Insight Magazine November 2011

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 November 2011

Locke: It’s Time to ‘Step Up’ Gary Locke highlights U.S. policy priorities and calls on the U.S. and China to tackle global economic challenges

ALSO INSIDE

Corruption Fight Goes Global CURRENCY BILL

A Washington View ANALYSIS

Reverse Merger Confidential RISK MANAGEMENT

Threat from Within

In his first speech at AmCham Shanghai, Ambassador Gary Locke highlights his agenda and asserts China and U.S. has to tackle global economic challenges together

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INSIGHT November 2011

The Journal of the American Chamber of Commerce in Shanghai

amcham shanghai Directors Business Development & Marketing

Karen Yuen

F eatures

14 Target: Foreign Corruption

Committees

David Basmajian Events

Jessica Wu Finance & Administration

By Ryan Balis

The U.S. Foreign Corrupt Practices Act allows prosecutors to reach beyond borders to tackle white collar crime.

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

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CRACKING DOWN

22 Reverse Merger Confidential

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President

Brenda Foster

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ANALYSIS

By Paul Schiffin

Chinese firms are using reverse mergers to become public companies in the U.S. and watchdogs are taking notice.

Helen Ren

Membership & CVP

Linda X. Wang

INSIGHT managing editor

Bryan Virasami Senior Associate Editor

Esther Young

28 The New Ambassador

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COVER STORY

By David Basmajian

Gary Locke outlines the U.S.’s economic and diplomatic agenda during his first official visit to AmCham Shanghai since becoming U.S. ambassador to China.

Associate Editor

Ryan Balis Design

Alicia Beebe Mickey Zhou Snap Printing, Inc.

INSIGHT Sponsorship sponsorship manager

36 The Threat from Within

36

RISK MANAGEMENT

By Kevin Biggs and Jay Hoenig

Theft of trade secrets is a growing concern for U.S. and other foreign companies.

Sophia Chen

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

I nsight standards

5 News Briefs

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11 Movers & Shakers

CURRENCY

See what a Washington insider has to say about the currency bill approved by the U.S. Senate.

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12 Manager’s Notebook EXECUTIVE Dining

Executives tell us where they enjoy meeting and eating over business.

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

20 Interview with Illinois Governor Pat Quinn 40 From the Chairman:The Value of CSR 41 Board of Governors Meeting 46 Government Relations Update

Cover photo by AmCham Shanghai

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

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Layout & Printing

Editor's note

O

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

n October 13, Gary Locke made his first official visit to Shanghai since being confirmed as U.S. ambassador to China.

A long time advocate for U.S. businesses in China and a popular figure with the American business community, Locke stayed true to form during a speech to more than 300 AmCham Shanghai members and dozens of local and international media. The ambassador thanked AmCham Shanghai and its membership for continuing to press U.S. policy makers to enhance U.S. export competitiveness in China and he called on China to ensure a more level playing field for American companies here. Locke also talked about the importance of Chinese investment in the U.S., the unique role China and the U.S. play in shaping the global economy and his take on China’s response to U.S. ambassadors who buy their own coffee at Starbucks, wear backpacks and fly economy. Insight covers his speech on page 28.

Also this month, Insight interviews Steven Tyrrell, former chief of the U.S. Department of

Justice’s (DoJ) Fraud Section, who spoke on the U.S. Foreign Corrupt Practices Act (FCPA). Tyrrell talks about his experience enforcing the law at Justice and how the recent upsurge in cases should be viewed

by American companies abroad. Ryan Balis, Insight associate editor, talks to other experts in the field to provide their take on challenges in China and how companies can mitigate their risk.

The AmCham Shanghai Constitution is on the ballot (vote until November 14). The Board has placed proposed amendments before the members that, if passed, would make the first significant changes to the Chamber’s Constitution in 24 years.

The overall goal of the proposals is to modernize and update the document to keep up with changes in the way member companies operate in China and ensure AmCham Shanghai is situated to serve them. Don’t forget to vote! Go to www.amchamshanghai.org/election to vote online on the amendments as well as on candidates running for the 2012 AmCham Shanghai Board.

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News

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

CHINA BUSINESS

Report: China to become world’s largest trader China will pass the U.S. to become the world’s largest trading nation by 2025, according to HSBC Holdings Plc. Over the next 14 years, the bank forecasts in its October 2011 quarterly report HSBC Trade Connections China will account for 13% of the world’s trading volume, reaching US$6.3 trillion in annual trading volume. By that time, the U.S. would be the world’s second-largest trading nation followed by Germany, Japan and France. Asian merchandise trade volume is forecasted to increase 96% by 2025 to about US$14 trillion, outpacing worldwide trade growth of 73% to US$48.5 trillion. Meanwhile, HSBC estimates U.S. trade will increase 62% to US$4.39 trillion over the same period.

Richest women in China Wu Yajun, general director of Chongqing developer Longhu Real Estate Development Co., is both China’s richest woman and the world’s richest self-made woman, according to the Hurun Rich List 2011.

The list, produced by Shanghai-based consultancy Hurun, estimates Wu holds RMB420 billion (US$6.6 billion) in assets, up 50% over last year. Among the 1,000 richest people in China, 156 are women, according to the list. Real estate is the top source of wealth with 18 of the top 50 richest Chinese women working in the industry. Rounding out the list’s top five are Yang Huiyan and family of Country Garden (US$5.6 billion), Chen Lihua of Fu Wah International (US$5.2 billion), Zhang Yin & family of Nine Dragons Paper (US$4.4 billion) and Zhang Xin & family of SOHO China (US$3.3 billion).

China: Rapid currency rise ‘not possible’ Strongly worded statements from China’s Ministry of Foreign Affairs may indicate that China has ruled out the rapid appreciation of its currency, the yuan or RMB, according to observers. “In the short term, pushing for rapid yuan appreciation is not possible,” a Foreign Ministry spokeswoman is quoted recently as saying. “If Chinese economic growth slows, it will reduce global aggregate demand,” continued the spokeswoman.

In October, the U.S. Senate passed legislation to pressure China to quicken the yuan’s appreciation. AmCham Shanghai opposes such a bill, which may be taken up by the House of Representatives, and has been actively involved in a coalition of business associations to defeat it. AmCham Shanghai signed two letters sent to Senate leadership, in June 2011 and September 2011, arguing for a multilateral approach to China’s currency and urging opposition to currency legislation.The yuan has appreciated 3.6% in 2011 and 7.4% since China announced it would gradually adopt a more flexible exchange rate in June 2010.

Visa policy drives Hainan tourism boom More than 50,000 foreign tourists visited Hainan, China’s southernmost province, without a visa over the first half of 2011, up 30% year-on-year, according to the Hainan Exit and Entry Administration. Tourists

from 21 countries may travel to Hainan visa-free by joining tour groups with as little as one day’s notice, a policy that China’s State Council, or cabinet, extended to five additional countries in December 2009, coming into force in August 2010. In addition to the approved list of countries, travelers from Russia, South Korea and Germany may

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also conditionally visit Hainan visa-free.

Hainan’s tourism revenue increased more than 10% year-on-year to RMB15.3 billion (US$2.4 billion) from January to June 2011, according to data from Hainan’s provincial government.

Report: China to become world’s second-wealthiest China is on track to become the world’s second-wealthiest country by 2016, according to a recently released report

by Credit Suisse AG. In its annual Global Wealth Report, Credit Suisse predicts that wealth in the world’s second-largest economy will increase from US$20 trillion today to US$39 trillion over the next five years, overtaking the US$31 trillion forecasted for Japan and behind only the US$82 trillion to be held by the U.S. Already, China added US$4 trillion of wealth between January 2010 and June 2011, second only to the U.S. Per capita wealth in China has more than tripled since 2000 to US$21,000 in 2011 with the country’s number of millionaires reaching one million last year.

CORPORATE NEWS

GM opens China R&D center General Motors Co. (GM) opened the first phase of a new research and development (R&D) facility in Shanghai to help test and develop materials and energy sources for advanced technology vehicles for its worldwide operations. The Advanced Materials Laboratory Building is part of a 700,000-square foot GM China Advanced Technical Center that when complete will feature 62 test labs, nine research labs and four GM technical and design organizations. Separately, GM and its joint venture partner SAIC Motor Corp., Ltd. (SAIC) signed an agreement to co-develop the architecture for a new all-electric vehicle in addition to key components and vehicle structures. The agreement marks the first such deal between the two carmakers, which are making an equal investment in the project.

Sunpreme to build China facility Sunpreme, a Sunnyvale, CA.-based startup that makes “SmartSilicon” solar cells, announced the closing of US$50 million in financing to help the company build a state-of-the-art factory in Jiaxing, about 50 miles from Shanghai, as the company moves operations to China. Sunpreme plans for the 30-megawatt annual capacity facility to help it expand production of high-efficiency solar photovoltaic panels, which it produces without using toxic or rare materials. The company expects to begin shipping products from the Jiaxing facility by the end of this year. The World Bank Group’s International Finance Corp., as well as Silicon Valley-based Capricorn Investment Group and Beijingbased China Environment Fund III, L.P., provided the financial backing.

Battery startup raises funds for China move Westborough, MA-based startup BostonPower, Inc. has secured a US$125 million investment thanks to Chinese government support and backing led by GSR Ventures, a venture capital fund, to move its hi-tech battery development and production business to China. The investment will help BostonPower build research and development (R&D), engineering and manufacturing facilities in China with an annual production capacity of 400-megawatt hours by the end of 2012. The location of the future facilities has not been announced. Separately, BostonPower recently was named to the 2011 Global Cleantech 100, a collection of promising private clean technology companies produced by the Cleantech Group and Guardian News and Media. Boston-Power has been named to the list for three consecutive years.

MACROECONOMICS

Inflation edges down Data from China’s National Bureau of Statistics show the country’s Consumer Price Index (CPI), a major gauge of inflation, slowed for the second consecutive month to a 6.1% increase in September year-on-year,

down from 6.2% in August but well above the government’s 4% target for the year.

Food prices increased 13.4% in September, remaining unchanged from August. China’s Producer Price Index (PPI), a measure of inflation at the wholesale level, dropped to a 6.5% increase in September, down from 7.3% in August. Chinese inflation is expected to continue to ease on weaker export demand in the U.S. and Europe, lessening the chance that Chinese officials will announce new restrictions to cool the economy, say observers.

Trade surplus decreases China Customs data show the country’s trade surplus narrowed for the second consecutive month to US$14.5 billion in September, down from US$17.8 billion in August and US$31.5 billion in July.

Export growth slowed to a 17% increase in September, down from more than 24% in August. Similarly, import growth fell from 30% in August to nearly 21% in September.

China’s trade surplus is projected to fall roughly 7% to US$170 billion for the year.

Export growth is expected to continue to slide on weak global economic activity.

The Chinese Academy of Social Sciences (CASS), a Chinese think tank, lowered its estimate for China’s GDP in 2011 to 9.4%, down from 9.6% in an earlier estimate.

FDI growth decreases Foreign direct investment (FDI) flows into China fell for the third consecutive month in September on continued debt pressures in the U.S. and E.U., rising 7.9% year-onyear to US$9 billion, according to data released by China’s Ministry of Commerce (MOFCOM). By comparison, China attracted a rise of 11% in FDI in August and nearly 20% in July. FDI for the first nine months increased more than 16% yearon-year to US$86.7 billion. U.S. FDI into China decreased nearly 10% year-on-year to US$1.9 billion over the first nine months of the year. Despite lower inflows nationally, data from the Shanghai Statistics Bureau show Shanghai attracted US$2.1 billion in FDI in September, up 27%, on investments

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in the services sector.

Home prices drop Data released by the China Index Academy show average Chinese home prices in 100 major cities decreased for the first time in one year, indicating that the central government’s set of stiff home buying regulations have had an effect. Home prices dropped a nominal 0.03%, or RMB8,877 (US$1,400) per square meter, in September from the previous month, according to the Academy.

Data by China Real Estate Index System and SouFun Holdings show a similar 0.03% price drop in 100 cities tracked. Home prices in Shanghai, Beijing, Guangzhou, Shenzhen and Chongqing increased 3.45% year-onyear in September.

U.S.-CHINA

Sany to invest $25m in U.S. China’s Sany Group plans to invest US$25 million in 2012 to build a research and development (R&D) center at the machinery company’s U.S. branch in Peachtree City, GA. Sany, which is headquartered in Hunan province, expects to add 300 mechanical and hydraulic engineers, along with 200 other employees, over a period of three to five years, up from the 130 mostly Americans it employs today in the U.S. The 272-acre Peachtree City plant, which opened in March 2011, produces heavy machinery for the construction industry, recording sales of RMB100 million (US$15.6 million) in 2012. Sany has invested US$60 million in the plant, anticipating that over the next five years North America will grow into its key overseas market among the 120 countries in which it operates.

BYD opens Los Angeles headquarters Shenzhen-based BYD Co., Ltd. (BYD) opened its North American headquarters in downtown Los Angeles in an opening ceremony attended by Mayor Antonio Villaraigosa and Shenzhen Mayor Xu Qin. “By reaching out to the world and harnessing

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LA’s unique resources, we have attracted China’s leading green company to our city,” said Villaraigosa. The Warren Buffett-backed green carmaker will use the Los Angeles office to build up its rechargeable bus, e6 all-electric vehicle, LED lighting and solar panel businesses. The facility is expected to add up to 150 engineering and management jobs for the city, up from 20 employees today.

