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

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INSIGHT The Journal of the American Chamber of Commerce in Shanghai September 2011

SOUTH CHINA SEA

Are Trade Routes at Risk? DISPATCH

Chinaâ&#x20AC;&#x2122;s Long-Haul Truckers AMCHAM UPDATE

Constitutional Vote

Educating Xiaoli

Chinese students no longer have to leave the country to get an American education as a growing number of U.S. universities open campuses and special programs in China

INSIGHT September 2011

The Journal of the American Chamber of Commerce in Shanghai

amcham shanghai President

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

David Turchetti Directors

F eat u res

12 No Wheels of Fortune

Karen Yuen Committees

David Basmajian

16 Taking Stock of the New Envoy DIPLOMATIC ANGLE

Events

Jessica Wu Finance & Administration

Helen Ren

Membership & CVP

Linda X. Wang

INSIGHT managing editor

Bryan Virasami Senior Associate Editor

Esther Young

Associate Editor

18 The Toledo Connection

INSIGHT Sponsorship

INDUSTRY INSIGHT

24 Digital Diagnosis

Sophia Chen

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.

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

By Efen Huang

Chinese consumers turn to Internet bulletin boards and other online sources to investigate their health concerns, according to a Burson-Marseller China survey.

COVER STORY

28 Degrees Without Borders

By Lauren Hilgers

The growing demand for an American-style education is attracting many U.S. universities to China that are opening up special programs or even stand-alone campuses.

sponsorship manager

(86-21) 6279-7119 ext. 5667

maritime

Conflict at Sea

I nsight standards

5 News Briefs

By Yang Fang

A maritime fellow in Singapore dissects the ongoing South China Sea dispute and wonders whether the problem could become serious enough to obstruct one of the world’s most crucial trade routes.

44 July 4 Celebration

EXECUTIVE GADGETS

AmCham Shanghai members and staff tell us about their most favorite apps and why they can’t live without them.

46 Deal of the Month

DOORKNOCK UPDATE

Read about the issues that AmCham Shanghai will discuss during the annual Doorknock trip to Washington, DC this month.

I N S I D E A m C ham

40 From the Chairman: AmCham Shanghai’s constitutional amendment vote 41 Board of Governors Meeting 42 Constitutional Amendments 47 Inside AmCham Shanghai Cover: illustration, Marianne Kaulima; model, Hugo Lu; skyline, iStockphoto

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

istockphoto

Mickey Zhou Snap Printing, Inc.

By David Turchetti

An AmCham Shanghai event helps the city of Toledo secure major investment dollars from Chinese investors.

Design

Layout & Printing

GREEN CITIES

Ryan Balis

Alicia Beebe

By Joyce Bian

Chinese scholars and political observers have plenty to say about what issues they think Gary Locke will face as the new U.S. ambassador to China.

imaginechina

insight editor-in-chief/ Communications & Publications

By Rachel Katz

An American Fulbright recipient spends six months on the road with long distance Chinese truck drivers and tells us about her unique experience.

Business Development & Marketing

Siobhan M. Das

UP CLOSE WITH TRUCKERS

Editor's note

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

t has been an eventful summer for U.S.China relations. After a longer than expected wait, Gary Locke was confirmed by the U.S. Senate as the new U.S. ambassador to China. Warmly welcomed by AmCham Shanghai and the American business community, Ambassador Locke arrived in China with his family on August 12. In this month’s Insight, Bryan Virasami and Joyce Bian report on the Chinese perspective on the new U.S. ambassador and ideas from the Chinese media on his potential impact. First on Ambassador Locke’s to-do list was ensuring a smooth visit for U.S. Vice President Joe Biden, who traveled to China in August. While in China, Vice President Biden called for improved market access for U.S. companies and highlighted the importance of China as a market for U.S. exports. In this month’s Insight, Brenda Foster, AmCham Shanghai’s president, echoes Biden’s call and underlines the increasingly important role U.S. exports to China play in the U.S. economy.

For example, the US$93 billion in exports to China in 2010 supported more than 500,000 American jobs. Foster provides specific recommendations for U.S. policymakers to enhance U.S. export competitiveness. In 2010, more than 100,000 Chinese students studied in the U.S. But as Chinese families continue to see a degree from a U.S. university as the gold standard for higher education, more and more U.S. schools are coming to China to open campuses. In this month’s cover story, Lauren Hilgers talks to NYU, Michigan, Duke, Johns Hopkins, MIT and others to learn more about their plans and the varied approaches they are taking. Finally, APCO Worldwide Greater China Chairman and former Shanghai U.S. Consul General Ken Jarrett reviews “Managing the China Challenge” written by Kenneth Lieberthal of the Brookings Institution. Find out what he thinks about it on page 50.

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News

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

CHINA BUSINESS

UnionPay top circulated card China UnionPay Co., Ltd. has overtaken Visa to become the world’s No. 1 bank payment card (debit and credit) as measured by number of cards in circulation. The UnionPay logo is printed on 29.2%, or 2.5 billion, of the roughly eight billion payment cards used worldwide. By comparison, cards carrying the Visa logo hold a secondplace 28.6% share, while MasterCard, American Express and Discover branded cards make up 20%, 1.1% and 0.7%, respectively, of the worldwide card market. However, UnionPay is far behind the competition in terms of frequency of use and amount of money transacted. UnionPay was established in 2002 and has benefited from rules that require foreign companies to co-brand their cards issued in China, among other restrictions.

N. China adds massive oil processing center China Oil and Foodstuffs Corp. (COFCO) opened the first phase of what will become north China’s largest cooking oil processing base in Tianjin. The factory covers an area of 300,000 square meters (3.2 million square feet) in the Tianjin Harbor Economic Area and is slated to produce 2.3 million metric tons of vegetable protein and 900,000 metric tons of cooking oil products, which are Chinese food essentials, annually. When all three construction phases are complete by 2015, the factory will supply the edible oil needs of 260 million people, especially residents in Beijing and Tianjin. The project was initiated in 2009 with a RMB4 billion (US$625.2 billion) investment.

Chinese flock to U.S. graduate schools An increasing number of Chinese students are attending U.S. graduate schools, according to a newly released study by the Washington, D.C.-based Council of Graduate Schools.The report finds a 21% increase in the number of Chinese applicants looking to study at U.S. graduate schools in fall 2011 compared to the previous year. Offers extended to Chinese students increased 23% over the previous year.The number of Chinese applicants and admissions offers for Chinese outpaced those from other international students by a double-digit margin. Over 127,000 Chinese were enrolled in U.S. undergraduate and graduate schools in the 2009–2010 academic year, a nearly 30% increase over the previous year. “In China, the economy is booming and both students and their parents have the money and are willing to invest it in education,” Peggy Blumenthal, senior counselor at the New York-based nonprofit Institute of International Education (IIE), tells the Wall Street Journal. Business schools particularly are in high demand among Chinese. China is the fastest-growing source of international students in the world followed by Saudi Arabia.

China to double solar capacity China’s solar capacity is set to double to two gigawatts by the end of 2011, according to a report by the Energy Research Institute, a state-run Chinese think tank under the National Development and Reform Commission (NDRC). Stepped up

installation of solar panels by the world’s largest solar-panel maker and an expected production increase from 40,000 tons to 90,000 tons of polysilicon, which is a material needed for solar panel production, are two factors driving the capacity increase. However, a possible drop in the pricing system afforded producers to below

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RMB0.80 (US$0.12) per kilowatt-hour is a challenge for providing the RMB2 billion in funding needed to meet capacity goals.

China to up pork imports China is likely to import additional pork moving forward, including from the U.S., as consumers contend with spiraling costs for the staple protein. In July, the price of pork increased 57% year-on-year in China, contributing to a 6.5% surge to the Consumer Price Index (CPI) – a 37-month high. Several factors are driving up prices, including stronger consumer demand and a domestic supply shortage. The Chinese government has introduced a RMB2.5 billion (US$391 million) investment in large-scale pig farms that includes subsidies to encourage production. U.S. Department of Agriculture (USDA) data show the U.S. exported 192,500 tons of the meat and related products to China between June 2010 and February 2011. CORPORATE NEWS

GE moves unit to Beijing GE Healthcare, a unit of General Electric Co. (GE), announced it is moving its global X-ray headquarters to Beijing, marking the first such business by the company to be based in China. GE expects the relocation, which should be complete by the end of this year, to help it advance sales in China’s fast-growing healthcare market, as well as expand access for Chinese to quality healthcare services. The company’s healthcare revenue in China amounted to about US$1 billion in 2010 and is expected to grow 20% annually through 2015. GE’s existing, over 100-year-old X-ray division is based in Waukesha, WI. GE says the transition should be complete by the end of this year and will not result in any U.S. job losses.

Coca-Cola to invest $4 billion in China Coca-Cola Co., the world’s largest soft drink maker, is planning a US$4 billion investment in its China operations over

the next three years, announced Chairman and CEO Muhtar Kent in Shanghai. The new spending will go towards adding new bottling facilities, expanding existing facilities and upgrading the company’s distribution system. Coca-Cola is winding down a previous US$3 billion investment in China between 2009 and 2011. China is a rapidly expanding market for the Atlanta, GA-based soft drink giant thanks to an expanding consumer base, accounting for 7% of the company’s global sales – its third largest global market. Meanwhile, CocaCola is eyeing a listing on the planned international board of the Shanghai Stock Exchange.

Caterpillar to open parts factory Caterpillar, Inc. announced it will open a new factory in China to manufacture undercarriage components and track assemblies for Cat hydraulic excavators. Caterpillar aims for the new facility to help it expand its presence and capacity in the Asia-Pacific region, support operations in China and achieve cost-cutting benefits for the company. Caterpillar expects the 18,000 square meter (193,750 square foot) facility in Xuzhou Economic Development Zone in Jiangsu province to begin production in mid-2012 and employ about 400 workers. Caterpillar operates an existing partsmaking facility in Tianjin with joint-venture partner AsiaTrak Ltd.

Dell’s China revenue climbs 20% Dell, Inc. reported a 20% annualized increase in its second quarter revenue in China on growing consumer demand and need for services like storage, data management and cloud computing. Dell, the world’s No. 2 personal computer (PC) maker, is bullish about its prospects in China, pointing to high growth expectations in PCs and tablet computers. In July, Dell launched a 10inch Android tablet computer in China, the Streak 10 Pro. Dell is looking further to capitalize on the tablet market when Microsoft Corp. is expected to release the Windows 8 operating system in 2012. Dell reported a 1% increase in global earnings

of US$15.7 billion over the second quarter, slightly missing analyst estimates. MACROECONOMICS

China GDP growth projections trimmed China’s economic growth is projected to be slightly weaker this year as well as 2012 compared to earlier estimates, according to Deutsche Bank AG and Morgan Stanley. Deutsche Bank forecasts that China’s GDP growth for 2011 may decrease to 8.9%, down from 9.1% it previously estimated. Meanwhile, Morgan Stanley predicts China’s economy will slow next year to 8.7% growth, lowering its previous estimate of 9%. Analysts predict demand in Western nations for Chinese exports will weaken in the second half of 2011 because of fiscal tightening. China recorded 9.5% GDP growth in the second quarter of 2011, down from 9.7% in the first quarter. In 2010, China’s GDP grew 10.3%, up from 9.2% the previous year.

CPI edges to 37-month high National Bureau of Statistics (NBS) data show China’s Consumer Price Index (CPI), a major gauge of inflation, picked up to 6.5% in July year-on-year, up from 6.4% in June and reaching a 37-month high. Food prices, which make up about a third of the CPI, raced ahead 14.8% year-on-year in July, as pork costs surged 56.7% from a year ago. The country’s CPI reading has exceeded the government’s 4% inflationary target for 2011 in each of the first seven months of the year and is up 5.5% thus far in 2011. China’s Producer Price Index (PPI), a measure of inflation at the wholesale level, increased 7.5% in July, up from 7.1% in June.

FDI flows into China slow China’s Ministry of Commerce (MOFCOM) reported that foreign direct investment (FDI) into China amounted to US$8.3 billion in July, up 2.7% year-onyear but down sharply from the US$12.9 billion received in June. FDI from the U.S. decreased 19.1% over the first seven

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months of the year to US$1.9 billion, while 844 U.S. companies established a business in China over the same period, a 4.7% decrease year-on-year. Despite the recent slowdown, figures for the January–July period show China still is attracting robust investment with US$69.2 billion flowing in, up 18.6% year-on-year. FDI growth is likely to remain positive for the year thanks to interest in and support policies for China’s strategic emerging industries.

Manufacturing dips to 29-month low China’s Purchasing Managers Index (PMI), a key measure of the country’s manufacturing sector, fell to its lowest level in 29 months, recording a reading of 50.7 in July, down from 50.9 in June. A mark over 50 indicates expansion for the month, while below 50 signals contraction. July’s reading is the fourth consecutive month of lower manufacturing activity, indicating a moderate slowdown in China’s manufacturing sector as the government continues to implement measures to cool the economy. Separately, the HSBC China Purchasing Managers’ Index, another PMI, dropped to 49.3, the first reading below 50 in one year. U.S.-CHINA

U.S., China agree on M&A sharing The U.S. and China will increase information sharing on cross-border mergers and acquisitions (M&A), according to an antitrust memorandum of understanding (MOU) signed in Beijing by the U.S. Federal Trade Commission (FTC), the U.S. Department of Justice (DoJ) and three Chinese agencies responsible for enforcing China’s antimonopoly law: the National Development and Reform Commission (NDRC), the Ministry of Commerce (MOFCOM) and the State Administration for Industry and Commerce (SAIC). The MOU is designed to increase cooperation and coordination among U.S. and Chinese antitrust enforcement agencies on select cases and investigations. The MOU also

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provides for bilateral exchanges, including providing comments on proposed laws, regulations and guidelines, as well as sharing of enforcement experiences.

