for the long-term.

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INSIGHT

Chinese cities lead the way in attracting foreign direct investment.

Analysis provided by

For more information, please contact, Georgia Guo +86 (21) 2323-3597 georgia.guo@cn.pwc.com

INSIGHT

JUNE 2010

BUSINESS BOOKSHELF B Y WA R D C H A RT I E R

Strategic Thinking

nyone living and working in China is aware of the frenetic pace of change transforming the country. Those who strive to be increasingly effective managers in the face of daunting growth and change often search for emerging knowledge and sage advice for enlightenment to guide their way. Some airports have bookstores with a well-stocked business section crowded with suited travelers seeking an edge over their competitors. Dr. Edward Tse’s new book “The China Strategy: Harnessing the Power of the World’s Fastest-Growing Economy” (Basic Books, 2010) promises to provide readers with “a holistic view of the Chinese business environment” – a substantial objective. Can Tse’s book distill the complexity of China’s business environment into readily accessible knowledge for the harried executive? As swiftly as China is changing, will Tse’s insights prove ephemeral or enduring? Tse cautions against drawing broad conclusions about how to be successful in China from scant information. Thus, his book is not for those desiring bullet points and checklists providing a shortcut to success. At the core of developing a viable strategy in China is “understanding the four main drivers of change in China and how they fit together,” says Tse. According to him, these drivers are: Open China, Competitive or Entrepreneurial China, Official China and One World. His prescriptions, however, likely need mental nurturing and pensive reflection followed by discussion before readers can integrate them into a viable strategy for their own operations. Tse devotes half the book to illustrating and explaining these drivers, which are readily recognizable to Western executives but which have distinctly Chinese characteristics deserving of a reader’s close attention. While Tse expresses lavish admiration for China’s recent accomplishments and an almost untroubled

optimism for the future, many of Tse’s anecdotes firmly underscore several significant challenges faced by executives in China. Tse claims, for example, that “China’s economic growth has far exceeded its capacity to educate and train people for working in a globalized economy.” Maybe Tse’s perspective as a China consultant turned executive will naturally be bullish. After all, strategic visionaries expect others down the hierarchy to solve the problems. Tse succeeds in giving readers a holistic view of the Chinese business environment. There is enough detail to enable readers to ask questions, investigate further and begin their own reflection as the first step in developing their own business strategy for China. Tse concludes by drawing “a tentative picture of the future and where China is heading,” but explains that this picture is not a forecast. Given the exceedingly rapid and sometimes abrupt changes in today’s China, it is quite possible that some aspects of the book will have a short shelf life. Can readers expect a second edition soon? Tse writes eruditely but not pedantically. His prose is tempered by his decades-long association with international business leaders. This book is for seasoned executives comfortable with interpreting strategic thinking and is definitely not a “how to” primer for China novices or dabblers. Readers primarily interested in tactical or operational insights will not be served. A quiet room, not a noisy airplane cabin that the harried executive calls home, is the right environment for appreciating Tse’s perspective. Ward Chartier is general manager of Branson Ultrasonics in Shanghai.

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INSIGHT

H E A LT H C A R E S E R I E S

BY ANDREW CHEN

ISTOCKPHOTO

The Chinese Pharmaceutical Market

Insight’s ongoing healthcare series looks at the market for pharmaceuticals in China.

ver the past few years, China’s domestic pharmaceutical consumption has increased dramatically, with pharmaceutical industry sales revenue growing by an average of 21.4 percent annually. Driven by strong economic growth, increasing urbanization and the health demands of an aging population, China’s pharmaceutical market is projected to become one of the world’s largest. China is currently the seventh-largest pharmaceutical market in the world. By 2020, China’s pharmaceutical market volume is expected to reach US$220 billion, becoming the second-largest market after the United States. In addition to substantial market size growth, the proportion of gross pharmaceutical industrial output value in GDP has increased signiﬁcantly and steadily, from 2.1 percent in 2003 to 2.8 percent in 2007. While China’s GDP has shown steady growth between eight and ten percent that is expected to continue, the pharmaceutical market is expected to expand at a compound annual growth rate of 17 percent between 2005 and 2010. Based on this and other growth trends, the pharmaceutical industry’s role in the Chinese national economy is expected to strengthen signiﬁcantly.

Government-supported R&D In general,pharmaceutical research and development (R&D) in China is still immature. However, the

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industry is in the process of transitioning from generic drug-driven to patented drug-driven. Under the guidance of the National Development and Reform Commission (NDRC) and with support from manufacturers, universities and research institutions, China is beginning to demonstrate achievements in pharmaceutical R&D. Specifically, the Chinese government is shifting its focus in pharmaceutical R&D from imitating unpatented or generic drugs to building an innovation-oriented industry by providing a number of incentive programs to support and foster the development of domestic pharmaceutical R&D. For example, in December 2007, the State Council approved the “Key New Drug Creation and Development Program.” Under this initiative, the government will invest RMB4 billion over the first five years and RMB10 billion over the following 10 years in pharmaceutical R&D, with a specific focus on selected major diseases. In addition, the NDRC established an R&D objective for 2006-2010 which states that companies will invest at least five percent of their revenue in R&D and develop a total of 20 to 30 patented drugs and vaccines for diseases affecting the Chinese population. Related regulations on pharmaceutical R&D were also established to prevent malicious use of funds, such as penalizing researchers in future funding application cycles if the current research project fails. Overall, China’s domestic R&D activities are gradually catching up with other countries. If the

number of Patent Cooperation Treaty (PCT) patent applications represents the innovation capability of a country, China has the highest PCT patent application growth (48.7 percent) compared to other emerging countries in recent years. Application focus is also moving from Traditional Chinese Medicines (TCMs) to innovative technologies such as gene therapies, antibodies and peptides.

Increasing drug consumption Currently, four types of drugs are available in China: TCMs, chemical-based over-the-counter (OTC) drugs, chemical prescription (Rx) drugs, and biopharmaceuticals. The combined market share by revenue of Rx and OTC drugs (including TCM) in China stands at around 90 percent. Overall, drug consumption in China has increased as people become more aware of ways to take better care of their health and overall well-being. However, based on sales revenue by sector type, the proportion of chemical-based medicines and Chinese-patented medicines has shrunk, while that of other sectors has expanded. For example, TCMs made from various Chinese herbs are currently highly valued for their lack of toxicity and reduced side effects, as compared to chemical-based medicines. Similarly, biological medicines have started to gain presence in the market as research focuses on targeting the root cause of disease to cure patients while minimizing side effects. Two other forces – purchasing power and drug development/availability – also play important roles in determining drug consumption levels in China. Consumer demand for better care is largely driven by purchasing power, which is strongly dependent upon personal wealth and insurance coverage. Similarly, the availability of speciﬁc treatments greatly affects drug consumption, as therapies for certain severe or rare diseases are still limited. Treatment advancements and new drug introductions are expected to boost drug consumption in China in the coming years.

Value chain analysis The Chinese pharmaceutical industry value chain consists of raw material manufacturers, pharmaceutical companies, drug distribution

companies, medical service providers, and healthcare buyers. China’s complicated, multi-tiered pharmaceutical supply chain is composed of more than 5,000 drug manufacturers, 12,000 small and local wholesalers without a nationwide presence, and three different medicine terminals, all receiving varying amounts of margin from drug sales. Fragmented distribution channels Pharmaceutical distribution in China is highly fragmented and unstable, and often criticized for its inefficiency and lack of transparency. As an example of the distribution network’s fragmentation, Guangzhou Pharmaceutical, China’s fourth-largest wholesaler, has just a 3 percent market share overall and a 16 percent share in Guangdong, its home province. China’s pharmaceutical supply chain involves three tiers of distributors: Tier 1 is national, Tier 2 is provincial and Tier 3 is municipal. To create a geographically significant distribution network, manufacturers typically work with hundreds of distributors including a few Tier 1 and many Tier 2 distributors, depending on the size of product portfolio. China’s three leading national distributors, Sinopharm Group, Shanghai Pharmaceutical, and Guangdong Jiuzhoutong Pharmaceutical together increased their combined market share from 13 percent in 2003 to 19 percent in 2009, with an annual growth rate of 13.5 percent. However, competition and threat of acquisition by foreign competitors increased after industry privatization in 2005. Together with concerns about efficiency and cost, consolidation is expected in the coming years. In addition to its extremely fragmented nature, drug distribution in China is highly complex.. In general, Tier 2 and Tier 3 cities have different local business practices such as distribution levels and selling practices, which are heavily relationshipdependent, with varying levels of physician expertise and education compared to Tier 1 cities. Distributors need to take into account their clients’ interest level in different cities; for instance, MNCs generally have less presence in Tier 3 cities as their products have been too expensive for rural residents.

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Drug consumption in China has increased as people become more aware of ways to take better care of their health and overall well-being.”..”

Primary Sales Channel and Market Drivers for Different Types of Medicine Drug Type

Traditional Chinese Medicine

Chemical-based OTC Drug

Chemical Rx Drug

Biopharmaceutical

Primary Sales Channel

Retail pharmacies (mainly OTC drugs)

Retail pharmacies

Hospital pharmacies

• Inadequate insurance coverage prompting uninsured patients to purchase OTC drugs to avoid high hospital costs • Massive advertisement campaigns to raise product visibility

• Rising hospital visits with increasing disposable income • Increasing awareness and recognition of western treatment

• Increasing insurance coverage, which encourages more patients to purchase • Relaxed regulations on drug registration prompting

Market Drivers

• Popular choice for self-medication • Inexpensive • Highly preferred in rural areas

Source: Deloitte analysis

Drug distributors in China often organize logistics for manufacturers and help some smaller drug companies with sales and promotional activities. The role of distributor in hospital drug procurement has diminished as manufacturers are now invited to drug auctions through the hospital tendering process. The adoption of Internet drug auctions and the use of the Internet as a new drug sales channel could help to streamline the supply chain and reduce the number of players, enabling manufacturers to work with fewer distributors and manage the distribution process more effectively. Opportunities and challenges in sales Currently, drugs in China are available through three primary sales channels: hospitals, urban drug stores for OTC drugs, and rural health centers. Of the RMB200 billion in current domestic drug sales, 74 percent occur at hospitals, while drug stores and rural health centers account for 17 percent and 9 percent, respectively. Hospital sales The pharmaceutical sales in hospitals supported by healthcare reform demonstrated a CAGR of 20.5 percent between 2001 and 2008. Although the growth rate tumbled, partly due to reduced prices for medical insurance-covered drugs and the launch of anti-corruption campaigns, overall hospital sales, especially in community and rural health institutions, will continue to rise as healthcare reform increases drug availability and affordability. An essential drug list comprising of 300 products at very low prices is now used in urban community health centers. The list covers 80 percent of the most prescribed medicines, which are purchased directly from manufacturers at zero mark-up. Additionally, the NDRC proposed a drug price policy in early 2007 to control distribution mark-ups and hospital proﬁt margins. Finally, the healthcare reform will expand the insurance coverage to beneﬁt a larger population.