BYD, which stands for “Build Your Dreams,” also unveiled its electric eBUS made in partnership with Hertz Car Rental, which will provide shuttle service from Los Angeles International Airport.

Investment boosts Chinese networking site U.S.-based Gerson Lehrman Group, Inc. (GLG), which links companies to a wide range of experts, is investing US$3 million in Chinese business networking site Ushi. GLG plans to help Ushi develop both its Ushi.cn site and Ushi Answers, an invitation-only resource for providing answers on doing business in China, while drawing from Ushi’s member base. Ushi has more than 50,000 C-level executive members, especially from venture capital and private equity firms in China. Shanghai-based Ushi, which was launched in 2010, faces intense competition from other professionals-listing websites popular with Chinese users, including LinkedIn, Paris-based Viadeo’s Tianji subsidiary and Chinese companies Renren and Zhaopin’s Jingwei site.

GOVERNMENT & POLICY

Corporate tax cut trialed China’s State Council, or cabinet, unveiled a tax reform scheme that will slash corporate tax rates in selected service industries to help firms grow amid rising costs and slowing growth prospects. The pilot will begin January 1, 2012 in Shanghai, which may be expanded to the rest of China, and cover companies and individuals in merchandise, processing, repair or assembly services in addition to importers. Under the trial scheme, firms will pay a value-added tax (VAT) instead of a business tax, with rates of either 6% or

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11%, down from existing brackets of 13% or 17%. The VAT allows companies to deduct expenses such as fuel and equipment, unlike a business tax, which is levied on revenue.

Local governments to issue bonds China’s Ministry of Finance unveiled a trial program that will allow select local governments to issue bonds for the first time in an effort to help address shortterm financing needs. Under the program, local governments in Shanghai, Shenzhen, Zhejiang and Guangdong can issue bonds in three- and five-year maturities directly instead of relying largely on bank loans to secure funding. According to reports, the Finance Ministry approved Shanghai’s plans to issue RMB7.1 billion (US$1.1 billion) worth of debt to fund housing and educational facilities and make environmental and social welfare improvements. A national audit released last summer found Chinese local government debt amounted to a combined RMB10.7 trillion (US$1.7 trillion) as of the end of 2010.

Fuel prices lowered China’s National Development and Reform Commission (NDRC) issued cuts to the country’s government-controlled fuel prices in a move to reduce the impact of heightened inflationary pressures. Wholesale gas and diesel prices were decreased RMB300 per ton to RMB8,280 and RMB7,430, respectively.

NDRC last adjusted fuel prices in April 2011, increasing prices about 5%. NDRC said in a statement that the adjustment, which went into effect on October 9, “will help lower social costs, alleviate overall price level pressures, and stimulate relatively fast and stable economic growth.” China is the world’s second-largest oil consumer with demand expected to grow at a world-leading 6% in 2011, half the rate of last year.

SHANGHAI BUSINESS

Foreigners 1% of Shanghai population Data from China’s 2010 Census show

overseas residents account for nearly 1% of Shanghai’s population. Among Shanghai’s residents from outside the mainland, Americans came in third place with 23,600 people, trailing only the 44,900 Taiwanese and 29,700 Japanese residents.

A total of 210,000 Shanghai residents, or 0.91% of the city’s population, hail from overseas – about twice that of Beijing but far fewer than other Asian cities like Hong Kong and Tokyo, which boasts 437,000 and 417,000 foreigners, respectively. Last year’s Census – China’s sixth headcount since 1953 – counted foreigners, including those from Hong Kong, Macau and Taiwan, living in China for at least three months, for the first time.

China Pavilion marks close On October 9, the China Pavilion closed its doors for the final time since opening 18 months ago, ending a magnificent run as the top attraction at last year’s 2010 Shanghai World Expo. The iconic national pavilion welcomed a total of 17.5 million

visitors, or an average of 50,000 people per day. Thanks to continued demand, the pavilion was reopened twice following the official close of the World Expo at the end of October 2010 and received 30,000 visitors on its final day. The exhibits will be dismantled over several months, but the main RMB2 billion (US$314 million) pavilion structure will remain intact to serve as a venue for public events.

Trade growth slows Data released by the Shanghai Statistics Bureau show the city’s trade growth decreased sharply in September. Exports increased 11.1% year-on-year to US$17.8 billion in September, down from 21.7% growth in August. Similarly, imports increased 18.7% year-on-year to US$20.1 billion in September, but slower than 27.1% growth recorded in August. “Shrinking external demand, uncertainties about the direction of the Chinese currency, together with a moderating economy in the city, may lead to slower trade growth

in the months to come,” explained Yan Jun, a spokesman for the Statistics Bureau.

Shanghai’s trade growth with the U.S. and E.U. grew only 1% in September.

Expressway to Jiangsu nears open The 32-mile Chongming-Qidong Highway linking Shanghai’s Chongming Island to Qidong in Jiangsu province will open by the end of the year. The sixlane highway in the Shanghai section is expected to cut the journey time from downtown Shanghai to Jiangsu from 3.5 hours to 90 minutes. The two hours saved in travel time will be welcomed news for seafood and agricultural producers who soon will be able to transport products to Shanghai faster. The expressway also will make it easier for Jiangsu merchants to reach Pudong International Airport and the Yangshan Deep-Water Port.

Construction on the highway began in late 2008 using an environmentally friendly design that bypassed areas used by migrating birds.

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CHINA & THE WORLD

SOUTH AMERICA ASIA-PACIFIC

JAPAN: Toyota begins construction on China tech center Japanese carmaker Toyota Motor Corp. broke ground on a new US$689 million technical center in Changshu, near Shanghai. Toyota plans for the center to help it conduct research and development (R&D) and shift production of its green vehicles, such as the current-generation Prius, to China.

Toyota had been reluctant to produce and sell its latest Prius in China in part because of intellectual property rights (IPR) concerns regarding its design. Prius-related work may begin as early as 2012, and production mostly will involve assembly of finished components. Toyota may manufacture more advanced car components in China as early as 2015. Toyota halted production of an older version of the Prius in China in 2009.

MIDDLE EAST

ASIA-PACIFIC EUROPE

African SMEs to get $1bn in Chinese loans China Development Bank (CDB), the Chinese state-run policy lender, plans to extend an additional US$1 billion in loans to African small- and medium-sized enterprises (SMEs) next year, increasing China’s Special Loan for the Development of African SMEs fund to US$2 billion. China has lent African SMEs US$632 million since the fund was established in 2009 following the China-African Cooperation Forum in Egypt attended by Chinese Premier Wen Jiabao. CDB has committed to providing support on 24 projects within a wide range of sectors in 25 African countries, creating at least 6,000 jobs for Africans.

MIDDLE EAST EUROPE

AFRICA

UNITED KINGDOM: Haier, Home Retail partner in China China’s Haier Group Co., Ltd. is planning a joint venture with U.K.-based Home Retail Group Plc to open Argos-branded retail stores in key areas throughout China. The Qingdao-based appliance maker will invest US$15 million of the US$29.5 million initial investment in the venture and will control a 51% stake. The venture is expected to begin in 2012. Argos sells more than 35,000 home products in more than 750 stores in the U.K. and Ireland. Haier, founded in 1984, operates or owns overseas factories in South Carolina, which opened in 1999, Pakistan and Italy.

NORTH AMERICA MIDDLE EAST

AFRICA

IRAN: China considering liquid natural gas investment China may invest in the construction of a liquefied natural gas (LNG) plant in Assaluyeh, Iran, as the Persian Gulf country looks to grow exports of LNG, especially to China and India, by the end of 2012.

China and India together account for 45% of world LNG consumption. The Chinese investors, as well as the terms of a potential investment, have not been disclosed. Iran is the world’s largest exporter of LNG, operating seven LNG production projects domestically. The country aims to produce 70 million tons of LNG by 2015, taking advantage of the world’s largest known LNG deposit, which it shares with Qatar.

SOUTH AMERICA MIDDLE EAST AFRICA

NORTH AMERICA

CANADA: Sinopec to acquire Alberta energy company China’s Sinopec International Petroleum Exploration and Production Corp. (Sinopec Group), a subsidiary of state-owned China Petrochemical Corp., will buy Canadian oil and gas explorer Daylight Energy Ltd. for US$2.1 billion, expanding its push outside Asia to fulfill China’s growing energy needs. Sinopec would gain access to 300,000 acres of land, which includes significant deposits of oil and shale-gas reserves. The deal faces regulatory approval by Canada’s Ministry of Industry under the Investment Canada Act because its value exceeds a review threshold of roughly US$300 million. Calgary, Alberta-based Daylight produced an average of 38,000 barrels of oil equivalent per day over the first half of 2011.

SOUTH AMERICA

SOUTHAMERICA AMERICA NORTH EUROPE

AFRICA NORTH AMERICA ASIA-PACIFIC

BRAZIL: JAC to build overseas car factory Anhui Jianghuai Automobile Co. (JAC Motors) will build a US$509 million car factory in the Brazilian city of Camacari in what will be the Chinese carmaker’s first overseas plant. The plant is scheduled to come online by 2014 and have a production capacity of 100,000 vehicles initially. JAC will commit 20% of the funds to build the factory with Brazil’s SHC Group, JAC’s local partner, providing the remaining 80% investment. Some 17,421 JAC units have been sold in the Latin American country from March through September 2011, accounting for 0.9% of all car sales there. Brazilian auto sales are expected to grow 5% in 2011, the world’s fourth-largest car market, down from 12% last year.

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SOUTH AMERICA ASIA-PACIFIC

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

Movers and Shakers highlights senior management level changes at multinational companies and major personnel changes within the Chinese government PRIVATE SECTOR FORD The Ford Motor Company has appointed David Schoch chairman and CEO of Ford Motor China, effective November 1. Since joining Ford as a financial analyst in 1977, Schoch has held a variety of leadership positions.

Schoch was most recently chief financial officer, The Americas, a position he had held since September 2009. Prior to that, he was executive director, Ford Canada, Mexico and South American Operation, CFO and vice president of Strategic Planning for Ford of Europe and CFO of Ford Asia-Pacific Operations.

BANK OF AMERICA Bank of America Corp (BofA) named Peter MacDonald head of its equities business for the Asia-Pacific in October, replacing Yasuhiro Fujuwara, who resigned as co-head of global capital markets for Asia Pacific after 14 years at BofA. MacDonald joined the bank in 2010 as vice chairman of Asia Pacific following his retirement from Goldman Sachs Group Inc. in 2009 after 17 years with the company.

J.P. MORGAN J.P. Morgan named David Koh head of Treasury & Security Services, China and head of Treasury Service, Greater China in October. Koh joined from Deutsche Bank as head of global transaction banking for China and head of trade finance, cash management, corporate for Greater China.

AETNA Aetna appointed Michael Elliott general manager, Asia-Pacific region for Aetna International in October, responsible for expanding the company’s business in the region, including international health benefits for expatriates and health management solutions. Elliott came from HSBC Insurance, where he was regional head, based in Hong Kong.

ADOBE Adobe Systems Incorporated appointed Karl Soule as business development manager, Digital Video, Adobe Asia Pacific in September. A well-know Adobe expert and speaker at industry events around the world, Soule will be responsible for work with its growing customer base of digital video professionals in 13 countries including China, Hong Kong and Taiwan.

GOVERNMENT CHINA SECURITIES REGULATORY COMMISSION Li Xiaohong was appointed secretary of the discipline inspection committee of China Securities Regulatory Commission in October. Li was most recently vice chairman of Beijing Municipal Committee of the CPPCC. He had held several other leadership positions since joining the Beijing Municipal Government in 2006, including secretary general, Party secretary and chief of the general office. Prior to that, Li was chairman of China Securities Co., Ltd., a post he was named to in 2004, after taking management roles at two state owned enterprises in Beijing for 12 years.

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

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M a n a g e r ’ s N ot e b o o k

Flexibility Goes a Long Way

Expat workers need more skills today

T

B y L a r ry Wa n g

he question came from a group of American MBAs on a tour through China t h at i n c l u d e d v i s i t s t o companies in Shanghai.

Aside from wanting to understand talent needs and hiring trends, they wanted to know one more thing: “What is the future competitiveness of foreigners working here in China?”

It’s a question I get often. Frankly, many of us who came to China earlier were just in the right place at the right time. Throw a rock in any direction and you could hit a job or business opportunity. Today, I still use this phrase when describing job opportunities here. I’m still very positive when it comes to non-mainlanders finding attractive, rewarding positions in this market. To capture them, however, you have to deliver much more than what was needed in the past.

When asked what it takes to pursue and achieve success today, the very first word I emphasize is commitment. Although China still offers lots of opportunities, there aren’t so many options as before. Just being here is no longer enough. Those able to land attractive roles today usually have a solid track record of performance in the mainland. They’ve built up the skill sets and understanding of how to get things done in

Larry Wang is the CEO and founder of Wang & Li Asia Resources. He wa s born in White Plains, New York and has been in Mainland Ch ina for 12 years and Greater China for 17 years. Visit his co mpany at www. wang-li.com.

this environment. It’s a steep learning curve that takes time to develop, with mistakes made and many new situations never before encountered along the way.

Beyond just the business side though, a big part of that commitment is in understanding Chinese culture and the sensibilities of Chinese people. This takes venturing outside the foreign community and getting to know local Chinese. I’ve never viewed Mandarin fluency as a must for success here, but clearly, the better you speak the more opportunities will be available to you. Therefore, learning Mandarin is certainly worth the time and effort.

The next thing I emphasize is flexibility.

