Insight Magazine September 2012 by The American Chamber of Commerce in Shanghai

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

The Journal of the American Chamber of Commerce in Shanghai September 2012

OBAMA vs ROMNEY A Special 16-Page Election Report • The China factor in the U.S. elections • Two Americans in Shanghai make a case for their candidate

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

The Journal of the American Chamber of Commerce in Shanghai September 2012

OBAMA vs ROMNEY A Special 16-Page Election Report • The China factor in the U.S. elections • Two Americans in Shanghai make a case for their candidate

Revised Visa Rules

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INSIGHT SEPTEMBER 2012

The Journal of the American Chamber of Commerce in Shanghai

AMCHAM SHANGHAI

Scott Williams

12 Getting Tough on Foreigners

ISTOCKPHOTO

VICE PRESIDENT OF PROGRAMS

XINHUA

DIRECTORS

F E AT U R E S

XINHUA

PRESIDENT

Brenda Foster

LEGAL UPDATE

By Jeffrey Wilson

Seven changes Americans should know about China’s ExitEntry Administration Law.

COMMITTEES

Stefanie Myers INSIGHT EDITOR-IN-CHIEF/ COMMUNICATIONS & PUBLICATIONS

David Basmajian EVENTS

Jessica Wu FINANCE & ADMINISTRATION

Helen Ren

MEMBERSHIP & CVP

Linda X. Wang

20 Fighting Fake Drugs COMMERCE

By Bryan Virasami

A U.S. Commerce Department ofﬁcial discusses counterfeit drugs and efforts to tackle the problem in China.

INSIGHT MANAGING EDITOR

Bryan Virasami SENIOR ASSOCIATE EDITOR

Esther Young

SENIOR COMMUNICATIONS ASSOCIATE

Ryan Balis DESIGN

24 A New Normal CONSUMERS

By Mary Bergstrom

The Shanghai-based author of a consumer book talks about shifting attitudes of young Chinese consumers.

Alicia Beebe LAYOUT

Tina Tian PRINTING

Mickey Zhou Snap Printing, Inc.

INSIGHT SPONSORSHIP SPONSORSHIP MANAGER

Sophia Chen

(86-21) 6279-7119 ext. 5667

26 Obama vs Romney

In our special 16-page report, see what our guest writers say about the China factor in the U.S. presidential elections.

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

COVER STORY

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

5 News Briefs

INDEPENDENCE DAY

July 4 Pictures

11 Movers & Shakers

50 Let’s Talk Over a Drink EXECUTIVE MEETING ROOM

INSIDE AMCHAM 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

42 46 47 48

From the Chair Deal of the Month Government Relations Committee Highlights COVER ILLUSTRATION BY ALEXANDER WELLS

Editor's note

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

mericans have a lot on their minds these days. It’s the economy mostly plus kitchen table issues such as the lack of jobs, healthcare, education and what the future holds for their kids. As the presidential campaign heats up, these concerns are taking center stage as President Obama and Gov. Mitt Romney trade barbs on who is to blame for a faltering U.S. economy and who is best equipped to fix the problems in the next four years. During a summer visit to the U.S., I was struck by not only the ferocity of the debate but how domestically focused the debate has become. But China has factored in, if only as a punching bag for both candidates looking to score points with an increasingly China-wary electorate. In this month’s cover story, we hear from Robert Kapp, former president of the US-China Business Council, current strategic advisor to the U.S.-China Specialty Group at Burson-Marsteller and all around China hand, about the role China will play in the presidential election as well as the impact of the election’s results on the U.S. China relationship. We

also take a moment to let the candidates have their say – supporters from each campaign make their case starting on page 34. And finally, we asked everyday Chinese citizens for their take on the election and what, if any, impact they think it will have. Speaking of kitchen table issues, we American expats in China have some of our own, namely the rules, laws and regulations governing our right to stay in this country. Jeff Wilson, a counsel at Jun He law firm, tells us that going in and out of China on a tourist or business visa is about to get more complicated courtesy of a new law passed by the National People’s Congress this summer. Jeff breaks down the new rules for us on page 12. And if all this has got you down, Insight’s Executive Meeting Room offers the best places to have a drink (and talk business) in Shanghai. Take a look at some photos highlighting this year’s AmCham Shanghai Independence Day party, complete with the Harlem Globetrotters, on page 14.

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News

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

CHINA BUSINESS

new rare earth trading platform China’s largest rare earth producer, Baotou Steel Rare Earth, has announced its plans to launch a rare earth trading platform as a way to improve price clarity. Ninety-five percent of the world’s rare earth mineral production is controlled by China, and the country’s recent restrictions on exports have caused a point of contention for the U.S., Europe and Japan at the World Trade Organization (WTO). Rare earth minerals are used in a variety of hightech products. The rare earth pricing market is unclear because the minerals are not sold in public markets, and very few private and government sources provide pricing data. The new trading platform would provide a measure of pricing clarity, but would also enable Chinese companies to set pricing.

Foreign banks hiring extravaganza Foreign banks in China are planning to hire 56% additional employees, creating a combined headcount of 35,000 to 55,000 people by 2015 to maintain growth and expansion. The large number of new hires is in part because of the record turnover rate of 20% or more of some foreign bank’s staff in 2012. Foreign banks’ revenue is also expected to increase despite China’s somewhat subdued economy thanks to increasing demand from multinationals and a growing number of domestic customers. More than half of all locally incorporated foreign banks in China are headquartered in Shanghai, which the government plans to develop into an International Financial Center (IFC) by 2020. Foreign banks hold 12% of Shanghai’s banking market, compared

Adidas shuts China factory adidas will be closing its only company-owned factory in suzhou, jiangsu province as part of a plan to enhance efficiency and cut costs in an increasingly competitive market with generally decreased sales in china. adidas will not be reopening the factory elsewhere in china and will source its products from other chinese manufacturers instead. the company already works with 300 supplier factories in China. The Adidas factory’s 160 employees were notified of the upcoming closure and will be receiving a severance package. athletic clothing companies, such as adidas, were some of the first Western brands to enter the Chinese market. Today, however, the market has become increasingly competitive with the inclusion of companies such as gap, inc. and h&m hennes & mauritz aB. the adidas factory closure indicates companies’ concerns over rising costs and their search for cheaper production elsewhere, thus impacting manufacturing and causing job loss in chinese factories. chinese sports companies also are becoming competitors in their own local market and hurting sales for foreign firms.

with 1.9% nationally.

contaminated infant formula recalled Hunan Ava Dairy Industry Co.’s baby formula products manufactured between July and December 2011 have been

SEPTEMBER 2012

recalled because the formula was found to contain aflatoxin, a chemical that can cause cancer in high quantities. Contaminated formula was found in five batches of the Nanshan Bywise brand in Guangzhou. The recall of Nanshan Bywise comes just one month after China’s largest milk producer by revenue, Inner Mongolia Yili

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Industrial Group Co., discovered its baby formula contained high levels of mercury. These newest dairy product scares come at a time when the milk industry has been struggling to raise consumer confidence in Chinese products. Although dairy sales increased 8.5% in 2011, consumers are still choosing to buy more foreign based products over Chinese ones.

Rising importance of mobile phones Data from the China Internet Network Information Center show 388 million Chinese now use their phones to access the Internet, overtaking the number of Internet computer users for the first time. Although only four out of 10 people use the Internet, China’s online population is still equal to that of the U.S. and Brazil combined. Among the Chinese Internet shopping population, 44.4 million people use their phones when purchasing goods online. The importance of phone and tablet-friendly business websites is likely to play an increasingly important role in advertising and sales as more and more Chinese citizens are able to access websites on the go. CORPORATE NEWS

Pepsi opens new plant in Hebei province PepsiCo opened a new food manufacturing plant in Wuhan, Hubei province, to produce 15,000 tons of Lays potato chips each year. The opening is part of Pepsi’s plan to expand its business in China. Chinese are currently consuming less than half the number of soft drinks and potato chips of their American counterparts. Pepsi has taken notice of this room for growth in the Chinese market and hopes that expanding its operations and creating new chip flavors such as hot & sour fish soup will give them the competitive edge. The Wuhan government also recognizes the role the new Pepsi plant has in the development of the local economy and supports Pepsi’s expansion into western and central China.

J.Crew expansion J.Crew Group, Inc., after removing its stores from Japan four years ago, is now working on expanding to Hong Kong. China’s luxury brand market has begun to slow down, however, and although Chinese consumers understand highend European brands, it may be difficult for them to distinguish the quality of something mid-range. J.Crew began shipping orders internationally this year as a way to gauge the markets, and discovered that Hong Kong, Japan and Australia were some of their top export locations. J.Crew will not be repeating the mistakes they made in Japan, and will instead be setting up their own stores, without local partners. J.Crew believes that its steady expansion and market research will allow it to succeed in Asia despite growing competition in the retail market.

Lenovo, EMC link up Lenovo Group Ltd. and EMC Corp. will work together on development and retail of servers and network storage. The cooperation between the two firms will enable EMC to expand the distribution of its data storage business in China, a market it considers to be of extreme importance, and Lenovo’s server sales and enterprise offerings are expected to grow. Although Lenovo’s server business is comparatively small, the company has been seeking to expand this area of its business. The partnership is expected to increase each company’s research and development in server and storage markets. The two companies are also starting a joint venture to offer network attached storage to small business customers. MACROECONOMICS

Investment growth edges lower Foreign direct investment (FDI) into China decreased by 3% year-on-year to US$59.1 billion from January to June this year on China’s decreased economic activity

and the global economy’s slow recovery. The Chinese government is currently working to boost domestic consumption, thereby increasing economic growth and the confidence of foreign investors. The government is at present also improving and expanding the foreign investment Industry Guide Directory to encourage local area investments. Lately, it has been difficult for China to bring in new FDI because the EU is struggling with a debt crisis and the U.S. has been encountering difficulties in its own economic recovery. These new measures taken by the Chinese government, however, should maintain China’s trend of significant FDI growth.

Economic growth slows Data from the National Bureau of Statistics show China’s GDP grew at 7.6% in the second quarter, a three year low. In addition, export growth slid to 9.2% over the first half of the year, down from 24% year-on-year. Retail sales and industrial production, however, increased 13.7% and 9.5%, respectively, in June year-onyear, while fixed-asset investment picked up 20.4% in the first half year-on-year. Despite an overall economic slowdown in China, increases in certain industries show that the economy may be stabilizing. Meanwhile, Chinese banks have been lowering interest rates and lowering banks’ reserve requirements as a way to spur lending and economic expansion. China’s economy is expected to pick back up in the second half of the fiscal period.