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The community care drug list is likely to be used as a basis for reimbursement under the rural cooperative medical plan. The fund size of the rural cooperative medical plan has reached RMB80 billion and drug consumption in county central hospitals and community healthcare centers appears to have increased dramatically. The normal sales terminal network and price advantages could be threatened by the basic medicine scheme and development of community health care center. Expanding and consolidating pharmacies In 2008, the top 100 pharmacy chains accounted for almost 60 percent of the total market share, a sizeable increase from over 50 percent in 2007. A total of 15 pharmacy chains recorded turnover of more than RMB1 billion, up from 12 chains in 2007. Additionally, in 2008, the top 10 retail pharmacy chains showed an increase of RMB473.4 million in aggregate revenue compared to the top 10 in the previous year, and accounted for 35.5 percent of aggregate increase in the top 100. Nepstar Chain Drugstore, the largest pharmacy chain in China, is a model for successful retail operations. Nepstar has a total of 2002 outlets in 62 cities. As a general practice, Nepstar targets wealthier cities in the east and southeast part of the country such as Shenzhen (311 stores), Dalian (174 stores), and Guangzhou (161 stores), where the household disposable income is greater. Nepstar uses a centralized procurement and distribution center network for operation management, and offers a variety of products in addition to pharmacy services, such as nutritional supplements and personal care products, to reinforce its position in the Chinese retail pharmacy market. But many relatively large chain stores have been forced to consolidate or exit the market. For example, Zhongxin Chain Branch, the largest retail pharmacy chain in Tianjin, was sold after suffering major losses from declining sales, despite being one of the top 100 retail pharmacy chains with over 90

stores in 2008. In general, strong competition in the pharmaceutical sector and low profit margins are driving market consolidation, forcing unprofitable firms to withdraw or form alliances to create larger chains. The number of retail pharmacy outlets, which has remained stable at around 360,000, is expected to fall as the consolidation process continues. In addition to the large pharmacy chains, China’s retail market includes independent pharmacies that attempt to gain competitive advantage by targeting niche audiences. For example, a retail pharmacy that opened in Beijing in 2007 specializes in antioncology products and provides more than 800 drugs at lower prices than hospitals, health food products and other supplies for cancer patients. Of the foreign companies participating in China’s retail pharmacy sector, both Watson’s and Wal-Mart have established noticeable footprints in wealthy provinces and cities such as Beijing and Guangdong. Wal-Mart’s plans include opening a pharmacist-managed drugstore inside its department stores.

government is implementing a drug classification system, which should be seamlessly integrated with the government’s supervision of drugs, price management, administration of advertisements for drugs, the overall healthcare system, and medical insurance programs. A successful implementation of the system will help better regulate the OTC market and differentiate between prescription and OTC drugs. By 2008, there were 4,610 types of OTC drugs classified by the State Food and Drug Administration (SFDA). The government is investing heavily in the rural healthcare system, social medical insurance coverage and community hospitals through the healthcare reform, which will further increase demand for OTC drugs, especially vitamins and TCM. The price difference between filling prescriptions at hospitals and retail pharmacies should encourage more patients to get prescriptions filled in drug stores, especially those for chronic treatments such as anti-hypertensives.

OTC growth trend prospects Compared to the slowdown in hospital drug sales, the drug store/OTC market is experiencing rapid growth. OTC sales in China showed a four-fold increase from RMB1.9 billion RMB in 1994 to RMB8.4 billion in 1999. In 2002, OTC sales were significantly augmented by the government’s policy to implement the first drug classification system to differentiate between prescription and OTC drugs. By 2007, OTC sales totaled over RMB100 billion. Although per capita OTC drug consumption in China is still well below the global average, there are several drivers pushing China to become the world’s largest OTC market by 2020. Improved living standards are enhancing consumer awareness of personal health, especially the concept of self-medication for relatively light symptoms such as influenza or stomach problems. OTC drugs are a convenient, cheaper option than a hospital check-up, thereby resulting in increasing demand for OTC drugs. Under the healthcare reform system, more drugs will be selected as OTC drugs. The

Each member of China’s pharmaceutical value chain has different roles and characteristics, and faces various problems and challenges. Overall development of the industry, along with changing national policies and market conditions, are expected to impact the value chain signiﬁcantly in coming years. The government has been enforcing more stringent policies to better regulate local drug manufacturers and improve the industry’s overall reputation, which will also stimulate investment activities. China’s Guilin Sanjin Pharmaceutical was approved for an initial public offering (IPO) in July 2009, and Shanghai Kaibao Pharmaceutical launched an IPO on the Shenzhen Stock Exchange’s Growth Enterprise Market (GEM) board. OTC and low-cost drug manufacturers will need enhanced marketing strategies to become market leaders. With the strong market drivers for all four kinds of medicines in China, namely TCM, OTC, chemical Rx and biopharmaceuticals, all drug manufacturers should enjoy considerable increases in sales. In particular, the demand for low-cost

Risks and opportunities

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The government has been enforcing more stringent policies to better regulate local drug manufacturers and improve the industry’s overall reputation, which will also stimulate investment activities.”..”

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Healthcare reform policies will increase operating costs and impose price ceilings, thus reducing proﬁt margins.”..”

medicines and OTC drugs will escalate much more, as the healthcare industry reform should increase insurance coverage and rural health expenditures. These two sub-sectors will become more competitive as a result, thus careful product positioning, branding, and distribution channel selection may be useful for manufacturers to distinguish and sell their products more effectively. While drug manufacturers will enjoy a more ordered business environment, healthcare reform has also enforced specific regulations to improve drug safety, access and affordability. These policies will increase operating costs and impose price ceilings, thus reducing profit margins. Additional capital may be necessary to meet good manufacturing practices under the revised guidelines. Careful cost management becomes critical for drug manufacturers that want to maintain or increase profitability under such situations. The healthcare industry reform will improve rural healthcare services,which means opportunities

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for pharmaceutical companies to penetrate currently inaccessible areas. Distribution channels will become a top priority for pharmaceutical companies, which need a cost-effective distribution network to maximize sales. While the business opportunity might seem attractive to foreign entrants, the Chinese distribution market is different from other countries because business practices such as distribution levels and sales characteristics differ greatly by region. As a result, new entrants need careful market assessment and market entry strategies to successfully secure a slice in this complex, fragmented market. Working with distributors of sizeable scale and adequate logistical expertise will help manufacturers become successful in such a competitive environment. Andrew Chen is a manager with Deloitte Consulting in Shanghai. He can be contacted at andrechen@deloitte.com.cn.

POLICY INSIGHT

B Y RYA N B A L I S

n April, Beijing introduced a series of tough investment measures aimed at stemming China’s seemingly unstoppable rise in home prices, which climbed 11.7 percent in March and shot up a further 12.8 percent in April year-over-year across 70 of China’s large and medium cities. April’s gain is the fastest increase in five years since China started collecting data on housing prices. The risk of an asset bubble seems real. In response, the government is targeting China’s appetite for property with some of the stiffest regulatory polices any housing market has faced. The message Beijing is sending to the property market is clear: it is serious about putting an end to runaway prices. For China’s leaders, checking, or at minimum containing, a possible housing bubble is not only an economic necessity. Averting a messy crash is a top priority because the alternative threatens financial security and risks sparking social unrest. But how will Beijing drive down prices meaningfully without killing the goose that Xinhua reports contributes to 57.9 percent of the country’s gross domestic product (GDP)?

An iron fist In early April, the State Council rolled out a package of strict new measures targeting real estate investments and purchases. They are, by design, intensely restrictive on so-called speculative investors. Many point a finger at owners of more than one home for driving prices up to excessive levels. Investment properties accounted for a two-year high of 23.1 percent of purchases in the first quarter, according to the People’s Bank of China (PBoC). The new measures raise the down payment on first homes to 30 percent, up from 20 percent, and a whopping 50 percent, up from 40 percent, on second homes larger than 90 square meters. Buyers

IMAGINECHINA

Chilling China’s Housing Fever

of second homes also are hit with higher mortgage rates of not less than 1.1 times the benchmark interest rate. Investment buyers may also soon face paying a property tax for the first time. In line with the new policies, local governments may limit the number of home purchases by an individual within a certain time period. Banks in some cities are authorized to refuse loans outright for third home purchases. Additionally, developers must check with the government before receiving a down payment on unfinished properties and, if approved, must publish the price of each unit within 10 days. The Ministry of Housing and Urban-Rural Development said it is suspicious that some firms hoard properties in hopes of illegally pushing up their value, creating the illusion of a supply shortage. Finally, the government has tightened credit controls to control record lending. A PBoC report shows a RMB9.59 trillion increase in loans last year, up RMB4.69 trillion year-over-year. In May, the PBoC ordered Chinese banks to increase the percentage of deposits held as reserve by 0.5 percent for the third time this year. The government is clearly trying to recall the flood of liquidity fueled by the RMB4 trillion stimulus package, low interest rates and a loose monetary policy implemented to fight the global financial crisis.

The impact It did not take long for activity in the property market to nosedive. Figures compiled by the China Index Academy, a real estate monitor, show that the trading volume of commercial properties slipped

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INSIGHT

China’s central government is on a mission to rein in the country’s sizzling property market.