Many come to China with the hope of landing a job offering an expat package at a large multinational. Unfortunately, multinationals continue to actively localize both their workforce and compensation structures, resulting in an ever shrinking number of these opportunities available in the market. There’s nothing wrong with that objective, except that companies are looking at expats in a new light. At the same time, however, there are many attractive, fast-growing small- and medium-size companies (SMEs) here. China is the mother of all entrepreneurial markets made up of many top executives who have left successful corporate career tracks to start or join more early stage businesses.

As a result, many SMEs in China can be great platforms that offer high-potential products and services, solid management, professional working processes, and a unique business approach. Although more conservative on base salaries, they

a re t y pi c a l l y Larry Wang more generous on variable, performance-based incentives. They offer higher risk, higher upside situations that allow you to be more involved and make a larger impact on a growing business.

Finally, I mention patience. In reality, the financial rewards and career benefits do not come overnight for most. In fact, your financial success here compared to what you can achieve in the U.S. over the same period of time may not happen in your first couple of years in China. Again, it takes time to build your value and track record of success in this market.

But once you do, then your opportunities and financial gains can take off. The aggressive growth of so many businesses and industries allow you to get into roles and situations that you would not likely get into, or would take much longer to break, into elsewhere. Promotion tracks are faster as many in their mid-30s to mid-40s can be seen holding top management positions here. With less bottlenecks at senior management levels, the cream rises to the top.

Like many long-timers here, when I first came to China, I never imagined that I’d still be here 21 years later. But that’s the kind of place China is. You stay because attractive situations and worthwhile opportunities keep presenting themselves to you. With each year that goes by, you continue to build your capabilities and value in this market.

With so many roads pointing towards China these days, as well as for the foreseeable future, it’s a pretty good bet to make a longterm, personal investment.

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

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P OLIC Y INSIGHT B y Rya n B a l i s

Corruption Fight Goes Global Anti-corruption enforcement by the U.S. government in China and elsewhere has forced foreign companies to look for ways to reduce risk and avoid criminal liability istockphoto

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y many accounts, last year was a banner year for U.S. government prosecutors in charge of tackling international bribery and accounting crimes – and a bad one for those suspected of committing those frauds – thanks to the Foreign Corrupt Practices Act (FCPA).

The U.S. Department of Justice (DoJ) and the U.S. Securities and Exchange Commission (SEC), which jointly enforce the FCPA, initiated a record 74 enforcement actions worldwide against companies in 2010, a jump from 40 in 2009 and a five-fold increase over 2006, according to U.S.-based law firm Gibson, Dunn & Crutcher.

Gibson Dunn reported that the DoJ and SEC have resolved a combined 17 cases in the first half of 2011, a slower pace than set previously because of what appears to be a prosecution backlog. Yet, more than 150 FCPA investigations remain open.

In addition to securing lengthy prison sentences in several cases, government prosecutors netted half of the top 10 FCPA settlements by dollar amount just last year alone, according to the Economist.

Combined penalties for the year amounted to an all-time high of US$1.8 billion, which includes fines that ranged from US$56.2 million to US$400 million in the case of British defense contractor BAE Systems in part for making false statements about its FCPA compliance program.

The only larger fines to date have been a US$800 million settlement paid by technology giant Siemens AG for widespread bribery and falsifying its corporate books and records in a 2008 watershed case and US$579 million assessed to KBR/ Halliburton in 2009 for bribing Nigerian officials to get US$6 billion in construction contracts and for various other violations.

China has been a major target of foreign corruption probes. From 2002 through 2010, the Justice Department and SEC together brought nearly 40 FCPA enforcement actions against companies with operations in China, which Gibson Dunn points out are “more alleged FCPA violations than almost any other country.”

Foreign companies in China, as well as in other fast-growing markets, have taken notice of the government’s stepped up enforcement

and the levying of significant fines. In response, companies increasingly have found it necessary to implement stronger controls to lessen the risk of becoming ensnarled in a costly and time consuming enforcement action, as well as to comply with the growing number of robust antibribery laws established in other countries (e.g., the U.K. Bribery Act and recent amendments to China’s Criminal Code).

“As more and more companies are doing business in places all around the world, many of those companies are subject to much more rigorous legal regimes in their home countries,” says Steven Tyrrell, former chief of the Justice Department’s Fraud Section and co-chair of Weil, Gotshal & Manges’ White Collar Defense & Investigations Group.

What’s behind the recent escalation in government efforts to root out foreign corruption?

What additional measures can companies in China take to mitigate their running afoul of the FCPA?

Vigorous enforcement The FCPA sets stiff penalties, including jail time, for U.S. citizens, U.S. companies and U.S.-listed companies found to have attempted to bribe foreign officials to obtain or maintain business opportunities. Since 1998, the FCPA has covered corrupt payments by non-U.S. persons acting within the U.S. as well.

In addition to anti-bribery provisions, the far-reaching, extraterritorial law mandates that public companies with securities listed in the U.S., regardless of country of origin, maintain accurate financial books and internal accounting controls to detect and prevent fraud.

Enacted in 1977, the FCPA had been a relatively dormant statute by enforcement standards, triggering only a combined 33 cases over its first 20 years on the books. The small number of enforcement cases had caused “international firms and executives [to treat the FCPA] as the proverbial sleeping dog, best left alone,” writes Carolyn Hotchkiss, dean of faculty and professor of law at Babson College.

The foundation for a shift in the enforcement landscape began in the early 2000s following a

number of highly visible accounting frauds in the U.S. and continued calls for the federal government to strengthen corporate governance in the Enronera.

One key result was the Sarbanes-Oxley law, which requires officers of publicly traded companies to certify the accuracy of company financial statements and controls. Though not aimed directly at strengthening the FCPA, Sarbanes-Oxley has made it easier for the government to uncover bribery cases. “[A] byproduct of [Sarbanes-Oxley] was that when it was discovered that a company might be paying bribes someplace in connection with its operations that it ended up being disclosed,” explains Tyrrell.

In the mid-2000s, enforcement efforts picked up and accelerated amid growing federal budgetary pressures. “The government sees a profitable program, and it’s going to ride that horse until it can’t ride it anymore,” William Jacobson, the Justice Department’s former assistant chief for FCPA enforcement, is quoted as saying.

The government has mobilized FCPA enforcement resources at both the Justice Department and SEC, applying a set of tactics new to FCPA investigations and extending its reach.

In 2009, the SEC reorganized its Enforcement Division to create a unit in San Francisco dedicated solely to FCPA enforcement, especially in the hi-tech sector in Asia. Cheryl Scarboro, then-SEC chief of the FCPA unit, spelled out in an early 2010 speech how the unit would “conduct more targeted sweeps and sector-wide investigations, alone and with other regulatory counterparts both here and abroad.”

The industry sweep approach Scarboro mentioned – used by both the SEC and Justice Department – works by expanding an investigation into one company to industry competitors and companies in the supply chain to detect similar misconduct.

For its part, the Justice Department has increased its use of aggressive crime fighting techniques such as wiretaps, undercover agents and sting operations to investigate alleged wrongdoing. Since 2007, the Federal Bureau of Investigation (FBI), DoJ’s investigative arm, has at its disposal a squad of agents dedicated solely to FCPA investigations.

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“

Chief among the risks in China are a business culture that values relationships, gift-giving and hospitality…”

Investigative efforts by the government, as well as information from other external sources, account for the “majority” of FCPA cases, as opposed to voluntary disclosures, Lanny Breuer, the assistant attorney general for the Criminal Division, said during a 2009 speech.

Finally, the Justice Department continues to add FCPA-dedicated prosecutors, reaching more than a dozen by late 2010, up “substantially” from spring 2009, Breuer said last year. Prosecutors continue to make wide use of “deferred prosecution agreements” between the government and the accused party to gain settlements and increasingly are willing to bring charges against individual employees, not only corporations, which Breuer characterized as “a cornerstone of [DoJ’s] enforcement strategy.”

Effective compliance programs have become essential in China where foreign companies, often unknowingly, can run legal risks of getting caught in the FCPA net.

Chief among the risks in China are a business culture that values relationships, gift-giving and hospitality and features an environment where the

Steven Tyrrell

Playing by the Rules Steven Tyrrell, former chief of the DoJ's Fraud Section, talks to Insight about FCPA best practices

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line between government and business oftentimes is unclear. A broad definition of a “foreign official” under the FCPA, which generally covers employees of state-owned enterprises (SOEs) or those controlled by government, and a general lack of transparency regarding official ties complicate compliance efforts.

“China is always part of the mix,” says Kent Kedl, the Shanghai-based managing director, Greater China and North Asia, for Control Risks, a risk consultancy. “China is the place where most companies are doing business…they’re being forced to grow [at a high rate] and this is where the commonly accepted business practices are on the dodgy end of what the FCPA would consider OK.” While the enforcement spotlight remains intense in China, what measures can companies take to improve their internal controls?

First, companies should scrutinize courtesy expenditures, which have become a favorite target of investigators. According to the law firm Gibson Dunn, half of all FCPA enforcement actions in China since 2002 have involved such expenses,

Insight: How does the FCPA define a public official?

Steven Tyrrell: “In terms of determining whether a particular agency or department or instrumentality is part of the government, you really need to look to the extent of control that the government exercises over the enterprise. It’s not ownership. There are many instances where the government may have a minority ownership interest in the particular venture but they nonetheless control it. If they control it, then the Department of Justice will view that as an agency or instrumentality of the government and the people that work for it will therefore be viewed as foreign officials.”

Insight: How would U.S. companies be liable for wrongdoing by foreign partners?

ST: “The FCPA is a knowledge statute, so really what’s critical in deciding or

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determining whether a U.S. company is liable for the acts of its partner is whether it knows about what the partner is doing and when it knows it….I know often U.S. companies are involved in ventures where there may be paths of investors they don’t have control [over]. But in spite of that if they are aware that the venture is paying bribes and they remain silent, they do nothing about it and they reap the benefit, then they face the potential liability under those circumstances.”

Insight: What’s the FCPA’s impact on U.S. competitiveness?

ST: “My experience has been that most of the companies that do it right, the GEs of the world, believe that honesty and integrity in the way they conduct their business in the long-term is actually better for them and is more profitable for them.

including gifts, meals, travel or entertainment.

Second, companies should “Chinafy” their compliance system by taking the local Chinese business landscape into account and incorporating the challenges. Kedl recommends companies segment the China market by corruption, recognizing “from the top…[that] there are some parts of China that just are not going to be addressable” because they are tainted with corruption.

Areas considered high-risk for triggering an FCPA investigation include healthcare, construction, autos, infrastructure, utilities, energy and contracts with government sponsored companies, according to Kedl.

Kedl adds that companies should go beyond just a one-time compliance training for staff and should offer annual sessions. A system to routinely monitor compliance should be implemented, along with a thorough screening of potential senior employees, distributors, agents and partners that takes reputation strongly into account. A thirdparty assessment can help companies conduct the

Sometimes that can be a challenge if you’re trying to get a particular deal and you’re competing against a company that’s not playing by the same rules and you don’t get the deal that can be frustrating.

“But one thing I would say is although the U.S. has been the most active in trying to fight corruption in international business transactions a lot of other jurisdictions are getting involved now as well…. So, I think as we move forward more and more countries are going to be more and more serious about enforcement of laws that prohibit bribery in international business transactions.

And the playing field will continue to get more and more level. But there’s no doubt that U.S. companies, companies that access U.S. markets are subject to a much tougher regime than other companies around the world.”

external due diligence needed in China.

While no guarantee, internal compliance controls can be “invaluable” in the long-run for helping companies avoid fines, disgorgement of profits and other penalties, says Hector Steele, corporate counsel for the China USCPA Alliance, a China-based association of U.S. CPAs, who also teaches FCPA compliance.

“Once the DoJ and SEC see that you have a compliance program in place, you are usually treated less harshly than if you had no anti-corruption and compliance with the FCPA program in place,” he advises.

Going forward, there is little evidence that the government intends to slow down its busy pace of prosecutions. The upshot, say those with experience, is companies in China and other high-risk areas cannot afford to disregard the need for having effective FCPA compliance practices in place to mitigate risk and respond accordingly if problems arise.

Ryan Balis is an associate editor at Insight .

Insight: How does the FCPA apply to Chinese companies “going out”?

ST: “As Chinese companies do business in other places around the world, the risk that they will have to deal with the FCPA increases…. [I]f you’re a nonU.S. person or a non-U.S. company you can still be subject to FCPA jurisdiction if you commit some act in the United States that furthers the bribery scheme like conducting a financial transaction or having a meeting or having e-mail communications with someone who’s in the U.S. or if one of your partners does that, then if you know about it and it advances the business of the venture then you’d be responsible for that too. So, if a Chinese company is in a joint venture with a U.S. company and there’s bribery and there are e-mail communications to people in the U.S. company in the States,

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then the Chinese company would be subject to the FCPA.” Insight: What are some trends moving forward?

ST: “I think we’ve probably hit a bit of a plateau. I think you’ll continue to see lots and lots of activity. I don’t think it will necessarily increase at the same rate that it has been increasing.

I know in the proposed Budget for the Department of Justice for next year there aren’t additional monies allocated for FCPA enforcement. So, I think you know with what’s going on in the U.S. and in a lot of places with the budget crises that governments are facing, I think the resource level is going to remain pretty steady and the enforcement level is likely to remain steady too.”

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M O N E Y TA L K

Jonathan Mantz of BGR

Why is legislation to penalize China and other countries over their currency policies drawing so much attention?