Xinhua appears in Times Square Xinhua News Agency became the first Chinese company to purchase advertisement space in New York City’s famed Times Square, increasing the Chinese state-owned media group’s visibility in one of the most iconic locations in the world. The 60 feet by 40 feet space that now features Xinhua’s corporate logos occupies the second-highest position at the 2 Times Square tower, which previously had been leased by HSBC Holdings Plc. Terms of the deal including the length of the lease were not publicly revealed. In a further illustration of looking to increase its media presence in the U.S., Xinhua recently closed a deal to move its New York office from the borough of Queens to 1540 Broadway in the heart of Times Square.

St. Louis, China forge air shipping link Officials from the Midwest-China Hub Commission are nearing the establishment of an air trade link between St. Louis, MO and China with the objective of boosting exports to China. Once operations begin in September, three charter flights will operate among Pudong, Shanghai and St. Louis, exporting agricultural and other Midwest products, creating between 12,000 and 15,000 jobs in St. Louis and helping to attract Chinese investment to St. Louis. Officials hope to establish a regular freight service with a cargo unit of China Eastern Airlines. The Midwest-China Hub Commission is a more than two years old public-private collaboration among St. Louis, Missouri and China. The Missouri legislature must approve the link before operations begin. GOVERNMENT & POLICY

NRDC sets solar energy rates The National Development and Reform

SEPTEMBER 2011

Commission (NRDC), China’s main economic planning agency, announced electricity prices of photovoltaic (PV) solar installations approved under noncompetitive tenders. According to the government’s guidelines, grid operators will pay developers of solar installations RMB1.15 (US$0.18) per kilowatt-hour (kWh) for projects that had been approved before July 1. Energy from projects approved after July 1 will be sold to grid operators at RMB1 (US$0.16) per kWh. The move is expected to help further development of China’s non-fossil fuel energy sector in support of the country’s most recent 12th Five-Year Plan (FYP). China’s solar power generating capacity was between 700 and 900 megawatts at the end of 2010.

China releases new bank capital rules The China Banking Regulatory Commission (CBRC), China’s banking regulator, released draft rules that will increase banks’ capital requirements. Large banks considered “systemically important” will be required to hold an 11.5% capital adequacy ratio (CAR), as well as set aside an additional 2.5% for periods of financial and economic stress when the ratio could be raised to as high as 14%. Non-systemically important banks will be required to hold a 10.5% minimum. While the rules will go into effect starting in 2012, banks will be given between a two and five year grace period to meet the new requirements. The draft rules are now available for public review and comment.

China sells RMB20 billion “dim sum” bonds China’s Ministry of Finance initiated the sale of RMB20 billion (US$3.1 billion) worth of yuan-denominated government bonds, as China works to build Hong Kong into an offshore hub for yuan. The latest offering of so-called “dim sum” bonds is the largest yet in the offshore bond market in Hong Kong. China has

allocated RMB15 billion worth of bonds to be sold to institutional investors, while the remainder will be available for retail purchase. The sale marks the third offshore RMB sale by China in Hong Kong over the past three years. The previous two offerings in 2009 and 2010 raised RMB6 billion and RMB8 billion, respectively. SHANGHAI BUSINESS

U.S. Consulate issues 1million visas On August 8, the U.S. Consulate in Shanghai issued its one millionth U.S. visa since 2004, illustrating the tremendous growth in demand among Chinese for travel to the U.S. In 2010, the Consulate processed more than 30% of the roughly 800,000 U.S. visas issued among all U.S. missions in China. “We are delighted that so many Chinese citizens are going to the U.S. to study, travel or do business,” thenU.S. Consul General Beatrice Camp who celebrated the milestone in a ceremony and

lucky prize drawing on the last day of her three year service as consul general. Three successful Chinese applicants won free trips to Hawaii or Guam.

the China Internet Network Information Center (CNNIC).

Wal-Mart opens e-commerce base in Shanghai

Data from the Shanghai Statistics Bureau show the city achieved steady trade growth in July, while industrial output moderated and inflationary pressure edged down. Shanghai posted a record monthly high for export growth after a four-month slowdown, increasing nearly 20% yearon-year in July to US$20.3 billion. Import growth also expanded strongly, jumping 24% year-on-year to US$19.3 billion. However, industrial output fell in July to RMB269.6 billion (US$42.1 billion), a 5.7% expansion year-on-year yet lower than June’s 6.8% increase. Meanwhile, inflationary pressure eased slightly in July with consumer prices increasing 5.6% year-on-year, down from 5.9% in June and less than the 37-month high of 6.5% recorded nationally.

During a ceremony in Shanghai, representatives of a division of Wal-Mart Stores, Inc., the world’s largest retailer, signed a memorandum of understanding (MOU) with the Shanghai Municipal Commission of Commerce to set up the company’s e-commerce headquarters in Shanghai. Wal-Mart’s bringing its Global eCommerce unit to Shanghai will help the company provide online services in China’s rapidly growing consumer market. Wal-Mart is bullish about the online sales market in China, which it says is projected to match the scale in the U.S. over the next few years. China had 161 million online shoppers as of December 2010 and is growing at a 48.6% rate, according to

Shanghai’s economic growth steadies

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CHINA & THE WORLD

SOUTH AMERICA ASIA-PACIFIC

HONG KONG: China pledges development support China will support Hong Kong’s development as an international financial center and increase access for its traditional and emerging services industries to the mainland, according to a speech by visiting Chinese Vice Premier Li Keqiang in Hong Kong. Li announced several specific financial measures that the central government is taking, including allowing “Qualified Foreign Institutional Investors” to purchase RMB-denominated securities in the mainland market and the government’s issuing RMBdenominated treasury bonds in Hong Kong for cross-border flow of Chinese currency. China also will work to liberalize the services trade with Hong Kong to help grow the mainland’s relatively underdeveloped services sector.

MIDDLE EAST

ASIA-PACIFIC EUROPE

RWANDA: China inks RMB100m deal Government officials from China and Rwanda signed six economic and technical cooperation deals, including China’s issuing the resource-rich East African nation RMB100 million (US$15.7 million) worth of funds to spur economic development and trade. The RMB100 million in financing includes a RMB50 million grant for development projects and another RMB50 million for a five-year, interestfree loan to the Rwandan government. China will be involved with constructing a new 89,000-squarefoot government administration complex, a 16-mile road in the capital city of Kigali, a hospital, as well as providing Rwanda with medical devices and pharmaceuticals. Bilateral trade between China and Rwanda is projected to double from 2010 levels to US$300 billion by 2015.

AFRICA

ROMANIA: Premier meets PM Boc Chinese Premier Wen Jiabao met in Beijing with his Romanian counterpart Prime Minister Emil Boc to discuss investment opportunities for Chinese firms in Romania. Boc is seeking investments worth at least RMB9.2 billion (US$1.4 billion) each in five major projects in the fields of energy, transportation and agriculture. Another proposal discussed is China’s opening a Romanian subsidiary of China Development Bank, which is one of China’s three state-owned “policy banks” that primarily raises funds for large infrastructure projects. Boc says he wishes for Romania to be a “gateway for China into the European market” and part of “the new modern Silk Road” with a strong political and trade relationship with China.

MIDDLE EAST EUROPE

NORTH AMERICA MIDDLE EAST

AFRICA

QATAR: Direct flights from Chongqing Officials from the Chongqing Municipal Government and Qatar Airways Ltd. signed an agreement to establish the first direct air link from western China to the Middle East. Qatar Airways is scheduled to begin the new service on November 28 and operate three round-trip flights per week to the capital city of Doha, increasing the airline’s weekly flight capacity to China to as many as 28. Qatar Airways has operated in China since 2003 and currently serves Beijing, Shanghai and Guangzhou on the mainland in addition to Hong Kong. The Chongqing–Doha route will save connecting passengers up to 10 hours when flying to South America, Africa and Europe.

NORTH AMERICA

SOUTH AMERICA MIDDLE EAST AFRICA

UNITED STATES: V.P. Biden tours China U.S. Vice President Joe Biden completed a six-day official visit to China that included meetings with Chinese President Hu Jintao, Premier Wen Jiabao and Vice President Xi Jinping. During his visit, Biden addressed important U.S. economic issues and reiterated the U.S.’s deep commitment to “maintaining the fundamentals of the U.S. economy that ensure the safety, liquidity and value of U.S. Treasury obligations for all of its investors.” Biden was in China on the invitation of Xi who accompanied him to Sichuan province during which Biden toured the area devastated by the 2008 earthquake and delivered a keynote speech at Sichuan University. Biden’s visit had been planned earlier this year during President Hu’s state visit to the U.S.

AFRICA ASIA-PACIFIC NORTH AMERICA

SOUTH AMERICA

ARGENTINA: ICBC acquires stake in Standard Bank Industrial and Commercial Bank of China Ltd. (ICBC), China’s largest commercial bank, is buying an 80% stake in the Argentinean unit of Johannesburg, South Africa-based Standard Bank. The US$600 million transaction, which requires regulatory approval, includes the stake in Standard Bank Argentina SA, as well as two of its affiliates, Standard Investments SA and Inversora Diagonal SA. In 2007, state-owned ICBC paid US$5.5 billion for a 20% stake in Standard Bank, which is Argentina’s 12th largest bank by amount of assets. The move increases ICBC’s global presence and helps it service the growing demands of Chinese business customers abroad.

ASIA-PACIFIC

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NORTH SOUTHAMERICA AMERICA EUROPE

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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

Here are some of the noteworthy executive level changes at companies operating in China. imaginechina

Starbucks China Coffee shop giant Starbucks has an ambitious plan to have 1,500 stores on the Chinese mainland by 2015 and will soon launch a joint-venture with a southwest Yunnan coffeegrowing company to buy, export and roast local coffee beans. To help do this, the company named Belinda Wong president of Starbucks China and promoted former China president Wang Jinlong to president for the Asia-Pacific Region, in August. Wong was previously in charge of Starbucks’ business in Hong Kong since she joined the company 11 years ago. A longtime senior manager,Wang has witnessed the company’s development in China from one store to more than 450 stores today.

Wang Jinlong

PRIVATE SECTOR Wal-Mart Wal-Mart appointed Sean Clarke as chief operating officer of Wal-Mart China in July. Clarke was joined by Steven Smith, the new chief marketing officer in China. Banks Peter Wong was appointed chairman of HSBC Bank (China) Co. in July, succeeding Vincent Cheng, who recently retired. Wong will continue his role as chief executive of HSBC and group managing director of HSBC Holdings. Citigroup, Inc. named Steve Yang as head of credit sales in Greater China in early August. Lendy Cui joined the Bank of America Merrill Lynch Shanghai team in August. She has 13 years of experience in corporate banking, including more than five years at Citibank and Rabobank. Joining Cui is Kenny Zhang, also a corporate and investment banking expert. Zhang worked as a corporate banker with the Bank of Tokyo-Mitsubishi, HSBC and Citibank. Bristol-Myers Squibb Dr. Jean-Christophe Pointeau became the new president of Bristol-Myers Squibb (China) Investment Co., Ltd. and Sino-American Shanghai Squibb Pharmaceuticals Ltd. in April. Dr. Cezary Statuch was also appointed vice president of R&D China and Global Medical Japan & India at Bristrol-Myers Squibb in April.

Pointeau

GE Healthcare, Global X-ray Anne LeGrand, vice president and general manager of GE Healthcare Global X-ray, was among company executives who moved from Waukesha, Wisconsin to Beijing earlier this summer to oversee the company’s X-ray business. LeGrand joined GE Healthcare in July 2010 from Philips Healthcare.

Hotels LeGrand Hilton Worldwide appointed Edmond Ip chairman of Greater China in August, and he will act as an adviser to Hilton Worldwide. Regalia appointed Eric Chung vice president of the Regalia Hotel Group in July. Chung joined Regalia in 2005 as director of projects and has a background in architecture field and hospitality. Winston Chien was appointed vice president of Carlson Hotels in China in August 1. Chien will Ip Miller Chien oversee operations and spearhead strategic development projects in China. Carlson plans to double the number of hotels to 150 by the end of 2015. MGM Hospitality named John Miller vice president of design & construction, Asia-Pacific. Miller will provide technical services advice to MGM Resorts International hotel projects and support MGM Hospitality's expansion in Asia-Pacific, including its first non-gaming five-star hotel in mainland China, MGM Grand Sanya to open in the first quarter of 2012. Government The State Council appointed Shang Bing vice minister of the Ministry of Industry and Information Technology in July. Shang was previously president of China Telecom Corp., which he joined in 2008 after holding several management positions at China Unicom. If your company has executive personnel changes, please contact Joyce Bian at joyce.bian@amcham-shanghai.org.