Inflation eases to 1.8% China’s Consumer Price Index (CPI), a major indicator of inflation, hit 1.8% in July year-on-year, a two and a half year low, giving the government more room to cut interest rates or otherwise stimulate economic growth. Beijing increased economic controls in 2010–11 to halt surging inflation and then eased controls in late 2011, causing demand for Chinese goods to drop and the economy to slow. The economic slowdown and decrease in inflation hint that China could be entering

SEPTEMBER 2012

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a period of deflation, which could cause consumers to hold off on spending and wait for lower prices, thereby causing lower company revenues and wages. U.S.-CHINA

U.S. records higher Chinese FDI Total Chinese foreign direct investment (FDI) into the U.S. was US$3.6 billion in the first half of 2012, the highest six month value previously recorded for China. Chinese FDI pours into a variety of industries, but the most common are oil, gas, aerospace and banking. Renewable energy had the largest number of investment deals, though each was fairly small. In addition, most investments during this six month period were greenfield investments or new facility construction. Challenges for Chinese investing in American companies are working with the U.S. legal system and national security. However, President Obama’s order to increase visa-issuing capacity in China and encouragement of Chinese investment have assisted Chinese participation in U.S. infrastructure.

Visa applications hit 1 million The U.S. government has processed 1 million visa applications from China through a 9-month period ending in June, a 43% increase over the same period the previous year. To attain the 1 million figure, the U.S. Embassy in Beijing and Consulates processed almost 600,000 applications from April to June in preparation for the summer travel season. The expansion of consular office space, increase in the number of interview windows and improved waiting areas have all helped to increase visa processing. In addition, the wait time for an interview has been shortened to a week, compared to the previous one month wait time. Obama has pushed for the U.S. to become the top travel location as a way to increase jobs and stimulate the economy.

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Nebraska’s new trade office Nebraska governor Dave Heineman has signed an agreement to open a trade office in Shanghai for a US$50,000 a year investment. The office will operate for at least three years, and work to promote business relationships between Nebraska and China. The state has had nearly 30 international investments from several countries in the last four years, which have created thousands of U.S. jobs, and hope that the new trade office will increase these numbers. Nebraska has also hosted two reverse trade missions since 2008 for businesses from around the world, including China. The Nebraskan government has also been working closely with the Shanghai Small to Medium Enterprises Center for International Cooperation to expand FDI in Nebraska and expand trade relations.

Foreign credit cards gain market access Visa, Inc., MasterCard, Inc. and American Express Co. were among those who won partial support in a July ruling by the World Trade Organization (WTO) against Chinese electronic payment services. The U.S. claimed that the Chinese company, UnionPay, was being favored over foreign card companies, who were forbidden from issuing their cards in their currency. It is likely that both sides will appeal the ruling since the WTO refused to accept that UnionPay held an across-the-board monopoly over all electronic payments, and only ruled in partial favor of foreign companies. China is set to overtake the U.S. as the largest credit card market by 2020, and the hope is that this ruling will open up the Chinese domestic market to foreign card companies. GOVERNMENT & POLICY

Tax regulations clarified Beijing clarified existing tax regulations so that now more companies that are based outside mainland China, and whose home country has no tax treaty, may pay

SEPTEMBER 2012

only a 5% withholding tax on dividends sent home from China. The new policy would not apply to U.S.-based firms because the double-taxation treaty sets the withholding tax rate at 10%. While the new regulations will reduce costs of doing business in China, the foreign-based firm must first show that they have substantial business in their home country to qualify. This could make things more difficult for foreign firms’ attempting to receive the lower tax rate since Beijing has not given a clear definition of “substantial business.”

VAT trial expanded The Chinese government will expand the value-added tax (VAT) trial from Shanghai to 10 more cities to lower tax burdens in certain business sectors. The VAT will be expanded to places such as Beijing, Tianjin, Shenzhen and Xiamen. The VAT lowers taxes for certain service sectors by shifting the tax burden from a business tax levied on total revenue to a value-added tax, similar to the one already paid by manufacturers. This new policy has lowered tax bills for about 40% of Shanghai’s small enterprises. The expansion of the VAT is meant to boost economic growth in a slowing economy and promote the development of service sector business. The program excludes some service-based businesses such as real estate construction and financial services.

Solar products trade dispute Chinese solar panel exports to the U.S. decreased 45% in May and 64% in April following tariffs imposed by the U.S. government. Subsidies given to U.S. solar companies in addition to anti-dumping tariffs have had an impact on Chinese exports and created a trade spat between nations. Solar markets everywhere have been struggling with issues of oversupply and weak demand, resulting in multiple anti-dumping allegations being raised. However, the current trade spat could create higher costs and cause Chinese manufacturers to be less competitive in the global market. In addition, billions of

dollars of U.S. exports, as well as thousands of jobs in the value chain stand to suffer. Though no country stands to gain from trade disputes, the U.S. and Chinese governments have yet to negotiate a mutually beneficial solution. SHANGHAI BUSINESS

Carbon credits for lower emissions The Shanghai government has distributed guidelines for a new carbon trade market, which enables companies to buy and sell carbon credits. The carbon emissions of the approximately 200 companies that are part of the program reached 110 million tons, nearly half of the cityâ&#x20AC;&#x2122;s total emissions. The new carbon trade program is meant to encourage lower emissions and energy saving company policies, since firms can sell their carbon credits. The program will begin with a trial period from 2013 to 2015, and comes to Shanghai right after the decision was made by the

National Reform and Development Commission (NRDC) to call upon large cities, such as Beijing and Tianjin, to set up these carbon trade markets.

No visa required for Shanghai stop Shanghaiâ&#x20AC;&#x2122;s visa-free policy may be extended from 48 hours to 72 hours, allowing international travelers to stay for a longer period before flying to their destination. The extension of the visa-free policy is meant to bring more visitors to Shanghai and increase the use of Pudong and Hongqiao airports. The current 24 hour and future 72 hour policy is available to travelers passing through to 32 countries, including the U.S., UK and Japan. The policy may also be expanded to include other destinations. Pudong International Airport moved down one slot on the list of worldâ&#x20AC;&#x2122;s busiest airports last year, so the new 72 hour policy is meant to encourage additional passengers

and cargo to Pudong.

Online consumerism Shanghai ranked No. 1 in online shopping on Taobao among all Chinese cities, according to the online shopping company. Each city was evaluated based on economic conditions, population, consumer spending and income. Shanghai was found to have advanced hardware and software and plenty of buying power. Coastal areas such as Jiangsu, Zhejiang and Guangdong provinces tend to have more consumers shopping online than mid-west cities. This is mainly because of higher disposable income levels belonging to citizens on the coast, compared to the less developed mid-west markets. The number of people who shop on Taobao in first-tier cities, such as Shanghai, is over 10% higher than in second-tier cities. Most mid-west cities have been ranked by Taobao as fifth- or sixth-tier cities.

CHINA & THE WORLD

SOUTH AMERICA ASIA-PACIFIC

INDONESIA: Central bank buys up RMB The Indonesian Central Bank is buying Chinese yuan-denominated bonds to add Chinese currency to their foreign exchange reserves. Many countries are adding yuan to their official foreign currency funds out of concern over the value of the U.S. dollar and the Euro. Chinese officials have supported the bond sales as a way for the yuan to gain importance and relevance in international trade and investment. The Chinese government also hopes that a global yuan will lower foreign exchange costs for Chinese companies. The proportion of yuan in foreign exchange reserves is relatively small compared to other currencies, however, and China’s slowed economic growth may cause a drop in yuan bond sales.

MIDDLE EAST

ASIA-PACIFIC EUROPE

China pledges $20b for development President Hu Jintao promised US$20 billion in loans to African countries to assist in the development of infrastructure, agriculture, manufacturing and small- and medium-sized enterprises. Beijing has put increasingly more investment into the development of Africa over the past several years as a way to promote ties and trade relations. China’s industrial expansion has created a need for Africa’s abundant resources, such as oil, metals and minerals, while Africa’s main Chinese imports are mechanical and electrical products.

AFRICA

SWITZERLAND: Swiss bank partners with China

MIDDLE EAST EUROPE

NORTH AMERICA MIDDLE EAST

Swiss wealth management firm Julius Baer Group entered into a strategic partnership with Bank of China Ltd. to cross-refer clients, thereby giving the company access to one of the world’s fastest growing markets. The Swiss bank has been expanding into Asia over the past several years, and this new agreement is the next step for increasing market access. Bank of China will be referring clients with international banking needs to Julius Baer, while Julius Baer’s current clients will be referred to Bank of China for Chinese banking needs.

Expanding trade with the Middle East The trading partnership between China and members of the Middle East’s Gulf Cooperation Council (GCC) countries has been expanding, as China’s need for crude energy continues to increase and as GCC members’ desire for Chinese made machinery grows. In the first half of 2012, trade between China and the GCC increased by 29.1% to US$77.7 billion. Overall, China’s trade with the Middle East and North Africa reached US$111.8 billion, a 22.1% year-on-year increase, despite political unrest in the region. The bulk of Chinese trade, about 70%, occurs with GCC countries Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates (UAE) and Oman.

AFRICA

SOUTH AMERICA MIDDLE EAST AFRICA

NORTH AMERICA

CANADA: Cnooc makes top overseas acquisition China’s Cnooc Ltd. will pay US$15.1 billion for Canada’s oil company Nexen, Inc. in the largest overseas acquisition by a Chinese firm, adding 900 million barrels of oil equivalent. Canada has become a popular area for Chinese oil and gas companies seeking to expand their oil reserves in an ever-demanding Chinese market. Cnooc also plans to use Canada as a base for further North American operations. While the Canadian government must first review the acquisition to ensure domestic security, it is likely to pass since the takeover will benefit Canada’s economy and Nexen, Inc. will continue to maintain its local company persona. The deal also is expected to be reviewed by regulators in the U.S., where Nexen holds drilling agreements and roughly 10% of its assets.

SOUTH AMERICA

NORTH SOUTHAMERICA AMERICA EUROPE

AFRICA ASIA-PACIFIC NORTH AMERICA

Planned trade increase with Latin America China plans on doubling its trade with Latin America over the next five years to reach US$400 billion. China’s largest trade show, the Canton Fair, showed that trade with developing economies was likely to increase, and business with BRIC countries, among others, rose 4%. There has in particular been an increase in trade in mechanical and electrical products between China and Latin America, with an overall trade contract value increasing 18.5% year-on-year. The Chinese government has been taking steps to expand trade with countries such as Brazil. Premier Wen Jiabao has recently proposed a free trade pact with South American trade bloc Mercosur, which includes Brazil and Argentina.

ASIA-PACIFIC

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SEPTEMBER 2012

SOUTH AMERICA ASIA-PACIFIC

MOVERs AnD shAKERs CO M P i L E D B Y J OYC E B i A n

Movers and Shakers highlights major personnel changes within the Chinese government at various levels and senior management-level movements within multinational companies in China.