Dissecting the Currency Bill onathan Mantz, managing director of government affairs at the BGR Group in Washington, D.C., talks to David Basmajian, Insight’s editor-in-chief, about the current currency bill that was approved by the U.S. Senate. The controversial bill, which has drawn strong criticism from Chinese officials, has not been voted on by the House.

Insight: What is the argument for those supporting the currency bill?

Mantz: “The argument to support the Senate-passed currency bill is basically ‘enough is enough.’ For years the U.S. has witnessed China manipulate its currency at the expense of U.S. businesses and more importantly U.S. jobs. The theory is that a major reason why the trade deficit with China remains so tremendously uneven is because China purposely keeps its currency low so that its goods can be bought more cheaply than its competitors - clearly an unfair advantage. For years, administration after administration, regardless of party, has persuaded, promised and pleaded with Congress to trust that their negotiations with China will prove successful and that its currency will fall back in line.

“In the recent bipartisan vote, the Senate felt Congress has a responsibility to assert its authority, especially when the administration has not, to ensure that China plays by the rules and the playing field becomes level. That way, U.S. businesses can better compete, and American jobs will no longer

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be lost because of China’s currency manipulation.”

Insight: Sen. Schumer first introduced a currency bill five years ago. Why does it seem to be gaining momentum now?

JM: “Clearly Senators Schumer, Graham, Brown, Stabenow and some of the other co-sponsors of this bill have held strong feelings about China’s currency for several years now, so it’s no surprise that this bill continues to be pushed. However there are two factors that exist today that didn’t in previous years. First and foremost, the national unemployment average is over 9 percent, and in states that still rely on manufacturing like Ohio, or Michigan, their averages are in the double digits. The second factor is that 2012 is a presidential election year, where most office holders from president to congressman enjoy an approval rating slightly below the dentist whose specialty is root canals.

“In this climate where politicians are seen as not doing their jobs, employment numbers have not rebounded at the pace expected, and the economy has yet to come back and the trade deficit is ballooning – Washington needs a culprit for the U.S. economic woes. This currency bill clearly points the finger at China.”

Insight: What’s your best argument against the bill?

JM: “The arguments against the bill are many, but at its core, the currency legislation’s desired result will unlikely be achieved, and in effect could

actually yield a counter result – China actually moves more slowly on the currency issue, retaliates with trade barriers and other tariffs and the U.S. – China relationship quickly deteriorates. Legislation is not the best action to encourage China to stop manipulating its currency. There needs to be a multi-pronged effort, which includes bilateral negotiations through the White House, Treasury, State, as well as multilateral negotiations throughout G-20, APEC and other global platforms.

“More importantly, currency is not the most daunting problem impacting U.S. businesses in China. Poll after poll indicates IPR, market access and a lack of transparency as well as enforcement continue to be the most pressing issues that confront U.S. business in China from Fortune 500 companies to SMEs (small and mid-size enterprises). Even if the currency issues are solved, there still remain these larger obstacles that will prevent U.S. business from fully realizing its potential in China.”

Insight: The bill passed the Senate, will it pass the House and why?

JM: “As we have seen, currency is a hot button issue that stirs up a lot of passionate feelings. A majority of the Democratic Caucus will support a strong currency bill as evidenced by the previous Congress.

However, in AmCham Shanghai’s talks with Speaker Boehner’s office, it was indicated that there is no timeline on whether the currency will be brought to the floor. To say that the speaker has more than enough on his plate before the end of the year is an understatement, with the Super Committee and work on the budget negotiations especially. Just as important it has also been indicated that currency is not the number one issue of concern driving the U.S.China relationship. Ironically, although the Speaker and the White House have not agreed on a number of issues during this congress, at this point neither has shown an interest in pushing the currency issue for a vote in the House. That being said, politics is always fluid and with currency being such a sensitive issue to both parties, if this bill did come to the House floor there is a decent chance of it passing with bipartisan support.”

Insight: If it gets through Congress, would the

President sign it?

JM: “If it gets through Congress, it is hard to see how the president would not sign this bill into law.

The bipartisan political pressures would be too great to hold the bill up.”

Insight: Other than currency, what other China legislation/issues is being discussed on the Hill?

JM: “An important step that needs to be handled

by Congress is the streamlining of the visa process.

Shortening the window to receive visas, and allowing so that individuals who have already been to the U.S. don’t have to reapply, would facilitate the flow of business and commerce. Through the leadership of the U.S.-China Working Group with Congressmen Larsen of Washington and Boustany of Louisiana, they are looking at different pieces of legislation that will really enhance the U.S. government’s ability to work better with U.S. businesses in what is potentially our most important and certainly fastest growing market.

“A number of good ideas coming, again, out the U.S.-China Working Group and AmCham Shanghai include language to devote more staff resources to the Foreign Commercial Service (FCS) in China, something which has proven results on return on investment. It has also been recommended that the U.S. government help states and cities establish and operate offices in China to promote exports. The U.S. government should also provide assistance to small businesses for trade missions to China. Each of these things would really foster a healthier and stronger environment in which the U.S. can pursue business opportunities to their full potential.”

Jonathan Mantz is a managing director of government affairs at the BGR Group in Washington, D.C. and leads the firm’s Democratic outreach to the Obama Administration and Congress. Jonathan has worked closely with AmCham Shanghai since 2009 and has helped lead AmCham Shanghai’s federal government relations, public relations and external relations in the U.S. Prior to joining BGR, Jonathan has spent a career in Democratic Party politics where he most recently served as national finance director to Senator Hillary’s Clinton’s presidential campaign.

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“

Washington needs a culprit for the U.S. economic woes.

This currency bill clearly points the finger at China.”

i n t e rv i e w B y B rya n V i r a s am i

‘Exporter in Chief’

Illinois Gov. Pat Quinn

Illinois Gov. Pat Quinn talks about doubling exports to China and cleaning up rivers

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llinois Governor Pat Quinn and a delegation made up of business and education representatives from the state visited China in late September to find ways to boost exports to the world’s fastest-growing economy and build stronger ties.

Quinn’s itinerary included a stop at AmCham Shanghai where he addressed executives and other members at the Four Seasons Hotel. He talked about trade between the state and China and detailed his goals to improve and expand trade between the economies.

During his trip, his first to China, Quinn announced several agreements between Illinois and China including a deal to export US$70 million worth of corn to China and a sister agreement to preserve the Huangpu and Illinois rivers. As the state with the 17th largest economy in the world, Quinn said he intends to build a closer relationship with China that includes new educational and cultural initiatives.

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He sat down with Insight for a chat at the Four Seasons Hotel. Here are excerpts from that interview.

Insight: How would you characterize your visit to China and have you achieved your goals?

Pat Quinn: “Part of my mission will be, upon my return [to Illinois], is to continue to build up our educational connections with the people of China.

It will start in grammar school and high school.

We will have more schools in Illinois teaching Chinese from an early age, learning the culture, learning the history learning the language. The language is a portal to the culture and the history and definitely I would say higher education, trying to get far more students from Illinois here.

And this year for example, 3,581 students at the University of Illinois are from China.

“It’s important that a mighty state like Illinois in the middle of America connect every which way it can with the businesses and people of

China. We’re not only talking about business because today we signed an agreement on sister rivers. We want to work with ecologic issues, clean water, and we signed an agreement on selling corn and earlier on selling soybeans.”

Insight: What is the highlight of your visit to China?

PQ: “It’s hard to single out one thing. Every day we’ve had probably 10 events a day. The highlight of the trip I think would be the warmth of the people in China. People in this country want to be friendly with Americans and particularly with folks from Illinois. Most of the people in our state are down to earth. They work hard, they believe in family and education and I think there are a lot of common points that we have with the Chinese people.”

Insight: You met President Hu Jintao when he visited Illinois. What were your impressions of him?

PQ: “He came to Chicago, we had a banquet. I literally sat across from him. He’s very friendly and he wanted to know about the family and all that. He told me three times Illinois is the gateway to the Midwest, gateway to the heartland, so I was touched by that. Our goal is to be the most Chinese friendly state in the United States of America and that certainly gave me a lot of encouragement to do exactly that. We want to work night and day on that mission.”

Insight: What are some of the challenges that Illinois faces with China?

PQ: “I think we have to look at the visa issue. I think that’s important for not only companies but tourism. We’d like to get more Chinese tourists to come to visit not just L.A. or New York but come to Chicago in the middle of the country.

When people come they come back because it is near a beautiful lake with lots of culture and entertainment and genuine people. So part of our mission is to get folks to go over the coast and get to the middle.”

Insight: What advice would you have for

lawmakers in Washington when it comes to dealing with China?

PQ: “I don’t believe in bashing, I don’t think that’s going to really get anywhere. I think what we have to do is to understand that there is a lot in common that we can have with the Chinese people and their businesses. It would start with green initiatives, as we both have this need to reduce pollution, reduce dependence on oil, fossil fuels, to have energy efficient buildings and clean water. This river over here, the Huangpu, well that was pretty dirty 20 years ago. It’s improved but we’ve got a ways to go, we have waterways like that in Illinois. And so if we’re going to clean up our waterways, we have to use renewable energy like the sun and the wind and there’s a lot we can learn together.”

Insight: Illinois earlier announced a plan to double exports by 2014 in line with President Obama’s National Export Intiative (NEI). How is that coming along?

PQ: “I think we’re well on our way. Our state is a mighty agriculture state. Our market for soybeans and corn here I think is going to grow by leaps and bounds. I am optimistic that we might even hit US$4 billion with our exports. Right now, we’ve made US$3.7 billion… US$3.8 billion, maybe $4 billion at the end of the year. That would be significant progress because we had US$3.1 billion last year. It’s almost a 33 percent increase, quite a large one and it’s encouraging those who have resources here to invest in Illinois. It’s safe, its sound, we have many opportunities and part of my job is not only to be the exporter-in-chief in Illinois, but also the importer of capital because you can’t really run an economy without credit and capital. That’s the only way to go.”

Insight: Did you do anything fun during your visit?

PQ: “I climbed the Great Wall. I thought it was more horizontal but it turns to be vertical. I got myself a hat and I also got a plaque that said I climbed there. That’s the ultimate Stairmaster, I will be back. My youngest son, he got way up there. He’s a runner and he’s in better shape than I am.”

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“

Our state is a mighty agriculture state.

Our market for soybeans and corn here I think is going to grow by leaps and bounds.”

– Gov. Pat Quinn

business trends B y Pa u l A n to n S c h i f f i n

Reverse Merger Confidential Paul Anton Schiffin

Are Chinese companies walking on shells when they merge with dormant U.S. firms to become go public?

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ften described as a “backdoor” alternative to an initial public offering (IPO), the reverse merger has become associated with Chinese companies that have listed in the U.S. securities markets without undergoing the traditional scrutiny that accompanies an IPO. Not so long ago, reverse mergers were a popular conduit connecting U.S. investors with Chinese companies. But in the past year, this alternative method of going public in the U.S. has come under increasing scrutiny by investors, the media and the U.S. Securities and Exchange Commission (SEC).

One reason for this added focus is that some stock research analysts, such as Carson Block of Muddy Waters, LLC, have exposed reverse-merged Chinese companies with accounting irregularities or pointed out misstatements in their reports. The accompanying media attention has set off alarm bells among American investors and quickened a slide in the share prices of Chinese companies across the board in the U.S. Several high-profile scandals have also accompanied reverse mergers. China Agritech, a fertilizer producer based in Beijing, reverse merged in 2005, and uplisted to the Nasdaq, the U.S. exchange, in 2009. The prominent private equity fund, the Carlyle Group, took a 13 percent stake in the company. However, the company was delisted from Nasdaq in May after it fired its auditor, Ernst & Young, due to disagreement regarding its

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finances.

In September, the SEC commented on a proposal by NASDAQ to reform its rules on foreign reverse mergers in a way that would likely mandate greater disclosure by companies engaging in reverse mergers.

What is a reverse merger?

The reverse merger, or reverse takeover, is an unconventional yet legitimate method for a private company to “go public” by merging into a dormant or defunct “shell company” that is already registered with the SEC as a public and reporting entity.

Firms that specialize in reverse merger transactions, often referred to as “shell promoters,” sell a shell company to the private company and assist in the merger process. The shareholders of the private operating company exchange their shares for a majority of the shares of the public shell company, taking a majority stake in the shell company after the merger. The management of the private company then takes control of the board of directors of the shell company. As a result, the private company has become public by merging into the public shell company.

Starting in the early 2000s until late 2010, the reverse merger grew in popularity. It had been employed quite successfully in some relatively high-profile deals, such as the merger of U.S. Airways and America West Airlines in 2005.

Recently, it has also been a popular choice among

foreign companies, especially Chinese ones, wishing to enter the U.S. securities markets.

The appeal The allure of becoming publicly traded in the U.S. attracts Chinese companies that hope to raise money in the U.S., obtain share liquidity for their founders and raise their profile and prestige with a U.S. listing. Companies that choose to do a reverse merger rather than a traditional IPO can avoid some of the cost of an IPO, as well as the onerous disclosure requirements that accompany an IPO. A company going through an IPO must file a registration statement with the SEC that involves extensive disclosure of the issuer’s business, including its financial statements and business plan, drafted by lawyers and signed by an auditor. The U.S. Securities Act of 1933 places the onus on issuers to qualify for an exception from registration, such as showing that the offering was privately directed to certain sophisticated investors.

The company that accesses the public markets via reverse merger never undergoes an IPO, and therefore avoids a lot of the headache over preparing the extensive documentation that comes with registering the IPO. A company undertaking an IPO typically hires an investment bank, as well as lawyers and accountants, to assist in the time-consuming and expensive process.