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logistics B y R a c h e l K at z

Photos courtesy Rachel Katz

No Wheels of Fortune An American Fulbright recipient spends six months on the road with Chinese truckers and learns about unwritten traffic rules, instant noodles and a fragmented industry

river Yang pulled his 18-wheeler to a stop on a small road outside a town called Pengzi just as the sun was going down. A policeman stood in front of him holding his arm straight out and looking bored. Yang climbed down out of his truck and walked by the policeman without a word. Traffic police were scattered around a small concrete building by the side of the road. Some leaned against walls while others draped over chairs. Yang stepped up to a window on the side of the building, paid RMB200, about US$30, got a receipt, and we headed off again down the thin, crumbling road. A steady stream of long-haul trucks pass through the town of Pengzi in northern Jiangxi province headed for Shanghai on a makeshift detour connecting two unfinished highways. Pengzi’s traffic police department fines all trucks at a flat rate of RMB200 under a general

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assumption that all trucks are breaking the law in some way. The officers don’t ask questions or do any inspections; in fact, no one said anything during the entire exchange. “What if everything is legal?” I asked Yang. “They’ll be able to find something wrong,” he said. So he silently paid his RMB200, just like all the other times. I was riding with Yang and his co-driver for the final 250 miles of their 900 mile trip from Guangzhou to a city near Shanghai. Yang is from a small town near Hangzhou in Zhejiang province. When he was 16, he dropped out of school and started working in construction. A decade later Yang began driving, initially without a license. He eventually went through training and passed the two tests required to obtain a class A2 license, allowing him to drive the largest trucks allowed on the road in China. Now he drives on average four trips each month between Guangzhou and

Shanghai, visiting his wife and 15-year-old son in his hometown twice a month between trips. My trip with Yang was one of many truck trips I took over the course of six months during which I circled and traversed southeast and central China with truck drivers, covering over 7,000 miles and passing through 13 provinces. The goal of the project was to understand the conditions and obstacles drivers face in their daily work, particularly owner-operator drivers who make up the majority of truckers in China, and to understand how those conditions influence the service these drivers provide. I met the drivers at logistics centers and highway rest stops, and despite a sometimes frustrating language barrier and extreme cultural differences, drivers consistently welcomed me into their trucks and communities with exceptional generosity and hospitality. I rode with over 30 drivers over the course of the project, and

although some couldn’t understand why on earth I would want to ride along in their trucks, almost all were quick to take me on as their charge and concern themselves with the task of keeping me safe and comfortable. Every driver I rode with insisted on buying me a meal or a snack. Chinese owner-operator truckers spend most of their lives on the road, going home at most once or twice a month and in some cases only once a year for the Chinese New Year. The truck owners are usually rural residents who have bought a truck for about RMB400,000 to RMB600,000 (US$60,000 to US$90,000) using personal and family life savings. An owner then hires a codriver for a small salary, and together the two men haul all kinds of goods, mostly domestic, ranging from steel to pineapples to pigs. Drivers who work together are usually from the same hometown, and often drive between a big hub city, such as Guangzhou or Chengdu, and a destination near their hometown. They drive straight from the pick-up point to the drop-off, switching off driving and sleeping on a thin cot in the back of the cab in four to six hour intervals. They stop for fuel and meals at roadside rest stops, usually eating cafeteria style buffets or instant noodles and packaged meats. Other than that, they generally don’t get off the highway.

Taken for a ride Life on the road in China reminds me of a board game. There’s a starting point and a finish line, and in between there are a series of money sinks. Each trip, drivers alight with a sum of cash and strategize through the maze trying to reach the finish line with some cash still in their pockets. Traps on the road are variable and often illogical, like the Pengzi ticketing stop. There are three separate police departments that issue tickets to trucks with some overlapping responsibilities but no coordination. Each of these departments employs separate teams of police, conducts separate inspections and issues separate tickets. A mess of local and provincial government bureaus and road development companies also extract money from drivers through highway tolls and

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Chinese owneroperator truckers spend most of their lives on the road.”

Driver Yang at the wheel

“

In the U.S., you issue tickets in order to control traffic. In China, we control traffic in order to issue tickets.” – Driver Yang

checkpoints at provincial borders. The system is complex and unpredictable, but the drivers learn the game along their route and do their best to minimize the excessive fees and fines. I once sat with drivers for six hours in a parking lot to wait until dusk so that we could pass through a checkpoint after the police had gone home. On another trip, I was with a driver who was carrying an oversized load and had purchased an oversized load permit from the traffic police department but had not purchased a permit from the Road Administration department. Even though we waited until midnight to depart, the latter department slapped him with a RMB200 fine for his oversized load around one in the morning. Aside from unnecessarily skimming off drivers’ meager profits, the system results in long delays and does little to improve actual road safety. “In the U.S., you issue tickets in order to control traffic,” Yang, the driver, told me. “In China, we control traffic in order to issue tickets.” There are a variety of money traps on the road besides ticketing. Parking is a big expense, but drivers often have no choice but to park for days while waiting for a load. Truck maintenance

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costs are exacerbated by the use of cheap trucks and accelerated depreciation due to overloading. Highway side service is charged at a heavy premium since a trucker that breaks down en route has limited options. Even food at highway rest stops costs two or three times as much as a meal in a nearby city. In other words, many people have gotten very good at skimming off the already tiny profits of these drivers. Among the drivers there is a general sense of helplessness. Lacking other employment options, drivers are stuck in a big problem that cannot be solved from the inside. Despite the hardships, many drivers do find ways to cope. The most successful drivers I met have learned to survive in this system by building a life within it rather than struggling against it. One driver, with whom I took three different trips, has been driving a route between Chengdu and his hometown in Anhui for over 20 years. A dozen or so relatives and other men from his town have followed suit, and now there are a gaggle of them who drive the same route, often in caravans of two or three trucks. Someone from his hometown saw a business opportunity and opened a small motel in

Chengdu where they all stay when they are there. They help each other with breakdowns and share cigarettes and celebrate birthdays on the road. The long waiting periods turn into card games and leisurely meals. They also share connections and help each other find loads, easing slightly the stress of the near profitless industry and creating a semblance of a larger organization in this extremely fragmented industry. Ultimately, though, the drivers can do little to increase profits and thrive within the confines of the system. Owner operators are still the foundation of China’s transport system, providing an estimated 60 to 80 percent of trucking services in China. Trapping drivers in the current losing game will only perpetuate the industry’s inefficiency, increase the risk of social backlash and continue to abuse a population of people without whom the country cannot function. The recent trucker strikes in Shanghai over high fees and fuel prices offered a short glimpse into the larger discontent, but resulted in minor, localized changes. Most drivers in China never heard about the strikes. Real change will require an effort at the level of the provincial and national governments. So far, however, investment and planning in the trucking industry has largely ignored this vital population of owner-operator drivers, who unglamorously enable China’s growth. For Driver Yang, the situation is simple, and dismal. “Fines are heavy and the price of shipments is low,” he said. “There’s nothing I can do. It’s the country’s problem.”

Rachel Katz recently returned to the U.S. after 10 months in China on a Fulbright research grant where she studied the lives of long haul truckers. She graduated from Brown University where she studied international relations with a focus on economic development in China. She is writing a book about her truck trips, which is expected out later this year. Visit her blog at: longhaulchina.com.

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d i p l o m at i c a n g l e B y J oy c e B i a n a n d B rya n V i r a s a m i

imaginechina

Chinese scholars and commentators have lots to say about what to expect from the new U.S. ambassador

Taking Stock of the New Envoy

olitical insiders and critics in the United States usually point to the large trade deficit, the Renminbi and intellectual property rights as major issues that Ambassador Gary Locke will raise with the Chinese government in Beijing. It should be no surprise, however, that there’s no shortage of opinions among Chinese scholars and officials about what challenges the new envoy will face and how he will handle them. Locke is expected to be quite busy during his first few months ensuring that high-level visits between Chinese and U.S. officials go smoothly, including Vice President Biden’s recent five-day trip that included Beijing and Chengdu. One of the first things Locke did was to meet with reporters and explain that the U.S. government has already taken steps to address the high debts that led to Standard & Poor’s downgrade of the U.S.’s triple-A credit rating. “The message would be that the President and the government of the United States of America are committed to getting our fiscal house in order,” Locke said in response to a question from a Chinese television reporter in Beijing. At the same news conference, joined by his wife and three children, he stressed that there’s a need for stronger ties between the U.S. and China and that President Obama told him to take that message to China. But reporters were interested in more than

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talk about bilateral relations. Some of their questions were similar to the topics raised by political observers who commented publicly on the ambassador’s style, his loyalty, his priorities and what to expect from him. They lauded the fact that he is the first ChineseAmerican to fill this post and remarked that his dealings with China as commerce secretary could prove rewarding. But other Chinese commentators have seen it wise to caution that despite his Chinese ancestry, people should remember he’s an American who must represent his own country. In discussing his potential strengths, some said Locke, 61, will emphasize trade because of his background while others cautioned that he shouldn’t be expected to do magic for U.S.-China relations. Mostly avoided were sensitive issues such as the large U.S. trade deficit with China, which stood at US$273 billion in 2010. Also largely ignored was how Locke would address long running complaints about market access for U.S. products, an issue that Locke prioritized as commerce secretary during trade missions to China and during multiple AmCham Shanghai appearances. In an interview with the Beijing Youth Daily, the associate dean of the International Relations School at Renmin University in Beijing chose to focus on what he called the “three Ts” as the potential hot button issues for Locke–Taiwan, Tibet and trade.

The dean also cautioned that the 2012 U.S. presidential race could politicize the relationship between the two nations even further. He also saw a connection to next year’s elections in Taiwan and warned that high-ranking officials there might push the U.S. to sell them advanced fighter jets, which could roil the bilateral relationship. During an interview with CCTV, Yin Zhuo, a rear admiral in the Chinese Navy, mentioned military and trade issues when asked if Locke would face a tough test. “Another important issue is economic relations,” Yin said. “China is the largest creditor of U.S. The U.S. is taking advantage of its position in the world foreign currency system, where U.S. dollars account for 65 to 70 percent and keeps printing bills to plunder global resources. The U.S. has to be accountable and should withdraw from wars,” Yin says. Gao Zugui, a professor at the Research Institute of International Strategy, the Party School within the Communist Party of China, told CCTV that Locke was sent to Beijing because the U.S.-China relationship is important and complex. “Since Obama’s visit to China in 2009, there have been ups and downs in U.S.-China relations, which indicate the bilateral relationship has reached a critical stage and some issues might rise,” Gao told CCTV. “The U.S. might use some issues to create trouble for U.S.-China relations…”

Ups and downs Some cautioned that Locke might even be tougher on China to prove that he is not soft on his ancestral country. Lang Xieping, a famous economist, said Locke is not “mild” and he vowed to knock down trade barriers with China. He wrote that the arrival of Locke will make things tougher for China and argued that while Locke promoted clean energy cooperation, he also backed investigations into anti-subsidy and anti-dumping. Qian Liwei, associate researcher at the Institute of American Studies of the China Institutes of Contemporary International Relations, told the popular Southern Metropolis Daily, a paper known for its investigative pieces, that Locke will have many things

on his plate. “The U.S. ambassador is not a decision-maker of U.S. policies on China, but an executive. The complexity of issues in front of him is beyond imagination and is not only about trade,” Qian said. A commentator in the official China Daily expressed some cautionary words along the same lines. “As ambassador to China, Locke will fight harder for American national interests in order to gain approval in the United States. He will be tougher and more aggressive than some of his predecessors. The Chinese government should be prepared to deal with the American ambassador with a Chinese face, which can be very deceptive,” the writer said. A reporter asked Locke whether he would be tough on China so as not to appear “soft on your ancestral homeland” and the ambassador stayed positive. “First of all, I am a representative of the government of the United States of America. Just before I came to China I had a meeting with President Obama, and in it he wanted to stress the positive relationships that we have between the United States and China, and that we have many areas of cooperation and collaboration in which we need to expand,” Locke said. Locke’s arrival in China was highly anticipated, and that became quite apparent when a photo of him at a Seattle airport appeared on a blog. The photo showed him carrying a backpack and buying coffee and Internet users across China expressed shock and appreciation. Tang Zhaohui, the blogger who posted this picture said called it “incredible” to see such a thing. “Even low-ranking officials would not roll up their sleeves to do these things (buy coffee) by themselves. Often, someone else would buy them coffee or carry their luggage,” he said. Many other bloggers made comparisons with Chinese officials. “This is the kind of officials Chinese hope to see, because China does not have officials like him,” wrote a blogger with the username cathy5wang. Joyce Bian is communications assistant manager of AmCham Shanghai.

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Some cautioned that Locke might even be tougher on China to prove that he is not soft on his ancestral country.”

new deals B y Dav i d Tu r c h e t t i

The Toledo Transaction Mayor Michael Bell, fourth from left, Toledo business owners and investors from Dashing Group stand near the Marina in Toledo, Ohio.