“

China’s soaring real estate offers a stable alternative to the volatile stock market and a perceived safehaven to hedge inﬂationary expectations.”

in 21 of 35 of China’s main cities over one week in late April. Home sales fell 63.9 percent in Shenzhen, 45.5 percent in Beijing and 32.9 percent in Shanghai. Hangzhou witnessed a collapse of 72.6 percent. The short-term market reaction shaved RMB240 billion of value off listed properties, according to the China Securities Journal. Similarly, stocks continue their collapse. The Shanghai Composite Index, already underachieving year-to-date, fell to its lowest point in more than a year in mid-May. Reports say investors worry that spillover from China’s housing policies may hurt other sectors of the economy. Foreign investors add worry to the outlook of luxury real estate. The relative price of luxury properties remains high, but China Daily reports that transaction volume already had slipped in the first quarter before the new regulations took effect. “They have had a significant and broad influence, not only on mid- to low-end houses, but also on high-end properties,” Qin Xiaomei, chief researcher at Jones Lang LaSalle Beijing, told the China Daily about Beijing’s tightening measures. Speaking about the luxury market, Daniel Yin, former managing director of CB Richard Ellis in Beijing, adds, “There may be a difference between reporting price and real transaction price, but a reduction is certain if polices continue to tighten.” But the price of real estate has largely stabilized despite the drop in home sales, China Daily reports, citing Dong Xian’an, chief economist at Industrial Securities. In downtown Wuhan, for example, prices increased a barely noticeable 0.33 percent from May 6 to May 12, Chen Long, an analyst from the Wuhan Efang Research Center, told the paper. The number of properties sold in the capital city of Hubei Province dropped 23 percent from the previous week but resulted in barely a blip on prices. Similarly, CCTV News reports that prices in China’s major cities largely stayed level over the May Day holiday. The holiday is typically a period of heavy buying in China.

new residential property at any opportunity – and, seemingly, at any price – goes on. Undeterred buyers are convinced the cost of owning property will climb. “There’s this mentality that has set in that this is a no-loss market,” one bullish homebuyer among 142,000 other potential buyers and visitors attending a Beijing real estate expo in April told Reuters. Many Chinese investors bypass the new deposit rules by paying for the entire property up front. Reports say determined buyers have filed for a brief divorce from their spouse to get around higher capital requirements for a second home purchase. For these investors, China’s soaring real estate offers a stable alternative to the volatile stock market and a perceived safe-haven to hedge inflationary expectations. A more hidden truth is that stockpiling property may be the only game in town because of long-standing laws in China that place most overseas investments off-limits. But without a significant negative swing in prices, most prospective buyers are playing a waiting game. “Most home buyers are holding on to their money and waiting to see if prices go up or down,” property analyst Zhu Yidong told CCTV News. Buyers may need a dose of patience because analysts do not expect a large-scale price drop across China until the second half of this year, if at all, reports China Daily. Noticing the cautious attitude, some developers are resorting to discount offerings to attract buyers. Shanghai Securities News reports that Evergrande Real Estate Group Ltd., one of the country’s largest property developers, slashed prices by 15 percent on its 40 real estate projects across the country. Low sales numbers have caused some Shenzhen developers to cut prices on newly finished properties by up to RMB6,000 per square meter, says CCTV News. It may take more tweaking by firms and regulators to convince the mass of already panicked buyers to jump into a red-hot market.

A way out?

The march continues? Meanwhile, there is evidence the new policies are having little eﬀect on Beijing’s biggest target. Within the investor class, the scramble to grab

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The targeted measures thus far have worked to stem demand to some extent but little else. Yet, policy makers are reluctant to impose too strong a response, such as raising interest rates to increase the

cost of borrowing. “The government just wanted to cool, not kill, the property market,” Andy Rothman, a China strategist with the brokerage and investment firm CLSA in Shanghai, told China Daily. The challenge is applying the right mix of policy tools without choking the country’s strong recovery performance. Despite fears of overheating, the reality is that the property market is linked heavily to China’s overall economy. A policy shift impacts some 60 industries, such as steel and other industrial commodities, tied to home construction. A correction in the housing sector may mean swallowing a dent in GDP growth. Checking the market also means jeopardizing a reliable source of revenue for city and local governments. Official figures from the Ministry of Land and Resources show China raised a record US$234 billion through land or rights sales on 788,266 acres of property last year. Local governments and municipalities have an interest in maintaining ballooning prices.

Beijing must grapple with long-term structural pressures. Large labor flows tied to construction, the anticipated mass migration of 350 million Chinese to cities by 2050 and rising incomes mean real demand for urban homes is likely to stay for some time. Meanwhile, the central government is committing funds and opening land for residential development to increase the supply of homes, especially affordable, low-rent units. Nevertheless, prices have accelerated so quickly that 85 percent of Chinese are priced out of the market, says the Chinese Academy of Social Sciences. Looking past whether Beijing will achieve a soft landing, a sobering consideration for officials contending with China’s breathtaking real estate boom is that it may be a fixture of the country’s economic miracle. Ryan Balis is a contributor on AmCham Shanghai’s communications & publications team. He can be reached at ryan.amchamsh@gmail.com.

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A sobering consideration for ofﬁcials contending with China’s breathtaking real estate boom is that it may be a ﬁxture of the country’s economic miracle.”

I N T E RV I E W

B Y T I F FA N Y YA J I M A

Bridging Communication Channels APCO WORLDWIDE

APCO founder and CEO Margery Kraus discusses global business diplomacy and China strategies.

n May 14, as part of the ongoing Shanghai 2010 World Expo CEO Speakers Series, AmCham Shanghai hosted Margery Kraus, founder and CEO of APCO Worldwide, who shared her personal experiences building APCO into a leading American public affairs and strategic communications firm. Founded in 1984, APCO today employs over 500 people across 29 offices in more than 20 countries around the world. With China operations established as far back as 1997, China is a market APCO takes seriously. APCO recently appointed managing director of its Shanghai office, Murray King, as managing director of Greater China and is now celebrating the launch of its Global Political Strategies (GPS) service chaired by former U.S. Secretary of Commerce Carlos Gutierrez. It is clear that in a global company like APCO, one of its most valuable assets is the ability to tap into the company’s extensive worldwide knowledge base for local expertise. The key to APCO’s success is what Kraus calls “glocalization” – a global view

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on business operations supplemented by local knowledge. Working with educational institutions, corporations and non-governmental organizations in the U.S., and with a growing base of Chinese clients for work delivered in the U.S., APCO sees itself as a bridge between localities. From market entry and community outreach to dealing with local regulations and identifying local partners, at each end of that bridge is a place where we have good local understanding, says Kraus. Most recently, APCO has helped Chinese companies with potential acquisitions, U.S. regulatory issues and even mobilizing support of most-favored nation status for China. Insight sat down with Kraus for an in-depth look at her views on the company’s growth opportunities in China, global business diplomacy and the importance of the U.S.-China bilateral relationship. Kenneth Jarrett, vice chairman for Greater China, joined Kraus to share his perspective as one of APCO’s China experts. On factors driving business in China… Margery Kraus: My personal philosophy is that the world is moving east. People are only now starting to believe me. From the get-go we believed this was an important market which is why APCO invested in China so early. The expectation was that we would grow as the market grew and that we would be able to provide services that expedited or accelerated speed to market for companies early on. We’ve been doing this around the world for the Washington D.C.-based multinational corporations who are headquartered where APCO is headquartered. China is a big market. From the very beginning we came here because we think every company needs a China policy. We used to say every company needs a China policy even if that policy is to not go to China. While our business has grown each year, I’ve seen a remarkable change since the meltdown because the ﬂoodgates opened. Everyone realized

the growth engine for the future of the company was not what it was in the past. China represented an important part of the new normal – the new place that people would be going to. For those companies already in the China market or with plans to expand in the market, it is clear that there will be a lot more to do because operations are not transparent. As a corporation, you have to translate your own experience into things that are appropriate to do in the local market. There are certain industries in which China operations can save a company. The auto market is a good example. Another example is multinational corporations like Proctor & Gamble whose China market is poised to overtake the U.S. market in the next year. There’s real change going on. From our perspective, after being in this market for such a long time, now is the time to continue to invest to get to the next level. On APCO’s China strategy… As we look ahead, China is designated as a highgrowth practice area based on the expertise we have and where we can add value. China is front and center. Not only will there be investment, but also teaching opportunities for our worldwide colleagues to give them a better sense of what’s going on in China so they can talk to their home-country clients and identify opportunities for those clients to grow in China. Everyone throughout APCO is aligned around this strategy. One of the things APCO is trying to do in China is link up to our global practices so that issues like renewable energy or healthcare can be led from China so much so as from Germany. We are now taking these global teams, bringing them together and giving them a chance to get more global knowledge and see how the markets ﬁt into that. China will be at the center of those practices. It grows our experience base. On corporate social responsibility as a corporate strategy… From 1997, APCO has advised companies about having a corporate social responsibility (CSR) policy for China. It was a great way to precondition their coming to the market and we sold this as a strategy.

Since APCO’s origins in 1984, have helped companies align their business strategies with social practices and contributions. It was called “strategic philanthropy” then and now its “CSR” or “sustainability.” We’ve been very much a part of that because APCO believes that doing well and doing good go hand-in-hand. On Chinese investment in the U.S.... If you’re a state trying to attract Chinese investment, you have to understand enough about China. Depending on the industry, you have to be prepared to “go to bat.” If the Chinese are buying a facility in your state and there is controversy around it, work with the company and the community stakeholders to show why the foreign direct investment (FDI) is good for the state. A friendly and forgiving environment for Chinese investment is crucial because Chinese companies are relatively inexperienced in the market. We try to work with these Chinese companies to minimize risk and prepare for success. On the U.S. regulatory environment… The U.S. regulatory environment is tough and the process has become politicized especially in strategic industries. The CFIUS (Committee on Foreign Investment in the U.S.) process is befuddling to some. We’ve had clients who have been assured of White House backing only to misunderstand that Congress is its own animal. Most foreign companies are used to a centralized or parliamentary system of government but, in the U.S., even a strong president can’t speak for the entire government. It’s a hard governmental process for foreign companies to understand. On business diplomacy in a changing world… The move from G7 to G20 or more has changed the balance of power. It’s not about the fall of America but the rise of the rest. Part of this is getting used to a paradigm where the U.S. is not the dominant player at every single thing; it’s more of a shared situation. The mentality that comes from being a partner versus a leader will change. For the U.S. to succeed in the future, it is important to understand this change. From a business perspective, some of the big brands are starting over in new markets like China because they simply do not have brand recognition.

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INSIGHT

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As a corporation, you have to translate your own experience into things that are appropriate to do in the local market.”

“

Companies expanding to new markets should do exactly what governments are doing: ﬁguring out win-win outcomes.”