Citibank Citibank promoted Jonathan Larsen global head of Retail Banking in June. Larsen will continue his role as head of Consumer Banking for Asia Pacific, a position he was appointed to in late 2009. Larsen joined Citi in 1998 and has held various leadership roles across Asia Pacific. He is a member of Citi’s Global Consumer Management Committee and Asia Pacific Executive Committee. Jonathan Larsen

PRIVATE SECTOR J.D. POWER & ASSOCIATES J.D. Power & Associates promoted Mei Songlin vice president and managing director of J.D. Power China Operations in July. In his role, Mei will be responsible for research and analysis conducted in China and for developing new research products. Mei Songlin Previously, Mei was general manager of research services and client service at J.D. Power China. Mei succeeded Jacob George, who was appointed vice president and general manager of global automotive consulting for J.D. Power and Associates. SSOE In August, SSOE appointed Stacey Sun China human resources manager. Sun will lead the company’s HR programs, recruiting eﬀorts and share responsibility in learning and organizational development initiatives in the region. Sun’s expertise is in labor laws and regulations in China.

team servicing Lenovo and managed AMD’s OEM business in China before 2010. Prior to joining AMD in 2004, Pan worked at Motorola for 13 years. GENERAL MOTORS General Motors Pan Xiaoming appointed Xiang Feng vice president of Public Policy and Government Relations in China in August. Xiang joined from United Parcel Service (UPS), where he was vice president of Public Aﬀairs, Asia Pacific. Elsewhere, Oscar Wong was appointed general manager of GE Lighting China in July. Wong will be responsible for overall operations, market strategy development as well as driving business growth for the company in mainland China.

Xiang Feng

Oscar Wong

Stacey Sun

GOLDMAN SACHS GROUP Goldman Sachs Group appointed Matthew Westerman head of China investment banking in August. Meanwhile, Westerman will remain a co-head of Asia, ex-Japan, investment banking. In July, the financial services company hired Cui Li as senior China economist and managing director in the economics, commodities and strategy research department. Cui joined from the Royal Bank of Scotland, where she led the bank’s China macroeconomic research. AMD GREATER CHINA Pan Xiaoming was promoted vice president of AMD Greater China in August. Pan previously headed AMD’s global account

HILTON Hilton appointed Bruce McKenzie senior vice president, operations for Greater China and Mongolia in August. McKenzie will oversee the operations of over 30 hotels and the growth of more than 100 pipeline hotels in the region.

GOVERNMENT CPC SHANGHAI STANDING COMMITTEE Yin Hong was appointed secretary general of CPC Shanghai Standing Committee in June, where he had been deputy secretary general since early 2008. Yin was formerly mayor of Zhabei District and vice mayor of Changning District in Shanghai, among other government posts in the city.

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

SEPTEMBER 2012

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VisA REViEW B Y J E F F R E Y W i Ls O n

Getting Tough on Foreigners

Seven changes Americans should know about to China’s Exit-Entry Administration Law

he days that foreigners could show up in China to begin work without completing all of the necessary paperwork, or even flying in and out of C h i n a on a t ou r i s t or business visa to live and find work, may soon be coming to an end. Prompted in part by the steady rise of foreigners visiting and working in China over the past three decades, the National People’s Congress on June 30, 2012 passed a comprehensive new law introducing stiffer penalties for foreigners who illegally enter, live or work in the country. The impact on the foreign business community is expected to be significant. A reported 210,000 foreigners live in Shanghai, with U.S. citizens forming the third largest nationality. This number likely does not include the number of foreign nationals whose frequent travel and stays in China could result in them being deemed to be working and living in China. Jeffrey Wilson After the Exit-Entry Administration Law becomes eﬀective on July 1, 2013, foreign nationals caught violating the law may face increased fines, and may even find themselves spending time in detention or being deported. Employers may also face greater fines for illegally hiring foreign nationals. And in order to help the government track the increasing numbers of foreigners coming to visit and work, all foreigners may be fingerprinted when arriving in the country. Although local officials will still retain a great deal of discretion over how the law will be enforced, the aspects aﬀecting the foreign business community include the following: 1. The law clarifies the definition of “illegal employment”

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There are three situations under the law when a foreigner could b e considered illegally employed. The first situation is when a foreigner is working without both a valid work permit and a resident permit. This clarification indicates that a common practice of foreign nationals beginning work without completing residence permit procedures with a local branch of the Public S e c ur it y Bure au (PSB) wi l l no longer b e overlooked. The law emphasizes that the PSB is responsible for the stay and residence of foreigners in China. The second situation defined as illegal employment is when a foreigner works outside the location noted on their work permit or outside the scope of the responsibilities listed on their work permit. For example, a work permit sponsored by a Shang hai employer wou ld not permit the foreigner to work in Guangdong (or any other province), or work for another employer. This requirement places significant challenges to an investor looking to place foreigners in cities where the investor does not have a registered business entity. The third situation is when a foreigner improperly works outside the scope of a student visa. With the growing number of foreign students coming to China and looking to work part-time, many employers may be faced with looking more closely at how they hire foreign students. While existing regulations state that foreign nationals employed directly by PRC employers need to get work authorization before they can begin duties in China, the new law does not clarify requirements when foreigners who are seconded from overseas to work in China are deemed to be “working” in China and need to get work authorization. As a result, some employers may take a conservative approach and arrange

The law sets forth several situations when a foreigner could be prevented from leaving China, including being involved in a pending civil case or having defaulted on obligations to pay employees. 5. Employers and PRC citizens are required to report suspected violation of the law

work authorization before the secondees take up their positions in China, while others may treat these secondees similarly to business travelers, thereby giving them a 90-day window to get work authorization. 2 . I l l e g a l l y e m p loye d f o re i g n nationals face harsher penalties The new law increases maximum fines foreigners face for working illegally from RMB1,000 to RMB20,000. Moreover, in “serious cases,” such as working illegally for an extended period of time, foreign nationals may be detained up to 15 days, given the chance to voluntarily leave the country, or may be deported. Persons deported from the country may be barred from re-entry for up to 10 years. 3. Employers could face significantly higher fines for illegal employment of foreigners Employers that illegally employ foreign nationals or aid their illegal entry may also face heavier penalties under the new law. The fine imposed on such employers has been doubled by the new law to a maximum of RMB10,000 per foreigner illegally employed. Employers that falsify documents to aid in the illegal employment of foreign nationals may also be subject to fines up to RMB10,000. This fine could also be applied to companies that submit false invitation letters to help foreigners obtain business visas. 4. Foreigners may be prevented from leaving China

Employers and Chinese citizens will be required to report suspected illegal entry, stay, or employment of foreign nationals to the local government authorities. Although there are no specific penalties providing for failing to make such reports, such an omission arguably could be considered as assisting the illegal entry or stay of a foreigner. If so, fines could be imposed. 6. Foreign nationals may need to provide the government with biometric data Foreigners may soon be required to have their fingerprints taken when going in and out of PRC immigration and when applying for residence permits with the PSB. Details on the actual implement at ion of t his re quirement and additional regulations regarding the collection of additional types of biometric data, which could include scans of travelers’ eyes, are expected to be released in the near future. 7. Educated or otherwise talented foreign nationals may find it easier to enter the country The law creates a new visa category for “special talent.” Specifics on this new category have yet to be established, but it is probable that it will give entry and employment advantages to skilled and experienced foreign workers. It may also benefit foreign nationals who would like to work in China but are over the statutory retirement ages.

Jeffrey Wilson is a counsel of the Jun He Law Offices in Shanghai.

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“

This fine could also be applied to companies that submit false invitation letters to help foreigners obtain business visas.”

Independence Day 2012 Some 2,000 people enjoyed live music, hot dogs, pizza and other traditional American July 4 dishes during the annual Independence Day party in Shanghai earlier this summer. The Harlem Globetrotters were the highlights of the party that also included traditional fun activities such as three-legged races, a water balloon toss and a watermelon eating contest. Here are snapshots from that day.

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insight

SEPTEMBER 2012

English Magazine Media Partners

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

Ensuring a ‘Level Playing Field’

nsight: What are the objectives of your trip to China? Who are you meeting with or met with?

Nicole Lamb-Hale: “The initial impetus was to participate in the U.S. Chamber’s U.S.-China Investment Forum in Beijing. I was there for the opening ceremony. I also participated in the CEO roundtable that the Chamber organized. I have been visiting various ministries; I met with the tourism agency CNTA to further some of the initiatives of the Commerce Department to increase tourism. We have an MOU under the

Nicole Lamb-Hale is assistant secretary of Commerce for Manufacturing and Services in the International Trade Administration. During her first trip to China, LambHale spoke to Insight about what she hopes to accomplish here and what her department is doing to support U.S. businesses abroad.

JC C T [ U. S . - C h i n a Joi nt C om m i ss i on on Commerce and Trade]. Also, I met with the Ministry of Health to talk about initiatives around health IT. In addition to meeting AmCham Shanghai, I’ll be going to Hong Kong and meeting with the AmCham there. It’s a crammed schedule for a week, but it’s been great and we’ve had some productive meetings.” Insight: What are Commerce’s China priorities in terms of ensuring U.S. competitiveness in the manufacturing and services sectors? NL: “What we have done in the presence of the National Export Initiative [NEI] is to focus on the sectors that we believe the U.S. is the most competitive, in both manufacturing and services sectors. There are a variety of sectors where we

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“

It is important to work with the commercial service programs to really understand the culture of doing business in China.”

believe we have an edge – health IT being one,

China Council for the Promotion of International

which is why I met with the Ministry of Health.

Trade. And, there is a website that any business can

Tourism is another big one on the services side.”

go to find out about those services – it’s www. export.gov. But I really think, in particular with

Insight: What are some of the top challenges for

SMEs, it is important to work with the commercial

these sectors?

service programs to really understand the culture of doing business in China.”

NL: “There are definitely challenges that cut across industries that we’re focusing on in our discussions

Insight: Some of the biggest competitors of U.S.

with the Chinese government. Intellectual property

companies in China are European companies who

protection is a ver y important one. Non-

enjoy a great deal of support from their home

discriminatory practices as it relates to state-owned

governments. What are some of the most successful

enterprises is another – ensuring that there’s a level

U.S. trade promotion strategies and what plans do

playing field. Another is the difficulty in licensing

you have moving forward?

and obtaining product approvals, because often,

– Nicole Lamb-Hale

product standards or rules for obtaining product

NL: “The NEI is focused on five areas – improving

licensing are not available, unclear or not applied

trade advocacy, export promotion efforts,

uniformly. We work through a lot of these issues

increasing access to credit, especially for SMEs,

primarily through the Commerce Department,

removing barriers to the sales of U.S. goods and

with the JCCT.”

services abroad, robustly enforcing trade rules and pursuing policies on a global level to promote

Insight: What are some specific challenges you see

strong, sustainable and balanced growth. This

facing U.S. SMEs who want to export to China or

whole government approach has really moved the

want to expand operations in China? Does

needle in terms of the increase of U.S. exports.