AmCham Shanghai’s Green Cities conference opens doors for Chinese investment in Ohio

ach year, AmCham Shanghai organizes more than 300 forums as well as business and networking events. Participants usually walk away with new insights about doing business in China while others leave with business cards. At AmCham Shanghai’s Green Cities conference, the Mayor of Toledo left with connections that led to a multi-million dollar investment deal that will revitalize a section of the city, create jobs and drive new projects. It all started at the conference in Shanghai. Green Cities, AmCham Shanghai’s third sustainability conference, was organized in conjunction with the 2010 Shanghai World Expo and in partnership with the Asia Society of Northern California. The goal was to identify what businesses and governments need to do to make the Expo’s “Better City, Better Life” theme a reality. The conference sought to catalyze business opportunities for companies across the urban development value chain. Toledo real estate consultant R. Scott Prephan proposed to bring a delegation of Toledo companies to the Green Cities conference in the summer of 2010, and Toledo Mayor Michael P. Bell, a 56-yearold independent elected in 2009, jumped at the idea. “Past [mayoral] administrations weren’t open to

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the idea of attracting overseas investors, but our city was running a $40 million deficit so I thought going to China to see if we could bring some business to Toledo would be a smart thing to try,” Prephan told Insight. Known as an industrial town that was one of the hardest hit by the recession, Toledo has recently made strides in attracting green technology companies starting with a significant investment by market-leader First Solar. Bell’s office saw the Green Cities conference as the perfect platform to showcase Toledo’s experience in sustainable technologies and to seek new business opportunities for the city. When Bell arrived at the conference with executives from nine companies from northwestern Ohio, they met 300 business and government leaders – many of whom were specifically interested in crossborder transactions. He also met a Washington state delegation led by Governor Christine Gregoire and a sizable delegation from Chicago, all of whom were seeking to advance business deals in China. Toledo delegates also met senior officials from the Chinese Ministry of Commerce, heads of successful Chinese enterprises and contacts from AmCham Shanghai member companies headquartered in Toledo like SSOE Group, a planning, design and construction management firm with Asia headquarter operations in Shanghai. “AmCham Shanghai members were instrumental in

helping our delegation to understand the operating environment in Shanghai. They opened their Rolodexes and helped us to connect with our first contacts in the market,” said Prephan. Bell said the conference was instrumental. “What he saw firsthand at the conference and the contacts he made with Chinese officials had a profound impact on the Mayor, so much so that he has put Chinese investment at the top of his agenda for the City of Toledo. The conference was a pivotal moment for our project,” Prephan said. Following

the conference, the Toledo delegation went on to visit five other cities in China. Soon after Bell’s visit, two Chinese real estate developers traveled to Toledo, and within weeks there was a US$2.15 million offer for a depressed riverfront property called The Docks. A 69,550square-foot dining and entertainment complex, The Docks has been left largely vacant in recent years. When several high-profile restaurants in The Docks closed during the recession, the city was left with unpaid rent and lost tax revenue. Shenzhen investors Yuan Xiaohona and Wu Kin Hung of the Dashing Pacific Group had a new vision for the property. They saw potential for an upgraded multiuse complex to include retail, office and family residential units. Dashing Pacific’s offer to purchase The Docks was originally not met with open arms by local officials. Prephan recalled that some city council members in the city were initially reluctant. “A couple others wanted guarantees that would

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have required Dashing Pacific to hire union labor,” he said. Bell took steps to ease concerns, and the City Council eventually voted 12-0 to support the deal. “The naysayers are few and far between today, now that they see the investment dollars coming in,” said Prephan. On March 18, the two investors closed on the $2.15 million purchase of The Docks and the adjacent five acres of parking lots. Dashing Pacific refurbished the property and boosted its marketing to turn The Docks around within a few months. Today, the area is 100 percent rented and is once again the restaurant center of Toledo. Drawing inspiration from the neon-lit skylines of Chinese cities, Dashing Pacific is now looking to illuminate the property for better night visibility throughout Toledo.

New deals A few months after that deal was finalized, the Toledo City Council approved a second Chinese investment of US$3.8 million for the Marina district, 128 acres of toxic waste cleanup land, which is home to the decommissioned Acme coal power plant – for years an eyesore for Toledo. A multiuse development in the Marina district is expected to bring US$200 to US$300 million in new design and construction contracts to Toledo, making it one of the largest real estate investments in the United States by Chinese developers. Consistent with the theme of the Green Cities conference, architectural plans for the new riverfront residential, office, retail and entertainment district include sustainable technologies that will minimize the environmental impact of the development on Toledo. According to Prephan, at least 10 other Chinese investment deals in Toledo are currently being discussed, including several more land deals. Toledo is hosting five more Chinese investor groups this fall, and Bell is planning a new trip to China this month to iron out several potential deals. Successful Chinese businesses are seeking to diversify their portfolio by venturing into global markets, and they still see the U.S. as the safest monetary system in the world to deploy their funds.

Prephan said they are also attracted to the American quality of life and higher education system for their families. Families from three recent Chinese investment groups recently moved to Toledo, and one purchased a $500,000 house within weeks of arriving. But why are Chinese investors choosing Toledo over better known American cities? “Because we go to China and make the relationships,” says Prephan. With Bell’s backing of a proactive China strategy, delegations are traveling back and forth on a monthly basis, building interest and trust among Chinese decision makers with capital to spend. Whereas typical Chinese investors may take years to explore possibilities for deploying capital in the U.S., those same investors tend to move quickly when they’re extended a personal invitation from a city mayor. Bell is also building goodwill by looking beyond business to broader engagement in China. Bell is in talks with the coastal city of Mudanjiang to bring the first-ever performance of the Toledo Symphony to China. He is helping the University of Toledo Medical Center to develop a joint research project with YouBo Pharmaceutical Co. This year, Bell opened a Beijing representative office for Toledo’s Regional Growth Partnership to facilitate the city’s ever widening interests in China. Bell summed up his foreign investment philosophy in a simple way. “For Toledo, it doesn’t make sense to play the game of stealing jobs from neighboring cities. It may look good as a short-term gain, but that doesn’t help the state or our country. By reaching outside of the United States, it brings in fresh capital and creates new jobs,” Bell said. With new business at The Docks and plans for construction at the Marina well under way, the Toledo business community is now behind these two projects that promise to revitalize the Toledo economy and make it a model for Chinese investment in small American cities. With tax revenue and new jobs on the table, who could argue with a small town mayor’s efforts to reach out to China? David Turchetti is vice president, programs at AmCham Shanghai.

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Soon after Bell’s visit, two Chinese real estate developers traveled to Toledo, and within weeks, there was a $2.15 million offer for a depressed riverfront property called The Docks.”

executive gadgets

What’s Your Favorite App? Insight asked our readers and members to tell us about their favorite apps and here’s what they had to say.

NEWS ON THE GO Who: Joe Hinrichs, president, chairman & CEO, Ford Motor (China) Ltd. Apps: CNBC, Bloomberg and Weather Channel Why: “I use the CNBC and Bloomberg apps on my blackberry to keep up to date with what’s going in the financial markets around the world while I travel. I use the Weather Channel app on my blackberry and iPad2 frequently to see what’s happening with the weather as I travel the world.”

JoikuSpot Who: Eric Dieny, executive vice president, DHR International Asia Ltd. App: JoikuSpot on Nokia e72 Smartphone Why: “It turns my Nokia phone into a Wi-Fi Internet access point. I can then connect any Wi-Fi enabled device that I have to the JoikuSpot Wi-Fi access point on my phone and this gives 3G mobile Internet access to the device. I use it to connect my PC or iPad to the Internet on the go. JoikuSpot has both a free version and a paying version.” Also recommends: Fei Xin, available on iPhone and Nokia handsets Why: “Fei Xin is a free chat service that works among China Mobile users. For people who use mobile texting a lot in their professional life, this is a real money saver.”

Pleco Who: Frank Sirna, chief financial officer, Citibank (China) App: Pleco (a Chinese-English translation app)

AmCham Shanghai staff favorites Who: David Turchetti, vice president, Programs, AmCham Shanghai App: Monster Maker Why: “This is the only app that keeps my son engaged so that my wife and I can enjoy dinner. Thanks Elmo!”

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Who: Brenda Foster, president, AmCham Shanghai Apps: The Wall Street Journal, New York Times, Financial Times, Washington Post, USA Today, CNN, ABC News and Shanghai Daily. Why: “I like them because they give me quick and up-to-date news on the run.” Also recommends: Flight Track Pro. Why: “It gives you excellent and up-to-date flight information.” Who: Esther Young, senior associate editor, AmCham Shanghai App: Explore Metro, Shanghai Why: “I like Explore Metro, Shanghai, a map app that allows you to search train times, routes, and…my favorite feature…it lets you explore the area around the metro station to ensure that you never get lost.”

Read Insight at www.Amcham-Shanghai.org/Insight

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h e a lt h c a r e B y E f e n Hu a n g

istockphoto

Digital Diagnosis Chinese consumers are turning to multiple sources for healthcare information, including the Internet, a trend that businesses need to address with a strategic approach, according to a survey

large number of consumers in China are turning to the Internet to learn about healthcare issues and to research personal medical problems, according to the China Healthcare and Wellness Consumer Survey by Burson-Marsteller, China and Kantar Health. Over 80 percent of consumers said they will seek information online before they see a doctor. Among the various channels of information sources, consumers rank news websites second only to doctors and hospitals. Health and company websites surprisingly rank towards the bottom of the list. Other sources for healthcare and wellness information listed in the survey included family and friends, television and radio and Traditional Chinese Medicine specialists. The survey was organized in February this year through an online questionnaire designed to understand consumers’ information sourcing and spending habits on healthcare and wellness matters. Over 1,000 consumers participated in the survey. More than 50 percent of the respondents, aged 26 and older, were college graduates, and over 70 percent were professionals and mid-to-high level executives. Consumers’ use of the Internet is especially remarkable for healthcare topics related to sensitive

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or personal issues such as AIDS, sexually transmitted diseases, contraceptive, and abortion. For these topics, 96 percent of consumers choose bulletin board system (BBS) forums and social networking sites as their preferred channels of information. These research findings suggest that today’s consumers in China are empowered by the Internet when it comes to health topics. They are proactively learning about health instead of solely relying on medical experts. For businesses in the health and wellness sectors, these findings suggest a need for a business model that places patients at the front and center of the strategic planning process.

Communication in the digital age “The fact that consumers use the Internet as a key source of health information may simply be a matter of convenience as we are increasingly living in a digital communication age,” says Simon Li, General Manager of Kantar Health. Li’s observation is also supported by a July Sina.com survey that shows close to 60 percent of respondents agree that “the Internet is convenient and offers substantial healthcare information.” For sensitive topics such as AIDS, social factors may help explain the appeal of the Internet as the leading source of information. The Chinese media have reported regularly that discrimination and patient privacy violations continue to plague AIDS patients. The perceived anonymous nature of the Internet has given these patients an opportunity to search for information without the fear of public exposure. Research has shown that over 80 percent of adults in the U.S. make active use of the Internet for health information. Specific nuances in the China market are amplified by the enthusiasm with which its netizens embrace social media. Forrester Research showed that 44 percent of netizens in China create their own content when they participate in social media, compared with 24 percent in the U.S. The Burson-Marsteller, China and Kantar Health survey also shows that 60 percent of consumers participate in social networking sites, BBS and blogs. Consumers also consider BBS forums and

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Sensitive healthcare/wellness topics 68%

Sexually transmitted diseases

59%

AIDS

47%

Infertility

46%

Abortion

35%

Mental health

33%

Contraception

23%

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For sensitive topics such as AIDS, social factors may help explain the appeal of the Internet as the leading source of information.

Cosmetic surgery

social networking sites as credible and influential sources of information among all digital channels that include news and health websites, company websites, blogs and micro-blogs. Yet, in spite of this surge of the proactive patient trend in China, under-diagnosis and poor treatment adherence – the degree to which a patient follows a prescribed treatment regimen – remain key challenges for a number of therapy categories in China. Take diabetes for example: a 2010 study showed the country has 92.4 million adults with Type-2 diabetes and more than half of these are undiagnosed. Under-diagnosis often happens when patients lack sufficient information to seek care through appropriate medical channels. One explanation for the discrepancy between patients’ proactivity and their actual behavior may be the quality of information available on the Internet. The Burson-Marsteller, China and Kantar Health survey, for example, found that consumers have difficulties finding credible information and data on mental health, cosmetic surgery and infertility. Poor levels of health literacy skills among Chinese residents, including the urban educated elite, may offer another explanation for the poor showing of health results for patients’ proactivity. Health literacy refers to an individual’s skills to gain access to, understand and use information in ways that promote and maintain good health, according to the Ministry of Health in China. In the first annual health literacy survey released

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in 2009, the Chinese Ministry of Health found that less than seven percent of the population possesses sufficient health literacy skills for their own health promotion. Without adequate health literacy skills, the Internet is a double-edged sword for patients. It may be a tool for information as well as a channel of disinformation.

Engaging patients To effectively engage today’s empowered patient, businesses need a different approach. Businesses need to consider their strategic planning with a focus on how a patient experiences his or her care – a patient-centric approach. With this approach, the patient’s experience of care would take center stage from the onset of the planning process. Such a patient-centric approach would mean that health information is organized with compelling news content to match proactive patients’ habit of sourcing information through news websites. Resources would be organized to support peerto-peer communications, mirroring the proactive patients’ preference for interactive dialogues to learn from each other’s experiences. Health experts would be made available to answer questions, as well as help patients develop health literacy skills for effective health learning. A patient-centric approach does not mean that the doctor’s advice is not important. The survey found that consumers still consider doctors as the most reliable source of information. However, given the vibrancy of the Internet-enabled communications environment, it means that the role and function of doctors need to expand. Instead of assuming that patients will passively adhere to prescriptions, today’s doctors need to increasingly play a role supporting patients’ desires for developing their own health knowledge and management skills. This proposed patient-centric approach requires that a business looks at its products and services as delivering a distinctive experience of care to patients. Instead of marketing a therapy, the successful business would be marketing a special experience of care, much like how Starbucks markets the Starbucks experience rather than a cup of coffee. Adopting such an approach would mean a deep

Illustrations courtesy Burson-Marseller

mindset and skill set shift for many businesses in the healthcare space. Initially, businesses would need an effective communications strategy to secure buy-ins and collaboration among partners – doctors, hospitals and regulators – to bring about the realization of an innovative business model that meets the needs of today’s proactive patients. Market forces, however, are already gestating

a patient-centric business model. As reported by PricewaterhouseCoopers, “faced with a [global] revenue growth rate that has dropped from 9.9 percent in 1997 to 1.3 percent in 2008, pharmaceutical companies are shifting toward a more comprehensive patient-centered approach.” With China poised to become the second largest pharmaceutical market in the world by 2020, the health business that succeeds in tomorrow’s market will have created a business model that effectively serves the needs of the proactive patient in China.