However, the reverse-merged company is still subject to the ongoing reporting requirements mandated by the Exchange Act of 1934, which regulates the secondary market for the buying and selling of securities. The company will still have to file regular quarterly and annual reports on its business with the SEC. The lack of reporting compliance presents a difficulty to Chinese companies that often do not have proper legal guidance and remain unaware of the law.

There are very few reverse merged Chinese companies that have successfully managed to make it to a major U.S. exchange and that have stayed listed. One such case is China Green Agriculture (CGA), which reverse merged with Discovery Technologies in 2007, then traded on an over-the-counter bulletin board before making it to the NYSE in 2009. So, why haven’t more companies been more successful?

Buyer beware While the reverse merger is often sold as a cheaper and

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quicker alternative to an IPO, the two types of transactions are fundamentally different.

A reverse merger is not the functional equivalent of an IPO. While an IPO typically has the backing of an underwriter such as a reputable investment bank, a reverse merger does not. As a result, there is little to no secondary market for the shares. Chinese companies, in particular, are enticed by the possibility of a listing on a national exchange in the U.S., though many may not be aware that a reverse-merger listing rarely results in that. Rather, the reverse-merged shares trade at lower prices and volumes than IPO shares and will likely be confined to the over-the-counter stock market known as the “Pink Sheets.” Unfortunately, this has been the fate of most Chinese companies that have engaged in reverse mergers.

A private firm that completes an IPO hopes to receive a large infusion of capital, publicity and prestige, as well as share liquidity for its founders and initial investors. The issuer also typically raises enough money to be able to list on a national exchange, such as the NYSE, Nasdaq, or the Amex. National exchanges, such as the NYSE Euronext, typically require a minimum of US$40 million to list.

By contrast, securities and other financial

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instruments traded in over-the-counter markets are exchanged between qualified brokers only.

The SEC warns investors that companies traded in over-the-counter markets are very risky investments because they tend to be closely held, thinly traded and are not subject to as stringent reporting requirements as stocks that are traded on national exchanges.

Chinese companies may also be attracted to the reverse merger because it is faster than an IPO in most cases. However, a reverse merger has other disadvantages.

Fundamentally, an IPO is a capital raising transaction, attracting investment. A reverse merger, in and of itself, is not. An IPO also provides a great deal of publicity. Prior to an IPO, the company planning to issue stock goes on what is referred to as a “road show” where the company tours various cities, meeting with potential investors to promote the purchase of their company’s stock. In the best case scenario, a reverse merger could lead to a potential investment by sophisticated investors such as hedge funds through a private investment in public equity (PIPE) structure. Given the recent media coverage, a reverse merger may in fact lead to negative publicity.

A reverse merger is not always necessarily cheaper than an IPO. Companies considering reverse mergers may not have to hire lawyers and accountants to prepare a registration statement, but they still have to hire a lawyer to conduct due diligence on the shell company that they are merging into. Failing to conduct proper due diligence could result in catastrophe if one discovers post-merger that the shell company was not a properly SEC-registered and reporting company, rendering the entire merger a futile exercise. Moreover, undiscovered creditors could appear after the merger. Finally, once a company completes a reverse merger, it still must comply with U.S. securities laws and should be prepared to spend legal fees on such compliance.

The SEC released an Investor Bulletin on reverse mergers on June 9, warning investors to exercise caution when investing in reverse merger stocks. In another statement in June, the SEC said

it was considering promulgating new rules on foreign reverse mergers, and that it was working with Chinese regulators to provide greater transparency with regards to accounting and auditing standards.

On September 12, the SEC commented on Nasdaq’s proposal to reform rules concerning foreign reverse mergers, indicating such rule changes should be consistent among the exchanges, since NYSE Euronext had recently issued a similar proposal. Should the Nasdaq and NYSE Euronext proposals receive SEC approval, it will likely herald a further decline in reverse mergers.

Paul Anton Schiffin is an attorney with TIGERPACS, a U.S.-based international business consultancy that helps companies develop new markets and investments. Visit the Tigerpacs website at www. tigerpacs.com.

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“

Chinese companies, in particular, are enticed by the possibility of a listing on a national exchange in the U.S…”

d eal o f mo n t h

by E s t h e r Yo u n g

Nomura Expands into China with GE Capital Deal istockphoto

N

omura Holdings is close to acquiring one of GE Capital’s China businesses, supporting the Japanese investment bank’s greater plans to expand in China.

Nomura’s agreement to buy Shanghai-based GE Capital Finance (China) may allow the bank to offer yuan-denominated bonds as well as gain traction in one of the world’s fastest growing financial markets.

GE Capital Finance (China), a financial services branch of General Electric Co., employs over 150 financial services professionals and has nine office locations throughout China. It focuses on services ranging from consumer lending to financial solutions.

The price of the deal is not known. If the deal for GE Capital Finance (China) is completed, Nomura is likely to apply to convert GE Capital Finance (China) into a bank and seek licenses to provide yuan-

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denominated services to its clients.

Nomura, Japan’s largest investment bank by market value, has also sought a securities jointventure partner in mainland China to allow it to underwrite stock and bond deals. This would allow it to fully compete with its rival investment banks, the U.S.’s Goldman Sachs Group and Switzerland’s UBS, who already hold such operations in China. Nomura has yet to find a partner.

The bank entered the China market in 1982.

Though its presence in China has been limited to several offices in Beijing and Shanghai, it has clearly stated its goals of obtaining more access and licenses in China. Nomura’s deal for GE Capital China is important for the company’s ambitions, but the deal has yet to be approved by the China Banking Regulatory Commission (CBRC), which may take upwards of one year.

Nomura’s plans in China are reflective of the greater trend of foreign banks pushing into China to tap into China’s economic expansion. Capital is no longer scarce in China and consumer demand for financial services is on the rise. At the end of 2010, total Chinese banking assets topped US$15 trillion, up 20 percent from the previous year, with a growing number of businesses and individuals seeking to diversify their wealth. In 2010, China produced US$5.6 billion in investment-banking revenue – the largest in Asia.

However, foreign banks only account for two percent of total assets in China’s banking system at the end of 2010. In China, foreign firms are confronted by a complex regulatory policy that tends to favor local Chinese financial service providers, a tightly controlled monetary policy and a number of other obstacles. They also face fierce competition – not only from large Chinese companies, but from their fellow foreign financial service businesses.

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Amb. Gary Locke walks with AmCham Shanghai President Brenda Foster and Immediate Past Chair Robert Roche before a speech at the Four Seasons Hotel.

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c ov e r s to ry

B y Dav i d B a s m a j i a n

Time to ‘Step Up’ Ambassador Gary Locke tells AmCham Shanghai members that the U.S. and China must work together to tackle today’s serious economic problems

A

s governor of Washington State and then U.S. Secretary of Commerce, Gary Locke has been a forceful advocate of strengthening the U.S.China commercial relationship and a strong supporter of U.S. companies in China. On his first official visit to Shanghai as U.S. ambassador to China, Gary Locke promised to advance Obama Administration initiatives that strengthen the economic relationship between the U.S. and China, attract Chinese investment to the U.S., increase job-creating American exports to China and called on China to continue to open their market, and make other reforms, that will benefit both the Chinese and American economies.

Looking beyond the bilateral relationship, Ambassador Locke reminded the more than 300 AmCham Shanghai members in attendance of the impact the two countries have on the global economy.

“Three years after the financial crisis, the global economy has yet to return to full strength,” stated Locke. “And too many people back home are still looking for jobs. It’s at times like these when leadership really matters – and as the two largest economies in the world, the United States and China must step up.”

Locke’s first visit to Shanghai as ambassador included a closed-door session with the AmCham Shanghai board of governors and a stop at a General Motors dealership. While his speech covered a variety of important issues pertaining to bilateral relations, Locke also took a number of questions from the breakfast crowd at the Four Seasons and was given a warm reception.

“I want to say that not only your father was proud of you, but we’re all proud of you,” one attendee told Locke during the question and answer period of the program, referring to the ambassador’s earlier remarks that his late father was extremely proud of his service.

There were some questions asked by attendees at the event that went beyond the U.S.-China commercial relationships, including one that challenged the White House decision to sell arms to Taiwan. Others touched on currency legislation and U.S. visa policies. Regarding arms sales, Locke pointed out that the U.S. is bound by law to provide arms to Taiwan, and added that the U.S. One China Policy still stands.

“The arms sales to Taiwan were of a defensive nature and that’s governed by our Taiwan Relations Act. And we really applaud the closer cooperation and the collaboration between Taiwan and the

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Ambassador Locke is greeted by attendees at the Four Seasons Hotel.

“

Next year I’m committed to leading five trade and investment missions to China’s emerging cities.”

– Amb. Gary Locke

People’s Republic and we encourage a peaceful, amicable resolution to the issues.”

U.S. exports mean jobs During his tenure as Commerce secretary, Locke was tasked with advancing the Administration’s National Export Initiative (NEI), which seeks to double U.S. exports by 2015. In 2010, there was progress in this area. American exports jumped 21 percent with exports to China leading the way, increasing 31 percent. Locke kicked off his speech by highlighting the important role U.S. exports to China must continue to play in driving America’s economic recovery and meeting President Obama’s number one priority – creating American jobs.

During his speech, Locke congratulated AmCham Shanghai on a successful Washington D.C. Doorknock where a delegation of Chamber members highlighted the importance of U.S. China-bound exports to advancing the U.S. economy. Locke thanked the Chamber for its efforts and promised a more aggressive approach by the Embassy in Beijing to identify export opportunities in China.

“Next year I’m committed to leading five trade and investment missions to China’s emerging cities. We simply cannot wait for the Commerce Department or the Energy Department and other governors and mayors to lead trade missions here to China,” he said.

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According to Locke, the embassy will recruit companies with a focus on specific high growth sectors such as clean and renewable energy, transportation, healthcare, aviation, information and communication technologies and promised close cooperation on the missions with AmCham Shanghai and its member companies.

A level playing field While AmCham Shanghai has been a consistent voice calling for the U.S. government to take steps to enhance U.S. export competitiveness in China, without free and fair access to the growing China market, the economic benefits for the U.S. cannot be fully realized, said Locke.

During his speech, which was well attended by both Western and Chinese media, Locke called on China to ensure U.S. companies are provided the same opportunity to compete in the China market as Chinese companies enjoy in the U.S. While he acknowledged progress made over the past decades, the ambassador pressed China to move forward. “The reforms of course are far from complete, but the key to success is clear.

The more China has opened up, the more it has benefitted from the rules-based international trading system established in the post-World War II era.”

Locke offered U.S. support to China as it continues reforms targeted at opening up markets, welcoming foreign participation in the

GM: China Market Means Jobs B y E s t h e r Yo u n g

Ambassador Gary Locke visited a General Motors (GM) Buick dealership in Shanghai as part of his two-day tour of Shanghai. Kevin Wale, president and managing director for the GM China Group as well as a member of AmCham Shanghai’s Board of Governors, and Cai Yingjie, general manager of the Yongda Autogroup, led the ambassador around the dealership.

While the press was not allowed to follow him during the tour, Locke took a look at display models and even hopped into the driver’s seat of a Buick Enclave SUV as photographers snapped away.

The operative word during the subsequent discussion was jobs. According to the U.S. Commerce Department, every US$1 billion of exports supports over 5,000 jobs in the U.S. – and certain GM Buick models, such as the Enclave SUV, are among the vehicles manufactured in the U.S. for export. Other models, like the Buick Regal, export high-quality components from U.S. manufacturers. GM exported a total of US$1 billion worth of vehicles, component kits, machinery and equipment from the U.S. in 2010 through Shanghai GM, a joint venture operation with the Shanghai Automotive Industry Corp. Group (SAIC).

And there’s room to grow. China is the largest auto market in the world for Buick, and sales have increased by more than 100,000 units annually since Shanghai’s GM debuted its Buick brand strategy in 2008. Demand in China for Buicks has risen 24 percent this year. And last year, for the first time, China became a bigger market for GM than the U.S. “We do not intend to rest on our laurels,” said Wale of GM’s strong performance in China. “We look forward to building on our success through the ongoing introduction of great new products and services for the people of China.”

Ambassador Locke was also optimistic about the expansion of China’s auto market, and of America’s brand performance in this fast-growing market. “Chinese consumers will find that they’ll love these American cars,” Locke said during his brief remarks at the dealership, adding that it will boost jobs in both the U.S. and China. He further commented that “these are the types of trade we’d like to promote…those that are mutually beneficial to the U.S. and China.”

Locke inspects a recent model car with Kevin Wale, President of GM China Group, at a Buick dealership in Shanghai.

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“

According to Locke, overall foreign investment in the U.S. employs more than five million Americans.”

economy and implementing transparent rules and regulations based on accepted international norms.

China “going out” Touching on a trend that is getting more attention, and more support from within the Obama administration, Locke called for increased Chinese investment in the U.S. by referring to it as a “winwin” for both countries.

According to Locke, overall foreign investment in the U.S. employs more than five million Americans. China’s foreign direct investment (FDI) in the U.S. increased by 400 percent between 2008 and 2010, and the ambassador stressed the point that Chinese FDI in the U.S. is welcome.

“The United States is doing everything it can to open trade and create fair opportunities for all, and to make our investment and our commercial environment as open and as appealing as possible,” Locke said. “We’re going to be doing our part

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to unlock the full potential of the U.S.-China relationship and we look forward to China fully joining us to realize that potential.”