Commerce have specific programs to support them? I have some statistics I’d love to share with you that NL: “SMEs often don’t have the same resources as

show that we’re on track to achieve this goal. U.S.

some of the larger companies, and we help them

goods and services exports to date for the first five

through the U.S. Commercial Service in- country.

months in 2012 were up 5.7 percent, or US$48.6

We have a gold key service, which helps them

billion from the same period in 2011, so we’ve

identify market opportunities. We have a program

reached export numbers of US$908.7 billion. U.S.

that allows them to find companies that may be

exports in May of 2012 represented the second

interested in being representatives of their

highest on record, and we’re on track to exceed last

companies through our international partner

year’s export total of US$2.1 trillion, which support

search program. We also have commercial sections

9.7 million jobs last year.”

in 14 second-tier cities, where we work with the

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insight

intErviEw B y B r yA n v i r A s A M i

Fighting Fake Drugs XINHUA

production of dosage form medicines that are counterfeit. And one thing is clear – counterfeiting is done by criminals. It is a criminal activity, a public health issue, and it is a s e r i ous g l ob a l probl e m t hat ne e ds to b e addressed. Every year there are more counterfeit medicines in the world than the year before and this causes death and injury.” Insight: How is the Commerce Department w o r k i n g w i t h t h e U. S . F o o d a n d D r u g Administration (FDA) to fight counterfeit drugs?

A Chinese police ofﬁcer displays counterfeit drugs

Jeffrey Gren, Director of the Health and Consumer Goods at Commerce, talks about counterfeit drugs and efforts to tackle the problem in China

uring a visit to China earlier this summer, Jeffrey Gren of t he U. S . C om me rc e Department sat down with Insight to discuss government efforts to prevent counterfeit drugs, and the ingredients used to make them, out of the supply chain. Here are excerpts from the interview. Insight: Describe the counter feit medicine problem in China. What are some of the most serious issues today? Jeﬀrey Gren: “The first thing I would say is that counterfeit medicines is a global problem and requires global solutions and global cooperation. But China is clearly one of the places in the world that is a focus both from the standpoint of active pharmaceutical ingredients that end up being used in counterfeit medicines, and the

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JG: “We work very closely with U.S. FDA to coordinate efforts to combat counterfeit drugs globally. I do want to make one distinction – the Department of Commerce International Trade Administration focuses on the international activities related to the counterfeit medicines problem. FDA has a country office in China, and we keep FDA informed of all the work that we’re doing in China.” Ins i g ht : Ne arly 8 0 p e rce nt of the ac t iv e pharmaceutical ingredients(API) used to make drugs in the U.S. comes from China or India. What is being done in China to stop counterfeit drugs from reaching the average person? JG: “It is very true that APIs are being produced predominantly overseas. China is currently the number one global producer of APIs, India number two and Italy is number three. The fact that 80 percent of the ingredients contained in drugs consumed by U.S. citizens are sourced from overseas locations just dramatizes how much of a global problem this is. The API problem in China is complicated because the regulatory scope of China’s State Food and Drug Administration only covers bulk chemical

DISNEY English Linked Pictures Broken

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“

The fact that 80 percent of the ingredients contained in drugs consumed by U.s. citizens are sourced from overseas locations just dramatizes how much of a global problem this is.” – Jeffrey Gren

Jeff Gren, with arms crossed, at an AmCham Shanghai event

products if it is declared for medicinal use. A bulk chemical primarily produced for APIs would not fall under SFDA’s regulatory scope, and the resulting compliance requirements, if it is not properly categorized.” Insight: Can you describe what API is and why so much of it comes from China? JG: “API stands for active pharmaceutical ingredient. Drugs are made from active API and inactive ingredients – called excepients. When the counterfeit medicines problem began, virtually all counterfeit drugs were entirely fake, with no real drug ingredients. Now we are seeing counterfeit medicines that contain APIs – some are real, some are substandard and some are counterfeit. The big question today is why the criminals producing these counterfeit drugs would go through the expense to include real ingredients? With most of these drugs being distributed through the Internet, consumers are

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led to believe the counterfeit medications are real and work the same as the legitimate medications. Therefore, the counterfeit pills need to look the same as the legitimate medications to convince consumers to purchase the counterfeit drug. The criminals producing counterfeit medicines use more expensive ingredients so the user will be a repeat customer. And to me, this is very scary.” Insight: Can you give me an estimate as to how much money U.S. pharmaceutical companies lose because of this problem? JG: “There are a number of figures out there. I have recently seen a study which has the global loss in revenue by pharmaceutical manufacturers is roughly US$200 billion annually, but no one really has a good number on this because we really do not know the extent of counterfeiting that is going on in the world.”

Insight: So how do you track bad medicine and ensure the supply chain. Is that possible? JG: “There is a lot of focus on use of detection technologies. They can be used in several different ways. China is doing an excellent job with its on-the-spot surprise inspections of drug distribution centers and facilities. Having officials take drugs off the shelf and test them for counterfeit APIs can be an effective deterrent to counterfeiting operations.” Insight: There are many Americans in China concerned about counterfeit medicines. Is there a way for the ordinary person to figure out if something is good or not when they go to a Chinese pharmacy?

topic, which is public awareness. And being aware that if you take a medication and you have a funny feeling whether it reacts differently than what you are used to, or you don’t get a reaction, then it might be counterfeit. And I think it’s important for patients and health providers to be aware of it. Clearly there always should be a visual inspection, looking at the product that you’re taking. If it’s different than what you’re used to, if there’s something funny about it, then clearly you should investigate further. But many of the counterfeits are made in a ver y sophisticated manner and you cannot tell visually whether it’s a counterfeit or not. That is why it’s important to stop the problem at the source because relying on public awareness alone is not going to be solve the problem.”

JG: “I think you are addressing a very important

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insight

ConsuMErs By MAry BErgstroM

Inventing a New Normal

Mary Bergstrom

The Shanghaibased author of a consumer book and founder of a consultancy talks about shifting attitudes of young Chinese consumers

ISTOCKPHOTO

ince I began my business in China in 2006, I have witnessed how young people’s enthusiasm for consumption has revealed a new global powerconsumer and provided entire categories with an opportunity to re-invent themselves in a modern context. This appetite for reinvention is not limited to corporations. At its core is a flexibility among Chinese youth to re-imagine the world and their place in it. While writing my book All Eyes East: Lessons from the Front Lines of Marketing to China’s Youth, one thing became very clear: the youth market, a behemoth population of 500 million or so Chinese under 30 years old, was changing more quickly than anyone could track. While brands were discussing aspiration, youth were discussing feeling overwhelmed. A recent online ad for Kraft’s Ritz crackers brand, for example, spoke to these youth in an empathetic and empowering voice. In it, a young girl stands up to her luxury loving peers with a

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simple, proud statement: “I bought it myself.” Her confidence does not stem from being able to afford crackers; it comes from her self-sufficiency and appreciation of ordinary pleasures. Her claim that how she got her prize is even better than her friends’ gifts of a fancy watch or iPhone is in itself a game changer. The spot speaks to a group of people labeled as “diao si,” a humorous term for a failure. Without money or access, they feel disenfranchised and more and more, surprisingly powerful. Chinese youth’s particular circumstances included a mixed bag of global firsts that has made the future difficult to predict. The post-80s (those born between 1980-1989) was unique in being the first generation of only children, born into a world that was opening up before them. Without siblings to share the spotlight or parents who had lived through similar experiences, they went head-first to explore and report back on new ways of living and working. The problem was that appetites and expectation for

consumption were often unattainable. When the post 80s’ younger cousins came of age, the post9 0 s ( b or n b e t we e n 1 9 9 0 - 1 9 9 9 ) w h o h a d witnessed the trials and tribulations of the post80s, questioned the appeal of struggling for limited material gains. In my work, I have tracked how youth have both created and responded to new social cues and married these influences to emerging consumption values. Across many of the storylines, efforts of ordinary people have been overshadowed by “fu er dai,” second generation weath, the second generation of rich Chinese. For the most part, the hierarchy that relegated fu er dai to the top and ever yone else below remained unchallenged – until the notion of diao si became popularized. Like many imp or tant ideas in mo dern Chinese society, the notion took form and spread online. Originated on a Baidu BBS at the beginning of this year, the term was initially u s e d i n a d e r o g a t o r y w a y. I n o n l i n e conversations, diao si were the butt of the joke, the heroes were wealthy and attractive. It was not surprising that the elite were revered and those lacking in wealth and physical appeal were looked down upon; youth had been raised to aspire to move themselves and their families up on the food chain. What was surprising was that as diao si were being ridiculed, many netizens found themselves relating more to the have not’s than the have’s. A comparison of a day in the life of a diao si vs. a wealthy person spread online and helped make the gap concrete and relatable, contrasting the brands that the two types of people would use in their normal lives. The wealthy would begin their day with an iPhone, L’Oreal and Colgate while the diao si would rely on Nokia and the cheap but cheerful local brand Dabao. Whi le t he have’s wou ld dr ive a BMW or Mercedes, the have not’s would take the metro. Comparisons like this gave more than a specific definition of the two groups. They allowed youth to develop a sense of common ground for feeling out of the inner circle and acceptance for being normal.

“ Mary Bergstrom’s book

As youth opened up about feeling more personally aligned to the underdog, they changed the moral of the story. The concept has since morphed from “the other” to “us” and has been adopted by anyone who is not a fu er dai, including those with relatively competitive bank accounts and physiques. The term was applied to a range of media to appeal to an empathetic audience (a German sitcom was renamed Ms. Diao Si, the movie The Struggling Ants was touted as the first diao si movie). For brands acc ustomed to t hinking of Chinese youth as premium-chasing consumers, this represents an important shift. Online jokesters and storytellers have been joined by brands including GM, Kraft and China Joy to create reference points that will continue to morph diao si from loser to winner.