See the full survey results at http://www.slideshare. net/bursonmarstellerchina/china-healthcarewellness-consumer-survey. Efen Huang is China’s Senior Healthcare Strategist at Burson-Marsteller, a leading global public relations and communications firm.

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Degrees Without Borders

U.S. colleges and universities are opening campuses and launching special programs in China like never before all in an effort to fill the growing demand for an American-style education.

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c ov e r s to ry

By Lauren Hilgers

hortly after Alex Carlson arrived in China from the United States, he assumed he would spend a few years working in Shanghai and then head back home to enroll in an MBA program. Then, life caught up with him. At 33, Carlson found he wanted a degree recognized in the U.S., but he didn’t want to leave his job, or walk away from his life in Shanghai. He wanted the best of both worlds. Lucky for Carlson, an increasing number of American universities are arriving in China looking to offer just that. Degree programs like USC’s Global EMBA program at Jiaotong University, where Carlson decided to enroll, or free-standing institutions like the China-Europe International Business School (CEIBS) are tapping into a booming education market – offering a Western-quality education in a Chinese setting and catering to students from China, the U.S. and around the world. “The draw internationally, and particularly China, is that there are many talented students that now have enough funds to pay for an international degree,” says Peggy Blumenthal, senior counselor to the president at the Institute of International Education. “But they may not want to leave the country for the time it would take for a degree program.” American universities are already seeing benefits from attracting Chinese students. In 2010, there were over 100,000 students from China enrolled in U.S. universities. Having a presence on the ground in China gives universities the advantage in building their reputation both among international students and at home, where there is an increasing interest in China. While a few programs are in China expressly to make money, most universities say they have long-term goals that go beyond economic benefits. Students on China-based campuses will often feel allegiance to their home campuses, helping expand the institution’s alumni network. Students from the home institutions coming to China benefit from having an established base in the country. “In general, these programs can help universities to get better known,” says Blumenthal. “We have thousands of universities and the average Chinese

person knows of, at most, around 10.” “We’ve already got a lot of graduates over here,” says John Van Fleet, assistant dean and executive director at the USC Marshall School’s global executive MBA program based at the Antai College of Economics and Management, Shanghai Jiaotong University. For USC, opening a degree program fits into the school’s Pacific Rim strategy. In addition to attracting Asia-based students who are looking for international credentials, it can help international students transition from Western markets into Asia. The benefits are not one-sided. Chinese students with an international degree are a valuable resource for multinational companies competing for talent. One Chinese student at the USC program, who asked not to be named, says a Chinese degree is of little interest to her. “I work for an international company,” she says. “A Western degree has a lot more meaning for them.” In addition to MBA programs with an international focus, Chinese students now have a variety of choices when it comes to Western or Westernized education programs. Exchange programs offer experiences abroad. Some institutions offer online courses. There are programs in the sciences, and an increasing number of undergraduate institutions are opening their doors on Chinese soil. Chinese universities are also taking advantage of interest from Western institutions. China’s top educational institutions have consistently fallen behind in international rankings even as Hong Kong universities have climbed. In a report released last year by the British career and education research company QS, China’s top two universities – Tsinghua and Peking University – did not break into the top 10 in a ranking of Asian higher education institutions. Collaborations are an opportunity to improve standards at local universities, learning from the international curriculums and faculty that arrive with the new program.

‘The party is here’ With more than 2,000 domestic universities and more than 30 million students enrolled in higher

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Every week another school was showing up and they wanted a student exchange, they wanted a faculty exchange. Everybody wants a piece of the ground here.” - John Van Fleet, USC Marshall School, Shanghai Jiaotong University.

A rendering of the Duke Kunshan University Academic Center. Image courtesy Duke.

education programs in 2010, China is home to one of the most active higher education markets in the world. “I think the education sector in China is similar to the wider economy in a few key ways – one of them is that many people in education, as in business, believe that, in terms of growth and opportunity, the party is here,” Van Fleet says. Establishing a program in China, however, is not simple. Quality concerns, regulatory approval and the cost of establishing a remote program are all hurdles U.S. universities arriving in China must clear. The majority of Western universities choose to arrive in China with a degree program, rather than a complete university, offering graduate or undergraduate programs in a single discipline. To do this, however, China’s Ministry of Education requires international universities partner with domestic institutions. As China has gotten more popular, qualified domestic partners have found themselves in demand. Before working at the USC program, Van Fleet served as an advisor to the foreign affairs office at the Antai School. “Every week, another school was showing up and they wanted a student exchange, they wanted a faculty exchange. Everybody wants a piece of the ground here.” Among the most popular programs are MBA and EMBA programs, which are usually the most profitable programs for business schools and are in demand as multinational companies continue to expand their bases in China. The popularity of these programs, however, has made the approval process for new programs competitive.

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The USC Marshall School has been partnering with Shanghai Jiaotong for nearly a decade, offering students the same degree awarded to those enrolled in the EMBA program at USC’s home campus in Los Angeles. The classes are conducted in English and the curriculum is based on USC’s EMBA program in Southern California. While the USC program offers only the single degree, Van Fleet says he has seen an increase in programs that offer dual degrees from both institutions, or even programs that award degrees from the domestic institution alone. “Historically the theory was that a degree from a Western institution was a guarantee of quality,” Van Fleet says. Now, however, the Ministry of Education favors programs in which domestic universities, according to Van Fleet, “have some skin in the game.” Because the ministry places a quota on the number of degrees a single institution can confer, requiring programs to include a domestic degree helps ensure that the domestic partner believes in the program. Programs that confer only the international degree could potentially be used solely as a revenue generator with little concern for quality. American universities may also choose not to confer an international degree for their own reasons. MIT’s business school, for example, was one of the earliest American universities to begin collaborating with Chinese universities. Unlike USC, which maintains a student body that is around 70 percent international, the

MIT program is focused primarily on domestic students. Since the 1980s, the university has worked with both Tsinghua University in Beijing and Fudan in Shanghai on an MBA program that involves a faculty exchange, inviting professors from the Chinese universities to the MIT campus in Cambridge, Massachusetts. The students in the program do not receive an MIT diploma. Instead, they walk away with a degree from the domestic university and a certificate from MIT. “We felt that any major business school should understand the China-based economy,” says Alan White, senior associate dean at MIT’s Sloan School of Management. Tsinghua and Fudan, on the other hand, wanted to develop areas of their curriculum, including marketing and Western economics that were weak. White says it will take some time before China’s top universities can offer truly world-class programs, particularly in the areas of business administration and management. Over the years, MIT has hosted more than 250 faculty members from Chinese institutions. They attend classes at Sloan and develop curriculum to take back to their home institutions. “Some areas of the curriculum developed under this program have become the national standard,” White says. The faculty they are seeing arriving at MIT are also increasingly sophisticated and, increasingly, doing their own research. Still, MIT feels it doesn’t have to confer a degree to build its reputation in China.

offering Western-standard curriculum. Autonomy is also an important factor in maintaining a program that adheres to Western standards for curriculum and teaching. Most American universities demand autonomy from the get-go. “They are looking to learn,” says Robert Parker, the associate dean of the University of Michigan and Shanghai Jiaotong University Joint Institute, a program offering degrees in mechanical and electrical engineering. “Why would you want to support two mechanical and two electrical engineering programs if they end up being run in the same way.” Jiaotong, says Parker, has been consistent in allowing the joint institute autonomy from the beginning. The institute runs like a miniuniversity, reporting to a board of directors rather than a provost from either collaborating institution. The board of directors includes UM’s president Mary Sue Coleman, the dean of the university’s engineering school and the dean of the medical school. The institute was inaugurated in 2005 and is currently attracting 250 to 300 new students every year. Classes are taught in English by faculty hired based on western standards, all with experience studying or teaching in the U.S. The joint institute between Michigan and Jiaotong is the only program of its kind in engineering and an example of how collaborations

Quality control Although education standards are improving across China, maintaining quality is a primary concern for American universities in China. Van Fleet of USC says controlling the curriculum and faculty is key. “Because we give a USC degree, USC faculty are controlling the curriculum,” he says. “And we have the same faculty control that we have in Los Angeles.” USC also selects its students carefully. Seventy percent of the program’s students are international; only 30 percent are Chinese citizens. The USC name is recognizable enough that the program attracts students from the U.S., Japan, Korea, Hong Kong and elsewhere. The diversity of the student body is often a good indicator for the quality of the program. It ensures that English is the predominant language spoken. A program attracting a large number of international students is also more likely to be

Duke’s Blue Devils and China’s National Team square off in China.

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NYU President John Sexton and Yu Lizhong, president of East China Normal University, at a groundbreaking for NYU Shanghai, Pudong New Area. Photo courtesy NYU.

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While a few programs are in China expressly to make money, most universities say they have long-term goals that go beyond economic benefits.”

between universities are starting to expand from the traditional platforms of study abroad and MBAs. The institute is primarily focused on its undergraduate program, offering majors in mechanical and electrical and computer engineering. Students can pursue either a single degree or dual degree program, pursing a diploma from both Shanghai Jiaotong and the University of Michigan. Parker calls this the “3 plus 2” program because it typically involves three years studying in China and two in Michigan. The students must pursue two majors – one in Shanghai and another in Michigan. While Michigan first envisioned the program as a platform for exchange – a home base for its own students hoping to get experience in China – the joint institute soon proved it offered other benefits. The students at the Institute, Parker says, are both smart and extremely hard working. “There are close to 200 students studying at the University of Michigan,” Parker says. “Those students are diversifying the student body on the Michigan campus.” Graduates of the program often pursue further degrees at top engineering schools in the U.S. Chinese students are popular in engineering programs across the world, and they are often accepted despite shaky English skills and educational backgrounds that don’t quite match with Western expectations. Students from the joint institution, on the other hand, have been studying in English for the past four years, following the same curriculum as students at the University of Michigan.

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Standing alone Although degree programs remain the most popular means of entering China, a handful of universities are going a step farther and opening stand-alone campuses. Duke recently announced the groundbreaking on a campus in Kunshan, a space that will first house a branch of the school’s Fuqua School of Business and then expand to accommodate other disciplines. “Most U.S. campuses realize that it takes a huge investment of time, academic administration and faculty effort to really launch one of these branch campuses,” she says. Despite the challenges, New York University broke ground earlier this year on one of the most visible branch-campus projects in China. “Globalization is changing the way that information and students flow around the world,” says Mattie Johnstone, the director of public affairs at NYU Shanghai. The decision to open a Shanghai campus was part of a global strategy to create a network of international campuses, giving students the option to study at NYU campuses across the world. The campus is being built in Shanghai’s Lujiazui district, and the land was provided by the Shanghai government. This kind of local investment is often a prerequisite for a successful branch campus, Blumenthal says. It both helps offset the costs of an expensive new campus and assures the foreign university that it has local support. Johnstone says NYU was given autonomy over its operations almost without question. “NYU

has complete discretion with faculty students and course work,” she says. “That was an important point for NYU.” When the first class, an expected 150 to 200 students, arrives in 2013, the NYU program will be focused on undergraduate studies, aiming to build a student body that is 50 percent domestic students and 50 percent international. Although there is much to be decided before then, Johnstone says NYU will be developing it’s curriculum with collaboration from faculty in New York and from professors at East China Normal University, where NYU currently runs its study abroad program. Johnstone says NYU Shanghai imaginechina

Mary Sue Coleman, president of the University of Michigan

will require students complete a core curriculum similar to the requirements in the U.S. The tuition structure, she says, has yet to be worked out. Opening a branch, she admits, takes time, investment, a dedicated partner and support from home faculty. This is a balance often not easy to strike. In the past, a number of universities have faltered after announcing plans to build a China campus. Kean University announced plans to build a satellite campus in Wenzhou in 2006, but the program stalled waiting for approval from the Chinese Ministry of Education. Even Duke’s plans have run into some bumps in the road this summer as faculty at the Fuqua School Business have raised concerns about the cost of opening the Kunshan campus.

Establishing a legacy While universities are rushing to enter the Chinese market, Blumenthal believes the costs and complications of stand-alone campuses will deter many institutions, leaving partnerships as the

most popular options. One of the best examples of a successful combination of investment, time commitment and a working partnership, says Blumenthal, is the Hopkins-Nanjing Center for Chinese and American Studies, a partnership between Johns Hopkins University (SAIS) in Baltimore, Maryland and Nanjing University. The center was established in 1986, offering a one-year program of study that would mix international and Chinese students. “It’s not just about being in China,” says John D. Patent, the American codirector of the center. “It’s about living with each other, being in class with each other, using the language day in and day out.” Curriculum at the center is designed jointly by faculty from both institutions. Admissions is handled by Johns Hopkins on the American side and by Nanjing University in China. Despite the program’s success, even the Hopkins-Nanjing Center has felt the pressure of increased competition. Five years ago, the center started offering a dual degree masters program in international relations, for American students, and American studies, for Chinese students. “There was concern that the center was going to start becoming less relevant,” says Patent. “There are more students coming to China and they are getting more demanding – we needed to offer more choices.” The masters program is based primarily on the existing courses at the center, with American students required to take two thirds of their coursework in Chinese and Chinese students required to maintain a similar balance with English. Even as other schools enter the Chinese market, Patent believes the formula Johns Hopkins has perfected will be hard to imitate “There are a lot of universities who would like what the center has achieved,” he says. “It works because it’s collaborative – all different people from all different branches of the universities are involved and dedicated.”