GPS and APCO can companies help through business diplomacy. It is real and important. Companies expanding to new markets should do exactly what governments are doing: figuring out win-win outcomes. This requires balancing and requires negotiating stakeholder involvement in the deal. On the state of U.S.-China relations as it affects business… MK: Our clients are focused on their businesses but of course everyone has to operate within a context. Businesses need to ensure that their employees are aware of how policies affect the company. Increased internal communication between any given overseas office and their headquarters at home is important because that office is on the front line. We have to be very careful about doing things that make sense at home but whose reciprocal action is harmful to business abroad. The “Buy American” provision in the U.S. economic stimulus package, for example, gave license to China to do the same later and then claim non-discrimination because they are simply following suit. Kenneth Jarrett: Certainly all Chinese and American companies, regardless of nationality, pay attention to the bilateral relationship because it can bleed into and affect the business environment. In some ways, Chinese companies might be more sensitive because politics plays an important role in Chinese business. On advice to new companies entering the China market… KJ: If a company has a local partner, certainly exercising due diligence is essential. The company should set aside time upfront to learn as much as possible about their partner. MK: First, do a market assessment in the industry to identify key stakeholders, the competitive situation in the industry and the regulations that will allow you to succeed or fail. APCO looks at how the goals and values align with China’s five-year plan. We think about the social responsibility aspects of market entry to show that a company’s commitment to China is not just about economics but what they can contribute to

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society and how that fits in with their corporate needs. That is just as important a discussion. China is a place where American companies learn to slow down. They are asked what they will give in return for the opportunity to do business in China beyond taxes – as in what they will do for their Chinese employees. American companies need to make sure this is part of their business strategy in China and APCO makes sure they understand how to do this and why it’s important. On the future of doing business in China… MK: People used to think investing close to home was less difficult so they put-off investing in China. Once the crisis hit, however, everyone realized that mature markets like Europe and the U.S. would not rebound as quickly as anticipated. They realized that China and the East represent the real growth engine. This has set an expedited pace for businesses in China. Managers in China now have more pressure to produce and boost their numbers. China is subsidizing operations elsewhere in the world because recovery in mature markets won’t happen anytime soon. That has changed the game for a lot of people. KJ: China is growing. With increased affluence, further economic integration and modernization, foreign companies today face stronger competitors. The operating environment is tougher now than before. China is also looking for something different now. Before, they were looking for any type of investment to improve living standards and create jobs. Today, China’s coastal cities, like Shanghai, are increasingly selective in the types of investment they seek to attract and they are turning over unwanted investment projects to second- and third-tier cities in China. To be successful, foreign companies have to offer advanced management and modern technology – things which will only potentially strengthen competitors down the road. It’s so much more complex now than in the past. However, foreign companies are still able to succeed and prosper in China. Tiffany Yajima is an Associate Editor of Insight. She can be contacted at tiffany.yajima@amcham-shanghai.org.

V I P V I S I TO R

BY JUSTIN CHAN

ZHU XIAOCI

Connecting the Country

pon arriving in Shanghai during a visit last month, U.S. Secretary of Transportation Ray LaHood marveled at the dramatic pace of China’s infrastructure development. An ongoing infrastructure build out has left the country with 166 airports, 940 kilometers of subway track, 6,500 kilometers of high-speed rail track, 65,000 kilometers of highway and 86,000 kilometers of railways. LaHood, the former seven-term Republican Congressman from the 18th district of Illinois, is most intrigued by China’s advances in the construction of a highspeed rail network. With over 3,600 kilometers of track capable of top speeds up to 350 kilometers per hour and nearly 2,900 kilometers of track with top speeds up to 250 kilometers per hour, China already has

the world’s largest high-speed rail network. By 2012, China is expected to have more high-speed rail track than the rest of the world combined. As a part of U.S. President Barack Obama’s initiative to implement a high-speed inter-city rail program across the country, LaHood was eager to learn more about China’s high-speed rail development. Insight sat down with Secretary LaHood to discuss China’s infrastructure expansion, the push for high-speed rail in the United States and opportunities for U.S.-China cooperation on transportation issues. On the progress of infrastructure development in China… Ray LaHood: I was last in Shanghai maybe ﬁve years ago and obviously things have changed dramatically. China has made a huge investment in

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INSIGHT

Insight talks to U.S. Secretary of Transportation Ray LaHood about the rise of highspeed rail and infrastructure growth.

“

If you can take the innovation created in China, bring it to America, put American workers back to work and use American facilities, you’ll have some strong partners in America.”

all forms of infrastructure. In America, we believe in the idea that if you build it, they will come. Whether it’s a road, a bus line, a maglev system or high speed rail, if you build it, people will use it. The fact that the Chinese have made a decision to invest so many of their resources in infrastructure is a realization that they’re trying to attract people to the country. For the Shanghai 2010 World Expo, part of the success is getting large numbers of people to come to Shanghai. To attract upwards of 70 million people to the Expo, you need the infrastructure to do that. People can ﬂy here, they can drive here, and there’s good mass transportation once they get here. There has to be a convenience factor. These kinds of investments will help the Expo be successful. On learning from China’s approach to infrastructure buildup… RL: Obviously we believe that we’re way behind when it comes to high-speed rail. China is way ahead of us in that. That’s one of the reasons for my visit here, not only to see the Expo but to talk to the Ministry of Railways about high-speed rail, about their interest in coming to America and bringing their ingenuity, innovation and what they’ve been able to do in China. We have a very strong transportation program in America but the one thing that is really lacking is a comprehensive passenger rail system. The game-changer is President Obama’s vision for connecting America with high-speed inter-city rail. We can learn a lot from our friends in China from what they’ve done in their own country. On funding high-speed rail in the United States… RL: Time will tell if there are challenges to funding. We’re right at the point where the country was when we started the interstate system. Not all the lines were on the map and we didn’t know where all the money was coming from 50 years ago. Now 50 years later, look what we have. What we have now is the vision of President Obama and the commitment of this administration to work with states and with regions to implement a comprehensive high-speed inter-city rail program. There was a US$8 billion initial investment and an additional US$2.5 billion this year out into the country. The president has

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proposed another US$1 billion next year in his budget so over a very short period of time, less than two years or so, there are billions of dollars of initial investment in high-speed inter-city rail. We hope that companies from China, Japan, Germany, France and Spain will come to America. We have invited them, we have met with all of them, and we have told them that we want them to bring their innovation, ingenuity and expertise. We only ask two things: hire American workers and use American facilities. If you can take the innovation created in China, bring it to America, put American workers back to work and use American facilities, you’ll have some strong partners in America. On why Americans are ready to “get out of their cars”… RL: As a result of the interstate system and the fact that people in America love their cars, people are always going to own automobiles. Many people in America are frustrated with waiting in traﬃc congestion and they want options. We know there will always be a strong automobile sector, but we’ve created many communities that want to get into the street car business, which would get people out of their cars. We’ve made huge investments in opportunities for transit systems to buy new, clean-burning buses, because we know people want to ride buses. We’ve helped communities develop light rail systems, particularly from urban areas out to the airports so that people can leave their home, get on a bus, board a light rail, go to the airport and never have to get into their cars. If you look around America, many cities are getting into the streetcar business. Portland, Oregon manufactures streetcars, so the streetcars that will be used in America will be made in America. There are also a lot of people who just want to utilize walking and biking paths. We’ve come up with the idea that livable and sustainable neighborhoods and communities can really give people options that they currently don’t have. We know that people will always drive and use their cars, but they are now looking for diﬀerent options. We feel an obligation to make sure that resources are put into all forms of transportation.

On his definition of a livable community… RL: The definition a livable community is different forms of transportation and making sure there is affordable housing along the way. I toured a neighborhood in West Los Angeles where people can live in a neighborhood, get on a metro system or a bus, take it through their neighborhoods to downtown L.A. where they might work, then take it back at night. All along the way, there is affordable housing, grocery stores and hospitals. What they have created is a livable, sustainable neighborhood that allows people, if they don’t want to use a car, to use other forms of transportation to go to work quite a distance away while still having all the amenities along the way. If you look at a place like Washington, D.C., the same is true. You can live in Washington, D.C. without a car because of the elaborate metro system, bus system and opportunities for people to walk and bike. That’s our definition of a livable city: many forms of transportation and many opportunities to be in a neighborhood or a community that also has affordable housing. This is an area where Shaun Donovan, secretary of housing and urban development, and I have really collaborated on. On U.S. airline industry consolidation… RL: Right now, we have the pending merger between United and Continental and, even though the Department of Transportation will review it, the final decision will be based on an antitrust review by the Department of Justice. Due to the downturn in the economy, the airline industry, both worldwide and in America, has suffered mightily because business travel is way down and that’s really the bread and butter where airlines make money. We just formed a Future of Aviation Advisory Committee, which will be chaired by Susan Kurland, assistant secretary of transportation for aviation and international affairs. We have asked 19 people from many different areas – from the airline industry, from the unions and from consumer groups – to come together over the next year and identify three or four factors that can jumpstart the airline industry, to not only be able to provide good transportation, but to be able to make money.

On improving the efficiency and capacity of U.S. ports… RL: Over the last year, we have made a huge investment in our ports as part of the stimulus money that was provided to us by Congress. We have invested in our ports, but many of these ports still need more capacity. We would also like to get some trucks off the road and clean up the air around the ports. To do that, we have initiated a program called the Marine Highway where we use the waterways along the ports like roads to reduce the number of trucks on the road. Our sizable investments in ports and the development of the Marine Highway should help ports to increase capacity. In February, I convened a meeting of port officials from all across America in San Diego to listen to their concerns. We decided to take ports and try to have them reach a higher level of capacity because they can really contribute to our ability to export goods out of the country. The ports are very important. We also visited the Panama Canal to see the expansion that will take place because we know that many ports in America will benefit from an expanded Panama Canal. Ports are high on our list because they are economic engines in the communities and they provide jobs. Just as important, they provide a source of transportation in and out of America. On opportunities for U.S.-China cooperation in transportation… RL: In the near term, the real opportunity for cooperation is in high-speed rail. You’re going to see Chinese companies coming to America to look at what we’re trying to do in different places around the country and see if their expertise and knowledge can fit. It won’t work in every place in America but there is potential in some areas. Overall, there are a lot of potential opportunities for Chinese rail businesses to invest, to partner and to provide expertise in the American high-speed railway market.

Justin Chan is Editor-in-Chief of Insight. He can be contacted at justin.chan@amcham-shanghai.org.

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There are a lot of potential opportunities for Chinese rail businesses to invest, to partner and to provide expertise in the American highspeed railway market.”

E X P O F E AT U R E

Making a Mark at Expo

he Shanghai 2010 World Expo is expected to be one of the biggest worldwide events this year and has been hailed as a “can’t miss” opportunity to tap into China’s growing consumer market. For companies looking to build or boost their image in China, sponsorship of the Expo is a surefire way to gain exposure and make an impression on all visitors to the sprawling Expo site. Different companies have taken different approaches, from sponsorship of the USA Pavilion and other Expo buildings to creating individual corporate pavilions.