Locke acknowledged that there is work that remains to be done on the part of the U.S., starting with the U.S. visa application process. “We know that if we want to strengthen our commercial relationship with China and create jobs in America we need to make it easier for the Chinese to travel to the United States for business and for leisure,” he said. Locke stated that reducing wait times for U.S. visas for Chinese nationals will be a “top priority” for him as ambassador.

In fact, another member of the audience posed a question about business visas to the ambassador, and he reiterated his position that things must change.

“If we can’t make it easy for Chinese business people to get a visa, they will just go to Australia, they will go to Canada, they will go to Germany.

They don’t have to buy from the United States so it’s in our economic self interest to really try to

streamline and make it as pleasant as possible, the visa issuance process,” Locke said.

In addition, Locke called for continued cooperation between the U.S. government and the business community to drive Chinese investment to the U.S. The ambassador highlighted interest from Chinese officials in AmCham Shanghai’s planned “SME Center,” a platform for U.S. smallto medium- sized enterprises (SMEs) who want to export to the U.S., as an opportunity for Chinese companies to learn more about the U.S. market.

Recognizing the SME Center, and other Chamber programs, Locke said, “It shows the significance of your role here in the region and the great potential you have to really promote further cooperation between the commercial and trade interests of the United States and China.”

A partnership The ambassador ended by highlighting the vital role American companies play in maintaining a strong trade relationship between the U.S. and China and his intention to continue his ongoing working relationship with the U.S. business community here.

“There is much to be proud of in terms of the presence of U.S. companies, the millions of Chinese that U.S. companies employ in China, and the great corporate social responsibility that American companies are engaged in throughout China, spreading American values, introducing the Chinese people to what America is all about and how we operate. So we look forward to working with all of you as you try to promote closer, stronger U.S.-China relations – economically, diplomatically, culturally, simply people to people.”

He repeatedly stressed that his objectives are similar to the goals of AmCham Shanghai and pledged to cooperate closely to work on a variety of issues.

Locke buying coffee

Coffee to Go In response to a question from an audience member about a now famous photo of him buying his own coffee at a Starbucks and wearing a backpack at the Seattle airport, Ambassador Gary Locke spent several minutes on the question, often making light of the situation by saying he was surprised it became an Internet sensation on social networking sites in China.

A blogger posted the photo on the Internet, and it was instantly popular. Many Chinese expressed surprise that Locke, one of America’s top diplomats, did not ask an aide to buy the coffee and made comparisons to Chinese officials who often travel with an entourage. Locke clarified that as Commerce secretary he usually flew economy class, and felt it was normal to haul his own suitcase.

Here’s what Locke told the audience: “I can just tell you that I am who I am. And I never would have thought that buying a cup of coffee back in Seattle, Washington (audience laughter), before I even came out here, that it would ever create such interests [with] the Chinese people. I didn’t even know someone was taking my picture. If you look at the picture it was taken from behind me so I didn’t even know that anybody was taking a picture.”

Half-jokingly, he added: “When we came into the airport we did not inform the press. We didn’t tell anybody, other than the embassy, when we were coming in, what airplane, what time, and somehow I think the person who took that picture must have informed some people and it spread and so suddenly we were met by the press. So we were completely surprised when the press were there.”

David Basmajian is editor-in-chief of Insight . He can be reached at David.Basmajian@amcham-shanghai. org.

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i n du s t ry i n s i g h t

By Gene Dorris, PhD

A Hard Day’s Work

O

Gene Dorris, PhD

Manual labor isn’t so attractive to today’s workers

ver the past two years, there has been a dramatic shift in the human resource landscape in China. In the wake of the global economic meltdown, companies have shed workers and retrenched. Rampant inflation has accompanied the recovery. Coupled with the arrival of the so-called “Post 90s” generation in the labor market, these sets of factors have created far greater instability in the labor force, more rapid turnover and lower retention rates. This has been especially true for foreign enterprises operating in economic zones designed to attract foreign investment.

Because of rampant inflation, workers have been pressing for cost of living increases in wages on the order of 20 to 30 percent in East China.

During visits to factories in Shandong and Jiangsu provinces, we frequently heard complaints about the rapid increase of prices for basic commodities like cooking oil. Workers were particularly concerned about pork prices. Problems with blue ear disease, cyclical supply shortages, high grain prices and a general upward trend in meat consumption drove up prices by more than 70 percent in the past year.

The government has supported the need for adjustments in wages based on cost of living increases. Jiangsu province officials jawboned factory managers to implement cost of living adjustments from six to 18 percent late last year and early this year as the Chinese New Year approached.

Nonetheless, many managers have been slow in making cost of living wage adjustments. Workers and line managers, for example, were united in their demands for wage increases to match inflation at a factory we visited last August in Shandong. The general manager, however, stonewalled his staff and took no action. Two months later all 900 workers walked off the job.

More recently we visited several meat processing facilities in northern Shandong. Even there –

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far from the economic zones in the ShanghaiNanjing corridor – managers were facing retention problems. At one meat processing facility near Weifang, the operations manager, Ma Chaoyang, said that more than 65 percent of the workforce failed to return to work after the Chinese New Year.

Most of his workers were from other provinces, some as far away as Qinghai. The average blue collar worker in his plant is paid between RMB1,800 and RMB2,000 RMB per month – equivalent to what many workers are getting in economic zones in the Suzhou area – but not enough on its own to entice his workers to stay.

Ma complained that having watched television and grown up with cell phones, computers and the Internet, the new “Post 90s” generation is unwilling to work in the same dirty and demanding conditions that their parents did. They all want white collar jobs in the big cities – for which they are not qualified and where the cost of living is even higher. And many are finding that with increased government investment in the countryside, they can find jobs at home for slightly less pay and lower living cost – and they live at home.

At a neighboring plant that produces processed chicken parts for export to Japan, plant manager Zhang Tie Jun described a different picture. His workers are mostly women from the community; he pays between RMB2,200 and RMB2,400 per month plus a social insurance package that his neighbor does not. Adequate pay, a stable home life and interesting work have created a stable work force. His plant had less than five percent turnover in the past year.

The workers at both plants wear heavy and awkward protective gear including rubber gloves and masks. Unlike the situation in Western countries in similar plants where there is a high degree of mechanization, the Chinese workers handle the meats with gloved hands. We observed women in manager Zhang’s plant, for example,

mixing cut chicken parts in batter in a huge vat by hand and then dropping the breaded parts into an elongated cooking unit with boiling oil where other workers fished them out and sent them to packaging. All of this would have been mechanized in a Western facility.

Wage trends

“

The new generation of workers is not interested in hard work and unskilled, manual labor.”

Gene Dorris is the executive director at Professional Way Ltd. imaginechina

Based on what we have seen in other factories in the Yangzi Delta, it is apparent that foreign managers who came to China in search of cheap labor must revise their original thoughts on labor costs. Further, they need a well conceived workforce plan for the coming decade to insure that the investment does not falter. This workforce strategy needs to include several key elements – recognition of the need for annual wage adjustments based on cost of living increases; the creation of a more stable supply of workers; greater mechanization; and finally developing a culture that creates a motivated workforce.

Foreign and domestic managers alike must first recognize that wages need to keep up with inflation and the spiraling cost of living. Failure to match wages to inflation rates will lead to labor unrest and an even more rapid turnover rate, lowering quality and increasing training costs. There is a problem, of course, in determining what is fair compensation in this rapidly evolving situation.In some cases, government suggestions on a fair rate of compensation may be overblown, but even in this context we have found that official statistics at the very least are indicative of trends and helpful in making a forecast.

A second element is where to source your workers. Sourcing workers from a community near your factory can lead to a more stable workforce.

In Suzhou, we found that when a manufacturing unit was near a village or local community, labor retention was much less a problem than for factories located in vast open areas in Suzhou Industrial Park (SIP) away from residential areas.

Workers in many of the SIP factories live far from their factory and are without convenient transportation to get from home and back – especially if they are doing overtime. And in

Suzhou overtime is a critical element in the pay package. In cases where the factory is near a village and “home”, the worker does not have to worry about where he or she is going to live, and a motorbike solves the transportation problem.

You might ask: what are you going to do if you have already built your factory far from any local community? The alternative is for you to provide housing and create a community environment for your imported labor. That also requires that you solve the worker transportation problem. In some cases, it may mean moving your plant to a new location, but in all cases you will need a greater investment than you originally envisioned.

Managers should make their workers more efficient, and this could mean more mechanization.

The new generation is not interested in hard work and unskilled, manual labor but wants to find ways to develop themselves and enhance their skills set; they prefer semi-skilled work to grunt labor. They also want to know the future of their personal development and how your company will help them achieve this vision. This is a corporate culture issue and a leadership issue. The bottom line is workers in China are inspired when they believe they are contributing to the greater good and are playing a positive role in society.

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r i s k M a n ag e m e n t B y K e v i n B i g g s a n d J ay H o e n i g

istockphoto

The Secrets Formula

Kevin Biggs

Jay Hoenig

Theft of intellectual property and business intelligence remains a top concern for foreign companies in China

I

n late 2010, Chinese authorities launched a special campaign to crack down on intellectual property infringement both online and in various industries. The campaign, which originally began as a six-month effort, was extended an additional three months, and some business leaders credited the effort as one of the most robust crackdowns to date in China. While the campaign demonstrated a greater emphasis on enforcing IPR in China, it focused primarily on counterfeit or shoddy products that impact public health and safety. Despite the law enforcement and legal infrastructure in place, theft of intellectual property/trade secrets (IP/TS) remains a key concern for many American and other foreign companies here.

Industrial or commercial espionage pose many threats to companies around the world.

In China, all companies are exposed to the loss of IP/TS; however, the level of risk will depend on the specific threats they face. Some of these

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threats may come from rogue employees, foreign and domestic competitors, suppliers and vendors, design institutes and other more sophisticated entities. The level of technology used in the collection process depends on the parties involved.

Hill and Associates (H&A) has seen these type of cases quite often. In fact, a number of hi-tech firms, especially in industries where joint ventures are required, have approached H&A for advice on developing a proactive and holistic approach to IP/TS protection. Recently, H&A has advised firms in the aerospace, high tech electronics, automotive and engineered equipment manufacturing sectors.

The potential threat posed by joint venture partners is a growing concern among multinational companies. Many MNCs recognize t hat t here has b e en a lack of subst ant ia l improvement in IP/TS litigation and enforcement in China. Until there is greater clarity in litigation and enforcement, foreign companies should

focus on preventing the loss of IP/TS. As a result, MNCs are taking a more proactive and integrated approach focused on “plugging” potential avenues of information leakage. Increased focus in this area is not unlike implementation of both a safety and quality culture throughout an organization. More MNCs are now integrating and embedding a more comprehensive information protection and ethics culture into their organizational culture. This approach involves addressing information leakage through actionable and practical measures such as integrity training, segregation of information based on the “need to know,” monitoring of information access, preemployment due diligence, robust HR retention programs and enhanced IT and physical security.

Not surprisingly, IPR caseload in Chinese courts is increasing rapidly. According to the Supreme People’s Court’s latest annual report in 2010 on intellectual property, Chinese courts accepted 42,931 civil cases involving IPR, representing an increase of 40 percent over 2009.

Of these cases, 1,396 involved foreign entities, representing an increase of less than one percent.

While some foreign companies have achieved successful results, the pursuit of litigation, especially when IP/TS are involved, can still be very unpredictable for foreign firms. IP/TS encompasses a variety of business information and is not only limited to critical formulas, recipes and designs. Customer and supplier information, plant layout and machine designs, product launch dates, business plans and even M&A negotiation strategies can all be considered trade secrets. As a result, determining that information is a trade secret during litigation can be time consuming and require considerable legal resources.

Competition to fuel innovation The recent Chinese campaign, which ended in June, was motivated in part by Beijing’s efforts to encourage domestic innovation and crackdown on its theft. The government has become increasingly vocal on the importance of enhancing IPR protection as a way to safeguard

the innovations created by domestic state-owned enterprises. Recent revisions to the State Secrets regulations were in part directed at large SOEs to push them to implement more effective security for their IP. Nonetheless, in some key technology sectors, aerospace/avionics, pharmaceuticals/biotech, green energy, semiconductors, advanced materials, etc., foreign companies are strongly encouraged or even “pressured” to transfer technology to participate in the local industry. As part of the push for Chinese firms to produce more innovative products and build national champions, some domestic competitors resort to the theft of IP/TS to re-innovate or commercialize products faster and cheaper. The government’s push for domestic innovation may not only be contributing to increased competition among Chinese firms, but also posing an increasingly importment business challenge to foreign companies.

When initially investing or expanding into second and third tier cities in China, foreign companies need to exercise careful due diligence when entering into joint ventures. The desire to obtain IP/TS as part of an investment agreement may be explicit by the potential partner during negotiations, i.e. “pay to play,” and is an important consideration to a foreign company’s strategy in China. In some cases, however, a partner’s goal of obtaining IP/TS or other industry know-how may not be so straightforward and eventually a direct domestic or even global competitor could emerge.

Foreign companies can also face similar threats from third parties, such as local and foreign competitors, design institutes, suppliers and contractors. Careful due diligence and consideration of the amount of information to share, the need to know and specific control procedures for ensuring the return or destruction of IP/TS after completion of a project, is essential.

Furthermore, foreign companies should evaluate what new or sensitive information should be available to the China market.