Lauren Hilgers is a freelance writer based in Shanghai.

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Globalization is changing the way that information and students flow around the world.”

maritime B y Ya n g Fa n g

Gauging the South China Sea Territorial Dispute Is there a risk to seaborne trade?

he South China Sea, which connects with the Straits of Malacca in the southeast and the Strait of Taiwan in the northeast, is a center to global seaborne trade. It contains some of the busiest shipping lanes in the world and carries more than half of the world’s merchant fleet tonnage each year. East Asia is heavily dependent on the South China Sea, which is a lifeline for commercial trade and energy supply. The safety and security of sea lines of communication (SLOC) in the South China Sea is a concern to regional countries as the uninterrupted flow of shipping is critical to their survival and prosperity. The South China Sea dispute, involving six parties of mainland China, the Philippines, Vietnam, Malaysia, Brunei and Taiwan with the overlapping claims to all or parts of the region, is considered as one of the major threats to peace and stability in East Asia. Tensions have flared recently over the longrunning maritime boundary disputes in the South China Sea. The Philippines and Vietnam have accused China of harassing their fishermen and oil exploration vessels in the disputed waters. China responded to the accusations by publicly insisting that the activities conducted by Vietnam and the Philippines undermined its rights in the South China Sea and the Chinese vessels were enforcing law in its legitimate waters. With the growing number of clashes in the disputed waters, there are concerns about whether the escalation of tensions in the South China Sea between China and the rest of the claimant countries will impact the free flow of

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maritime trade through the South China Sea. It is noted that the commercial activities of certain energy exploration companies have already been disrupted. Vietnam and the Philippines are flexing their muscles by holding live-fire exercises frequently near the contested waters. China has also conducted military drills in the northern part of the South China Sea. While these kinds of exercises were mainly small scale and usually described as “routine operations,” they seemed to be meant to send some messages to each other amidst tensions over maritime territorial disputes. There are concerns that the maritime boundary dispute has triggered a naval arms race in the South China Sea. Regional countries are making naval arms acquisitions, which many believe are meant to be deterrents against the Chinese claim in the South China Sea. Vietnam has signed a contract with Russia to purchase six Kilo class diesel-electric submarines, along with the import of four Sukhoi30MK2 fighter jets and other equipment. The Philippines is also going to receive the Hamiltonclass cutter from the U.S. which will become the Philippine Navy's largest surface combatant ship. The claimants are also continuously playing “chase and catch” games in the disputed waters. It is believed that the South China Sea is extremely rich in fishery resources as well as oil and gas deposits. Southeast Asian claimant countries are increasingly exploring for marine resources in the sea. At the same time, Chinese maritime law enforcement capabilities have been strengthened to dispel other states’ vessels, including energy surveys and exploration vessels and fishing vessels in disputed

areas. The confrontations between Chinese law enforcement vessels and other claimants’ exploration and fishing vessels are likely to increase if all the parties concerned do their own thing. If these kinds of conflicts keep going on in the future, especially if countries make strategic miscalculations, incite or mishandle national sentiments, it is possible that the current confrontations will escalate into a regional war and pose a great risk to the region. To avoid the worstcase scenario, claimant countries should exercise stronger political will and implement concrete confidence-building measures towards each other. Nevertheless, unless current conflicts escalate into a regional war, the impact on conventional shipping activities through the South China Sea will be limited. These countries clearly understand that it is not in their interest to be involved in a war. Despite the recent clashes between China and regional countries, major military violence in the South China Sea should be ruled out due to three main reasons. Firstly, both China and ASEAN countries have exercised self-constraint to a certain extent since they signed the Declaration on the Conduct of Parties in the South China Sea (DOC) in 2002. The DOC is a legally non-binding document that encourages claimants to build mutual trust and confidence among themselves and to facilitate maritime cooperation. Countries, including China, have not taken military action in the South China Sea since 2002. Although skirmishes over fishing activities and resource exploration rights occur frequently, major military conflicts have been avoided.

A pragmatic move The recent ASEAN Regional Forum (ARF) in Bali has resulted in the conclusion of the "Guidelines on the Implementation of the Declaration on the Conduct of Parties in the South China Sea" between Chinese and ASEAN countries’ officials, which is a significant step towards a Code of Conduct and helps to push all claimant countries to implement the DOC in a better manner. Secondly, substantial trade and economic ties

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between China and ASEAN should be considered as a constructive factor to prevent a worstcase scenario from happening. With the full implementation of the China and ASEAN free trade agreement, the value of China-ASEAN trade over the first six months of this year has reached US$171 billion – one tenth of China’s total during this period. The non-claimant countries of ASEAN are taking a more pragmatic stance to prevent the maritime boundary disputes from jeopardizing their economic interests. Even the disputing countries, such as Vietnam and the Philippines, value the importance of their relations with China and want to keep communications channels open despite ongoing tensions over territorial disputes. In the recent spat, a range of preventive mechanisms and diplomatic approaches were used by the claimant countries to avert the escalation of tensions and forestall the outbreak of armed conflict in the South China Sea. In the case of the recent dispute between China and Vietnam, relations remained strained, especially at the beginning when both sides exchanged tough words, but efforts have been made to ease the tension subsequently. Vietnamese vessels made a port call to a Chinese coastal city, and its navy held a two-day joint patrol with their Chinese counterparts in the Gulf of Tonkin. Vietnamese Vice Foreign Minister Ho Xuan Son met his Chinese counterpart in Beijing to discuss a peaceful resolution to the dispute. These suggest that Vietnamese officials have no interest in

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The U.S. is worried that China may apply the same restriction to the South China Sea and hinder its military freedom of navigation in Southeast Asia.”

istockphoto

pushing the dispute to the brink of violence. Philippine Foreign Secretar y Albert del Rosario visited Beijing in early July and looked for diplomatic means to resolve South China Sea disputes. Philippine President Benigno Aquino was also scheduled to visit China, which hopefully would further relieve stress between the two countries. Thirdly, the support from external powers, led by the U.S., has provided the Southeast Asian claimants with critical security leverage against China. The U.S. is not a claimant country on the South China Sea and officially does not take any position on the territorial dispute. But the U.S. has reiterated that it has national interests in the South China Sea to maintain the freedom of navigation and peace and stability in the region. It is believed that the U.S. is expanding its military and political support to Southeast Asian claimants to stand up against China in the increasingly volatile South China Sea, which is in line with the U.S.’s strategic intention of strengthening its ties with ASEAN countries. Other than the U.S., some major economic powers in the Asia-Pacific, including Japan, South Korea, Australia and India, are also showing increasing interest in the freedom of navigation in the South China Sea. This suggests that all these countries would pressure China and regional countries to seek a peaceful way rather than using force to solve disputes.

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The risk China has officially expressed that it will not hinder the freedom of navigation in the South China Sea. However, differences exist between China and the U.S. concerning foreign countries’ military use of a coastal state’s EEZ as China’s interpretation of the freedom of navigation in an EEZ is far more restrictive than that of the U.S. The U.S. is worried that China may apply the same restriction to the South China Sea and hinder its military freedom of navigation in Southeast Asia. Nevertheless, different understandings about the military freedom of navigation will not affect the safety and security of commercial use of the South China Sea. China is also heavily reliant on the sea for economic trade as more than 80 percent of China’s oil import passes through the South China Sea annually. To conclude, the South China Sea dispute among China and other claimant countries is not likely to spill over into military conflict and disrupt the free flow of trade in this region. Countries certainly understand the importance of the SLOC to their national economic well-being. Yang Fang is an Associate Research Fellow with the Singapore-based Maritime Security Programme at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University.

D OOR K NOC K B y dav i d b a s m a j i a n

Engaging Washington

ith U.S. unemployment hovering stubbornly around nine percent and a credit rating downgrade as the backdrop, U.S. Vice President Joseph Biden paid an official visit to China in August. Public diplomacy was a top priority and from all accounts, the vice president hit his marks. From dining on noodles in a local Beijing restaurant to meeting with students in Chengdu, the response from the Chinese public has been generally positive. But perhaps of more interest to the American business community was the message carried from Washington, delivered mostly behind closed doors, that addressed ongoing disputes facing the U.S.-China commercial relationship. Media reports indicate Biden made clear to his counterpart that continued trade and investment between the U.S. and China, critical to China’s sustained economic growth, may very well depend on China’s ability to make progress on the most significant commercial issues. At the top of the list appears to be China’s undervalued currency which has been identified by some in the U.S. as a cause of job losses at home. Biden is reported to have raised this issue in multiple meetings with Vice President Xi Jinping. During a private roundtable discussion with Xi and joined by Chinese and U.S. business leaders including AmCham Shanghai Chairman Eric Musser and Immediate Past Chairman Robert Roche, the U.S. vice president tabled other issues that have arguably a far greater impact on companies doing business with China. These included the protection of intellectual property rights and ongoing barriers to U.S. exports and investment in China. Face to face visits by administration officials to China are welcomed by AmCham Shanghai, and we applaud the Obama administration for

planning the trip and for its smooth execution. While progress may be slow, we see steady progress. AmCham Shanghai prepares to embark on the 2011 Washington, D.C. Doorknock, robust engagement with China on issues most directly impacting U.S. companies in China continues to be a priority.

U.S. Competitiveness in China equals jobs for U.S. workers Engagement with China is critical but on what issues should the U.S. focus? With a sputtering U.S. economy creating American jobs is priority No. 1 in Washington. U.S. exports jumped 21 percent in 2010, and the Obama administration continues to highlight exports as a way to create good, high paying American jobs. In Washington, AmCham Shanghai will encourage support of targeted programs that help increase U.S. exports to China. While China’s currency receives a good deal of attention in our nation’s capital, the fact that China is America’s fastest growing export market, increasing 460 percent since 2000, is less publicized. In 2010 the US exported $93 billion in goods and services to China supporting approximately 500,000 American jobs. China is now America’s 3rd largest export market behind only Canada and Mexico. US investment in China is also growing, and its importance to the health of the U.S. economy will be highlighted. Thousands of U.S. MNCs, SMEs, entrepreneurs and service providers are competing in the China market, and every year U.S. companies in China repatriate billions of dollars of profits back to the U.S. They also drive U.S. exports to support their China operations. In a recent AmCham Shanghai survey, more than half of responding companies reported that they export from the U.S. to China.

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Vice President Biden’s China visit frames this month’s AmCham Shanghai Doorknock

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China Critical to U.S. Competitiveness

n August, Vice President Joe Biden visited China and met with top Chinese l e a d e rs to d is c uss ke y economic issues. While the Vice President’s discussions in China centered on US debt and yuan policy, it is important to bear in mind an issue of monumental importance in US-China relations that underscores both of these

Brenda Foster, President of AmCham Shanghai

issues: U.S. exports. In March 2010, President Obama launched the National Export Initiative (NEI) with the goal of doubling U.S. exports by 2015 to create two million jobs and lift a recovering U.S. economy. Since that time, progress has been made. In 2010, U.S. exports increased 21 percent to $1.28 trillion. Total exports now account for 12.8 percent of national GDP, which the Wall Street Journal points out is the highest mark since tracking began over 80 years ago. But to achieve the NEI’s ambitions of building a robust U.S. export infrastructure to drive economic growth for decades to come, the American business community in China urges specific, targeted steps to enhance U.S. competitiveness in China that will help American companies grab a larger piece of the rapidly developing Chinese market. Why China? Much of America’s growth in exports in 2010 can be attributed to China, which is now America’s thirdlargest and fastest growing export market by volume. In 2010, American exports to China surged by about a third from the previous year to $93 billion, outpacing worldwide export growth by a double-digit margin. Today, demand is stronger than ever in China for many American-made goods. China will likely remain America’s fastest growing export destination for many years to come. A widening consumer base and growing middle class, which McKinsey & Co. estimates will reach 400 million Chinese by 2015, are pushing up demand for more sophisticated goods and services to satisfy higher living standards. Although American export growth to China is impressive, we are giving up ground in an increasingly crowded, and competitive, Chinese market. For example, export growth from Germany, the European Union countries and South Korea all outpaced the U.S. in 2010 (by 11 percent, five percent and 2.5 percent, respectively) over the previous year. In AmCham Shanghai’s most recent Viewpoint, U.S.