Citi’s City Solutions Dow’s Sustainable Support Dow Chemical’s approach to Expo sponsorship is nearly unmatched at any level and the chemical and materials sciences company is participating at the Expo and the USA Pavilion in the best way it knows how: by oﬀering sustainable products and solutions for the USA Pavilion and other Exporelated projects and showcasing cutting-edge technologies in the building and construction of the USA Pavilion. Through its construction of “green” and “eco” Expo buildings to achieve energy conservation and emission reduction, Dow is leading China’s eco-eﬀort with its carbonreducing building solutions. In the pre-construction phase, Dow was appointed as the exclusive insulation material

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B Y T I F FA N Y YA J I M A A N D J U S T I N C H A N

Citibank’s position that there is no more important bilateral relationship in the world than that of the United States and China is apparent from the company’s recent US$5 million sponsorship of the USA Pavilion. Citi’s pledge helped push the USA Pavilion over its US$61 million fundraising goal and cemented the American banking institution’s role as an active and longstanding business in China. Through its sponsorship of the USA Pavilion, Citi continues to demonstrate its commitment to the local community, standing by its belief that American participation at the Expo will nurture greater understanding and goodwill between the U.S. and China. While Citi hopes to get a range of brand and client engagement beneﬁts that will add to the momentum of its business, the main beneﬁt, it believes, comes from playing an active and responsible role supporting an event that is unprecedented in China, the impact of which Citi believes will be felt for years to come. Through sponsorship of the USA Pavilion, Citi is showing China a softer side of the corporation. “Many of the themes the USA Pavilion will promote – opportunity, diversity, innovation, success, sustainability and technology – are core principles by which Citi runs

our own business,” says Andrew Au, CEO of Citibank China. Rather than singling out specific business opportunities, Citi views its involvement at the Expo as an important initiative in the context of being an active member of the business community in China. But the benefits of sponsorship at the USA Pavilion are clear. The USA Pavilion ranks high on the list of pavilions Chinese visitors hope to experience at the Expo and has already welcomed over 700,000 guests since opening day. Walking into the pavilion, these visitors are welcomed with a corporate donor wall where Citi is prominently listed as a Global Sponsor. Visitors then experience a powerful and emotional story showcasing America’s core values in the pavilion’s Citi-sponsored theater. By aligning itself with the USA Pavilion as a Global Sponsor, Citi believes its contribution to the USA Pavilion will help make it a successful and spectacular experience for visitors. Beyond the Expo, Citi hopes to leverage the event by showcasing the innovative work it is doing around the world to contribute to the effective functioning of urban centers and the people that live and work in them. In addition to its pledge to the USA Pavilion, Citi is supporting sustainable living in urban centers in China and around the world and furthering the Expo theme “Better City, Better Life” in its own way, “whether it be partnering with a transit system to drive efficiency and commerce, helping to modernize a social benefits payment system to give citizens a more convenient and flexible means of receiving their benefits, managing procurement to improve vendor management, or helping a city improve its cash management and banking requirements,” says Au. “And of course, Citi has plenty of initiatives around green financing and credit.”

provider for roofing, basement walls and floor material for the France Rhone-Alpes Pavilion, and its styrofoam insulation board was used in the construction of the USA Pavilion and in the roof of Shanghai Eco-House. To cool exhausted Expo visitors throughout Shanghai’s hottest summer days, Dow’s specially treated industrial heat transfer fluid is used in official air-conditioning systems for the Expo and is featured in the ice storage air-conditioning system of the Shanghai Expo Center, the China Pavilion and the Arts Performance Center. Dow also cooperated closely with the USA Pavilion to supply almost all of the pavilion’s interior coatings. These innovative coating solutions feature special low-VOC (volatile organic compound), low-odor and formaldehyde-abatement technologies that enable fresh air inside the pavilion. An easy clean topcoat of paint also makes cleaning the USA Pavilion easier and uses less water in the process. In the Future Pavilion, Dow is drawing attention with its ondemand household water dispensing system, i-Water, which automatically dispenses water according to pre-set user selections.

Consumers can select a combination of various water conditions, such as quality, temperature and PH values, from an operating menu that is set for different household purposes. Young and old can enjoy mineral- and vitamin-rich water and ultra-pure water can be selected for cooking. To address the world’s growing need for water reuse solutions, Dow is leveraging the Expo to showcase its advanced water treatment technologies in the municipal wastewater treatment area, using advanced water filtration and purification processes to turn wastewater into water that is safe for drinking as well as suitable for industrial and agricultural uses. “By offering our cutting edge innovative solutions to China, Dow is working to build a ‘Better City, Better Life’ everyday, a concept in line with our vision for sustainable development in China and around the world,” says Peter Sykes, Greater China president of Dow. “Dow is very proud to participate in the Shanghai World Expo through being a major sponsor of the USA Pavilion as well as providing sustainable technologies and products for Expo construction.”

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FedEx: Accessing Opportunities

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Since becoming the first express air carrier to operate in China in 1984, FedEx Express has made China one of its most important markets. The company now employs more than 7,000 people in China and serves 400 cities across the country. China is also one of the company’s fastest-growing markets and the company recently relocated its Asia-Pacific hub to Guangzhou in early 2009. The company is clearly playing an important role in facilitating China’s global trade and considers the Shanghai 2010 World Expo a unique opportunity to advance its portfolio of services to both Chinese and international visitors. “China is changing the world’s economic landscape and FedEx has been a part of that change for over 25 years,” says David L. Cunningham, Jr., president, Asia Pacific, FedEx Express. “Our participation at the Expo highlights our continued commitment in China and our belief in promoting access as an instrumental driving force to advancing economies and building communities in today’s globalized world.” As a sponsor of the USA Pavilion, FedEx is taking a holistic approach to its participation at the Expo and hopes to leverage the distinctive opportunity to reach multiple stakeholders through a single event. The FedEx display inside the USA Pavilion is intended to connect directly with visitors so that they can better understand not just the services that FedEx offers, but the role that the company plays in connecting the global economy. FedEx is also planning specific events during the Expo to target and engage identified stakeholder groups such as customers and employees to further strengthen relationships and advance business objectives. “The Expo presents a unique and strategic platform for FedEx to highlight our efforts, initiatives as well as corporate values, to further foster understanding of our business and strengthen our position with our existing and potential customers and broader key stakeholders,” explains Eddy Chan, senior vice president and head of FedEx Express China. FedEx also recently played an important role in U.S.-China relations when it transported two giant pandas born in the U.S. back to China. Female Mei Lan, born at Zoo Atlanta, and male Tai Shan, born at the Smithsonian’s National Zoo, made the 14and-a-half-hour journey from Washington, D.C. to Chengdu, China aboard the FedEx Panda Express. In donating logistical services that included ground and air transport, FedEx selected drivers and pilots who were some of the company’s most seasoned team members in order to provide the two pandas with the utmost of care.

GM’s Vision for Driving the Future Imagine this: a future free from emissions and petroleum dependence, no traffic congestion and no traffic accidents – a city brought together by technology and innovation in a world where physical boundaries no longer exist. In this future, driving is fun, fashionable and hassle free. Front and center at the Expo is the SAIC-GM corporate pavilion located on the Puxi side of the Expo site. Covering an area of 6,000 square meters, the pavilion showcases the vision of General Motors and partner Shanghai Automotive Industry Corp. (SAIC) for future urban mobility through its latest automotive technologies. Under the theme of “Drive to 2030,” GM provides visitors a preview of what it envisions urban transportation to be 20 years in the future, where the dream of "free mobility" is fulfilled. But wait, the future that GM envisions is in fact reality. On the journey to 2030, visitors to the SAIC-GM Pavilion see the most advanced technologies such as electrification, connectivity and autonomous driving technologies demonstrated by GM’s concept vehicle EN-Vs (Electric Networked-Vehicle) that were launched in Shanghai in March 2010. Developed by GM’s global research and development team, three EN-V concept cars “Miao” (magic), “Jiao” (pride) and “Xiao” (laugh) are the surprise features in the SAIC-GM Pavilion. On GM’s unprecedented participation at the Shanghai Expo,

Kevin Wale, president and managing director of GM China explains, “China is one of the most important markets in GM’s global strategy. The World Expo provides a great platform to showcase GM’s technology and innovation leadership. We are glad to be part of this international event that is taking place in Shanghai, China.” For maximum city-wide exposure, GM and SAIC are providing a fleet of environmentally friendly vehicles to serve the Expo. For example, GM is providing the Chevrolet Volt and Chevrolet fuel cell Equinox as part of its Expo VIP fleet and specially painted Buick LaCrosse hybrids are a part of the highly coveted “Expo taxi” fleet. At the community level, GM has also launched a series of activities in line with the Expo to showcase GM’s leadership in technology and innovation. From May to October, GM is hosting a series of forums on sustainable urban mobility, bringing together leading experts from government, academia and business sectors to discuss challenges and solutions for the future. GM and SAIC have also launched a series of student campaigns called “Our 2030” to encourage the younger generation to be part of the company’s vision. With the Expo already in full swing and long lines of visitors waiting to experience the SAIC-GM Pavilion, it is apparent that GM’s vision for freedom of mobility can no doubt attract and bring people together.

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INSIGHT

The Power

Nearly all companies in China face difficulties in the area of talent retention. Instead of using financial reward as the primary employee retention tool, companies should compete by developing strong employee engagement programs that foster development, loyalty and strong performance. Only then can companies benefit from the rewards of highly engaged employees who are willing to take the extra initiative to help the organization succeed.

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C OV E R S TO RY

B Y JUSTIN CHAN

Engagement

ISTOCKPHOTO

hina’s human resources challenges are well documented. The most common challenge facing most businesses in China is in recruiting and retaining qualiﬁed staﬀ. For multinational companies, talent retention almost always ranks as a bigger business challenge than regulatory obstacles, intense market competition and even intellectual property rights protection.

Despite a labor pool that appears on the surface to be very large, the level of experienced talent is in fact very limited. China’s hundreds of universities and secondary education institutions churn out more than six million graduates each year, but the skills learned at school often do not match up with the qualities that are vital to success in the business world. The ﬁerce war for talent has resulted in a job

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IMAGINECHINA

GRADUATE GLUT: Despite a large base of college graduates, the pool of qualiﬁed talent is very small.

market where desired employees are lured away by offers of higher compensation and better titles. According to research by global management consulting firm Hay Group, a job change in China usually includes a promotion as well as an increase of 40 percent in base salary. This is compared to an average compensation boost of 24 percent in Singapore and 21 percent in Hong Kong. This phenomenon has led to a propensity of employees jumping around from company to company in China after stints of less than two years. The already difficult situation is only exacerbated by the fact that the new hires often end up being overpaid and under-qualified for their new positions. “China is simply growing way too fast,” says Ramona Yan, vice president of Greater China for Hay Group. “In the United States, the typical timeframe for developing a senior executive is about 20 to 25 years. In China today, it is about 10 to 15 years. So even though the labor pool is very large, you lack about ten years of talent development. Companies must compete for a very small pool of talent.” But companies are beginning to discover that today’s generation of employees are focused on more than just compensation and need an environment where they can be engaged and find

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a sense of belonging. Employee engagement has become more than just an industry buzzword and should be considered a crucial component of any company’s overall human resources strategy.