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Without money or access, they feel disenfranchised and more and more, surprisingly powerful”

OBAMA vs ROMNEY A look at the China factor in the presidential campaigns and what that could mean for business

CAMPAIGN PHOTOS

President Barack Obama at a campaign event 26

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C O V E R S TO R Y BY ROBERT KAPP

ROBERT KAPP

Robert Kapp is President of Robert A. Kapp & Associates, Inc., Port Townsend, WA, and he served as President of the US-China Business Council from 1994 to2004. He is Senior China Advisor to K&L Gates LLP and Strategic Advisor to the U.S.-China Specialty Group at BursonMarsteller.

hey’re off and running – or perhaps a better word would be “slinging.” President Barack Obama and Governor Mitt Romney have laced up their gloves and the fight is on to win over the swing states and the few remaining uncommitted voters as Election Day approaches. What will the results of the U.S. national election mean for U.S.-China relations? What will it mean for American trade and economic relations with China and for Americans directly employed in China-focused occupations? First of all, it should be self-evident by now that this national election, especially the presidential campaign, is not going to be “about” China – or even about foreign affairs generally, barring the possibility of a last-minute international crisis. Americans will hear little about U.S.-China relations during the campaign, and they will vote their preferences on other considerations, mainly domestic, some based on “values,” some based on candidate personality and many based on economic concerns. While Romney has issued some harsh criticisms of China, and newly minted vice presidential candidate Paul Ryan has claimed that the President has let China use him like a “doormat,” China will not be a front-andcenter factor in the final weeks of the election campaign. I still hold to an observation I came to many years ago: in U.S. politics, you can ignite a fire about China, but you can’t keep it burning for very long. Second, who gets elected president on November 6 may well matter a whole lot

less than you might think. If the U.S. winds up with more divided government, for example with the White House in the control of one party and the Congress under the control of the other, the chances of bold or decisive policy changes directly focused on China are close to nil. If President Obama wins a second term, or if Mitt Romney wins and the Democrats hold the Senate, we are in for more yardby-yard struggling over practically everything. China issues will not be at the top of the priority list. If China does surface as an issue during the campaign itself, (I could see it popping up during one or more of the televised debates), no candidate is likely to say anything positive about the China relationship. Romney’s few comments so far have been alternately

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US TREASURY PHOTO

Vice President Joe Biden addresses a session at the U.S.-China Strategic & Economic Dialogue in 2011.

pugnacious and dismissive. His “China & East Asia” campaign document stresses military preparedness in the face of growing Chinese power in the region, cooperation with other regional partners and defense of human rights endangered in the PRC. As candidates like to do, Romney occasionally uses China as a foil for his appeal to voters’ national pride. “I know that China is planning on going to the moon, and I hope they have a good experience doing that,” Romney said in August. “I hope they stop in and take a look at our flag that was put there 43 years ago.” The President, on the other hand, will likely stay with his longstanding rhetorical formula on China, noting his demands that the PRC “play by the rules,” and pillorying “outsourcing” or “exporting jobs to China.” His calls over the past four years for America to invest in the future (through education, infrastructure, etc.) have sometimes used the challenge of China as a reason to act, but the campaign to date suggests that he will not be sounding that call very loudly this fall.

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While Obama is likely to avoid the kind of verbal assault on China that his rivals can employ, he has managed to point out he’s not as soft on China as they maintain. Speaking about the WTO complaint the U.S. filed in July over China’s import duties on U.S. cars, Obama used the opportunity to take a shot at Romney’s business background. “Governor Romney’s experience has been in owning companies that were called ‘pioneers’ of outsourcing. That’s not my phrase – ‘pioneers’ of outsourcing. My experience has been in saving the American auto industry,” Obama told a campaign crowd in Maumee, Ohio. The President could point to the sizzling growth of exports to China, from virtually every Congressional District; he pledged in 2010 to double U.S. exports by 2015. But such good news may not seem politically helpful in the midst of this particular campaign. Positions on China Other than Mr. Romney’s early promise to cite China as a currency

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“

The President could point to the sizzling growth of U.S. exports to China, in virtually every Congressional District…”

manipulator on Day One of his presidency, so far we have little of substance on China from the Republican candidate; my sense of that was confirmed in a conversation with one of his economic advisers immediately before preparation of this article. The campaign has published a China & East Asia document (tellingly subtitled “An American Century”). For the rest, the candidate’s policy director, issued a fundraising “memo” entitled “President Obama Has Lost All Credibility On China and Trade.” Its subheads tell the story: “Inviting China to Act with Impunity,” “Supporting and Adopting China’s Unfair, Anti-Competitive Practices,” “Weakening Our Leverage.” “Only with new leadership,” the memo concludes, “and with policies that take China’s cheating seriously and confront it, will American businesses and workers finally get a level playing field on which they can compete and win.” President Obama, if pressed, is likely to stick closely to his insistence that China “play by the rules,” and call for a “level playing field” for American companies and workers, citing numerous trade actions taken against China in the WTO. He might occasionally point to the apparent progress on outstanding economic issues made at high-level U.S.-China Strategic and Economic Dialogue sessions. While it is extremely unlikely that he would acknowledge the much-discussed American military “pivot” to the Asia-Pacific region as a direct response to China’s growing military power, in all probability he would point to the “America is back in the AsiaPacific” theme, forcefully articulated by his Secretary of State, as evidence of his Administration’s robust defense of U.S. interests throughout the region. In sum, the campaign to date has produced little of actionable substance on China. Indirectly, however, the candidates’ inclinations with respect to the structure and future direction of the American economy could augur for somewhat different approaches to China issues in coming years. The resulting differences are more likely to show in areas like tax policy, including approaches to corporate income earned outside the U.S., or in varying approaches to reducing the American national debt and rebalancing the U.S. economy. Here, the consistency of Romney’s and his party’s prescription for

the economy, focused heavily on massive tax reductions, heavy fiscal cuts both in discretionary spending and in entitlement spending (but not in defense outlays), relieving businesses of the burdens of regulation and unleashing the power of the free market as the best means of bringing the greatest possible good to society, bump abruptly against Obama’s insistence that inadequate regulation was what brought the U.S. economy to disaster in 2008---2009, and on his regular emphasis on the primacy of “fairness” in economic policymaking, whether with respect to taxes, entitlement programs or education policies. Who will manage U.S.-China relations after January 20, 2013? For decades, administration after administration has emphasized, especially to China, that “every president since Nixon” (nowadays, that would be seven) have maintained a consistent overall U.S. policy with regard to China. That’s true, perhaps, at a very high level of generality. But over time, as business people in China know well, the landscape has changed, both at the micro level – the “level of the enterprise,” as economists say – and in the broader arena of U.S.-China relations. Looking ahead, how the two countries manage their engagement will depend on real people, individuals who will actually carry out the work of dealing with their counterparts across the Pacific. The question of who will occupy key administration positions in a second Obama term or a first Romney term is worth watching. A handful of cabinet and sub-cabinet officials at State, Treasury, Defense, Commerce and U.S. trade representative will have critical roles in managing the complexities of U.S.-China ties. On the Obama Administration side, the broader looming question will be the depth of the bench. The President’s cabinet has largely stayed the course through four arduous years, but key figures are almost certain

China’s currency is a campaign issue

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to step down in January, including Secretaries Clinton and Geithner. The Obama Administration’s studied re-emphasis on Asia has led to numerous bilateral and multilateral engagements, all of which require skilled managers and interagency coordination. With China alone, the U.S. government now has dozens of bilateral agreements and forums. New faces – some of them newer than Clinton-era veterans – will be needed. But stability and continuity of policy execution will be, too. On the Romney side, the recent appointment of Transition Team leadership, and the campaign’s foreign policy team, reveals a variety of figures from the George W. Bush presidency, some clearly “Neoconservatives” and others from a less rambunctious stratum of Republican talent (John Bolton and Robert Zoellick might be taken as the respective archetypes). The co-chairs of Romney’s Asia-Pacific team are Evan Feigenbaum, an academically trained specialist on Chinese nuclear and foreign policy who served as Deputy Assistant Secretary of State for South and Central Asia under President George W. Bush, and Aaron Friedberg, a Princeton scholar who, in his recent book A Contest for Supremacy: China, America, and the Struggle for Mastery in Asia has written of the inevitability of a struggle for global power between the United States and China. Friedberg served for a time as the principal Asia policy figure in the office of then-Vice President Dick Cheney. Friedberg has published a carefully-timed article in Foreign Affairs, calling for the U.S. to respond to perceived Chinese aggressiveness in the Asia-Pacific region with a heavier military buildup. Business and China Let me wrap up with a few observations on how issues of concern to American business in China will evolve during the next presidency. First of all, we must remember: it takes two to tango in U.S.-China relations. This is not simply a matter of how an American president and a particular U.S. Congress behave. China’s words and

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actions are intrinsically connected to those of the United States. By the luck of the calendar, the U.S. and China are proceeding through the most intense phases of their political processes at exactly the same time. AmCham Shanghai members experience, every day, how China is evolving and ponder what changes loom for China’s political system in 2013 and beyond. Many foreign and Chinese observers have noted the slowing down of the tide of economic and other reforms in the past five years. This year, the drawn-out, mostly hidden process of leadership succession in China has contributed to a widely felt sense of suspended animation. In addition, it is hard to miss the accumulating evidence of what is usually called “nationalism” – economic, commercial or popular – in China, particularly since the economic upheavals of 2008-09, which knocked the “Washington Consensus” off its pedestal in the PRC as elsewhere. In the U.S., on the other hand, there is a palpable and widespread popular sense of uncertainty over the future, of angry nostalgia about what has been lost and resentment against those forces that seem to threaten families’ and communities’ prospects. Though the Chinese and American political systems are vastly different, variants of the old axiom that “foreigners don’t vote” are alive and well in both; taking political potshots at foreign

Mitt Romney on a campaign stop

The candidates and their spouses

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President Barack Obama and First Lady Michelle Obama at a campaign event

“

…In U.S. politics, you can ignite a ﬁre about China, but you can’t keep it burning for very long.”

political labyrinths of both the U.S. and China so as to defend both their individual corporate interests and the stability of the broad Sino-American relationship. Year after year, it fell to the business community to make the case for a stable and mutually respectful U.S.-China relationship. While much has changed in the eight years since I left Washington, American companies and their trade associations still must work to anchor the American engagement with China. If, led by either Barack Obama or Mitt Romney, the United States can work its way out of the political paralysis that has engulfed it since 2009; and if America can somehow manage to embark on serious economic rebalancing while restoring popular confidence in the country’s institutions; and if China’s leaders decide that a productive relationship with the United States must be a cornerstone of long-term Chinese economic and foreign policy, then all of us – not least the American business community – will be better off. Shanghai’s great AmCham will be called on often to speak, to lead and to serve as China and America move ahead.

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CAMPAIGN PHOTOS

competitors or potential adversaries is cheap and may even bring short-term political benefits. In the longer term, however, this kind of posturing carries the seeds of deeper conflict. Chinese listeners struggle to assess the fulminations of Congressmen who routinely and publicly lacerate China and its political system without fear of reprisal; some in China may notice the arrival of an inflammatory new anti-China feature film, in the middle of the U.S. election season, with grave misgiving. Americans view with increasing concern the scathing anti-American remarks of major Chinese newspapers or the outbursts by members of the Chinese military harping on the American threat and the need for greater Chinese military vigor beyond the PRC’s borders. During my 10 years in Washington as president of the USChina Business Council, it was clear that America’s vast business engagement with China placed heavy burdens on American companies – not only the burdens of figuring out how to succeed in the murky Chinese business landscape, but of navigating the

What Do You Think? Two of our intrepid interns took to the streets to gauge what randomly selected Chinese citizens have to say about the U.S. presidential elections. Here’s what they learned.

Question:

What issues do you want the next U.S. President to discuss with the Chinese President?

Alba Sun 18, Xiamen native Work: Student at Singaporean Design College Who will win: Obama “I hope they discuss more about visa issues. I think there are way too little opportunities for Chinese to go abroad. It’s possible that there are special reasons why that is, but I think this is a very important matter.”

Kingsely Wen 29, Shenyang native Job: Electronics store salesman Who will win: Obama “I want America to further support China. I would like the presidents to discuss more about import and export trade policies. Maybe they can also talk about reducing the amount of people losing their jobs.” 32

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Xu Li, 34 native of Hunan Work: Saleswoman at Levi’s Who will win: Obama “They should interfere less with domestic affairs. They should also decrease the amount of little quarrels with smaller countries surrounding China’s borders.”