The insider threat In addition to threats from external third parties,

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“

The potential threat posed by joint venture partners is a growing concern among multinational companies.”

istockphoto

in-depth due diligence into their backgrounds, the company may have discovered that one of the individuals and his spouse recently worked for a direct competitor. The spouse continued to work for a competitor. Second, although the company did segregate information IT access, it did not put in place a robust capability to “monitor” the unauthorized access of information. As a result, one of the engineers managed to regularly download sensitive amounts of information onto a flash drive and provided it to his spouse.

Culture of information security

foreign companies also need to ensure they adequately address the potential threat from within their organization. The level of internal threat in China is difficult to estimate, but it is important to note that theft or leakage of IP/ TS by employees is common around the world.

According to a recent survey, 69.6 percent of business professionals in the U.S. have stolen some form of IP from their employer when leaving the company. As the level of corporate governance, information security and integrity awareness is less developed in China, the figure is likely similar or even higher. From our experience, current or ex-employees either acting alone or in consort with a third party perpetrate the majority of IP/TS theft in China.

Most often the motivation for stealing IP by employees is money or to benefit a “future” employer. Take for example a chemical company that had substantial IT and physical security measures in place. These measures included physical access control, closed circuit television cameras, segregated information access on their servers and integrity training. However, two critical gaps were overlooked.

First, the company did not perform a detailed due diligence on senior engineers with access to sensitive data. If the company had performed an

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Foreign companies face a diverse set of threats to their critical IP and trade secrets from both inside and outside the company.

With the increasingly competitive landscape for developing and selling new technologies in China and globally, foreign companies need to ensure that they adopt a more comprehensive approach to protecting critical trade secrets. Ensuring that companies register trademarks and patents, have non-disclosures and non-competes in place are all necessary from a legal perspective. However, it is a defensive strategy only with questionable deterent value. It is preparing for litigation in an environment that is “at best” unpredictable and offers minimal recourse. Operationally, once it’s stolen and out in the marketplace, the damage is done.

A critical aspect of protecting IP/TS involves performing an inventory of all company IP/TS and classifying it according to its probability and impact on the company should it be stolen.

Then, specific mitigation measures such as access control, CCTV, segregation of duties, IT monitoring and protection should be put in place to address each risk.

What many companies fail to do early is “set” the company expectations and consequences through effective IP/TS training. For this reason, HR must play an important role in conducting due diligence on key hires, defining job roles and responsibilities and conducting ethics training.

Training is key to deputizing the entire

organization to ensure that companies create a culture of information security within their local operations. It is critical that the tone is set at the top by senior management in the form of ethics polices, trainings and disciplinary action for failure to follow company policies.

Foreign companies should also consider putting in place internal and external channels for employees and third parties to report ethical issues or complaints. In order to demonstrate to stakeholders a strong corporate attitude and commitment to information security, all complaints should be handled properly and acted on if sufficient evidence warrants it.

The protection of IP/TS should also be assessed and incorporated across key business functions, including legal, finance, HR, IT, procurement, logistics, sales and security.

In order to ensure that information security

is handled in a coordinated way, overall IP protection and risk management should be delegated to a chief risk officer (CRO), or a chief legal counsel, which should lead an inhouse multifunctional IP Committee to address protection issues in all business functions.

The level of risk to a specific organization will depend on the industry, location, product and the markets where a company operates. IP and trade secret theft results in a direct legal and financial cost, and until the legal and law enforcement environment improves, prevention is the key.

Kevin Biggs is a senior consultant of risk intelligence at Hill and Associates (PRC) Ltd. Jay Hoenig is the chief operating officer of Hill and Associates Group. Both are based in Shanghai.

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“

Current or exemployees either acting alone or in consort with a third party perpetrate the majority of IP/ TS theft in China.�

inside amcham from the chairman

The Value of CSR s we approach the end of the year, it’s a natural time to think about what we as individuals and business leaders should be doing to be responsible citizens in the communities in which we live and do business. This month, I want to take a look at Corporate Social Responsibility (CSR), a term that means that corporations should voluntarily engage in ethical, responsible business practices that reflect the interests of all stakeholders in the corporation and the broader community. AmCham Shanghai is no stranger to this effort.

The AmCham Shanghai CSR program’s mission is to encourage and facilitate corporate social responsibility awareness and practices among the foreign business community in China. The CSR program includes activities related to community outreach, environmental stewardship, corporate governance and employee health and safety.

CSR efforts are good for the corporate bottom line as well as the community. According to a survey of Chinese consumers conducted by Globescan, almost 98 percent of employed Chinese consumers agreed that “CSR increases my motivation and loyalty” to a company. Corporate environmental sustainability and treatment of employees are particularly important issues to Chinese consumers and government agencies.

Eric S. Musser Chairman of the Board of Governors

The Chamber has been at the forefront of CSR development in China. We regularly host events on CSR-related topics as varied as corporate volunteer programs, sustainability reporting, publicprivate partnerships and anti-bribery measures. CSR practitioners meet and discuss new ideas for programs at the annual AmCham Shanghai CSR Conference, now in its seventh year and scheduled for November 9. An annual CSR Awards program encourages and recognizes excellence in corporate social responsibility. The Chamber also works closely with relevant government agencies, research institutions, and international organizations to provide input on CSR guidelines and implementation.

Since 2006, AmCham Shanghai and its member partners have sponsored the Soong Ching Ling Foundation’s Mother and Infant Care Program in rural Guizhou, Yunnan and Guangxi provinces. In total donations have surpassed RMB3 million, helping the program sites achieve an overall 10 percent decrease in the neonatal mortality rate.

Other Mother and Infant Care Program statistics: Over RMB3 million in donations 91 villages have been equipped with basic medical devices for infant and maternal healthcare Over 800 medical personnel have received medical training through the program Over 4,800 babies delivered at AmCham Shanghai-sponsored birth centers since 2006 Over 7,800 women have received free checkups Zero maternal mortality rate at 13 project sites The Chamber also supports fundraising activities for local charities and non-profit organizations.

This year’s Charity Gala raised over RMB1.2 million for the Mother and Infant Care Program, The Heifer Foundation and MarineDream Foundation.

Also, I would like to remind all of our eligible members to take a few minutes to vote for the next chairman, board of governors and proposed changes to the AmCham Shanghai Constitution. You can vote online at www.amcham-shanghai.org/election and at AmCham Shanghai’s office.

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

Highlights from the October 2011 Board of Governors Meeting Financial Report Helen Ren, director of finance and administration, reported that the Chamber continues to be in a strong financial position. While AmCham Shanghai is slightly behind budget on membership renewals, Helen was confident that the recently initiated membership renewal promotion (a one-year subscription to Bloomberg BusinessWeek) would encourage members to renew quickly. Helen also reported that Chamber expenses are on or under budget and Governor Eric Zheng remarked that he believed AmCham Shanghai is in a good financial position through the first six months of 2011.

Washington, D.C. Doorknock Immediate Past Chair Roche reviewed the Doorknock outcomes with a focus on the U.S. Department of State’s strongly positive response to the Chamber’s plan to establish an SME Center.

President Brenda Foster discussed how to better communicate the government affairs activities of the Chamber to the membership and that a plan would be developed to more effectively communicate important issues that AmCham Shanghai has taken a position on.

AmCham Shanghai’s SME Initiative President Foster reviewed AmCham Shanghai’s plan to develop a SME Center (small- to medium- sized enterprises) and the phases involved in launching both a physical and virtual SME center and introduced Kirt Greenberg who is leading AmCham Shanghai’s

Small & Medium Enterprise Program.

The Board discussed the initial services that would be provided at the SME Center, including a resources library, networking/ matchmaking services, training sessions and other services.

Immediate Past Chair Roche emphasized the importance of creating business opportunities for the membership, and he said an SME center could help do this.

Sub-national Dialog President Foster reviewed the Oct 19 event at the U.S. Embassy in Beijing focused on the State Department’s sub national dialog with China. AmCham Shanghai had been asked by the embassy to host a dinner reception with Ambassador Locke for U.S. state governors as well as Chinese provincial governors and other officials.

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

The AmCham Shanghai 2011 Board of Governors Chairman

Governors

Andrew Au Citibank China

Matthew Targett Bayer Technology and Engineering

Ted Hornbein Richco

Eric S. Musser Corning China

Immediate Past Chair

Robert W. Roche Acorn International

Robert Theleen ChinaVest

Kenneth Jarrett APCO Worldwide

Eddy Chan FedEx Express

Marie Kissel Baxter Asia-Pacific

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Kevin E.Wale General Motors China Group

Eric Zheng Chartis Insurance

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v i e wp o i n t B y Rya n B a l i s

Beefing up U.S. Agro Exports to China AmCham Shanghai’s Viewpoint highlights opportunities in China for raising U.S. agricultural exports and addressing food safety challenges

C

hina is an enormous China. This not only paves the 2011 opportunity for way for U.S. food exports to boosting agricultural China and the adoption of U.S. and food exports, standards in China, but U.S. and improving the consumers have a direct interest AGR I C ULTUR E safety of Chinese food products is in the safety of Chinese food as crucial, according to AmCham China exports more and more Shang hai’s re cent ly rele as e d food products to the U.S. each Viewpoint, “Agriculture in China: year.

Agriculture in China Boosting American Opportunities Boosting American Opportunities China’s demand for U.S. in the World’s Largest Market in the World’s Largest Market” goods to feed a population of 1.3 Industry Insight which was prepared for lawmakers billion people will only increase in Washington. given China’s increasing natural In 2010, China moved past resource challenges and growing Canada to become America’s No. 1 To get the full report, visit market for foreign food www.Amcham-Shanghai.org/ export destination for U.S. agriculproducts. tural products. U.S. agricultural and publications.

It is no easy feat for China’s food exports to China have nearly farmers to satisfy the tripled since 2005, reaching a value of US$17.8 government’s policy objective to grow 95 percent of billion in 2010. U.S. soybeans, cotton, processed the country’s own staple crops, including grains like animal feed and animal hides and skin are some of wheat, corn and rice, which are deemed important the goods most in demand in China, though China for national security. China has 20 percent of the imports only a few U.S. agricultural goods on a large world’s population yet only seven percent of the scale. world’s arable land and seven percent of freshwater Agricultural exports help support and create new resources.

U.S. jobs and generate economic activity in the U.S. China’s increasingly wealthy – and consumer The U.S. Department of Agriculture (USDA) savvy – middle class is demanding more brand estimates that every US$1 billion in agricultural name foreign pro duced fo o d, whether in exports supports 8,000–9,000 American jobs, which supermarkets or at popular eateries like Yum! translates into about 150,000 jobs supported by Brand’s KFC. Improved living standards have led to agricultural exports to China in 2010. changes in urban diets, such as an increase in As the world’s largest agricultural market, China demand for meat-based protein, thereby forcing can be a driving force for achieving the objectives of China to import more soybeans, corn and fishmeal the National Export Initiative (NEI), which calls for for animal feed. doubling U.S. exports by 2015 in support of two China could look to the U.S. to close supply gaps million American jobs. for some crops, such as corn, to bring down food In addition to exports, China’s drive to improve prices and supply the country with more valuefood safety provides an opportunity for relevant U.S. added crops that China imports to free acreage for government agencies and U.S. companies to assist essential crops. Though foreign products account for

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a rather meager percentage of total food products sold, a willingness to pay a premium for such products not only helps fulfill changing dietary choices among many Chinese but also addresses worries of contracting food-borne illness from contaminated domestically-produced products.

Food troubles Food safety crises continue to occur with regularity in China and are a major concern for Chinese consumers, as well as Americans who increasingly eat food made in China. The U.S. imported US$3.2 billion worth of food products from China in 2010.

The U.S. government is helping to strengthen the already substantial amount of work China has invested to improve food safety and develop new food safety standards. For example, the U.S. Food and Drug Administration (FDA), which set up offices in Shanghai, Beijing and Guangzhou in November 2008, is helping to strengthen China’s regulatory efforts by carrying out hundreds of inspections and audits in China, working to build China’s supervision capacity and conducting technical exchanges and training on food safety best practices.

Meanwhile, many larger and more experienced U.S. food suppliers, processors and retailers in China, mindful of the importance of food safety and the challenges, already have integrated high standard food safety procedures in their factories. For example, Austin, MN-based Hormel Foods employs metal detection, microbiological swabbing programs and pest control programs in its Shanghai and Beijing plants.

AmCham Shanghai members meet regularly with U.S. FDA officials and, in cooperation with the agency, established a web platform for Chamber members to post concerns and questions on food safety directly to China-based FDA staff.

The U.S. is in a strong position, given its capacity in agricultural production and technology adaption, to take advantage of China’s growing market for agricultural and food products and immense food needs of a 1.3 billion person strong population.

However, U.S. companies are confronted with numerous challenges in China, including limitations

on accessing the Chinese market U.S. GOODS IN DEMAND IN CHINA through exports, concerns over intellectual property rights (IPR) Value of top U.S. agricultural exports to China in 2010 (million US$) and contending with Chinese 1. Soybeans 11,319 government interventions in the 2. Cotton 2,000 market. China’s market remains 3. Hides and skins 822 restricted or outright closed to 4. Processed animal feed 821 certain key U.S. crops, such as 5. Corn 328 beef, poultry and pork, despite 6. Soybean oil 255 progress made through U.S. 7. Dairy 243 government efforts to secure 8. Fruits, fresh 236 improved market access.

9. Poultry 168 10. Processed foods 158 To help U.S. agricultural 11. Tobacco and products 155 companies, AmCham Shanghai 12.