Art of attraction For multinational companies in China, a strong brand name is often enough to attract top talent. “During my interviews with potential Cast Members – at Disney, our employees are referred to as Cast Members – one theme that I consistently hear about is the Disney brand: the tradition of quality entertainment and a higher sense of purpose for what Disney does for kids and ‘kids at heart’ in China,” says Lawrence Chi, vice president, human resources, Greater China, for the Walt Disney Co. in Shanghai. But not all companies enjoy the same cachet and instant recognition that a global brand like Disney does. The other major factors in choosing a potential employer are generally financial reward and career opportunities. “Different people will want different things,” says Yan. “But basically, people want to get a job that can fulfill basic life needs, realize their potential and feel like they can grow with the company.”

Smaller companies that have yet to establish a well-known brand name or lack the financial resources to leverage top talent still have other benefits to offer. Instead of the process-driven atmosphere of a large company, smaller companies can typically offer a more flexible environment that allows employees to develop different aspects of their skill sets, as well as more visibility and access to senior leadership. The increased contact between senior executives and junior staff fosters trust and loyalty, which is very important in China, adds Yan. “Interestingly, loyalty in the western context is usually talking about the company, but in China, loyalty tends to be individual, with the leadership,” she says. “Smaller companies actually have an advantage in building personal loyalty and trust.” The path to engaging employees actually begins at the recruiting stage. It is not simply about having the best grades from the highest ranked universities or the most impressive application, but finding candidates who are a match for the company’s values and culture. “It all starts with employee selection,” says Manfred Weber, general manager of the Portman Ritz-Carlton Hotel, Shanghai. “Everyone that wants to work for us not only has to pass the regular interview process, but also a test in which we try to identify the values a person has and if

they match with the ones we have.” Only with suitable candidates can a company begin to develop an employment experience that will shape the path of the new hires. It is here where companies must begin to utilize a wide range of talent management tools to engage employees.

Engagement efforts “Many people think employees will become more engaged through higher rewards, but in fact, the most successful companies rarely are the ones that pay the most,” says Debbie Delaney, principal consultant, China Bridge International. “The core components of a solid employee engagement strategy include setting clear and achievable goals, motivating employees by engaging in a two-way conversation about how those goals will be achieved, and guiding performance through current and constructive feedback, she adds.” Disney employs a number of diﬀerent strategies to keep its Cast Members engaged, starting with the celebration of the company’s long tradition of quality and creativity, which means keeping Cast Members exposed to the brand through moving screenings, Disney-speciﬁc training and theme park passes. The company recognizes individual and business accomplishments on a regular basis as a means to underline respect, while also striving

Smart Questions Twelve simple questions that every company should be asking its employees: • Do you know what is expected of you at work? • Do you have the materials and equipment you need to do your work right? • At work, do you have the opportunity to do what you do best every day? • In the last seven days, have you received recognition or praise for doing good work? • Does your supervisor, or someone at work, seem to care about you as a person? • Is there someone at work who encourages your development? • At work, do your opinions seem to count? • Does the mission/purpose of your company make you feel your job is important? • Are your fellow employees committed to doing quality work? • Do you have a best friend at work? • In the last six months, has someone at work talked to you about your progress? • In the last year, have you had opportunities at work to learn and grow? Source: Caliper

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“

Interestingly, loyalty in the western context is usually talking about the company, but in China, loyalty tends to be individual, with the leadership.”

LOYALTY LEADERS: Disney’s voluntEARS program is just one of the company’s many employee engagement tools.

to create an environment for success and ongoing learning through surrounding Cast Members with the best leaders and coworkers. “As a growing business, we also want to ensure that Cast Members are developed and allowed to grow laterally and vertically and have different opportunities,” says Chi. “We have a crossbusiness talent planning process that identifies opportunities for our Cast Members. We have many examples of Cast Members expanding their knowledge base and going to work in other business lines.” Different companies will offer employees different employment experiences, but the starting point is knowing what employees are seeking. “You really need to know what they are expecting as well as what you can offer them,” says Yan. Some companies will focus on career development opportunities and some will emphasize compensation packages, while others will highlight a strong leadership team that will provide mentoring and coaching. “For today’s different generations, access to training and career opportunities, work life balance, and empowerment to make decisions are important,” says Mark Lawrence, managing director, Greater China, for Caliper, a global human resources consulting firm. “Once you know what you can offer, make a promise. Employees want a promise and they want to see that the promise is kept,” says Yan. “When you don’t have a distinctly defined promise and let employees drive their expectations, they can be distracted by a lot of different things.” Any time there is a mismatch between the

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employee’s perception and reality, the discrepancy will start to trigger disengagement. Ensuring engagement among a diverse workforce means that companies will have to tailor strategies accordingly. “We have a large Cast Member population in a number of diverse businesses,” says Disney’s Chi. “So to engage the majority of Cast Members with a common human resources strategy can at times be a challenge.” One-size-fits-all strategies have proven to be difficult to implement and may not serve to motivate all employees. “It is necessary to ask employees what they want to do and to support the different needs of different employees in order to fully engage everyone,” advises Delaney. “To really win the hearts of employees, they need to feel as if they have a personal stake in the success of the company and the team.”

Benefits for business The Ritz-Carlton Hotel group has worked for years with the Gallup Organization, a leading human resources and management consulting company, to measure both guest and employee engagement. Historical data shows that hotels which have a high level of employee engagement also have a high level of guest satisfaction and, as a result, are the most financially successful hotels. “There is a direct relation between guest and employee engagement and at Ritz-Carlton, we put both at the same level,” says Weber. “It always takes a little while for newly hired ladies and gentlemen to fully grasp, understand and embrace our culture and the values we have, but once you get it, it is easy to see the benefits of employee engagement.” Employee engagement has become such a key business driver for organizational success because it promotes retention of talent, fosters customer loyalty and improves organizational performance. “To the extent that employees are faced more frequently with unanticipated and ambiguous decision-making situations, organizations can increasingly count on employees to act in ways that are consistent with organizational objectives,” says Lawrence. “Engaged employees work harder, are more loyal and are more likely to go the extra mile for a company.” In addition to keeping employees motivated and committed, companies must also continue to

ensure that employees, especially managers, are equipped to achieve their performance objectives. The initial excitement and anticipation about what can be learned and achieved in a new position can only be maintained if employees are supported and given the right opportunities to achieve and realize their goals. “One of the best ways to engage employees is to support the leaders in the company to be stronger,” says Delaney. “That way, the leaders will know how to develop relationships with their team members, where to focus efforts in order to motivate people, and what to do to stay on top of the issues that concern and distract their employees.” By empowering employees with the authority to make decisions and effectively carry out their daily responsibilities, companies will create a positive work environment that allows employees to see that their efforts contribute to the overall success of the company. At the more senior level, this could also mean participating in a key global project that gives the executive the experience and exposure to feel like they are growing as a leader and as a professional. “Leaders who spend the time to develop a clear and achievable strategy for the company, to translate that strategy into individual goals, and to communicate the overall importance for each employee to achieve those goals, will reap the greatest rewards,” says Delaney. “This may not be easy to do, but companies that can show a clear link between the effort of their employees and the success of the company are more focused on the most important work.”

Looking ahead Despite the clear beneﬁts of strong employee engagement, not all companies in China have embraced the concept. “Usually I see the bottleneck to employee engagement at the leadership level because they don’t listen,” says Yan. It is important to think outside the box and not deal with employee engagement issues in a textbook fashion because it comes down to the unpredictability of human nature, says Yan. “People want something. They are giving up their youth and their lives to the company so there are expectations. Try to understand what those expectations are.” While many companies may send out employee engagement surveys, most will gather the responses

but do little to nothing with the information, says Lawrence. “Companies should carry out employee engagement surveys each and every year. The market changes, employees leave, new ones join, and people are promoted, so you can never rely on last year’s data,” he adds. A wide range of diagnostic tools now exist for the sole purpose of gauging employee engagement, giving leaders the means to listen and understand what is going on within their organizations. The engagement level of a company’s employees will usually be in line with the company’s business performance. “By understanding what is going on inside a company, you can quickly see whether a company is on a healthy track or not,” adds Yan. Engagement factors that Hay Group measures include the confidence and trust level in the leadership, perception of career development opportunities, as well as compensation and resource management. At the same time, while multinational companies may be trying to steer clear of purely compensation-based recruitment and retention strategies, they are facing increased threats from state-owned enterprises and private Chinese companies that have boosted their pay packages to compete for talent. Once lagging far behind in terms of compensation, state-owned enterprises now often pay in the same range as multinationals, while often offering comparable or even better benefits. As China continues to invest heavily in higher education, more experienced Chinese return from overseas jobs, and more companies develop talent from within, the talent supply and demand imbalance should eventually reach equilibrium. “It is going to take a while,” says Yan. “In the next five years, I don’t see any slowing down of the talent war.” “Establishing career ladders, providing ample learning opportunities, and supporting effective leadership and mentoring programs are critical to keeping employees engaged and productive,” concludes Delaney. “There may be less intense focus on these activities than in more mature markets, but in the rapidly growing business environment of China, focusing on the fundamentals of employee engagement is the key to building strong, motivated and successful companies.” Justin Chan is Editor-in-Chief of Insight. He can be contacted at justin.chan@amcham-shanghai.org.

JUNE 2010

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To really win the hearts of employees, they need to feel as if they have a personal stake in the success of the company and the team.”

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INSIDE AMCHAM FROM THE CHAIRMAN

Expo Fever

ars that park themselves, Coca-Cola that freezes when you open the bottle, pavilions made of wicker and “transparent” cement, Grammy-winner Herbie Hancock and the world’s most spectacular ﬁreworks display…Expo 2010 has arrived and, wow, what a show! I’ve made multiple trips to the Expo, there is just too much to see. When I told you in my May column to wear comfortable shoes, I wasn’t kidding!