Liu Ya Yue 63, Shanghai native Work: Owns and operates a newspaper stand Who will win: Romney “I always had hoped for them to discuss ways that all of the world’s countries can peacefully coexist.”

A Chinese View

BY ANNA STANG AND MELISSA KRASSENSTEIN

Li Qu Ping Hangzhou native Work: Unemployed Who will win: Obama Q: What issues do you want the next U.S. President to discuss with the Chinese President? “I hope they talk about harmony. I hope that everyone is peaceful and that the world is one.”

Liang Xue Long 25, Hubei native Work: Salesman Who will win: Mitt Romney Q: Do you think it’s important who wins? “Who wins is not important because right now there are too many problems and it is all too troublesome. It doesn’t really matter who will be in office because there are too many issues at the moment.”

Sonia Shen 19 Profession: Student at UC San Diego Who will win: “Maybe” Romney

Yu Yue Hua 42, North China native Who will win: Obama

Q: Do you think it’s important who wins? “To Chinese people, of course it’s still important. Whoever is the new president could establish new relationships with different countries right? Of course it’s important to us.Very, very important.”

Q: Which candidate do you think will best improve relations with China? “I’m not that familiar with Romney but I will say that I think Obama falls short of the ability to strengthen relations with China and the U.S.”

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Trust & Transparency The retired NBA star shares a passion for both California wine and his Shanghai Sharks

CAMPAIGN PHOTOS

The lack of trust between business and government impairs Americaâ&#x20AC;&#x2122;s recovery, argues a Romney supporter

Mitt Romney

GARY RIESCHEL Gary Rieschel lives in Shanghai. He co-founded Qiming Venture Partners in 2005, a leading venture capital fund of over US$1 billion in assets. He was an executive at Intel, Sequent, Cisco Systems, and Softbank. He holds a BA from Reed College and an MBA from Harvard.

efore this year I never formally engaged with any candidate running for office. We have reached a crisis in the U.S. however, which requires a change in leadership if we are going to establish a solid base for American prosperity in the 21st century. In an early 2012 conversation I had with Governor Romney, it became clear to me that he has a plan to build a foundation for Americaâ&#x20AC;&#x2122;s long term growth and prosperity. His mantra from the beginning of his campaign has been to change U.S. policy from one of inexorable long-term government growth to long term economic growth. Management guru Peter Drucker observed that nearly all the transformative events of the past hundred years were enabled by social transformations linked to business. Business not only drove change through innovation, it enabled the extraordinarily broad-based wealth

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C O V E R S TO R Y BY GARY E. RIESCHEL

creation that provided societies around the world the ability to adapt to expansive social changes in universal suffrage and human rights. Wealth creation precedes the ability to deal with social issues. After eight years in China, I see the same phenomenon. The rising wealth in China is enabling innovation and increasing the confidence of the Chinese citizens to pursue greater freedom of expression. Drucker looked approvingly upon the economic miracle of China because business and economics as the foundation of social stability underpinned Drucker’s life work. China is driving domestic consumption and trying to evolve to a domestic high-value manufacturing base. In this race for invention and innovation, China is running into issues of trust. Trust is what gives a society its capacity to invent and innovate. It requires a long term and transparent policy framework. Entrepreneurs require clear policy and process to hire people, grow their business and invest in future products and technologies. China’s institutions are struggling with this evolution. It is ironic that a lack of trust between business and government now impairs the U.S. recovery. Currently, there are over US$2 trillion dollars on the sidelines of the U.S. economy. The reason is simple – a complete lack of confidence in the current administration’s ability to act as steward of the most innovative economy in the world. As founder of Bain Capital, one of the world’s pre-eminent private equity firms, Governor Romney understands what business needs to again become the driving force behind broad-based U.S. prosperity. Restoring trust between the U.S. private sector and government is Romney’s Job 1. Governor Romney and his campaign have articulated a detailed plan in support of a U.S. and Middle Class Growth Agenda. These points include a renewed focus on energy independence through careful development of domestic energy resources in a public – private partnership. There is acknowledgement that Americans across the board need new skills and improved education to succeed in the 21st century. The U.S. deficit must be reduced in a meaningful and sustainable manner. A Romney administration will also focus on trade policy that works for all Americans and acts as a strong advocate for small businesses as the job creation engines of the U.S. economy. [More details can be found at www.mittromney.com].

The current administration is “kicking the can down the road” and reinforcing structural economic problems for future generations to solve. Romney’s choice of Paul Ryan as his running mate show a commitment to real debate on policy and direction for the U.S. This debate is about not only what we need to do, but also about what we cannot afford to continue to do. My greatest disappointment with the current administration is their collective lack of willingness to set aside political differences to address these problems. Governor Romney believes in “working across the aisle” and demonstrated that commitment as governor of Massachusetts. Romney was widely criticized and attacked by the Democratic legislature. He did not respond in kind, but used his own intellect, charisma, and unwillingness to engage in heavily partisan politics to make substantial changes. Governor Romney worked diligently with Democrats to both erase a $3 billion budget deficit and create a “rainy day fund” without raising taxes. He realized that he could not abdicate the role of leadership in bringing Republicans and Democrats together for the benefit of the state of Massachusetts. This is something that the current administration neither believes in nor is capable of doing. The United States is exceptional. A recurring concern of global political and business leaders alike is that the U.S. has lost the will and ability to be an example of excellence for the rest of the world. We are not just another country, and Governor Romney understands the need for the U.S. to fairly project power and influence in support of

No partisan politics Governor Romney understands the importance of trust and transparency in building our foundation for long term prosperity.

Mitt Romney and his running mate Paul Ryan

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INSIGHT

CAMPAIGN PHOTOS

“

Consistency and engagement with China will be the hallmark of a Romney administration.”

Campaign cupcakes

its values and prosperity. Regarding China, little changed in the transition from the Bush administration to the Obama administration, and consistency and engagement with China will be the hallmark of a Romney administration. China respects U.S. policies and values when clearly and consistently articulated. Many of the issues the U.S. raises with China (IP protection, currency manipulation, human rights) have been constant over many U.S. administrations. Governor Romney’s proven ability to work with diverse groups and viewpoints (in Massachusetts, Salt Lake City Olympics) point to a President that will be engaged and informed regarding U.S.–China relations. Governor Romney will revitalize our education system. The U.S. spends more per capita than any other country in the world on education, with diminishing returns. Governor Romney will demand accountability among all stakeholders in our children’s education. He realizes that excellent education is the prerequisite to building the skills for U.S. prosperity. He experienced the profound impact that technology is having on all businesses and societies. The third industrial revolution is a knowledge revolution fueled by ever advancing and available technologies. The U.S. must continue to lead this revolution – the cost of failure is catastrophic.

Deﬁcient leadership This summer, I heard a great deal of rhetoric about the importance of creating jobs in the U.S. I also heard an unprecedented level of “demonization” of the business community by the current administration. I strongly believe Governor Romney and Paul Ryan understand the leading role that the business community plays in creating jobs, inspiring innovation and ensuring America’s long term prosperity and competitiveness. I do not believe that the current administration intentionally harms the U.S. economy and society. I believe they do not

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SEPTEMBER 2012

understand the structural problems facing the nation. Their erratic policy formulation and implementation demonstrate a deficiency of leadership and real world experience. The U.S. remains the world’s most innovative, flexible and robust economy. However, this dynamism is at risk. Runaway entitlement spending, ineffective “stimulus” that papers over structural inefficiencies and a lack of accountability are creating an environment that prevents the U.S. economy to function at its potential. Romney and Ryan’s economic policies and leadership are a clear path forward. They have a long term view and the experience in synthesizing different points of view into policies that will build a foundation for the long term prosperity of the United States. I hope you will join me in supporting Governor Romney and Congressman Ryan as the next President and Vice President of the U. S. A.

C O V E R S TO R Y

The Choice is Clear

President Obama in Air Force One

An Obama surrogate says the President has done his best in the most ‘difficult circumstances’ DOUG RAYMOND Doug Raymond began his career in the U.S. Army, where he rose to the rank of Captain. After graduating from Harvard Business School, he spent ﬁve years as a product manager at Google. He transferred to Google's Shanghai development center in 2009 to develop products for Asia, and left to found Julu Mobile in 2011.

BY DOUG RAYMOND

or AmCham Shanghai members and the rest of the U.S. expat community in China, there are two key questions we should ask of our candidates in this election. Who can better lead our economic recovery at home? Who is better qualified to promote American interests internationally, particularly with China? I think the choice is clear – I’m voting to re-elect president Obama. My reasons are personal. I come from a military family. My father, brother and I are all veterans, and I trust President Obama to use the military judiciously to protect America. He’s

SEPTEMBER 2012

INSIGHT

“

President Obama has done more than any president since Nixon to strengthen our increasingly important and complex relationship with China.”

working families. For the first time in decades, U.S. manufacturing jobs are on the rise, and U.S. exports are growing twice as fast as the rest of the economy, signaling a return of our competitiveness. President Obama has successfully wound down our mission in Iraq and is in the process of transitioning responsibility to the government of Afghanistan after 10 years of U.S. presence. He’s done so with the strong support of the Pentagon and senior military leaders which was started under then-Defense Secretary Robert Gates, the first

been strong and decisive in committing troops and has done more for veterans returning from war than any president in memory. Since leaving the military, I’ve become a tech executive and entrepreneur. In my new life as a businessman, I also support the President because I think he is doing everything possible to fix the economy, not just for people like me who are lucky enough to own their business, but for all Americans. That’s important to me because the America I joined the Army to protect is one in which everyone has a chance to be successful and participate in the American dream. When President Obama was elected, the unemployment rate was 10 percent and the U.S. economy was shedding jobs at a rate of 700,000 per month. We were in protracted wars in Iraq and Afghanistan, at a cost of thousands of lives and US$3 trillion dollars. Former President Bush had already signed into law the US$700 billion Troubled Asset Relief Program (TARP), but was making little headway in getting stimulus funds disbursed effectively. No president since FDR has faced more difficult circumstances on taking office. President Obama has done much to improve the position of the U.S. since then. He pushed through additional economic stimulus, led the restructuring of the automotive industry and enacted reforms to healthcare and our financial system. Unemployment has dropped to around 8 percent, and the President’s American Recovery and Reinvestment Act has cut taxes for small businesses and most

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SEPTEMBER 2012

Former President Bill Clinton makes a point with President Obama

defense secretary in history to serve presidents of different parties. President Obama deserves credit for using U.S. power decisively and unapologetically, as the raid on Osama Bin Laden and Somali pirates demonstrated. He has also been prudent in the application of force: we have seen regime change in Egypt, Libya and perhaps soon Syria without the commitment of significant U.S. military resources. This has allowed him to spend more time focusing on our relations with Asia, directly benefitting those of us who live here.