Nuts 151 has developed the following 13. Vegetables, processed 103 recommendations for the U.S. 14. Fruit, processed 86 government: 15. Alcoholic beverages 45 1. Secure greater market access and improved regulator y Total: $17.8 billion Source: U.S. International Trade Commission t r a n s p a r e n c y f o r U. S . agricultural companies in China and follow up on commitments made

by China at both the national and provincial levels to open additional food markets to U.S. exports; 2. Engage China to improve IPR enforcement to protect U.S. intellectual property through recurring high-level meetings – e.g., U.S.China Strategic and Economic Dialogue (S&ED), U.S.-China Joint Commission on Commerce and Trade (JCCT), the World Trade Organization (WTO) and U.S. Trade R e pre s e nt at ive ( U ST R ) re v i e w s – and encourage innovative approaches to address China’s food production and food safety challenges; 3. Boost funding for U.S. FDA operations in China to advance food safety in China, protect U.S. consumers and promote U.S. standards in China’s food industry; and 4. Support existing USDA cooperative programs that promote U.S. agricultural products in China, such as the Market Access Program (MAP), which focuses on helping small U.S. agricultural companies with less than 500 employees reach remote overseas export markets.

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2011 AmCham Shanghai HR Fair & Workshop Attracts Record Numbers At the 2011 AmCham Shanghai HR Fair & Workshop on Friday, August 26, speakers discussed innovative tools, best practices and how organizations can leverage HR tools and services to address challenges in human resources management. Held at Shanghai World Financial Center, this year’s HR Fair and Workshop drew more than 800 attendees.

The annual HR Fair hosted over 30 service providers in training and development, compensation and benefits, HR consulting services and recruiting and relocation. The fair catered to the diverse needs of attendees and offered an efficient way for them to meet, talk and network with other HR professionals.

The full-day workshop addressed a variety of topics, including cloud-based HR services, executive coaching and career management, among other subjects. The smaller-scale Discovery Sessions at individual showrooms of six service providers offered attendees the flexibility to explore topics of particular interest and exchange ideas with peers and industry experts.

At the HR Fair & Workshop, AmCham Shanghai also released the HR Services Directory, which features articles on HR trends and policy and regulation updates, latest survey findings on employment trends, best HR practices as well as a comprehensive list of top HR services providers. All AmCham Shanghai members will receive a complimentary copy of the directory.

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Goverment Relations AmCham Shanghai Leads Second Delegation to Xi’an AmCham Shanghai led its second business delegation this year to Xi’an, Shaanxi province, to meet with city and provincial leaders. The event included meetings with the vice governor of Shaanxi and presentations by Xi’an Mayor Yue Hua Feng, his chief staff and delegate representative Adam Dunnett of APCO on Xi’an’s future development over the next five years.

There were a total of 22 members on the delegation, who were met by 25 Xi’an-based Chinese companies invited by the Xi’an government. According to a Fortune magazine ranking of investment potential in China, Xi’an ranked number two after Shanghai. In a recent AmCham Shanghai business climate survey, Xi’an ranked third in investment destination cities. According to officials, Xi’an benefits from a lower cost of production (40 percent the labor cost of Shanghai), cost of living and an educated and loyal workforce, especially in science and technology. (Oct 20–22)

AmCham Shanghai Co-Hosts CIFIT Delegation in Xiamen AmCham Shanghai, in association with AmCham South China, hosted a co-delegation of members to the 15th China International Fair of Investment and Trade (CIFIT) in Xiamen, Fujian province. CIFIT is the biggest global investment event approved by the Union of International Fairs (UFI) and is currently China’s only international event aimed at facilitating bilateral investment. This year’s event hosted over 15,000 people from 112 countries. As part of the AmCham Shanghai delegation, members met with leaders of Fujian province, visited the expo and participated in the U.S.-China Enterprises Investment Cooperation Forum, which was hosted by the U.S. Consulate in Guangzhou and AmCham South China. This event was the first cooperative delegation between AmCham Shanghai and AmCham South China and served as a beginning of increased mutual cooperation between the two chambers. (Sept 7–9)

Suzhou Industrial Park Official Discusses Opportunities AmCham Shanghai’s Suzhou Committee met with Suzhou Industrial Park (SIP) Chairman Yang Zhi Ping to discuss the area’s 12th FiveYear-Plan in Suzhou. The event marked the start of dialogue between SIP-invested companies and Chairman Barry Yang. The goal of the meeting was to talk about how to build SIP into a new town with residential, leisure and service industries instead of just manufacturing.

The government hopes to attract investment in the service fields of finance, tourism, social leisure and entertainment as well as high value added manufactures in the next five years. In terms of incentives, SIP expects to provide subsidies and funds for those looking to invest long-term in R&D centers in the area, which would cover startup costs. In addition, there are benefits and packages for employees with higher education or technical skills. This was also the first meeting of Suzhou members with SIP bureaus on its future development plan. (Sept 28)

Governors from Georgia, NC and Washington Talk Business The second U.S.-China Governor’s Dialogue was held in Beijing, part of an ongoing initiative to increase sub-national cooperation between state and provincial governors in both countries. Cooperation began earlier in 2011 in Salt Lake City under a joint agreement by presidents Barack Obama and Hu Jintao. In attendance from the U.S. side were the governors of Georgia, North Carolina, Washington, Guam, Hawaii and the North Mariana Islands. From the Chinese side were the governors of Hunan, Liaoning, Anhui, Jiangxi, Shandong,Yunnan and Zhejiang and the mayor of Beijing. Both sides hope to use the dialogue to propel U.S.-China business relations as well as cultural and educational cooperation. A main topic of discussion by both was job creation. Both agreed that they needed to make it easier to invest in their respective economies in order to promote economic growth and establish new industries and thus new jobs. The U.S. government delegation was also highly interested in AmCham Shanghai’s SME Center plan and stated its interest in working on this program. (Oct 19)

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Event highlights

inside amcham

October Monthly Member Briefing AmCham Shanghai President Brenda Foster, Immediate Past Chair Robert Roche and other delegates from AmCham Shanghai’s 2011 Washington, D.C. “Doorknock” discussed highlights from their meetings with top decisions makers in the U.S. capitol. Roche was also this year’s Doorknock Chair.

Roche opened by reviewing AmCham Shanghai’s key messages, including the importance of U.S. exports to China in job creation in the U.S., and AmCham Shanghai’s recommendation to the U.S. government on how to improve U.S. export competiveness in America’s fastest growing export market. Delegates Ben Kinnas of Wells Fargo, Marie Kissel of Gary Rieschel of Qiming Ventures and AmCham Shanghai Baxter and Gary Rieschel of Qiming Ventures followed by providing an overview of the political environment in Washington, D.C. and the President Brenda Foster reception to the Chamber’s messages. Several meetings, for example, were with freshmen congressional members, for whom it is increasingly important to provide in-depth information on the government’s role in U.S.-China relations and how this plays into job creation. Several identified AmCham Shanghai as go-to resource for information.

Delegates also highlighted the considerable interest in D.C. for the AmCham Shanghai’s planned SME center, which could supplement some of the government’s own efforts to promote U.S. exports from smaller companies in China.

During the program, AmCham Shanghai also distributed copies of its latest Viewpoint, U.S. Export Competitiveness in China: Boosting Exports in America’s Fastest-Growing Overseas Market. (Oct 11)

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inside amcham

WSJ’s Tom Orlik Discerning Fact from Fiction: China’s Economic Statistics While China's National Bureau of Statistics has made improvements that make national GDP numbers reliable indicators of growth, there remains a gap between national-level data and regional-level data as well as discrepancies between public and private data, said Tom Orlik, China correspondent for the Wall Street Journal in Beijing at a recent AmCham Shanghai event. Understanding which economic indicators to track is critical to understanding trends in China's economy.

Tom Orlik of the Wall Street Journal

Orlik spoke on interpreting China's official statistics, being a smart consumer based on these statistics and other data from his new book, Understanding China's Economic Indicators. There is some data, said Orlik, that provides a more compelling story of China's economy, including the Ministry of Human Resources' data on demand balance, which measures the number of people looking for jobs and the number of jobs available. The statistical trend show dips during the recession, but also the effect of government stimulus, which significantly increased the number of jobs available for Chinese job searchers. Knowing the nuances in China's statistics can intelligently direct analysis and predictions of China's economic future.

Orlik’s book, Understanding China’s Economic Indicators, is available for pre-order. If you are interested in purchasing his book in China, please contact Eve Qian at lujiazui@wingsbook.com. (Oct 14)

Governor of Guam Eddie Baza Calvo Attracting Investment Opportunities and Tourism to Guam AmCham Shanghai welcomed Governor of Guam Eddie Baza Calvo, who spoke on the tourism, education and real estate development opportunities in Guam. Only four hours away by plane and the nearest U.S. destination from China, Guam has the benefits of an American system of government and close proximity to the largest Asia markets. Because of these factors, says Governor Calvo, Guam, is an ideal location for Asia-oriented development and investment.

Gov. Eddie Baza Calvo of Guam

Coupled with good weather, white sands, nine golf courses and blue skies, Guam is a popular tourist destination, welcoming over 1 million visitors from East Asia in 2010. The island, said Governor, also sees great benefits from its Commonwealth of the Northern Mariana Islands (CNMI) Visa Waiver Program, where passport holders from certain countries can enter Guam without a visa for 45 days. The Governor is trying to expand this program to China.

Education is also an area of great opportunity, leveraging Guam’s American community and its Asian time zone. Representatives from Shanghai University, for example, recently visited the University of Guam to discuss a potential dual-university tourism degree involving two years in Shanghai, two years in Guam and an internship at a local Guam hotel.

Finally, there are substantial real estate development opportunities. “Best things come in small packages,” says Governor Calvo. There is currently US$1 billion in construction, with plans to build 3000 affordable homes, a museum and a convention center.

To attract investment in these three areas, the government of Guam, said Governor Calvo, is making it as simple as possible for businesses to consider and invest in Guam. (Oct 17)

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committee highlights

inside amcham

Education & Training Committee Dependable Strengths: Unlocking People's Talent and Potential “Because you are unique, there’s something you are better at than anyone else,” said Bernard Haldan. This quote by the pioneer of career counseling was highlighted by Yaping Li, the Executive Director of China Center for Dependable Strengths, who spoke at the Education and Training Committee event about how each person can be their best self.

Li discussed how people have core strengths and they should use them, rather than focusing and trying to overcome personal weaknesses.

We are born with dependable strengths, said Li, and these are traits that can help motivate others. People who are motivated to work harder will increase productivity in the workplace, or at school. The more you know about yourself, the more you will be able to manage your career developments.

During a discussion among members, each had their own interpretation of Li’s speech. When asked about the best way to get people motivated and organized using dependable strengths, one group stated that it was first self-discovery. When you figure out your strength, you are then able to excel at the task given to you. A different group talked about the benefits of knowing each other’s strengths within an organization, building trust among your peers.

Overall, Li said each one of us has certain strengths and weaknesses; it’s whether you recognize your hidden potential that makes you better. (Oct 17)

Events and Committee Highlights are reported by Kathy Vitale and Esther Young

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Executive Eats

What’s your favorite place to have a business lunch in Shanghai?

This month, Insight asked executives to share where they enjoy having a business meeting over good food. There weren’t too many surprises, although Din Tai Fung appeared to be a favorite by a long shot.

Bill Teeter, senior vice president, International and CEO, Asia-Pacific Region Tyson Foods Inc. Restaurant:

Blue Frog

Remarks: “Many of my lunch guests are visitors from the States By the time they meet up with me they have usually had sufficient opportunity to enjoy Chinese food and are ready for something more ‘comfortable. I have found all the Blue Frog units to have well-trained and attentive staff, the menu has good variety, food has never disappointed and the value is reasonable. My personal favorite lunch at the Blue Frog is their Cobb Salad.”

Chris Cox, president, Classic Asia Group Restaurant: Din Tai

Fung, Portman

Remarks: “Exquisitely simple food in a diner-like, classy atmosphere. Always hopping busy yet constant drone of chatter creates a bubble of privacy. Seriously skilled, paper thin, juice-laden dumplings are a hit amongst locals and foreigners alike. The gaggle of expert dumpling wrappers on full display sporting laboratory white-garb uniforms churn out fresh dumplings at a wicked pace. Can’t go wrong with the standard dumplings and the DouGanSi appetizer.”

Restaurant: Din Tai

Fung

Remarks: “The functional lunches that I have done in Shanghai, usually take place at DTF because the food is good and diverse, catering to the tastes of many. The famous Shanghai xiao long bao makes a good story for first time Shanghai’ers (e.g. foreign executives from your HQ), quick and attentive service, location close to our office and it’s foreigner friendly. Only downside is that you cannot make reservations after 12.”

Matt Fortin, director of Global Supply Chain, China Grainger Global Trading (Shanghai) Restaurant: Din Tai

Fung, SWFC, Lujiazui

Remarks: “Usually take foreign visitors to Din Tai Fung – 100 percent of the visitors really like it, favorite dish is of course Shanghai classic, xiao long bao.”

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imaginechina

Tineke Zuurbier, manager, Public Policy, Baxter in Asia-Pacific

Swen Neufeldt, vice president, Hormel Foods International Restaurant:

Lost Heaven

Remarks: “One of my favorites has to be Lost Heaven on Gaoyou Lu, near Fuxing Xi Lu. The atmosphere is very cool, it is great for mixed groups of Eastern and Western guests, and the food is very consistent. I can't go without eating the Dali-style chicken with chili and green onions and the fish cakes. The service isn't as consistent, but the food makes up for it. The fact that it is not on the Bund, or other very busy areas of town, also means that logistics are a little less hectic.”

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