We’re all pleased with the dramatic success of the USA Pavilion. The Pavilion is averaging nearly 40,000 visitors per day and surpassed 500,000 visitors in just 15 days. Commissioner General Jose Villarreal’s team is putting in long hours and they must be commended for the great job that they are doing. With another ﬁve months ago, we should offer the USA Pavilion team all the encouragement we can. Robert Roche Chairman AmCham Shanghai

The Eiffel Tower came out of the Paris World’s Fair in 1889, the Ferris wheel four years later at the Chicago World’s Fair. Other expo innovations include caramel corn and Juicy Fruit gum. What will the Shanghai World Expo be remembered for? Of course, it’s too early to tell but I encourage you to get out to the Expo and see it for yourself so you can say, “I saw it ﬁrst at Expo 2010!”

Get out to the Expo and see it for yourself so you can say, “I saw it ﬁrst at Expo 2010!”

In the month of May alone, three U.S. cabinet secretaries visited Shanghai, with a visit to the Expo and the USA Pavilion on all of their agendas. First, it was Secretary of Transportation Ray LaHood, who met with AmCham Shanghai members to discuss transportation issues such as high-speed rail in the U.S. and the development of livable communities. Secretary of Commerce Gary Locke led a cabinet-level trade mission to Shanghai and spoke to members about how increased U.S.-China cooperation in clean energy could create millions of new high-skill, high-wage jobs for Americans. On Sunday, May 23, AmCham Shanghai President Brenda Foster moderated a roundtable discussion between Secretary of State Hillary Clinton and American business leaders in China at the Boeing facility at the Pudong airport. All of us at AmCham Shanghai should be very proud of the work that we have done over the years in communicating what we feel are the true issues facing the U.S.-China commercial relationship. From the efforts of each Doorknock, with members personally going to Washington, D.C. to meet with U.S. policymakers, to hosting the many visiting U.S. government delegations, it is clear that we have made an impact. I have been amazed at how tuned-in the administration is to the issues facing American companies in China and how our issues featured prominently in the U.S. agenda during the second round of the Strategic & Economic Dialogue held last month in Beijing. Justiﬁably so, the Indigenous Innovation policy is at the top of the list in terms of importance, followed closely by President Obama’s National Export Initiative, which aims to double U.S. exports over the next ﬁve years. Appropriately placed on the administration’s agenda is China’s renminbi exchange rate policy, just as AmCham Shanghai members have stated that exchange rates are not the biggest challenge. These meetings, and the ones to come over the next few months, have set things up very well for AmCham Shanghai’s Washington, D.C. Doorknock in September. As we get into the summer months, I am sure many of you will be taking some well deserved vacations to the U.S. Safe travels for those who are headed home and for those who will be staying in Shanghai, stay cool!

JUNE 2010

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INSIDE AMCHAM B O A R D O F G OV E R N O R S B R I E F I N G

Highlights from the May 2010 Board of Governors Meeting

Committee Brieﬁngs Pilar Dieter, chair of the Logistics & Transportation Committee, and Eric Zheng, chair of the Financial Services Committee, briefed the Board on their committees’ annual agendas, recent activities and development plans. Membership Update 80 new member applications were approved over the past month, and positive feedback has been received from members on the new membership categories and fee structure changes. Expo 2010

David Turchetti, vice president of programs, presented an update of the AmCham Shanghai 2010 World Expo Business Series, noting that even with the Expo open for just a few weeks, the business events programming and sponsorship of the USA Pavilion are already paying dividends. By October, up to 100 Expo-related events will be held. Several provincial government forums have been conﬁrmed, including Bo Xilai, former minister of commerce and current party secretary of Chongqing.

IN ATTENDANCE Governors: Eddy Chan, David Gossack, Murray King, Diane Long, Eric Musser, Robert Roche (Chairman), Matthew Targett (by phone), Kevin Wale and Chris Wurzel. Attendees: David Basmajian, Jeff Bernstein, Phil Branham, Justin Chan, Siobhan Das, Pilar Dieter, Brenda Foster (President), Helen Ren, David Turchetti, Linda X. Wang and Eric Zheng. REGRETS Andrew Au, Pierre Cohade, John Grobowski and James Rice.

AmCham Shanghai New Members – April 2010 U.S. Corporate Membership

Corporate International Afﬁliate Membership

Aptar (Suzhou) Dispensing Systems Co., Ltd. RABU Thierry

Inetasia Solutions Limited, Shanghai Rep. Ofﬁce SMYTH Gregory Blake

Ascend Trading (Shanghai) Co., Ltd. ZHAN Yi Hui

IntegraScreen Limited (Subsidiary of World-Check) SHORT Michael J.

Avaya (China) Communication Co., Ltd. WANG Yun

Nanjing Lek Yuan Enterprise Management Consulting Co., Ltd. GUO Christian YC

Cargill Grain & Oilseeds (Nantong), Ltd. CHEN Lixin Cigna & CMC Life Insurance Company Limited DWYER William Ferno-Washington Co., Ltd. (Shanghai) Rep. Ofﬁce LU Weijie IBCC Protech, Inc., Shangha HEISS Paul

Haimen Tyson Poultry Development Co., Ltd. IVANNIKOV Alexander Insurance Company of North America, Shanghai Rep. Ofﬁce BOGARDUS Kevin OSU China Gateway, LLC, Shanghai Rep. Ofﬁce BRUSTEIN William

Nantong SDP Investment Consulting Co., Ltd. DE PUPPI Sergio

Semiconductor Manufacturing International (Shanghai) Corp. SZYMANSKI Matthew

Suzhou Jijesoft Co., Ltd. MIN Zuojun

Shanghai United Family Hospital. Inc. WU Junyi

Wyndham Grand Plaza Royale West Lake Hangzho DEXTER Chris

Shanghai Vistage Enterprises Cousulting Co., Ltd. HARKIEWICZ Justin Shanghai Yupei Group Co., Ltd. TRENEMAN Oliver John

Insurance Company of North America, Shanghai Rep. Ofﬁce WU Yunyuan

Non-Resident Corporate Membership Gap, Inc., The HUGHES Kristin

SSOE China Co., Ltd. YU Desmond

Pﬁzer Investment Co., Ltd. GABOR Allan

London International Group, LLC HU Jack

Troutman Sanders LLP, Shanghai Rep. Ofﬁce, US GRAMS Richard

U.S. Associated Corporate Membership

Associate Membership

Barco Visual (Beijing) Electronics Company Limited TANG Valerie

APCO (Beijing) Consulting Co., Ltd., Shanghai Branch MORGAN Benjamin

Crown Hone Fashions (Shanghai) Company Limited BELL Blakely Koues Harman International (Shanghai) Management Co., Ltd. SHAO Jun Mission Foods (Shanghai) Co., Ltd. FLORES Constantino OC&C Strategy Consultants (Shanghai) Co., Ltd. LIN Chao-Hsien Paypal Information Technologies (Shanghai) Co., Ltd TIEN Yu PSG (SHANGHAI) CO., LTD. DENG Zhou Fei Related (Shanghai) Limited WONG Kenneth Shanghai Yupei Group Co., Ltd. LI Shifa

Small Business Membership

Dragon Sourcing International Trading, Ltd. LEVY Olivier

Educational Membership OSU China Gateway, LLC, Shanghai Representative Ofﬁce YOU Phoebe

Booz & Company (Shanghai), Ltd JULLENS John ChinaVest (Shanghai), Ltd. GRISHAM Gabriel Colliers International Property Consultants (Shanghai) Co., Ltd. COPJEC Jesse RIDEOUT Jonathan Crown Hone Fashions (Shanghai) Company Limited LIAO Wen Ping Dell (China) Co., Ltd., Shanghai Branch SUMNER Elisa Dow Chemical (China) Co., Ltd. CHEN Yanli Dow Corning (Shanghai) Management Co., Ltd. TAYLOR Libby Dun & Bradstreet International Consultant (Shanghai) Co., Ltd CAI Dong Li Emerson Trading (Shanghai) Co., Ltd. REN Yan Executive Centre (Shanghai), The DENG Sherry Gap, Inc., The YEUNG Tak Ming General Electric (China) Co., Ltd. GOSART James Michael

Tyco Electronics (Shanghai) Co., Ltd. KENNEDY Jane

Individual U.S. Citizen Membership CHC International Hospital Co. ZHOU Henry US China Communication Institute PIATTI Craig Versa Technology, Inc. KOU James Tai-ling Worthington Industries COTTER Patrick John BACKER Michael HOWARD Rick IMMEL Jeffrey KOKESH Joseph P. STRUNK Tara WONG Harry WU Chau

Individual International Afﬁliate Membership M Power Associates, Ltd. MILLAR Mark LCL Consult, Ltd. CASSIDY William Uasha Group International (Shanghai), Ltd. LU Joshua

Non-Resident Individual Membership Carlsmith Ball, LLP SUMIDA Gerald

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

RECENT AMCHAM HAPPENINGS

U.S. Consul General Beatrice Camp (middle)

May U.S. Consulate General Briefing Consul General Bea Camp began the May briefing by noting upcoming visits of senior U.S. government officials, including Transportation Secretary Ray LaHood, Commerce Secretary Gary Locke, Secretary of State Hillary Clinton and Energy Secretary Steven Chu. CG Camp noted that on May 10, the U.S. Environmental Protection Agency and the Shanghai Environmental Protection Bureau inaugurated the “AIRNow” international air quality monitoring and forecasting system in Shanghai, the first air quality monitoring and forecasting data to be released real-time in China.