Foreign relations As expats in China, AmCham Shanghai members rely on the stability and growth of our relations with China. President Obama has done more than any president since Nixon to strengthen our increasingly important and complex relationship with China. He has pressed China on currency devaluation and taken China to task at the WTO for unfair trade practices, in the case of China’s export restrictions on rare earth minerals, imported American auto parts and electronic payments. The President has initiated higher-level military coordination, and expanded the number of scholarships to Americans interested in studying in China, a program known as the 100,000 Strong Initiative. He has also deftly handled several crises, such as the Bo Xilai’s deputy seeking refuge in the U.S. Consulate in Chengdu, and the escape of Chen Guangcheng, the human rights lawyer, from house arrest to a research position in the U.S. He has also strengthened our relations with other countries in Asia. For example, after years of prodding, Myanmar’s military government has released human rights activist Aung San Suu Kyi and has begun to relax its tight grip on the country, and Australia has announced an agreement to base U.S. naval forces at a facility in Western Australia. While President Obama has done a great job under trying circumstances and with an obstructionist Congress, the GOP alternative in this election offers little to be excited about. Mitt Romney has argued that his experience as a financier gives him the experience needed to grow the U.S. economy. However, I think most business people agree that the primary driver of job creation is competitiveness, not financial engineering. Many of Romney’s actual economic policy proposals, including those inspired by recent Veep pick Paul Ryan, are similar to those President Obama has already proposed or enacted. His key difference is his opposition to regulation – the kind of regulation that Congress enacted to prevent future shenanigans like Bernie Madoff, the subprime mortgage catastrophe and the bankruptcy of Lehman Brothers. This position is hypocritical – since regulation is

the primary tool for government to correct the excesses of the past, Romney is simultaneously criticizing the President for doing too much and too little.

No conviction When it comes to foreign policy, Romney has displayed a disturbing flexibility of opinion. He initially declared Russia to be U.S. enemy No. 1, a designation lasted only a few months, when he gave Iran the distinction while in the company of a group of wealthy donors in Israel. His advisors feature several of the neocons who engineered the invasion of Iraq. For example, two of the officials behind the Romney foreign policy platform are John Bolton, the cantankerous ambassador to the U.N. under George W. Bush and Robert Joseph, the National Security Council official who claimed that Iraq had tried to buy enriched uranium from Niger. As a former Army officer, I think we should avoid putting ideologues in power who have pursued war based on ideology over the evidence of facts. Romney’s flexibility of opinion indicates that his views are driven by politics not by conviction, and I think we should be concerned about who he is listening to behind the scenes. The election of 2012 is simple. It is unfortunately a time of intense polarization in American politics, often about issues that are more ideological than substantive. However, as expats thousands of miles away from partisan politics at home, the important issues are easier to identify. Who is better able to chart America’s path in the world? Who will lead us to greater prosperity? Who will best help our children to succeed in a more and more globalized world? And most importantly, who do you trust? As an Army veteran and businessman, I trust President Obama, and I ask you to join me in voting to re-elect him on November 6.

SEPTEMBER 2012

INSIGHT

In Their Own Words Here are some noteworthy quotes from various personalities in the United States

Mitt Romney Wall Street Journal op-ed, Feb. 16, 2012 “Unless China changes its ways, on day one of my presidency I will designate it a currency manipulator and take appropriate counteraction. A trade war with China is the last thing I want, but I cannot tolerate our current trade surrender.”

Vice Presidential Candidate Paul Ryan at Ohio campaign stop ABC News, Aug. 17, 2012 “They (China) steal our intellectual property rights. They block access to their markets.They manipulate their currency. President Obama promised he would stop these practices. He said he’d go to the mat with China. Instead, they’re treating him like a doormat.”

NPR July 26, 2012

President Barack Obama Campaign remarks, Oakland, CA, July 24, 2012

“Romney says he would label China a ‘currency manipulator’” on his first day in office — though it’s not clear he could make that official declaration on his first day, since it would need to come from the Treasury Department. And even then, the label would not necessarily carry dramatic consequences.”

“I want to invest in advanced manufacturing, hightech manufacturing jobs. I want to make sure they don’t take root in China and Germany, I want to make sure they take root right here in Oakland – and Cleveland, and Raleigh, and Richmond.”

Jimmy Fallon, Talk show host/comedian NBCUniversal, July 18, 2012 “Get this. It turns out that when Mitt Romney was in charge of the Salt Lake City Olympics, some of the uniforms were made in Burma.That’s ridiculous – you don’t make American uniforms in Burma.You make them in China.”

Vice President Joe Biden on Romney’s tenure at Bain Capital AP, June 26, 2012

“You’ve got to give Mitt Romney credit. He’s a job creator - in Singapore, China, India. He’s very good at creating jobs. Overseas.”

Cast Your Vote From Abroad The U.S. Consulate Shanghai wants to remind all U.S. Citizens living in Zhejiang, Jiangsu, Anhui and Shanghai about the upcoming General Election.

Here’s a statement from the Consulate: Have a say in our country’s future. One of our most treasured values is the right and the privilege to vote – to participate actively in our country’s democratic process.This November, U.S. citizens will elect a President, a Vice President, one-third of the Senate and the entire House of Representatives.The U.S. Consulate in Shanghai encourages all U.S. citizens to participate in this year’s elections, and stands ready to help you vote. Almost all overseas U.S. citizens can vote.Twenty-two states and the District of Columbia now allow adult children who have never resided in the United States to vote using their parents’ state of voting residence. Details are available on the FVAP website at http:// www.fvap.gov/reference/nvr-res.html. Register and request a ballot.To vote, new laws require you to complete and submit a Federal Post Card Application (FPCA) this calendar year.The FPCA allows you to register to vote and request an absentee ballot.The easiest way to complete it is online at www. FVAP.gov. Depending on your State’s rules, you then send it to your local election officials electronically or by mail.

Mail it Print out the completed FPCA and the (U.S.) postage-paid envelope containing the address of your local election officials.You can drop off the postage-paid envelope (containing your FPCA) at the Consulate and we will mail it back home for you without the need to pay international postage. If it’s easier for you to use China’s postal system, be sure to affix sufficient international postage and allow sufficient time for international mail delivery. Follow your State’s absentee voting procedures carefully. Send in your FPCA before the registration deadline. When you get your ballot, vote and mail it promptly so it reaches local election officials by your State’s absentee ballot receipt deadline. Questions? If you have any questions about registering to vote, please contact the Consulate’s American Citizen Services Section using the contact us page at http://shanghai.usembassy-china.org.cn/services/contact-us.html.

Presidential Debates The Commission on Presidential Debates has released the following schedule. First presidential debate: Wednesday, October 3 University of Denver, Denver, CO Vice presidential debate: Thursday, October 11 Centre College, Danville, KY Second presidential debate (town meeting format): Tuesday, October 16 Hofstra University, Hempstead, NY Third presidential debate: Monday, October 22 Lynn University, Boca Raton, FL For further information, visit CPD’s website at http://www.debates.org.

inside amcham from the chair

Tough Talk on China

he selection of vice presidential nominees and holding of party conventions are just two signs that the U.S. presidential election is moving into high gear. An equally telling barometer of Election Day’s proximity is the level of rhetoric on China. If there were a China-tough-talk-o-meter that measured the volume of such campaign talk, I suspect we would discover a direct relationship between the countdown to November 6 and the tone of what candidates – especially presidential and congressional – are saying about U.S.-China relations. Of course, no such device exists, but I believe Insight readers know what I’m talking about. It is easy to dismiss campaign rhetoric as just that – political statements designed to stir emotions, demonstrate toughness and win votes rather than present a balanced and informed view of U.S.-China relations. Indeed, there is ample evidence that what presidential candidates say on the campaign trail bears little resemblance to what a new president does once in the Oval Office. Presidents Bill Clinton and George W. Bush are excellent examples of this phenomenon in practice. Both presidents were sharply critical of China as they vied for office but quickly changed their tune and pursued a China policy virtually indistinguishable from their predecessor. Given all that is at stake in the U.S.-China relationship, we can only hope that history once again repeats itself. While I am confident that our next president will pursue an intelligent policy toward China, by which I mean a policy that engages China in a cooperative way that advances U.S. national interests, the China

Kenneth Jarrett Chair of the Board of Governors

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SEPTEMBER 2012

bashing of the campaign trail does cause collateral damage. For example, one of the core challenges in the bilateral relationship is the ambivalence and suspicion felt by a significant percentage of the general public in both countries. In the United States, several recent surveys underscore the depth of this problem. Polls by Gallup, PEW and ABCNews/Washington Post reveal that significant numbers of Americans – 56 percent in the Gallup survey – have an unfavorable view of China. Moreover, all three polls show that the unfavorable ratings have increased notably – 12 percent in the Gallup poll and 10 percent in the ABC poll – since 2011. Polling data on the attitudes of Chinese citizens toward the United States is not as comprehensive, but the available numbers reflect a similar problem – many Chinese have an unfavorable view of the United States. Alas, our election campaign will only exacerbate this problem. This is the backdrop for the Chamber’s Washington, D.C. Doorknock, which takes place September 19-21. Although the election season presents special challenges for this year’s trip, the need for politicians, administration officials and the media to hear an informed view from American companies active in China is greater than ever. We have an excellent delegation lined up for the Doorknock and there should be keen interest in what we have to say, not just about U.S.-China commercial ties, but also about Chamber initiatives like the SME Center and our expanding footprint in the Yangtze River Delta. I look forward to reporting back to members on the results of the coming Doorknock in my next column.

inside amcham

The AmCham Shanghai 2012 Board of Governors Governors

Chair

Andrew Au Citibank China

Eddy Chan FedEx Express

Chen Lienjing Pratt & Whitney

Ted Hornbein Richco

Marie Kissel Baxter Asia-Pacific

Daniel M. Krassenstein Procon Pacific

James Rice CSM nv China

Peter Sykes Dow Chemical

Eric Zheng Chartis Insurance

Kenneth Jarrett APCO Worldwide

Vice Chair

Robert Theleen ChinaVest

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                       

i m P o rt s B Y m at t h e W g a r n e r

Getting a Handle on Customs

AmCham Shanghai’s 2012 Customs Survey highlights concerns among U.S. companies operating in China

he Chamber recently published its 2012 AmCham Shanghai Trade Environment Satisfaction Report, a report that serves as a mechanism for American businesses in Shanghai to identify and point out important concerns about clearance policies, inspection and foreign exchange (forex) and other issues related to Shanghai Customs. This year’s report showed that the big clearance-related items were valuation, tariﬀ classification and import permits. AmCham Shanghai Customs Taskforce hosted Huang Shengqiang, Director General of Shanghai Customs, at a June event to mark the official release of the survey. Damon Paling, Customs and International Trade Partner at PwC, presented the results of the study. This year’s study first looked at seven major regulatory changes implemented from 2009 to 2011. Paling said a third of regulations were positive based on responses to the survey in Shanghai. However, not everyone was clear about everything. “About half of the respondents did not know about the seven new regulations or their potential effect on company operations, which calls for continued collaboration with Shanghai Customs,” Paling said. The survey also looked at free trade zones in Shanghai. Among the different types, the public bonded warehouse is still one of the most important because with licensing, it can be located anywhere. “This is more flexible for the supply chain,” said Paling. In terms of clearance issues, tariff classification, valuation and customs permits once again presented the greatest challenge. The taskforce recommends more education regarding