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Export Competitiveness in China, the U.S. ranks 12th in export performance in China among 21 countries and regions compared. Japan, South Korea and the EU countries are America’s major competitors in China, and all hold a proportionally larger share of China’s import market. Why is the U.S. lagging behind in China when American companies are world leaders in many industries? In many cases, our foreign competitors have an edge when it comes to exports because of more aggressive and better-financed government export promotion programs. Germany – often considered the gold standard for export promotion – stations German Centres throughout the world to provide German companies with on-theground export assistance and know-how to break into new markets. The German Centre in Shanghai is the largest in the world, supporting more than 90 German companies with 30,000 square meters of low-cost office space and equipping companies with German and Chinese contacts to help build a dedicated customer base. The U.S.’s competitors also take advantage of generous government-backed export financing assistance. These funds provide companies with such financial services as export credit insurance, working capital guarantees to help launch exports and international buyer financing to secure orders from potential overseas customers. Despite their countries’ smaller economies, the official export-import banks of Canada, Germany and Japan all commit several times the amount in export financing than the U.S. Export-Import Bank (ExIm), America’s official export credit agency. By not being proactive, America is losing out on export deals in China that we can and should win. The federal government can help American companies compete more effectively by stepping up export promotion efforts. Building on the NEI, AmCham Shanghai offers several specific, targeted actions to enhance America’s export competitiveness in China. First, a presidential trade mission to China would attract new orders for American products. Presidential leadership is a proven method for raising the profile of goods and services in China. AmCham Shanghai applauds President Obama’s successes in India and Latin America. We encourage the White House to make China the next stop for the president. Second, the U.S. ExIm Bank should increase export financing for China-bound exports. Although the Bank plays a central role in driving export growth, its loans in support of exports to China amounted to only $15.1 million

in new financing last year, or less than one-tenth of one percent of all authorizations. We encourage the Bank to increase its role in export financing in China and to ensure that American exporters, especially small- and medium-size businesses, have access to the same financial backing as foreign competitors. Third, the U.S. should enhance funding for federal export promotion programs to increase U.S. competitiveness in China. The Commerce Department’s Market Development Cooperator Program and the U.S. Foreign Commercial Service are two proven resources for boosting exports but are critically underfunded. Finally, the federal government should leverage innovative city and state export initiatives. States such as Pennsylvania and Washington are leading the way in providing Chinafocused export assistance for their home state companies. American companies produce the best products, employ the best workers and drive world-leading innovation. China is the perfect example of a fast-growing market that, despite its challenges, offers the kinds of export opportunities that the U.S. must develop to achieve the goals of the NEI. What is needed is a targeted strategy to enhance the ability of American companies to compete in the China market which is critical to achieving the U.S.’s ambitious export goals and to creating thousands of new American jobs in an export led economy.

A version of this article appeared in China-US Focus.

Challenges to address The Chamber will also raise issues that are impacting the competitiveness of US exporters, companies and service providers in China. Examples of these include the need for national treatment for branch expansion of U.S. financial service providers in China and harmonizing China’s capital requirements for U.S. banks competing in the China’s fast-growing financial services market. Also of concern is the approval process for world leading U.S. drug companies, medical device manufacturers and healthcare service providers. These businesses are often faced with an outdated, bureaucratic approval process that limits their competitiveness. More direct obstacles that will be raised include outright import bans like the ones that block U.S. imports of beef and some poultry products.

A marathon, not a sprint At t he August 19 business roundt able meeting in Beijing, Xi responded to concerns raised by Biden by pledging that China would “intensify IPR protection and treat all businesses as equals in terms of the accreditation of indigenous innovation products and government procurement.” This appears to be the latest is a series of small steps forward this issue that began when the American business community brought China’s innovation policies to the attention of U.S. officials in 2009. In Washington, our objective will be to support this steady progress and to ensure that the long term benefits of the US – China commercial relationship are realized not only by AmCham Shanghai member companies but by the U.S. economy as a whole. David Basmajian is the director of communications and publications at AmCham Shanghai.

Get the latest on AmCham Shanghai's Doorknock trip at www.Amcham-Shanghai.org

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U.S. exports jumped 21 percent in 2010 and the Obama administration continues to highlight exports as a way to create good, high paying American jobs.”

inside amcham from the chairman

Updating the Chamber’s Constitution

n April 12, 2011, the AmCham Shanghai Board of Governors voted to submit to the Chamber’s membership for approval at its 2011 Annual General Meeting (AGM) amendments to the Constitution of The American Chamber of Commerce in Shanghai. If supported by twothirds of voting members, these amendments will take effect on January

1, 2012.

Eric S. Musser Chairman of the Board of Governors

The five Proposed Amendments to the Constitution modernize the language of AmCham Shanghai’s Constitution by updating and clarifying existing language, incorporate accepted methods of Board governance and clarify that any voting member in good standing can hold office or serve on the Board of Governors. In short, these Proposed Amendments will help AmCham Shanghai better meet the needs of our dynamic and fast-growing membership. To ensure that the membership is well informed of the Proposed Amendments, the Board of Governors will launch a membership outreach campaign beginning in September and ending with the AGM. Information sessions will be held at the Monthly Members Briefings on September 6, October 11 and November 1, 2011 at which time Board members will be present to discuss the Proposed Amendments and be available for questions. In addition, the September, October and November issues of Insight will include important information about the Proposed Amendments to the Constitution. The Proposed Amendments and supporting documentation will also be made available for review at www.amcham-shanghai.org/constitution. Absentee voting on the Proposed Amendments will begin on Monday, October 24, 2011 and close on Monday, November 14, 2011. The final chance to vote will be in person at the Annual General Meeting on Thursday, November 17, 2011.

Kevin Wale Chairman of the Constitution and Bylaws Revisions Committee

On behalf of the Board of Governors, we encourage you to review these Proposed Amendments. AmCham Shanghai’s Constitution has not been significantly revised in 24 years. It is the strong belief of the Board of Governors that these Proposed Amendments will improve AmCham Shanghai’s operations and governance and help position the Chamber for exciting opportunities ahead. Thank you for your continued support of The American Chamber of Commerce in Shanghai.

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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 August 2011 Board of Governors Meeting Chairman’s Report Eric Musser, chairman of the AmCham Shanghai Board of Governors, provided a Nominations and Elections Committee (NEC) update. Eric reviewed the NEC timeline and informed the Board that the NEC Chair, Murray King, is in the process of assembling the NEC Committee. The next step is to select an election auditor. This will be completed by the end of August 2011 and voted on by the Board at the September 6, 2011 Board of Governors meeting. Financial Report Helen Ren, director, Finance & Administration, provided the Q1 2011 Financial Report. Helen reported that cost controls have been effective and revenues have been in line with budget expectations. New member growth has been strong. The Corporate Visa Program is performing well and Eric Zheng, Board Treasurer, reported that he is pleased with the Chamber’s financial position. President’s Report Siobhan Das, director, Committees, reviewed the draft measures of the recently enacted Social Insurance Law and the process of developing AmCham Shanghai’s comments that were submitted

to the national government. Siobhan also discussed upcoming programming to inform the membership on the new law. Governor Jim Mullinax and Bill Brekke commented that the U.S. government is in the process of reviewing the measures. David Turchetti, vice president, Programs, reported that more than 2,000 people attended the 2011 Independence Day event. The satisfaction survey taken immediately following the event showed a significant jump in satisfaction levels from 2010. David congratulated the entire staff for its work and recognized Jessica Wu, director, Events, for her leadership and hard work.

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

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

c h a m b e r u p dat e

Proposed Amendments to the AmCham Shanghai Constitution

n Apr i l 12, 2011, t he AmCham Shanghai Board of Governors voted to submit to the Chamber’s membership for approval amendments to the Constitution of The American Chamber of Commerce in Shanghai. Results of the vote will be announced at the 2011 Annual General Meeting (AGM) and if supported by twothirds of voting members, these amendments will take effect on January 1, 2012. The five Proposed Amendments modernize t h e l a n g u a g e o f A m C h a m S h a n g h a i ’s Constitution by updating and clarifying existing language, incorporating accepted methods of Board governance and ensuring that any voting member in good standing can hold office or serve on the Board of Governors. In short, these Proposed Amendments, the first significant changes in 24 years, will help AmCham Shanghai better meet the needs of a dynamic and fast-growing membership. Absentee voting will begin on Monday, October 24. Members may cast their absentee ballot in person at the AmCham Shanghai office, at AmCham Shanghai events or by fax or online until Monday, November 14, 2011. The final chance to vote will be at AmCham Shanghai’s Annual General Meeting on Thursday, November 17. The vote on the Prop os e d Amendments w i l l b e held in conjunction with the election for the 2012 AmCham Shanghai Chairman and 2012 Board of Governors. Members will be asked to vote for each Proposed Amendment individually.

The Proposed Amendments update existing language and will help better meet the needs of a dynamic and fastgrowing membership

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Summaries of the five Proposed Amendments are provided below. For more information, please visit http://www.amchamshanghai.org/constitution where you will find a sample AmCham Shanghai Constitution with the changes that reflect the Proposed Amendments. Proposed Amendment 1: Clarification of membership categories and an update of proxy voting In order to provide flexibility and allow for C hamb er memb ership c ategor ies to b e u p d at e d f r o m t i m e t o t i m e , P r o p o s e d Amendment 1 would allow specific membership categories to be moved to the Chamber’s Bylaws and that the general membership categories of voting and nonvoting be clarified in the Constitution. In order to facilitate contemporar y voting procedures, proxy voting was further defined to include online voting and absentee voting. Proposed Amendment 2: Selection of the AmCham Shanghai Board Vice Chairman Existing constitutional language states that “the candidate who receives the highest number of votes for the Chairmanship shall become the Chairman and the candidate who receives the second highest number of votes for the Chairmanship shall become the Vice Chairman.” In the election of the Chairman, the first runner-up may not want to serve as Vi c e C h a i r m a n . T h e r e f o r e , P r o p o s e d Amendment 2 offers that the Chairman

Important dates: October 11: Monthly Member Briefing information session on Proposed Amendments October 24: Ab s e nt e e vot i ng on t h e Prop o s e d Amendments begins November 1: Monthly Member Briefing information session on Proposed Amendments November 14: Absentee voting closes November 17: AmCham Shanghai’s Annual General Meeting - final chance to vote January 1, 2012: If approved, Constitutional amendments are implemented

chooses the Vice Chairman in the same manner in which the Chairman chooses the officers of S e c re t ar y and Tre asu re r of t he B o ard of Governors. Selection of the Vice Chairman will be made after consultation with the Board of Governors and shall be subject to an affirmative majority vote of the newly elected Board of Governors at its first meeting. Proposed Amendment 3: Clarification of “quorum” Proposed Amendment attempts to clarify the definition of “quorum” for the Annual General Meeting (AGM) and for an Extraordinar y

General Meeting. The 10 percent requirement for quorum will include all eligible voting members in attendance at the meeting plus all proxy and absentee votes cast by fax, online, mail, or any other method of voting approved by the Board of Governors. Proposed Amendment 4: Updating office holder requirements Existing language requires that, to hold office or ser ve on the board of Governors, a voting member must be “a resident in Shanghai and registered as an Associate Member under a Corporate Membership.” As the AmCham S h a n g h a i m e m b e r s h i p g r ow s , P r o p o s e d Amendment 4 allows any voting member in good standing to hold office or serve on the B o a rd of G ov e r n or s w h e t h e r t h e y a re a Corporate or Individual Member and does not require them to live in Shanghai. Section A.2, however, continues to require that the Chair and Vice Chair be a principal Corporate Member. Proposed Amendment 5: Language update to the AmCham Shanghai Constitution The goal of Proposed Amendment 5 is to update terminology and clean up the language of the AmCham Shanghai Constitution. For example, the amendment would delete “telex” and add “teleconference” and “facsimile” when outlining how a Board member who is unable to attend a Board meeting may still participate. The title of “Chairman” would be replaced with “Chair.”

For a complete list of the language changes, please visit http://www.amcham-shanghai.org/constitution. For more information, contact AmCham Shanghai’s Events Director, Jessica Wu by phone at 6279-7119 ext. 7484 or by email, elections@amcham-shanghai. org.

Read Insight at www.Amcham-Shanghai.org/Insight

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Fun in the Sun More than 2,000 visitors enjoyed three-legged racing, watermelon eating contests, lucky draws, and other a variety of traditional American food and drinks at AmCham Shanghaiâ&#x20AC;&#x2122;s Independence Day Celebration held on July 2 at the Shanghai Changfeng Ecology Business District No. 2 Green Land in Putuo District, Shanghai. Here are some highlights from the day-long celebration. AmCham Shanghai would like to thank all our members and guests who came out to join us for our Independence Day Celebration, as well as our generous sponsors. We hope to celebrate with everyone again next year!