On the topic of the Expo, CG Camp described consulate participation in the Expo’s soft opening and a reception for the USA Pavilion’s (USAP) 77 student ambassadors. On April 30, Secretary Clinton hosted an event at the State Department to mark the beginning of the Expo. Commissioner General Jose Villarreal participated in the event via videoconference while Ambassador Jon Huntsman phoned into the event from the Expo site. May 3 marked the official USAP opening and Ambassador Huntsman welcomed the first visitors to the USAP. According to CG Camp, the USAP has drawn over 200,000 visitors each week, with VIP visits from President Hu Jintao, Vice Premier Wang Qishan and Foreign Minister Yang Jiechi, and visits from American celebrities like Halle Berry and Quincy Jones. U.S. cultural performances play an important part of the American presence, she said, and include performances by the Philadelphia Orchestra, Herbie Hancock and Dee Dee Bridgewater, and Ozomatli in May. In anticipation of the significantly increased workload during the six months of the Expo, the ACS Unit has added a third entry-level officer and is hiring a new ACS assistant. Consular Section Chief Charles Jess discussed increased visa appointment wait times due to rising demand for non-immigrant visas (NIV). NIV applicants face a minimum two-month wait for general interview slots, he said. For the first four months of 2010, the consular section handled a 31% increase over the same period in 2009, making Shanghai the fourth largest NIVissuing post in the world. (May 11)

Expo Roundtable: Richard Haass, President of the Council on Foreign Relations

Richard Haass, Council on Foreign Relations (second from right)

AmCham Shanghai recently hosted Richard Haass, president of the Council on Foreign Relations, who shared roundtable insights with a group of AmCham Shanghai members. According to Haass, Chinese ofﬁcials view U.S.-China relations ahead of the May 24-25 Strategic and Economic Dialogue as more positive than they were a few months ago. However, China and the U.S. must work out an approach in the bilateral relationship as China begins to assume a new role commensurate with its economic and political status, he said. According to Haass, China’s government is undergoing change as the older generation of leaders is replaced with a new generation of leadership. As the new leadership begins to think about the bilateral relationship, we should expect changes in the way China conducts its foreign policy, he said. Haass brieﬂy discussed China’s sustainable growth and transition to a mixed economy before opening the discussion to AmCham James Rogers, Eastman Chemical Co. Shanghai President Brenda Foster, Chairman Robert Roche and other Chamber members. (May 12)

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INSIDE AMCHAM

Expo CEO Series:

APCO Worldwide CEO Margery Kraus AmCham Shanghai was pleased to host Margery Kraus, founder and CEO of APCO Worldwide, who shared her personal experiences building APCO into what is now a leading American public affairs and strategic communications firm and discussed her outlook on business diplomacy. Kraus briefly shared her experience building APCO into a global business spanning 20 countries with 500 people in 28 offices around the world. The key to APCO’s success, she claims, is glocalization – a global view on business operations supplemented by local knowledge.

Margery Kraus, APCO Worldwide

On the topic of global business diplomacy, Kraus suggests there is a disconnect between what is happening in the world and the way in which America perceives itself. She emphasized the need for American policymakers to travel internationally to ensure they have an informed world view. She also stressed the importance of communication between American businesses on-the-ground in China and their U.S. headquarters. To educate the latter about this changing world view of America and to capitalize on these changes, Kraus emphasized the importance of using a firm like APCO to merge communication channels. “It’s an important time for business in an inflection point in history,” said Kraus, “and it’s filled with great opportunities.” (May 15)

Expo U.S. Government Delegation: Secretary of Commerce Gary Locke U.S. Commerce Secretary Gary Locke delivered remarks in mid-May at a luncheon hosted by AmCham Shanghai. Locke discussed the goals of his business development trade mission to China by focusing on the opportunities available for U.S.-China collaboration in the clean energy market and how increased partnerships between the U.S. and China could create millions of high-skill, high-wage jobs for Americans. The event was co-hosted by the U.S.China Business Council. Accompanied by 24 U.S. businesses representing a crosssection of the best that America has to offer in clean energy, energy efﬁciency, and electricity energy storage, transmission and distribution, Locke stressed the U.S. Secretary of Commerce Gary Locke importance of this commercial opportunity for both American and Chinese companies to draw on their respective strengths to combat the world’s energy and climate challenges. The secretary also touched on challenges American companies face in China, including a lack of transparency with regard to regulatory enforcement and decision-making. China’s new indigenous innovation accreditation system, which could provide domestic ﬁrms an unfair advantage in bidding on government procurement projects, was mentioned as an issue that will be discussed at the upcoming S&ED in Beijing. (May 11)

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Renew now & stay a part of the largest and most active AmCham in the Asia-Pacific Region: AmCham Shanghai! How to renew: Simply log onto www.amcham-shanghai.org/renew and enter your details in the online renewal form. It takes less than 5 minutes to complete and you will be INSTANTLY notified if you have won one of the terrific lucky draw prizes on offer. Renew your AmCham Shanghai Membership now and have chance to win one of the below prizes. * * * * * * * * * * * * *

RMB 500 gift voucher provided by American-Sino OB/Gyn/Pediatric Services Six-month free subscription of China International Business magazine RMB 1560 Body check voucher provided by Essential Healthcare Network RMB 800 Dental care card provided by Kowa Dental RMB 500 SPA voucher provided by QUAN SPA One-night weekend stay in Deluxe Room with American buffet breakfast for two at Regal Jinfeng Hotel Shanghai Weekend seafood buffet for two at Rivoli Cafe of Regal Jinfeng Hotel Shanghai Half a case of Santa Digna Merlot wine provided by Santa Fe Relocation Services RMB 200 SPAwash Family & Friends Circle Card provided by SPAwash Premium Garment Valet One-night stay in a one bedroom apartment at Union Square, Shanghai Pudong - Marriott Executive Apartments Three-month free subscription of the Wall Street Journal newspaper (PDF) RMB1,000 Deposit card provided by Worldpath Clinic International One-night room stay with breakfast for two at Wyndham Grand Plaza Royale West Lake Hangzhou

For further information, please contact the AmCham Shanghai membership department: Tel: (86 21) 6279-7119 ext. 5676, 5659, 5677, or 7124 Fax: (86 21) 6279-7643 Email: renew@amcham-shanghai.org Special thanks to the prize sponsors

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Committee Highlights

INSIDE AMCHAM

NEW IN COMMITTEES

Education & Training Committee

How Intercultural Business Leaders Become Better Communicators

AmCham Shanghai’s Education & Training Committee recently hosted Professor David Henry of Shanghai International Studies University (SISU), who spoke on the subject of intercultural business communications. Henry began with an overview of what intercultural communication means in a globalized world and stressed the important role culture plays in shaping communication. According to Henry, communication has no “original” sender. Instead, every message is a continuation of an ongoing dialogue or discourse. Henry used two case-speciﬁc examples to demonstrate the vital role culture plays not only in communication, but also with respect to global business. Using these case studies to engage the audience, participants then broke into small groups to analyze the underlying issues of the case studies and offered ideas on how cultural differences determine whether an individual is a high- or low-context communicator. According to Henry, high-context communicators rely on situations to communicate their messages instead of the words themselves, while lowcontext communicators rely more on words. (May 10)

Event and Committee Highlights are reported by Anna Bartram, Krisanna Oopik and Tiffany Yajima

Corporate Social Responsibility Committee

Red Wheelchair Day at the Expo

Volunteers from AmCham Shanghai and member companies were excited to accompany 50 elderly and disabled people on a special tour of the Shanghai 2010 World Expo on May 16. The initiative is part of AmCham Shanghai’s “Make a Difference Corporate Volunteer Alliance” and is co-organized by AmCham Shanghai, the Wheelchair Foundation, Shanghai Youth Volunteer Association and the Shanghai World Expo Volunteer Management Department. The day started with an inaugural ceremony for Red Wheelchair Day – a program which aims to provide 500 wheelchairs for disabled and senior citizens groups to enjoy monthly tours of the Expo from May through October. AmCham Shanghai President Brenda Foster shared the stage at the opening ceremony with Jin Jing – the 2008 Olympic torch bearer and ambassador for the Wheelchair Foundation’s Red Chair Program, along with representatives from the local disabled community, the Wheelchair Foundation and Tyco Electronics. One hundred Tyco Electronics employees volunteered for the tour alongside volunteers from several other AmCham Shanghai member companies including Disney, Nu Skin and KPMG. During the one-day tour, special guests were taken in small groups around the Expo site and visited pavilions such as the USA Pavilion, the Asia Joint Pavilion, and the South Africa and Africa Joint Pavilion which showcased African artifacts and music. They also visited the Life & Sunshine Pavilion which is designed to encourage understanding of the everyday challenges that disadvantaged communities face. At the end of the day, everyone met for group photos and exchanged highlights from the tour. Both participants and volunteers enjoyed themselves and AmCham Shanghai looks forward to the next Red Wheelchair Day at the Expo! If you would like to get involved in the “Make a Difference Corporate Volunteer Alliance,” please visit www.amcham-shanghai.org/volunteer. (May 16)

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INSIGHT

DEAL OF THE MONTH

Ansteel's investment in America could boost the U.S. economy through job creation.

s Washington continues to press China on currency revaluation, Beijing is redirecting attention to its contributions to the U.S. economy by focusing in on the country’s fast-growing foreign direct investment into the United States. On May 17, Anshan Iron & Steel Group Corp. (Ansteel) announced plans to co-invest in up to five U.S. steel and iron mills in greenfield projects with Mississippi’s Steel Development Corp. The first plant, already under construction in Amory, Mississippi, will cost US$175 million to build and produce highly specialized steel reinforcing bars for the U.S. market. Located in China’s Liaoning Province and chaired by Zhang Xiaogang, Ansteel is among China’s largest state-owned iron and steel firms and controls the publically listed Angang Steel Co. Ansteel expects to create at least 200 new jobs for Americans, which may help China steer attention away from exports and focus on Chinese investment as a positive way to boost the U.S. economy through job creation. The announcement comes on the heels of the recently announced National Export Initiative, which aims to double American exports by 2015 to support the creation of two million new jobs in the U.S., and days before this year’s round of the U.S.China Strategic and Economic Dialogue in Beijing. Some are downplaying the announcement as politically driven because the investment amounts to only a small percentage of U.S. investment by Chinese entities in comparison to the larger

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trade imbalances in the steel industry. According to the World Steel Association, Ansteel’s global investments accounted for 47 percent of global steel production in 2009. The company has the capacity to make 25 million metric tons of steel in China. C h i n a’s s t a ke i n t h e d e a l i s n ot t o b e underestimated. In return for its investment, Ansteel will acquire Steel Development’s scrap steelmaking technology using electric arc furnaces, which the company plans to introduce to China to save power and reduce pollution. Electric arc furnaces are considered advanced technology and can reduce carbon emissions and wastewater runoff. Ansteel’s technical know-how is limited to iron ore. While the project is Ansteel’s first steel investment in the U.S. (the company already has a U.S.-based trading company), the deal represents only the second time a Chinese company has invested in the American steel industry. Ansteel claims it is capitalizing on the U.S. government’s stimulus plan to improve public infrastructure projects, hoping that steel demand will rise with the need for improved roadways and other public works projects. In response to falling steel demand, Jia Yinsong, head of the department of raw materials in China’s Ministry of Industry and Information Technology, recently urged Chinese steel mills to acquire overseas production facilities as a way of circumventing U.S. trade barriers. Chinese steel exports decreased by almost 60% in 2009. The deal includes investment, technology and sales agreements and was signed on May 13. – Tiffany Yajima

ISTOCKPHOTO

Ansteel Invests in America

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