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tariﬀ classification, valuation and import permits for activities with Shanghai Customs in 2012. In addition, businesses would also benefit from continued education relating to preferential policies for companies establishing headquarters in Shanghai. In its past four incarnations, the focus of the survey was on customs issues. This year, the scope was expanded to address additional areas of concern like quarantine & inspection (CIQ) and foreign exchange policies. Thus, this year’s report was titled the “Trade Environment Satisfaction Su r ve y,” i n c ont r a st to t h e “Customs Satisfaction Survey” in years past. The big ticket items for CIQ were importation of used equipment and clearance procedures. China has strict limits on the import of used machinery. In regards to foreignexchange issues, the top three items of concern were deferred payment of foreign exchange, deferred collection of forex and advance payment of forex. At the same event, Huang addressed the gathering and pointed out that Shanghai is the busiest port in China. It handles 25 percent of the goods coming in and out of China and has 6 percent of the workforce. He also noted that they’re always looking to find ways to maintain capacity and strengthen clearance supervision. “The Customs taskforce has helped Shanghai Customs to understand the real challenges of foreign companies,” he said. Huang outlined some items companies trading through Shanghai port should know. Of particular note were various efforts by Shanghai Customs to facilitate trade through Shanghai ports: • Paperless customs. This means advanced

clearance for AA-rated companies development: and online payment of duties. • Establishing bilateral Currently, 85 percent of duties are communication through various now paid online. This is being channels like trade associations rolled out in the rest of the Yangtze and enterprises to collect River Delta (YRD). feedback. • Clearance processing is • Exploring setting up a available 24 hours a day, 365 days a contact point for large companies year. with regional headquarters in • Signing Memorandums of Shanghai within Shanghai Huang Shengqiang Un d e r s t an d i ng w it h ot h e r Customs. departments related to trade like • Developing a coordination CIQ, Maritime Bureau, Shanghai center for companies to discuss Airport Group and Maritime International Port emergencies encountered during the clearance Group. process. Also available are the 12360 service Customs is also working on processing trade hotline and Shanghai Customs website at: oversight reform. As China tries to boost import http://shanghai.customs.gov.cn. volume, Customs is also trying to simplify the The full Trade Environment Satisfaction Report, procedures for processed goods sold domestically along with the four previous Customs Surveys, as well as for export. is available at http://www.amcham-shanghai. Hu a n g a l s o p o i n t e d o u t t h r e e m a j o r org and by clicking on publications. communication mechanisms now in

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The best thing for companies to do when encountering customs issues is to contact Shanghai Customs.” – Huang Shengqiang

deaL of the month B Y a n n a s ta n g

DreamWorks to Produce Kung Fu Panda 3 in Shanghai XINHUA

Kung Fu Panda 2 premiere

reamWorks Animation announced that the third installment of the Kung Fu Panda series, which has enjoyed widespread success in the Chinese market, will be co-produced in Shanghai and have an expected release date of 2015-2016. The co-production, by a new joint venture named Shanghai Oriental DreamWorld Film & Technology Co., allows DreamWorks to circumvent China’s foreign film quota system, which limits the number of foreign films allowed in the country. DreamWorks will also be allowed to collect 50 percent of ticket sales, compared to the normal 25 percent cut of foreign films released in China. DreamWorks also announced plans to build a US$3.1 billion entertainment complex and theme park through the joint venture in Shanghai’s Xuhui district. The Dream Center, modeled after London’s West End, would span six city blocks and include tourist attractions, commercial space and restaurants. The park will support what will be the largest IMAX theatre in the world. DreamWorks previously announced that it will work with its Chinese partners, Shanghai Media Group and Shanghai Alliance Investment Ltd., to construct a US$350 million animation movie studio in Shanghai, which will be housed at

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the Dream Center. These ambitious plans come at a time when DreamWorks has been running into distribution problems in the U.S., as its deal with Viacom Inc.’s Paramount Pictures comes to a close. Expanding into the Chinese market is one way to combat a possible decrease in movie sales. DreamWorks hopes the new animation studio will build a film base in China and act as a launch point to other markets. Oriental DreamWorks Studio expects to release one to three major films each year and employ as many as 2,000. The Chinese government is supporting the Dream Center theme park and animation studio project in hopes that it would spur economic growth through domestic spending instead of exports and large community projects. The government anticipates the project will aid in the development of the Chinese media and cultural industries, as well as the creation of a new nationwide tourist attraction for China’s growing middle class. The DreamWork’s entertainment district is set to be completed in 2016, the same time that the upcoming Disneyland theme park will orchestrate its own grand opening in Shanghai.

GOVERNMENT RELATIONS Nebraska Governor, Delegation Visit Shanghai Nebraska Governor Dave Heineman met AmCham Shanghai members and discussed Nebraska’s regional efforts in Asia, especially China. Highlights of the trade mission and new partnerships between Nebraska and China included the establishment of a sister state relationship with Shaanxi province, plans to construct a Cornhusker Alumnae Association in China and open a state office in Shanghai. Governor Heineman’s 30-member delegation consisted of manufacturing firms focused on assembly of machines and sporting goods, musical instruments, industrial rubber products, security products, biomaterials, irrigation, landscape equipment and food, as well as companies that are involved in legal and consulting services, medical R&D and logistics. Shanghai was the delegation’s final stop following Beijing and Xi’an.

Gov. Heineman walks with (from left) Robert Theleen, Brenda Foster and Kenneth Jarrett

China is Nebraska’s fourth largest trading partner, and Nebraska exports to China have more than doubled in the past ﬁve years. In 2011, Nebraska’s combined exports to China totaled more than US$380 million, an increase of 36 percent from the previous year. (Aug. 3)

AmCham Shanghai President Meets Anhui Ofﬁcials AmCham Shanghai President Brenda Foster delivered remarks at the Economic Cooperation Symposium of Anhui Province and Multinational Corporations in Shanghai to over 500 Chinese and foreign government and businesses representatives. The symposium focused on investment opportunities in Anhui. Foster expressed interest in developing closer cooperation with Anhui and highlighted AmCham Shanghai's relations with provinces and cities in the Yangtze River Delta (YRD) region, including the launching of the Chamber's YRD Center and SME Center. Foster separately met with Anhui Vice Governor Hua Jianhui and her delegation to discuss future collaboration Brenda Foster, GR Director Steven Chan and Andrew Au between Anhui and AmCham Shanghai. AmCham met with Anhui’s leadership Shanghai Government Relations Director Steven Chan also met with representatives of Anhui's Bureau of Commerce and Huang Shan Economic Development Zone to explore promotional opportunities for Anhui to Chamber members. Anhui province has a population of 68 million and reserves of 38 different natural resources, ranking it in the nation's top 10 mineral extractors, and is one of the country's major coal, copper and iron producers. (July 31)

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Committee Highlights

inside amcham

AmCham Shanghai Welcomes New VP of Programs and Services Scott Williams, a native of Portland, Oregon who has held various senior management positions in China and Japan for over 23 years, recently joined AmCham Shanghai as vice president of programs and services. Williams was selected after a long search. His main responsibilities include promoting the Chamber’s mission and services to ensure steady membership growth and retention. Williams will oversee Committees, Events, Business Development & Marketing, and Membership. He will focus on achieving a healthy growth in membership, increased participation and promotion of AmCham Shanghai’s Committees and further development of quality member services on behalf of member companies.

Scott Williams

Williams said he is looking forward to serving the AmCham Shanghai members and continue to expand the member base.

“Shanghai is a very dynamic city with a lot of business opportunities on the horizon. We want to promote U.S. business, U.S.-China business trade and extend services to members so that they can take full advantage of their opportunities. We are here to help them be successful in the market,” he said. Shortly before he joined AmCham Shanghai, Williams was the Beijing-based head of outbound logistics and transportation for the greater China area at Nokia Mobile Phones. He also held senior-level management roles at FedEx and DHL Express. Previously, he served on the executive board at AmCham in Taiwan for two years and served as a vice president. He can be reached at: scott.williams@amcham-shanghai.org.

AmCham Shanghai to Lead Delegation to Washington, D.C. AmCham Shanghai will lead a delegation of members to Washington, D.C. from September 18-21. The 2012 AmCham Shanghai Washington, D.C. Doorknock delegation will meet with members of the Obama Administration, Congress and other key decision-makers to talk about the most important issues impacting the American business community in China. The delegation’s goal on this trip is to work with U.S. policymakers to ensure the competitiveness of U.S. companies in China which, given the state of the global economy, is more important than ever to U.S. businesses looking to expand export markets and make sales abroad. China also presents an unprecedented opportunity for American small to medium sized enterprises (SMEs) to develop new export markets and increase sales. The unique opportunity and challenges for SMEs in China will be a focus of the trip.

Last year’s delegates met with Washington’s leaders

AmCham Shanghai will meet with U.S. government officials to urge them to vigorously engage China on legal and regulatory issues, such as market access and ownership restrictions, that negatively impact the competitiveness of US companies in China. The AmCham Shanghai delegation includes representatives from Fortune 500 companies, SMEs and entrepreneurs. the 2012 amcham shanghai delegation: Ken Jarrett, Chairman, Greater China, APCO Consulting; Brenda Foster, President, AmCham Shanghai; Phil Branham, President, B&L Group; Ted Dean, Chairman, AmCham China; Jay Hoenig, CEO Asia Pacific, Hill & Associates; Shenghua Hu, Executive Vice President, Head of Markets, Citibank (China); Ben Kinnas, Senior Vice President, General Manager, Wells Fargo; Marie Kissel, Vice President, Gov. Affairs & Public Policy, AsiaPacific, Baxter; James Rice, CEO, CSM Foods (Shanghai); Robert Smith, Partner, Ernst & Young; Peter Sykes, President, Greater China, Dow Chemical; Steven Tseng, Partner, PwC; Ben Wang, Chairman, AmCham Southwest China; Tom Ward, President, PIM Ltd.; David Basmajian, Director of Communication & Publications, AmCham Shanghai and Steven Chan, Director of Government Relations, AmCham Shanghai.

Reporting by Ryan Balis, Matt Garner, Anna Stang, Miles Vaughn and Esther Young

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AmCham Shanghai In Pictures

Nebraska Gov. Dave Heineman greets Vice Chair Robert Theleen

Deepak Chopra with AmCham Shanghai President Brenda Foster

Chopra signing autographs

Women in Business mixer

AmCham Shanghai President Brenda Foster poses with Anhui Vice Governer Hua Jianhui

HR event

CSR forum participants