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Exclusive Stars Sponsor

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Exclusive Red, White and Blue Sponsor & Exclusive Map Sponsor

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Food & Beverage Booth Sponsors

Morgan Rothschild Academy Nursery - Kindergarten

Exclusive Goodie Bag Sponsor & Exclusive Tent Sponsor

Exclusive Kid's Bag Sponsor

Booth Sponsors In-kind Sponsors

MU HOME SPA·MASSAGE

sports medicine●orthopaedics●physiotherapy

Shanghai Centre Master CMYK Colors

Medical Booth Sponsors

Basic

Exclusive Fan Sponsor

Exclusive English Newspaper Media Partner

Flag Sponsor

CMYK

eleme

Print adverts / in-house printing / + all low quality printing

CMYK Gold C30 M40 Y100 K15

CMYK Red C0 M90 Y100 K51

CMYK Black C0 M0 Y0 K100

English Magazine Media Partners

Food & Beverage Booth Sponsors

Smallest size for print or web usage

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deal of the month

Bright Foods to Acquire Australia’s Manassen Foods

hanghai-based Bright Food (Group) C o., one of C hina’s largest fo o d company, is finalizing a deal to acquire 75 percent of Manassen Foods Australia Pty. Ltd. for roughly US$420 million. The deal will boost Bright Food’s efforts to build brand exposure overseas and improve its capability to meet the demands of China’s growing consumer market. The deal will be the stateowned company’s largest overseas acquisition and would be one of the largest overseas investments by a Chinese company in the food industry. Bright Food will buy the stake from CHAMP Private Equity, which had previously considered floating Manassen on the Australian stock market but faced tough market conditions. Bright Food, whose subsidiary, Bright Dairy, was ranked the third largest dairy company in China last year by volume, saw its sales grow 18 percent year-on-year in the first half of this year to US$5.6 billion. It hopes to double its revenue by 2015 from US$7 billion last year. It is expanding overseas to develop its dairy, sugar, wine, food industry and agriculture business, and Wang Zongnan, Bright Food’s chairman, has said he wants to increase sales overseas to as much as 30 percent of its total in five years. Chinese companies are looking to build their brands within and beyond the borders of China, part of a broader push to move up the value chain and in the same vein as Japan and Korea, two nations that successfully went from cheap manufacturing to higher-end products. The

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government is supportive of the move. In 2009, Premier Wen Jiabao called for the development of companies that can distribute “brand-name export products,” and the government has pushed for favorable loans for companies seeking to build a global brand. Bright Food and other Chinese companies are looking to acquire overseas assets to gain access to more overseas markets. Bright Food previously attempted but failed to acquire several overseas companies including Australian CSR’s sugar business, Britain’s United Biscuits and U.S. nutrition retailer GNC, with deals falling apart over pricing and regulatory approval challenges. In March, Bright Food lost out to General Mills Inc. in a bid to acquire 50 percent of French yogurt maker Yoplait. However, it succeeded in acquiring a majority stake of New Zealand’s Synlait Milk Ltd. last year for US$82 million. The deal with Manassen Foods would give Bright Food access to new food processing and production technologies for its facilities in China to develop products for its domestic and international consumers. Manassen owns driedfruit company Sunbeam and retails Laughing Cow cheese and Jelly Belly in Australia along with other biscuit, fruit and dairy products. The deal would also allow Bright Food to sell Manassen products in China, allowing it to leverage the Australian brand’s image amongst China’s increasing savvy and concerned consumers, who view imported products as higher in quality and safer than local brands. - Esther Young

event highlights

inside amcham

July Member Monthly Briefing

AmCham Shanghai Chaiman Eric Musser presents a gift to former Consul General Beatrice Camp.

Beatrice A. Camp, U.S. Consul General in Shanghai, gave her final briefing to AmCham Shanghai members at the Chamber’s July Monthly Member Briefing as she completes her assignment in Shanghai as Consul General. AmCham Shanghai’s Chairman Eric Musser thanked Consul General Camp for her dedicated public service and support of the Chamber over the past three years. Camp said she appreciated the strong cooperation between the Chamber and the Consulate. She reminisced about her service in Shanghai and her first visit to the city in 1984, noting the vast changes Shanghai has undergone over the past 27 years. She observed that whereas other cities see little change in a decade, one can see changes in Shanghai every week.

Camp also spoke about the evolving relationship between the U.S. and China. She said the rise of a strong, prosperous China is good for the global community and that the U.S. must continue to engage with China on multiple levels. Camp stressed Former Ambassador Huntsman’s belief that “trust will be the fuel that takes this bilateral relationship to ever higher heights.” She noted the importance of people-to-people and cultural exchanges in strengthening the relationship between the two nations. Following Consul General Camp’s address, members thanked her for the important role she played in ensuring the U.S. had a presence at Shanghai’s 2010 World Expo and her other important contributions throughout the past three years. In August, Ms. Camp took up a new post in Washington, D.C. in a special advisory role at the Smithsonian Institute. AmCham Shanghai wishes Consul General Camp the best of luck in her next endeavor. (July 5)

U.S. Government Delegation: Innovation Dialogue Delegation AmCham Shanghai hosted U.S. government officials from the State Department, the Department of Commerce, the U.S. Trade Representative and the U.S. Patent and Trademark Office, along with non-government private sector experts, for a discussion on China’s innovation policies. The delegation, led by Acting Deputy Assistant Secretary Jonathan Margolis, was in China for a series of meetings with Chinese government and academic groups and recently attended the Innovation Dialogue in Beijing with its Chinese counterparts. The delegation met with the Chamber to hear personal experiences on how innovation policies are affecting their business. Attendees also touched on potential policy improvements and what is next for China’s innovation policies.

Jonathan Margolis introduces the Innovation Dialogue delegation.

Topics discussed included company decisions to build R&D centers in China, innovation policies at the provincial level and the impact of rescinding elements of China’s indigenous innovation policy on July 1. Chamber members stressed that national treatment of foreign companies is important in creating a vibrant innovative environment in China, in addition to developing clear and enforced IP laws. Many foreign companies are in China for the China market, and companies supported increased bilateral dialogue to push for a fair and competitive environment in the PRC. Other suggestions for future improvements include U.S.-China engagement with academic institutions. (July 29)

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inside amcham

U.S. Government Delegation Assistant Administrator for the EPA Paul Anastas

Dr. Paul Anastas speaks to the press after the AmCham Shanghai roundtable.

Nurturing transformative innovation and capitalizing on “millions of years of design excellence” is key to creating the most efficient, cost effective and energy-saving products, said EPA Assistant Administrator Dr. Paul Anastas. Speaking at a roundtable with AmCham Shanghai industry members, including Dow Chemical and Corning, Dr. Anastas also touched on the compatibility of good business strategy and green goals and creating new and profitable business opportunities.

Dr. Anastas highlighted the power of transformative innovation – thinking beyond making things more efficient, and instead changing the fundamental concept of the products. Instead of searching for new adhesives, for example, companies can draw upon the simple structure of a gecko’s foot to make materials stick to each other – employing nature’s own design brilliance. Instead of making more “environmentally friendly” clothing dye, fundamental concept transformation would focus on cotton that grows in various colors already. Though these ideas may go against traditional company strategy, companies must consider transforming themselves – lest the market do it for them. Many companies are already starting that process, said Dr. Anastas, and the EPA is doing what it can to support the cooperation between academia and its cutting edge innovation with industry leaders to drive this type of transformative innovation. Dr. Anastas, in China to meet with EPA counterparts and China’s think tanks, also sees great opportunities in China, noting the enthusiasm scientists in China has for these ideas, and touched upon the bright prospects between the U.S. and China to partner on future projects. (Aug 5)

Customs Liaison Program Workshop: Customs Valuation Strategies and Report AmCham Shanghai released the 2011 AmCham Shanghai Customs Survey Report at the Customs Liaison Program workshop. The report highlighted key findings, reviewed the challenges facing companies’ clearance operations and offered recommendations to Shanghai Customs to help companies resolve challenges, comply with regulatory rules and improve clearance operations efficiency. “Local Declaration & Port Clearance,” a measure allowing for more flexible choices of Customs offices, was considered to have the most positive effect by surveyed members, following by three other measures. Three bonded zones were also found important to companies’ business operations. The report offered recommendations for improved services to Shanghai Customs, including compliance training, regulatory changes briefing, Free Trade Zones, differences among the bonded zones and technical issues. A total of 381 companies participated in the 2011 Shanghai Customs Survey. 48 percent of the survey companies are in manufacturing, 34 percent in trade-related fields, seven percent in logistics and transportation and 11 percent in customs consulting services. (Aug 17)

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committee highlights

inside amcham

HR Committee Recruitment Process Outsourcing (RPO) – What is RPO and Why is it Strategically Important? Integrating Recruitment Process Outsourcing (RPO) can not only free businesses to focus on their core goals, but also attract the best talent for a company, says Caleb Baker, managing director, RPO & Managed Services Asia Pacific at Talent2. Baker, presenting to Chamber members at the Portman Ritz-Carlton, also offered a look at the RPO trends and how Lisa Jiang discusses RPO. companies can leverage these services to develop their workforce in China. His presentation was followed by an interactive panel of HR practitioners who shared their experiences integrating RPO into their companies. Baker started by offering an overview of the challenges faced by HR executives in China, noting that search & recruitment and employee retention are two of the greatest challenges. Partially in light of these difficulties, the HR industry has shifted more in favor of HR outsourcing, allowing for a greater amount of specialized knowledge in recruitment. RPO, explained Baker, which involves integrating personalized consulting services within a company, can further extend a company’s HR capacity – creating a more focused effort to attract and engage the talent that a company needs. RPO allows for measurable and accountable approach to talent recruitment, allowing companies to have greater control over their HR processes and access to the best talent. The presentation was followed by a panel with Angie Eagan, Asia managing director from Talos, and Lisa Jiang, director of HR for Honeywell Building Solutions North Asia Region, who was involved with the RPO model design and execution at Honeywell. They addressed key aspects for successful RPO integration – including responsible cost management and process management to maintain quality. "Angie’s comments on the organization really needing a clear competency model and good alignment between the HR and the hiring manager before RPO can be truly effective were spot on,” commented Beecher Ashley-Brown, former chair of the AmCham Shanghai HR Committee. “So many companies rush into RPO expecting it to solve all their recruiting problems when in reality, it requires quite some upfront effort and ongoing organizational support in order to achieve the best outcomes.” (Aug 17)

CSR Committee Planning Sustainable Corporate Volunteer Programs AmCham Shanghai’s Corporate Social Responsibility (CSR) program and Horizon Corporate Volunteer Consultancy hosted a seminar on developing sustainable corporate volunteer programs. Attendees heard case studies on successful volunteer organizations and projects from Boyong Yuan, CSR Manager, Bayer China; Lydia Hua, Government Affairs and Corporate Communications Manager, Johnson & Johnson Medical Instruments, China; Hong Jun, Corporate Affairs Director, Microsoft China; Linna Wei, Volunteer Coordinator, Intel China; and Zhongping Wang, Director, Horizon Corporate Volunteer Consultancy. Attendees also heard remarks from Xu Beining, Secretary-General of the Shanghai Youth Volunteer Association and Oliver Yang, CSR and Government Relations Manager, AmCham Shanghai. The corporate speakers represented three different corporate volunteer organizational structures: top-down company-driven programs, worker-driven programs and a hybrid of the two. “There is no correct model,” said AmCham Shanghai CSR and Government Relations Manager Oliver Yang. “There is simply a ‘most appropriate’ model for your company. Look at your company’s corporate structure and culture to figure out what the ideal model is for your workplace.”

A speaker highlights a CSR case study.

Events and Committee Highlights are reported by Ashley Cahill, Susan Lawrence, Joyce Bian and Esther Young september 2011

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Executive Reading Room

One for the Collection Review by Kenneth Jarrett

Kenneth Jarrett

There is no shortage of books about doing business in China. It’s the one growth industry which rivals the growth of China’s economy itself. There are personal stories of business success and failure, academic tomes for those with a scholarly bent, and practical handbooks for the harried executive. The latest contribution to this crowded field is Managing the China Challenge, a new book by Dr. Kenneth Lieberthal, director of the John L. Thornton China Center at the Brookings Institution and a former professor of Chinese politics and business administration at the University of Michigan. Even for those with bookshelves groaning under the weight of China business books, Lieberthal’s book is a valuable read and one for your collection. Lieberthal has impeccable credentials to author a book about achieving business success in China. He is one of America’s foremost China experts, with a specialty on Chinese government and politics, and an individual who has moved beyond pure academics to advise U.S. presidents and business leaders. He served as President Clinton’s Asia policy advisor from 1998-2000 and has been a business consultant to many U.S. companies. Managing the China Challenge reflects Lieberthal’s unique background and experience. In a very readable 113 pages, he moves easily from theory to practice, deftly elucidating China’s political structure and policy goals and challenges before turning to the more operational considerations that bedevil foreign business executives in China. Given the book’s manageable length and clear structure, it’s an easy read. In fact, it’s the perfect companion on the plane from Shanghai to Beijing as you prepare for those encounters with central government officials. The book begins by providing historical context for China’s sometimes difficult relations with the West, a tension that erupts on a regular basis and can affect foreign business operations in China. There is an excellent analysis of “growth drivers and constraints” that discusses the role of urbanization, middle-class expansion and the complex interaction between China’s economy and its political system. This analysis will be helpful to business exec utives tr ying to underst and how t he Communist Party organization interacts with government, the tug-of-war between central and

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local governments, what local leaders worry about, and how external factors such as US-China relations affect this overall dynamic. As Lieberthal puts it, China is a “relatively high-risk business environment,” but one with ample opportunities for success. In the second half of the book, Lieberthal aims directly at business concerns, looking at MNC strategies in China and ways to mitigate the risks of doing business in China. This is where his breadth of experience is fully evident. The chapter on MNC strategies addresses government relations, consumer product development, human resources, locational strategy, and marketing. The penultimate chapter on managing risks offers a handy checklist of the potential threats to business success. The list of risks is long and not for the faint of heart: political, reputational, ethical, cyber, environmental and corporate governance. Lieberthal defines each risk but also offers practical advice on how to deal with these challenges. His discussion of cyber risks is surprisingly long, but a useful reminder of China’s extensive surveillance capabilities and willingness to deploy those resources to capture valuable business intelligence. If there is any shortcoming of this excellent work, it is the relative absence of case studies. Lieberthal uses specific examples to underscore his points, but these are sparse. Adding case studies would have eliminated one of the book’s virtues – its brevity – but for those who enjoy case studies because of their ability to highlight general statements, you’ll have to look elsewhere. Additionally, the chapter on the relationship between Party and government, which discusses lines of control and the overall political system, may be too dense for the uninitiated. Those who find the chapter hard to follow may wish to turn to Lieberthal’s classic work on China’s political system: Governing China. The above are just minor sins for what is a superb book. Whether you have been in China for 10 years or 10 days, you will find Managing the China Challenge a worthwhile read. Moreover, it is the perfect book to send to your U.S.-based colleagues if you want to help them understand the challenges and opportunities of operating in this exciting market. Kenneth Jarrett is Greater China Chairman for APCO Worldwide, a public affairs consultancy.

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